DermTech Inc

Invention:	Melanoma detection sticker
Trademark:	SmartSticker™
Patents:	12
NASDAQ:	DMTK

The invention

SmartSticker is a melanoma diagnostic platform. It is an alternative to visual assessment and biopsy, and is the first non-invasive genomic test for dermatology.
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​The sticker employs the company's DermTech Melanoma Test (DMT) technology. DMT is a platform technology for non-invasive genomic testing of the skin, which enables the molecular analysis of samples collected from adhesive patches. The Negative Predictive Value (NPV) of the DMT, even without the add-on test for TERT, is supported by a 12-month follow-up study of 734 patients, which demonstrated that no melanomas were missed in the 12-month period following initial testing​​.

​After the DermTech Melanoma Test (DMT) is performed using the Smart Sticker to collect a skin sample, the process for analysis and receiving results is streamlined and efficient:

1. Shipping to DermTech's Lab: Once the skin sample is collected using the Smart Sticker, it is shipped to DermTech's laboratory for analysis. The kit includes a pre-addressed and prepaid return shipping pack, making it easy for the sample to be sent back to the company's laboratory without any additional cost or inconvenience to the clinician or patient​​.
2. Analysis at DermTech's Lab: Upon receiving the sample, DermTech's laboratory, which is CLIA-certified and CAP-accredited, performs the genomic analysis. The analysis focuses on detecting the presence of specific genomic markers associated with melanoma, utilizing DermTech's proprietary technology and processes​​.
3. Receiving Results: The results of the DMT are typically reported back to the ordering physician within 5 business days from the receipt of the sample in the laboratory. This quick turnaround time ensures that clinicians can make timely and informed decisions regarding the next steps in patient care based on the test results

Performance advantage
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​The DermTech Melanoma Test (DMT) technology presents several advantages over existing approaches like visual assessment and biopsy for the evaluation of pigmented skin lesions suspected of melanoma:

1. Non-Invasive: Unlike traditional biopsies that require cutting into the skin, DMT uses a non-invasive adhesive patch (Smart Sticker) to collect skin cells from the surface. This method significantly reduces patient discomfort, eliminates scarring, and lowers the risk of infection.
2. High Negative Predictive Value (NPV): DMT demonstrates a very high NPV of greater than 99%, with sensitivities ranging from 91% to 97%. This means it has a very low probability of missing melanoma, ensuring that negative test results are highly reliable in ruling out melanoma​​. In other words, the DMT improves the assessment of pigmented lesions by reducing the probability of missing melanoma to less than 1.0% (versus approximately 11-17% with surgical biopsies, the existing standard of care).
3. Reduction in Unnecessary Biopsies: The technology reduces the need for surgical biopsies to diagnose melanoma by five to tenfold compared to the current standard of care, lowering from about 25:1 to about 2.5-5.0:1. This reduction translates to fewer unnecessary procedures, which can be physically and emotionally taxing for patients, and also represents potential cost savings for the healthcare system​​.
4. Improved Positive Predictive Value (PPV): The DMT enhances the PPV approximately five-fold, from 3-4% with current surgical techniques to 18.7% with DMT (without TERT assay). This improvement indicates a higher likelihood that positive test results truly indicate the presence of melanoma, leading to more accurate and timely diagnoses

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Pricing

The DermTech Melanoma Test (DMT), including the use of the Smart Sticker for sample collection, is priced at $760. This pricing is set as part of the Centers for Medicare and Medicaid Services (CMS) Clinical Laboratory Fee Schedule for 2020 and has been confirmed for subsequent years​​.
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Comparatively, the cost to fully adjudicate a pigmented lesion suspicious for melanoma using traditional methods—such as visual assessment followed by surgical biopsy and histopathological analysis—ranges from $1,196 to $1,396 in the United States. These costs encompass the entire process, including the surgical procedure, pathology services, and any related follow-up care required due to the invasiveness of the biopsy.

Cost advantage

​The cost advantage of the Smart Sticker and DermTech Melanoma Test (DMT) approach over traditional methods for melanoma detection, such as visual assessment and biopsy, is significant:

1. Reduction in Unnecessary Biopsies: The DMT approach significantly reduces the number of unnecessary biopsies. Traditional methods require approximately 25 surgical biopsies to diagnose one melanoma, while the DMT reduces this to about 2.5-5.0:1. This reduction not only minimizes patient discomfort and scarring but also represents potential cost savings by decreasing the number of surgical procedures performed​​.
2. ​Healthcare System Savings: By minimizing the need for surgical biopsies and improving the diagnostic accuracy for melanoma, the DMT approach can lead to significant healthcare system savings. The potential cost savings are estimated to be greater than $650 million per year if the DMT became the standard of care in the United States, based on approximately 4 million surgical biopsies performed annually to rule out melanoma​​.

The cost advantage of the Smart Sticker and DMT approach lies in its ability to reduce the number of unnecessary surgical procedures, offer a lower cost per lesion tested, and potentially save the healthcare system hundreds of millions of dollars annually. These factors contribute to making the DMT a more economically viable and patient-friendly option for melanoma detection.

Switching costs

Switching to the DermTech Melanoma Test (DMT) and Smart Sticker approach from traditional methods involves minimal to no switching costs for clinicians, especially in terms of capital equipment:

1. No Capital Equipment Required: Unlike other diagnostic technologies that may require the purchase and maintenance of expensive capital equipment, the DMT and Smart Sticker approach does not require any such investment. The Smart Sticker is a simple, non-invasive adhesive patch used for collecting skin cell samples, and the analysis is conducted in DermTech's laboratory. This eliminates the need for clinicians to invest in any additional equipment to use the DMT​​.
2. Ease of Use and Integration into Clinical Practice: The Smart Sticker and DMT are designed for easy integration into a clinician's current practice without significant changes to workflow or procedures. The sample collection process is quick and straightforward, typically taking less than five minutes, and can be easily performed during a standard patient visit. The simplicity of the process and the absence of required capital investment make the switch to DMT and Smart Sticker not only cost-effective but also convenient for clinicians​​.
3. No Additional Training Costs: Since the DMT and Smart Sticker method is straightforward and non-invasive, it requires minimal additional training for clinicians or their staff. This further reduces any potential switching costs associated with adopting this new approach for melanoma detection.

​Overall, the switch to DermTech's DMT and Smart Sticker approach offers a cost-effective, simple, and convenient alternative to traditional biopsy methods, without the need for significant upfront investments in capital equipment or extensive training.

Incumbents

​The DermTech Melanoma Test (DMT) and Smart Sticker technology aim to replace or significantly improve upon several existing approaches to melanoma detection, which include:

1. Visual Assessment and Dermoscopy: The first line of melanoma detection often involves a visual examination of the skin by a clinician, using the naked eye or a dermatoscope. Dermoscopy allows for a more detailed examination of skin lesions by magnifying the lesion and using polarized light to see structures not visible to the naked eye. While useful, these methods rely heavily on the clinician's experience and can be subjective, with varying degrees of accuracy.
2. Surgical Biopsy and Histopathology: If a lesion appears suspicious during a visual assessment, the current standard of care typically involves performing a surgical biopsy. This procedure involves excising a part or all of the suspicious lesion, which is then examined under a microscope by a pathologist to look for cancer cells. While effective, surgical biopsies are invasive, can cause discomfort and scarring, and carry a risk of infection. Additionally, the interpretation of biopsy samples can be challenging, with a potential for variability in diagnostic accuracy among pathologists.
3. Sequential Digital Dermoscopy Imaging (SDDI): This method involves taking digital images of moles over time to monitor changes. While SDDI can be useful for tracking the evolution of moles in high-risk patients, it requires multiple visits, specialized equipment, and considerable expertise to interpret changes accurately.
4. Confocal Microscopy: This non-invasive imaging technique allows for the in vivo examination of skin lesions at a cellular level. While it can provide detailed images that help differentiate between benign and malignant lesions, confocal microscopy is expensive, requires specialized training to interpret the images correctly, and is not widely available in all clinical settings.
5. Computer Algorithms and Artificial Intelligence (AI): Recent advances have seen the development of computer algorithms and AI to analyze images of skin lesions and assist in diagnosing melanoma. While promising, these technologies are still in the development phase and are not yet widely adopted in clinical practice. Their effectiveness as standalone diagnostic tools without biopsy confirmation is also still under investigation.

Regulatory status

DermTech's technology falls under the category of laboratory-developed tests (LDTs), which are a type of in vitro diagnostic test that is designed, manufactured, and used within a single laboratory. LDTs, including the DMT, are regulated under the Clinical Laboratory Improvement Amendments (CLIA) rather than the FDA, provided the tests are developed and performed by CLIA-certified laboratories. ​DermTech's laboratory is CLIA-certified and CAP-accredited, allowing it to offer the DMT and Smart Sticker for clinical use without FDA approval

Intellectual property

The company has 12 issued or allowed United States patents, one of which is broadly directed to the use of an adhesive tape to collect skin samples for analysis of nucleic acids. In addition, the company been awarded patents on unique gene expression profiles and linked to melanoma, two of which will not expire until 2029, and a third will not expire until 2030
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Addressable market

The total annual United States market opportunity for the DermTech Melanoma Test (DMT) is estimated to exceed $2.5 billion. Additionally, the select annual worldwide market, which includes Australia, Europe, and Canada, is projected to exceed $750 million. DermTech is primarily offering the DMT in the United States at present. This market opportunity is based on the potential to address the unmet needs in the diagnostic pathway for pigmented skin lesions, such as moles or dark-colored skin spots, that raise concern for melanoma​​.
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Furthermore, DermTech is developing tests for non-melanoma skin cancers, including basal cell and squamous cell cancers. In the United States alone, approximately 12 million surgical biopsies are performed annually to diagnose about 5.4 million non-melanoma skin cancers, many of which occur in cosmetically sensitive areas like the face, neck, and chest. This creates a significant demand for a non-invasive diagnostic alternative. The total market opportunity for DermTech's non-melanoma skin cancer products is estimated to exceed $3 billion in the United States and $1 billion in select worldwide markets.

DermTech sold approximately 68,230 billable samples for the fiscal year 2022, compared to approximately 44,620 for the fiscal year 2021. This increase in billable samples represents a significant growth in the utilization of their tests, reflecting an increasing adoption of their technology among clinicians​​.

Upside

The company's market cap (USD$45m) is low relative to its addressable market, indicating available upside in the event of market uptake. 


Sources

DermTech Inc annual report 2022
​https://investors.dermtech.com/static-files/97bd4ba2-6989-4b32-8285-963deafcf2ac