Could DermTech be a millionaire share?

DermTech (NASDAQ: DMTK) has the potential to be a truly disruptive genomics venture that could completely change dermatology. And investors love the action – DermTech shares have risen over 400% in the past year.

Skin cancer is the most common form of cancer, affecting one in five Americans by the age of 70, according to the Skin Cancer Foundation. The most common forms of skin cancer are basil cell carcinoma and squamous cell carcinoma, but the deadliest is melanoma, according to a report from the American Cancer Society, which estimated that in over 100,000 people diagnosed with melanoma in the United States in 2020, 6,850 of them died from the disease. DermTech is looking to reduce these numbers. If successful, it could reward shareholders in the process.

Image source: Getty Images.

What gives DermTech an advantage

The problem with detecting skin cancer is that it is usually done on sight. Dermatologists look for telltale signs and pigmented spots on your skin, such as discoloration, bleeding, or an irregular shape. This is usually done with the naked eye or using a dermascope, a type of magnifying glass with a light source. If your dermatologist sees something he doesn’t like, the next step is to numb the skin and then take a small sample of the skin for a biopsy. This skin is then examined under a microscope.

DermTech’s approach is less invasive. The company has developed quarter size adhesive patches that can be applied to a threatening skin lesion. Once peeled off, they contain skin layers containing ribonucleic acid (RNA) that can be analyzed within 72 hours.

In addition to convenience, the company has produced studies showing that its genome-based test, called the pigmented lesion test (PLA), is more accurate than typical biopsies, meaning fewer unnecessary surgeries, better early detection. skin cancer and reduced costs for patients and doctors.

The company said its TRUST study, published in December, showed the company’s PLA to be 99% accurate in showing when lesions were do not associated with melanoma, dramatically reducing the need for surgeries.

Another study, published in January in SKIN, the Journal of Cutaneous Medicine, found that the company’s PLA, which tests for high expression levels of two genes correlated with melanoma, LINC00518 and PRAME, was nearly five times more likely to detect melanoma than the methods traditional visuals alone.

DermTech’s finances improve

The company was founded just two years ago and is not yet making a profit, but it grew up. DermTech said its billable sample volume was 24,000 in 2020, a 75% increase from 2019. Its reported revenue for the year was $ 5.9 million, another 75% increase from one year to the next. This growth was even more impressive given that dermatologist visits were often postponed last year due to concerns over COVID-19.

And the company’s fourth-quarter numbers show that headwind could ease: the company reported fourth-quarter revenue of $ 1.6 million, a 214% year-over-year gain, and a gain of 27% sequentially.

The company posted a net loss of $ 35.2 million in 2020, compared to a net loss of $ 19.7 million in 2019. It was also concerning that the company, citing COVID-19, refused to realize many forecast for 2021, although she said she expects it. between $ 1.6 million and $ 1.9 million in analytics revenue this year alone.

What’s next for DermTech?

There are several reasons to be excited about the company’s prospects this year. Last January, Medicare agreed to cover the company’s test, paving a big way for billing. Other insurers quickly followed, including Blue Cross and Blue Shield of Texas, Blue Cross and Blue Shield of Illinois, Blue Shield of California, and Geisinger Health System.

A study published in Dermatologist Magazine said DermTech’s PLA patch was 91% to 97% accurate in detecting melanoma and 99% accurate in ruling out lesions that were not melanomas, adding that the test could reduce the need. of surgical biopsies by dermatologists in 90%. This year, the company’s testing received another boost when the National Comprehensive Cancer Network, a nonprofit alliance of 30 leading cancer centers, recommended DermTech’s PLA.

The company is also working on a home collection kit that would involve telemedicine companies. A clinician would order a test, and a doctor or nurse would provide advice to make sure the appropriate skin lesion was checked. The patient would then return the sample to DermTech.

The company said it sees other applications for its PLA stickers, such as detecting levels of cytokines (proteins that regulate cell function) associated with certain inflammatory conditions, such as psoriasis, atopic dermatitis and lupus. .

DMTK Revenue Graph (TTM)

DMTK Income (TTM) given by YCharts

Look for the tipping point

DermTech’s PLA test is still very new, but I can see its activity picking up steam as more insurers approve the test and more dermatologists embrace it. The company’s test is patented and currently faces no similar competition.

This process is already making millions for DermTech, and as the business grows early investors might find the stock to be a millionaire for them as well as. As with everything growth stocks, this choice carries a risk, but I think DermTech has too much potential to be ignored.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Roberto Frank

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