DermTech Inc (DMTK) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to DermTech's Fourth Quarter 2020 Financial Results Conference Call.

(Operator Instructions) It is now my pleasure to turn the conference over to Ms. Caroline Corner. Ma'am, please go ahead.

Thank you, operator. Welcome to DermTech's Fourth Quarter and Full Year 2020 Earnings Call. Joining me on today's call are Dr. John Dobak, President and Chief Executive Officer; and Kevin Sun, Chief Financial Officer.

This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact are considered forward-looking statements.

Forward-looking statements made during this call, including projections of future performance, are based on management's expectations as of today, March 4, 2021, and are subject to various factors, assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those described in such statements. Several factors that may contribute to or cause such differences are described in today's press release and DermTech's most recent filings with the SEC, including DermTech's quarterly report on Form 10-Q for the quarter ended September 30, 2020.

In addition, you're encouraged to review the company's to be filed annual report on Form 10-K for the year ended December 31, 2020, for any revisions or updates to the information in this release. DermTech undertakes no obligation to update these statements, except as required by applicable law.

DermTech's press release with fourth quarter and full year 2020 results is available under the Investor Relations section of the DermTech website, www.dermtech.com and includes additional details about DermTech's financial results. Also available on the DermTech website are DermTech's latest SEC filings, which you are encouraged to review. A recording of today's call will be available on the DermTech website by 5:00 p.m. Pacific Time today.

Now I would like to turn the call over to John.

Thank you, Caroline, and thank you, everybody, for taking the time to join us today. We believe DermTech presents a unique growth opportunity that is capitalizing on 2 of the biggest trends occurring in health care today, the genomics revolution and the in-home delivery of health care.

DermTech is a leader in new category of medicine we refer to as Precision Dermatology. Precision Dermatology is the use of genomics to provide accurate and objective diagnostic and treatment information for a variety of skin conditions.

It is enabled by our noninvasive skin genomics platform based on our Smart Sticker. The Smart Sticker is an adhesive patch collection method that provides pain-free and scar-free skin sampling for genomic testing.

Through precision dermatology, we can realize our vision to democratize access to high-quality dermatologic care by allowing any health care practitioner and even the patient to accurately assess skin disease and health. So while we may be focused on the dermatologist today, our vision takes us beyond the dermatologist into primary care and into the patient's home via telemedicine.

And while we may be focused on melanoma with our first product, our platform allows us to address a wide range of skin problem. DermTech is at the forefront of bringing these fundamental transformational changes to dermatologic care.

Our lead commercial product, the Pigmented Lesion Assay, or PLA, is the first product to solve a decades-old problem in dermatology, which is the need to enhance the early detection of melanoma by improving diagnostic accuracy and reducing unnecessary surgery. Melanoma is the most aggressive form of skin cancer and is diagnosed approximately 200,000 times each year and results in more than 7,000 deaths in the U.S.

Early detection of melanoma is how lives are saved because melanoma is 99% curable when found in the early stages. With the current visual pathology standard, the early detection of melanoma is extremely difficult, leading to a high probability of incorrect diagnosis, both missing early stage melanoma and/or falsely giving a positive diagnosis.

About 4 million diagnostic surgical procedures are performed each year in the U.S. to diagnose melanoma, and this represents the current served market. However, our opportunity exists not only within this current served market, but also in an expanded market.

One of the more important opportunities to find melanoma at the earliest stages is the use of our technology to immediately assess molds that would typically be photographed by the dermatologist and followed over time for change. It is in these molds where a melanoma diagnosis may be delayed or missed where the earliest stage melanomas may be found and where our precision platform is ideally suited to provide early detection.

Importantly, in this expanded market, we do not directly compete with the surgical biopsy practice of the dermatologist. We believe the expanded market opportunity for these typically photographed or followed molds may be at least as large as the current served market of actual surgical biopsies.

In addition to our initial focus on melanoma, we have built a robust pipeline of genomic products for most types of skin cancer, leveraging our Smart Sticker technology. We believe our skin cancer vertical of products address very large market opportunities of more than $10 billion in the U.S. alone.

Our fundamental business model is to drive adoption and test volume of our products in the variety of distribution channels that precision dermatology enables and then monetizes volume over time by obtaining payer coverage and/or leveraging consumer pay options.

Key drivers of the business are the continued development of the professional dermatology commercial channel and the development of additional distribution channels outside of professional dermatology, securing commercial payer coverage and launching new products in the next 4 to 6 quarters. We made significant progress on these key drivers in the fourth quarter of 2020.

On the product adoption component, we received a record number of billable PLA tests and grew our base of unique dermatology users despite limited access to physician offices and other pandemic headwinds. We took a significant step forward in the build-out of our commercial organization, and we now have a team of approximately 60, consisting of sales managers, regional directors, science liaisons, professional marketing, inside sales and managed care personnel.

We expect to continue to expand our dermatology sales team throughout 2021, likely targeting approximately 50 sales managers in total as well as other additional adds to expand beyond dermatology.

We believe we can further boost the adoption of the PLA with the launch of our PLA plus second-generation test in the second quarter of this year. The PLA plus launch was delayed last year due to COVID testing related supply chain constraints.

The PLA plus incorporates a TERT mutation biomarker, which improves the sensitivity for melanoma detection and is recognized as a key driver mutation for early-stage melanoma. Adoption of our PLA can also be further enhanced by educating and activating the patient to seek out dermatologists that use our test or to encourage nonusers to adopt the product.

Our digital consumer awareness campaign, which was initiated last year, continues to be very successful, generating 6,000 to 7,000 find a doctor searches on our website each month. This indicates a strong consumer patient interest in our PLA and their desire to have more accurate diagnostic testing that minimizes patient discomfort, scarring and risk of infection.

We are also beginning to make significant strides to expand beyond the traditional in-office dermatology sales channel. We continue to establish our strategy in primary care around integrated networks. We are currently working with some prominent networks to commercial -- to commence pilot programs.

We have also profiled our existing primary care users and found that they have some unique attributes that may allow us to target them with a focused sales effort. These attributes include having poor or limited access to dermatology specialists, having a significant portion of the practice involving dermatologic care and having familiarity with genomics through the use of Exact Sciences' Cologuard. We have recently commissioned a study to identify primary care physicians in the U.S. that fit this profile.

Finally, an important part of our adoption strategy is to expand and improve our telemedicine offering. We continue to make progress on our streamlined store-and-forward telemedicine solution, which will allow a patient to photograph a lesion and upload it to the cloud for review by a dermatologist who can then order our test if needed. This solution relies on information technology and software applications.

The pandemic has catalyzed the shift toward remote health care delivery, and we are well suited to capitalize on this trend as we believe we are the only company that can offer in-home skin cancer diagnosis.

In the fourth quarter, we completed development and beta testing of some key technology pieces, and we recently hired leadership for the telemedicine effort. We expect to pilot our solution over the next 2 quarters, and we'll look to expand it commercially in the fourth quarter of this year.

Monetizing our growing sample volumes by obtaining commercial payer coverage is the second key component of our business strategy. In the fourth quarter of 2020 and early this year, we made solid progress with commercial payers and announced several contracts with large Blues plans in California, Illinois and Texas.

We also received a coverage policy with Geisinger Health, a prominent leader in the adoption of genomic testing to improve patient care. With these recent payer successes, we now have approximately 85 million contracted and/or covered lives in the U.S. for the PLA.

We also have a number of ongoing developments that we believe will enhance our positioning with payers. This includes new evidence development with the results of our TRUST study and PPV study, a positive addition of our test to the NCCN cancer guidelines and our soon to be completed economic impact study with OptumInsight.

The top line results from our TRUST study confirmed our 99% negative predictive value in a real-world setting. Evaluations of the full cohort of PLA negative tested patients in the 12 to 20-month period prior to the study enrollment indicated an NPV of at least 99.2%. There were no deaths or late-stage disease identified in this patient cohort of 1,781 tested lesions. A cohort of 302 lesions subjected to repeat PLA testing further confirmed the negative predictive value of 99%.

In January 2021, we also published a paper on the positive predictive value of our test. This study demonstrated that the PLA identifies melanoma at a rate that is 4 to 5x higher than the current visual standard alone.

In addition, the PLA identifies lesions with higher risk pathologic features that are often managed like early stage melanoma at a rate approximately 3x the current visual standard. The combination of these 2 studies demonstrate that the PLA offers enhanced early melanoma detection and is a significant improvement over the current standard of care.

Adding credibility to the clinical evidence we have developed for the PLA, we recently received a favorable inclusion in the National Comprehensive Cancer Network or NCCN guidelines. The NCCN is a not-for-profit alliance of 30 leading cancer centers that publishes guidelines to advance high-quality cancer care.

Payers and physicians often look to the NCCN to justify adoption and coverage for new technology. We are optimistic that the uniform consensus recommendation for the use of our technology will facilitate payer contracting and coverage as well as physician adoption and utilization.

Lastly, we are close to completing a large economic impact study with OptumInsight, which we believe will demonstrate the cost savings associated with our PLA product. While there is no silver bullet that ensures payer coverage, we believe our cumulative effort to drive test adoption, educate payers on the limitations of the current melanoma diagnostic pathway, develop additional clinical evidence, ramp up denied claims appeals and demonstrate the cost savings of our test will ultimately lead to broad payer access over the next 2 to 3 years.

Turning now to the third component of our business strategy. We have been making significant advancements with our pipeline of skin cancer products. In addition, we've identified some compelling product opportunities in inflammatory diseases of the skin.

We are now completing the internal validation phase for our Luminate product, which will assess ultraviolet related gene mutations in normal appearing skin, which is related to skin cancer risk and photoaging. While a big focus in skin cancer with genomics over the last 5 to 10 years has been early detection, we think the future is detection of precancerous genomic changes, and this is essentially what our Luminate product does.

If this internal validation study is successfully completed as planned, we will finalize development with an external validation study in the second and third quarters of this year, with an initial target for the product introduction in the fourth quarter of 2021.

We also launched a pilot digital consumer awareness campaign to assess demand for the product. This limited campaign has thus far been successful in demonstrating reasonable customer acquisition costs and interest in the product that is still in the very early phases.

We are also making progress on the carcinoma product to facilitate the diagnosis of basal and squamous cell skin cancer. This product is in the classifier verification stage. We believe that this stage will be completed by the third quarter of this year with validation testing beginning in the fourth quarter.

Our clinical study to enroll subjects and samples for the validation study is fully up and running and we expect to have complete enrollment around the end of the third quarter of this year. We are still targeting an introduction of this product in the first half of 2022 as an LDT.

In Q3 of 2020, we hired Michael Howell, Ph.D., a highly regarded immunologist specializing in inflammatory diseases of the skin. Dr. Howell and his team have identified several areas of opportunities that involve assessing the genomic subtypes of atopic dermatitis and other inflammatory diseases to predict response to biologic therapies.

Depending on the genomic subtype, certain patients may respond poorly to some therapies, which can cost as much as $30,000 to $40,000 per year. Identifying patients that are likely to respond to a certain therapy may improve patient care and reduce health care cost.

These opportunities may create a significant market opportunity. For example, the prevalence of atopic dermatitis in the U.S. is reported to be approximately 12% in children and 7% in adults with approximately 6.6 million patients having moderate to severe disease, making them candidates for biologic therapy. We have recently initiated a clinical study to identify relevant genomic markers in atopic dermatitis that may predict response to therapies.

I will now close by discussing our recent financing activities, which have been very successful and will allow us to capitalize on all the opportunities I just discussed.

In January 2021, we completed a public follow-on offering of our common stock and generated $144 million in gross proceeds. This offering was supported by existing investors and brought in new high-quality health care-focused investors. In addition, we received approximately $20 million in gross proceeds from our ATM, generating aggregate equity financing gross proceeds of approximately $164 million.

Lastly, a significant portion of our outstanding public warrants have been exercised, which has yielded an additional $70 million in proceeds. Our cash balance at the end of February 2021 was approximately $260 million.

Now I'd like to turn the call over to Kevin to go over our financial results.

Thanks, John. Total revenues for Q4 of 2020 increased 33% to $2.1 million compared to $1.6 million for the same period of 2019. Total revenues for full year 2020 increased 75% to $5.9 million compared to $3.4 million for 2019.

Assay revenue for the fourth quarter of 2020 increased 214% to $1.6 million compared to $0.5 million for the same period of 2019, due to higher billable sample volumes and revenue recognition of Medicare samples related to the final local coverage determination that went effective in February 2020.

Assay revenue for full year 2020 increased 202% to $4.2 million compared to $1.4 million for 2019. Our potential assay revenue that could be recognized from having broader payer coverage is meaningfully higher than the actual reported revenue as we continue to monetize our billable sample volumes.

Billable samples for the quarter were approximately 8,300 compared to approximately 4,900 for the fourth quarter of 2019 or a 69% increase, and compared to approximately 6,700 in the third quarter of 2020 or a 24% sequential increase. We continue to see headwinds due to the pandemic and may see more fluctuations, but our growth trajectory continued during the fourth quarter of 2020.

Billable samples for full year 2020 increased 75% to approximately 24,000 compared to approximately 13,700 for 2019. We continue to make progress with increasing awareness of the PLA in the Medicare population.

Medicare samples represented about 18% of our billable samples in Q4 of 2020 compared to approximately 14% in the same period of the prior year and 16% in Q3 of 2020. The Medicare proportion grew about 1% per quarter during 2020 with an acceleration to a 2 percentage point increase during the fourth quarter.

We continue to increase clinician and patient education and awareness that the PLA is covered by Medicare. As a reminder, approximately half of surgical biopsies performed for melanoma each year in the U.S. are in the Medicare population, so additional opportunity remains for us to monetize our sample volumes. However, we believe the growth in our Medicare proportion could continue to be impacted by COVID since Medicare patients are less likely to visit their dermatologist during the pandemic.

With approximately 1,700 unique ordering clinicians during 2020, we penetrated 34% of our initial target market out of approximately 5,000 dermatology clinicians who account for a high concentration of the total annual surgical procedures to diagnose melanoma, and we have penetrated about 13% of our current overall target market of approximately 13,000 dermatology clinicians.

We had approximately 1,040 unique ordering clinicians in Q4 of 2020 compared to approximately 950 in Q3, 620 in Q2 and 900 in Q1 of 2020. We continue to both increase the number of unique ordering clinicians and increase the average number of tests ordered by each clinician each month, even though new ordering clinician additions are heavily impacted by COVID.

Sales call volumes and the ramp trajectory for our new sales reps have both been affected by the pandemic due to reduced in-office access to clinicians. We estimate sales call volumes, depending on region, are only about 20% to 40% of pre-pandemic levels.

Our average quarterly utilization or average number of tests ordered per unique ordering clinician continued to increase and was 8.0 billable samples in Q4 of 2020, compared to 7.0 in Q3, 5.2 in Q2 and 6.5 in Q1 of 2020. We continue to achieve record or near record highs during Q4 in key metrics, including billable samples, new ordering clinicians, average monthly utilization and number of ordering clinicians who order 10 or more tests per month.

We believe as new ordering clinicians continue to understand our PLA provides greater accuracy and minimizes patient discomfort, scarring and risk of infection, along with efficiency for their practice, they will increase utilization.

Contract revenue decreased 49% to $0.6 million for the fourth quarter of 2020 compared to $1.1 million for the same period of 2019. Contract revenues continue to be highly variable and is dependent on the pharmaceutical customers' clinical trial progress, patient enrollment success and other factors, which have been affected by the pandemic.

During the quarter, we signed agreements with our pharmaceutical partners worth up to approximately $1.1 million in contract revenue for work related to those partners' clinical trials. As of December 31, 2020, we had a maximum of $4.7 million in potential remaining contract revenue related to our current agreements.

Gross margin for Q4 2020 was 19%, compared to 24% for the same period of 2019. The decrease in gross margin was largely driven by higher contract revenue during Q4 of 2019. Assay gross margin for Q4 2020 was negative 9%.

Sales and marketing expense increased 110% to $5.1 million for the fourth quarter of 2020 compared to $2.4 million for the same period of 2019. The increase was primarily due to additional sales headcount and additional marketing investment to increase awareness of our PLA.

Research and development expense increased 194% to $1.9 million for the fourth quarter of 2020, compared to $0.6 million for the same period of 2019. The increase was primarily due to higher compensation costs related to expanding the R&D team, increased clinical trial costs and increased spend on laboratory supplies to support new product development.

General and administrative expense increased 17% to $2.8 million for the fourth quarter of 2020 compared to $2.4 million for the same period of 2019. The increase was primarily due to higher payroll-related costs and higher stock-based compensation, offset by reduced legal costs.

Net loss for the fourth quarter of 2020 was $9.4 million, which included $1.4 million of noncash stock-based compensation, compared to a net loss of $5.1 million for the same period of 2019, which included $0.1 million of noncash stock-based compensation. At the end of the fourth quarter, our cash, cash equivalents and marketable securities totaled $63.8 million.

Here in Q1 of 2021, we are confident that we'll continue to make progress with adoption and grow our sample volume over the fourth quarter of 2020. Despite some unique challenges this quarter, including the peak of the COVID pandemic in early July and the polar vortex weather event in February that shut down much of the country, we are seeing continued growth in utilization of the PLA in the first 2 months of the year.

We have recently initiated billing under our new payer contracts. And as typical, there have been some startup billing challenges related to claims and prior authorization processing. We are also working with Medicare to resolve a recently identified claims adjudication programming issue, which results in a reduced number of paid claims by Medicare.

Thus, while we expect revenue to grow, it is somewhat challenging for us to project the growth at this time. We estimate that Q1 2021 assay revenue will be between $1.6 million and $1.9 million. We are not providing formal full year 2021 revenue guidance due to ongoing COVID uncertainties and because COVID initially hit right at the beginning of our formal PLA launch. We delayed our sales force expansion, which affects the sales ramp period, and we're still working to get to the target sizing of the sales force to enable the proper deployment.

While the pandemic is still creating some headwinds, we are optimistic about the declining case numbers and the vaccine rollout. We are pleased with the progress we have made in the current environment and believe we are well positioned and capitalized to execute on our near-term and long-term opportunities.

Now I'll turn the call back to the operator for questions.

(Operator Instructions) Your first question comes from the line of Brian Weinstein from William Blair.

Thanks for the real solid overview on everything going on there. Maybe we could just start with kind of an update on some of these private payer negotiations as well as kind of, you mentioned it a little bit in the prepared remarks, but efforts to better target CMS patients there. Because when we annualize your Q4 volumes and apply an ASP of, I don't know, let's even say, $600, so below the Medicare rate, you guys are already kind of in a revenue base of $20 million.

So just trying to better understand when we might start to see this revenue ramp starting to show up in your results from the pricing going up as you deal with private payers? And then also, anything you can talk about as far as better efforts to target CMS patients where you have that higher reimbursement?

Great. Thank you, Brian. I'm glad that you recognize that our potential revenue is much higher based on our sample volume and will grow significantly as we increase the ASP. It's hard for us to know exactly when payers will provide coverage since we don't really control the process.

We know historically that achieving about 80% coverage takes 2 to 3 years from your Medicare coverage. We did have a delay in our effort due to the pandemic because it literally hit -- the pandemic literally hit the month that we got our Medicare coverage policy that went into effect. But we are seeing that the recent activity is picking up, and we think we're back on track with a more typical timeline.

I would say that we are engaged with almost all major payers, and they are critically reviewing our data package, and this is a dramatic improvement from 12 to 24 months ago, when we really couldn't even get them to thoroughly evaluate the test. We believe that they're now starting to understand the problems with the current pathway, which they are not really aware of. And so there's an education process there.

They do not seem to challenge the credibility of the data we've developed. And I think the NCCN guidelines help that also, and we do have 21 publications and thousands of patients studied. And I think this economic impact study is going to also carry a lot of water with the payers. So in general, this constant pressure campaign we're applying, I think that I talked about in the opening remarks, I think is going to lead to broad payer access and will ultimately increase our ASP to monetize that significant sample volume.

As far as the Medicare goes, we do -- our consumer campaign, digital campaign is actually targeted at the Medicare population, and so we're trying to educate them and make them aware. I think our biggest challenge is just having them feel free to go into the office during this pandemic.

We'd like to see higher Medicare proportion and have it match more closely with what the payer mix is for biopsies for melanoma, which would be half. And so we think it's an opportunity to grow that. That will also help accelerate that ASP, and we're doing everything to raise awareness among the Medicare population and drive utilization there.

Great. And then we noticed that there were some changes as it relates to some of the codes that are used starting January 1. Can you talk about those changes and how they may or may not impact sort of the economics as you start thinking about -- in terms of thinking about bringing this product in or utilizing it more often?

Sure. There's always -- there's some concern about -- we're taking biopsy revenue away from the dermatologist. I would first start by saying that we're really not trying to position the product to compete directly with the biopsy practice, and I discussed that in my opening comments.

But I think it's important to kind of calibrate on the reimbursement dollars that are at stake here because we're really not talking about thousands of dollars or hundreds of dollars, but really tens of dollars. So the average payment for the most common biopsy procedure across Medicare and commercial payers is about $85 for the first biopsy sample. The payment is reduced by about half for each subsequent biopsy to maybe approximately $40, $45.

So in a typical use case with our product where the dermatologist likely surgically biopsy is the most atypical mold, and then it's going to use our test on that subsequent lesion, the reimbursement differential is only about $40. And you have to remember that, that revenue, potential revenue loss is offset by the fact that about 10% to 15% of our tests are going to come back positive, and those lesions will undergo a full excision, which will offset that -- some of that revenue loss maybe by 1/4 to 1/3.

So I think what we hear from our high-volume users after they start adopting them and the product is that my biopsy revenue didn't change that much. And if anything, my overall billings are up because they do get some practice efficiencies when the PLA is deployed widely in their practice.

And so we just don't think in the long run that the economic concerns are going to completely hinder adoption. We just don't think that the notion of foregoing dramatically better care or missing a melanoma is worth really what amounts to a couple of movie tickets. So we feel like we can overcome that and still be successful in the adoption of the product.

Got it. So the coding changes really don't change anything on how you view it. And I just wanted to make sure that, that was clear.

I don't think so. I'm not going to -- it's a concern of the doctors, but we have a way to address that concern, and I think it's working.

Yes. And then the last one for me is around primary care. You're kind of addressing it a little bit more head on now than you had before, you having a program to identify the appropriate clinicians here based off of the criteria that you laid out.

Can you talk about how impactful this can be for you in the resources that you're putting to do this? I think you mentioned that you were going to potentially add some reps here or whatnot. Can you just be a little bit more specific about how big primary care theoretically could be for you guys, how you would go about attacking it and the resources that you're going to need?

I mean you mentioned Cologuard. Obviously, you're not going to be spending the Cologuard kind of money here to kind of do anything. So can you just give us an idea about how important primary care is?

We think it's becoming a more important part for the business, and this has really grown organically because over the last year, we've seen a lot of interest from integrated primary care networks in what we're doing. And these networks sort of exist to avoid referrals to specialists, and dermatology referrals are a clear pain point for these integrated primary care networks. And so they've taken an interest.

And as I mentioned, we're working with a number of them to commence some pilots. I think that it's nice for us because these are aggregated groups of physicians, primary care physicians, so we can get after that without having to make tens of thousands of direct calls. And so we think there's a meaningful opportunity and where we basically could shift some of the assessment of pigmented molds from the dermatologist into that primary care group.

I do also think that there is going to be an opportunity to do some direct calls on primary care. And I think we're going to be able to figure out where those primary care doctors are that meet that profile I discussed. We do have some primary care users that love the product. And we think we can find those primary care doctors and then target them effectively with a more modest sales, direct sales effort. So we're working on that, and we'll have more on those plans probably after the second quarter here.

But we do want to start laying a foundation in primary care because our other product, the carcinoma for non-melanoma skin cancer, we've done some market research there. And those doctors are very interested in this product. They tell us they see that cancer all day long, it's extremely challenging for them to refer to dermatologists. They often don't follow through. They want a way to assess those lesions either to rule them out, so they don't have to make the referral, or to urge the patient to get to the dermatologist to get it taken care of. So we think there's a big opportunity there, and so we do want to lay some of that foundation in primary care.

Your next question comes from the line of Kevin DeGeeter from Oppenheimer.

And so thanks for your disclosure with regard to average number of orders per doc per month, I guess, up to around 8 in the quarter. If you look at some of your derms that are a little more experienced with PLA, do you have a perspective as to where that kind of ordering on a test per month basis may begin to plateau out? Or what's a reasonable near-term point of stabilization on that metric?

Yes. So we know that when you take on average of all surgical biopsy procedures across all dermatologists, it's about 60 to 70 per month. And so we are already seeing certain users do north of 20 per month.

So we really measure that 3 buckets, the users that have 1 to 2 months, we call the dabblers; 3 to 9 a month, the middle tier; and then 10 or more a month are the high-volume users. And so we're seeing great trends in the progression through those cohorts.

So again, once they hit that aha moment to where the performance of the test really kicks in and they figure out how to integrate it into their work streams, they are using it more and they're getting practice efficiency, they're able to see more patients. So we think that we can penetrate a decent amount. The exact number, it's hard to say.

But if we only penetrated, say, 10% or 20% of that 60 to 70 biopsies per month kind of volume, that's still a very healthy business for us. We think we can certainly do more than 10% to 20%. But that just gives an example for our opportunity here given how large the market is.

Great. That's helpful context. And then as we think about the commercial infrastructure build-out. In 2020, I think we talked about previously, there were a number of key geographic markets and states where you focused your resources.

As we think about expansion in '21 and hopefully, a lifting of some of the COVID restrictions, can you walk us through how to think about your other either key geographic markets? Or I guess, building on Brian's question with regard to primary care, should we think about some of the adds here being segregated your primary care versus derms?

Or is this sort of a geographic driven build-out, where you'll have reps calling on both derms and primary care in certain markets?

Yes. So Todd is going through some additional evaluations. Todd, our Chief Commercial Officer, to assess not only that primary care opportunity, but where we're going to do some additions to our professional dermatology channel. And it's going to be a combination of both opening up some new territories, as well as additional reps in existing territories likely where we can capture more opportunity where there's a dense concentration. And we're going through that process now. We'll have more on that at the second quarter.

I would expect that on the primary care targeting, we may have some direct sales adds that we want to do to target those folks, but we also think that some of our current sales reps are going to be able to tap into those opportunities as they are doing now when they present themselves. So it probably will be a blend, but we're really in the planning phases. We need to understand where those doctors are and then what deployment against those primary care doctors looks like for that study.

For the integrated primary care networks, that's a different type of sale. It's more of an institutional type sale, it takes some time, and there's a pilot and a lot of integration with electronic medical records, things like that. So we're -- that's a slightly different team that's going to focus on that integrated primary care network effort and sales cycle.

Great. And then if I can just sneak in one last question. I appreciate the comments with regard to the impact of certain adjudication processes on Medicare in Q1. At this point, do you -- should we think about that dynamic is largely playing out in the first quarter? Or should we think about that as a dynamic that may continue beyond Q1 through a bit later into 2021?

Yes, it's hard to say. It's probably not going to be fully resolved in Q1 to get through various changes and updates and fixing things through Medicare and all the different service providers that they rely upon takes time. They usually have some kind of like quarterly cycles and things like that. So I don't expect it to be fully flushed out in Q1.

Your next question comes from the line of Alex Nowak from Craig-Hallum Capital.

Maybe to start on the outlook for 2021. You previously mentioned a run rate of 34,000 or 35,000 tests exiting 2020. Just roughly, where do you think this run rate could go as you end 2021, just given what you know, what you can control with the larger sales force or marketing spend?

So we're not giving formal guidance for 2021 just yet. But as -- clearly, our testing volume, new physician adds correlates directly with the pandemic and the cycles of new caseloads as related to COVID.

So as things wane, we're seeing nice uptick in our sample volumes, and we were able to grow despite those headwinds in 2020. We're excited to see how much better we can grow as this pandemic subsides.

And I think we're seeing that in this first quarter, that we're seeing upticks as the pandemic slows down. So we're excited that, that run rate we talked about at the end of 2020, based on December numbers, is doable and I think is -- we're going to grow beyond that based on what we're seeing currently today.

That's great. And as you wait for the private payers to update their medical policies, is the NCCN guideline inclusion making it easier to appeal any of the incoming denials? And I'm just thinking specifically about February. Are you starting to see the number of reimbursed tests tick a little bit higher even though payers are -- have yet to officially issue coverage?

So we -- you're absolutely right. We think that the NCCN guidelines will help us with appealing claims that are denied. But the claims appeal process is a month-long cycle. It's like a 2-quarter cycle to get through appeal claims. So we can't -- we don't know just yet what the impact of that's going to be in terms of our success in getting denials appealed.

But it's hard, I think, for a payer to justify what the typical reason for denials, whether it's experimental or investigational, right? That's a very common way that payers will deny a claim. I think it's hard for them to justify that denial when you've got an NCCN guideline recommendation.

So I do think we're going to be much more successful on the appeal front. We just brought a person in, a very senior person who's an expert at managing the appeal process, and she's going to really ramp that up and leverage that NCCN guideline recommendation.

All right. That's great. And then just last question. Should we see any readouts or data releases from your pharma partners this year? And would you expect a similar sort of pharma activity, just given what you see in the pipeline starting the year off as 2021? Or could it be up slightly as COVID starts to abate and given a bigger backlog?

The -- we do have a lot of activity with the pharma partners, and there are a lot of folks that were putting RFPs out for to provide the services to support their trials. Mike Howell is a leader in inflammatory diseases. That's where most of our pharma partnerships exist. So he's doing a lot to help us out there.

I would say I don't think that the enrollment in clinical trials is really back to pre COVID levels, and that's what's going to dictate when those readouts occur. And I -- the pharma partners are not really clear to us or open to us about what their timelines are exactly. So it's hard for us to say.

But we do think there's an opportunity. We think we can grow that opportunity with our pharma partnerships. And we think that, like everything else, is going to get better as the pandemic subsides.

Yes. And I'll just add that we are devoting more internal resources in addition to Mike Howell and some other team members that would be looking to build the team to go proactively at some of these pharma partners. Whereas historically, we've been kind of opportunistic as they've come to us for our technology, the fact that it's so unique. So we do think it will grow, but it's hard to say exactly how quickly and how much.

Your next question comes from the line of Thomas Flaten from Lake Street Capital.

You might have mentioned this, John, in your prepared comments, and I didn't catch it. Did you mention when the Optum project was going to be completed?

Yes, I think -- I'm optimistic that we're going to have that done by the end of the first quarter or thereabouts. So it's progressing nicely. And so I'm optimistic we'll have that done here around the end of the first quarter.

And is that data you think you'll press release to us? Or will you embargo it effectively for publication somewhere?

I think we will release the top line data from that, and we'll release it in a way that it doesn't impair our ability to publish the data either. So my plan is that we would put out some release on what that data looks like.

And then just a couple on the DTC efforts, if I may. How would you guys think about expanding the -- what seems to be a very successful campaign, not just in terms of dollars, but in terms of geo-locating it around, are you thinking about where are we seeing the fewest COVID cases? Are you trying to use the search or find a doc to help govern that? I'm just curious how you guys strategically think about rolling that out over the course of the year?

No, you're exactly right. Right now, it is definitely a targeted area. We invest more heavily where we know there's some access to physician doctors. And Todd would tell you that the parking lot during COVID has become the new waiting room. And so we can actually geo-locate some of our adds when the patients are in there in the parking lot waiting to see their dermatologist. So we know it works because we've had dermatologists calling us saying, "Hey, all my patients are coming in and asking about your test."

So it is effective. And right now, we do target it in places where we think it can be effective because the doctor's offices are open. And we will continue to expand that effort because it is very successful. The metrics are 3 or 4x higher than typical medical technology products. That means we have a fairly low cost to get action from that digital campaign. And so we'll begin to expand it even more as the country opens up more and the pandemic begins to wane.

And then just one more thing on that. So as you guys return a find a doc result, I'm assuming you're capturing that data. Have you been able to find even loose correlations between where you have find a docs and search results and where you see testing volume? Have you guys gone back and tried to do that math?

We are looking at that. We are getting better at that. It's hard to follow people down the funnel beyond the initial search for the doctor, but we are starting to get some of those metrics in, and we're building out more CRM capabilities that will allow us to capture more of that data.

We do know -- we have looked at it, and we know that doctors have participated in that find a doctor search feature, they do grow more rapidly than the doctors that don't. If you compare the sample volumes, for example, from a doctor that's not on the find a doctor page and one that is, we see more sample volume growth for those. So we do think it is paying off, and we'll continue to invest in that, and we're going to get better at targeting what actually turns into a true order test.

At some point, that's the ultimate where we want to go, right? How many find a doctor test -- searches lead to an actual ordered PLA. We're not quite there yet, but that's where we want to head.

(Operator Instructions) Your next question comes from the line of Sandy Draper from Truist Securities.

A lot of them have already been asked and answered. But maybe, John, just -- I think I know the answer, I just want to confirm. So it sounds like the private payer discussions are -- your view is this really is a function of time. There's no more data or anything else they need from you guys. It's just going through that time-consuming process of the meetings and the forms and everything else. So I just wanted to confirm, there's not like some other steady results or something else they need to see.

In our discussions of late with payers, there hasn't been an issue where we need more evidence development basically. Now they do want to see, obviously, the results, the final published results of that TRUST study because we released that top line data. But in general, I would say the emphasis is not on, do we have the evidence to support, it's more how do we integrate this and what's the right pathway, how should we write a coverage policy, things like that, and more taking a critical review.

And it is a time thing. They do need to understand the problems with the current pathway. So that's taking some time. They want to confirm that there really is a cost benefit associated with what we're doing and that's what the OptumInsight study will do. So we think that we'll continue to make progress.

And I like what I'm hearing from the payers, is very different than what we heard before. They wouldn't even really entertain it because we didn't have enough volume. We didn't have enough data. That discussion has changed. Now we're generating the volume. We're generating the data. And I wouldn't underestimate the ability of appeals for us to drive action by payers.

As we ramp up those appeals now, particularly around the earlier discussion about being able to counter that E&I denial with the NCCN guidelines, I think that's going to put more pain on the payers, which is going to make them really want to take more action to give us some coverage.

Okay. Great. That's really helpful commentary. And then my follow-up on the sales force side, I think I heard you say that due to COVID and some other things, you sort of slowed down the hiring in terms of expanding the sales force.

I wasn't clear whether you've already started to reengage that? And also, I didn't know how much you had already sort of identified people, maybe had initial discussions and do you think you can just reengage and so ramp it quickly? Or do you feel like you're sort of starting back over in terms of how you're thinking about the timing of building out sales force?

So we haven't quite started to add the additional headcount that Todd -- that I mentioned for the direct professional channel, and Todd is doing some work to figure out what the best strategy is there.

I don't think we're going to have a problem retaining good sales people. We have a lot of tremendous buzz around the company and enthusiasm by the dermatology and the professional dermatology world with what we're doing. So I think we'll be able to find those reps as soon we decide exactly where we want to place them.

I think we'll be able to find those representatives very quickly, and they're good candidates. And Todd has a tremendous pipeline of candidates that he can approach and go back to. So I don't suspect there's going to be a real-time element when we decide to start adding those additional headcounts.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for your participation.