UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 28, 2022, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
27 |
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Item 4. |
27 |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
30 |
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31 |
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
DERMTECH, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term marketable securities |
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Accounts receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued liabilities |
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Short-term deferred revenue |
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Current portion of operating lease liabilities |
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Current portion of finance lease obligations |
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Total current liabilities |
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Warrant liability |
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Long-term finance lease obligations, less current portion |
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Operating lease liabilities, long-term |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ March 31, 2022 and December 31, 2021; issued and outstanding at March 31, 2022 and December 31, 2021, respectively |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
1
DERMTECH, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenues: |
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Assay revenue |
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$ |
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$ |
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Contract revenue |
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Total revenues |
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Cost of revenues: |
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Cost of assay revenue |
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Cost of contract revenue |
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Total cost of revenues |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income/(expense): |
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Interest income, net |
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Change in fair value of warrant liability |
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Total other income/(expense) |
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Net loss |
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$ |
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$ |
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Weighted average shares outstanding used in computing net loss per share, basic and diluted |
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Net loss per share of common stock outstanding, basic and diluted |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
2
DERMTECH, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net loss |
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$ |
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$ |
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Unrealized net (loss)/gain on short-term marketable securities |
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( |
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Comprehensive loss |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
DERMTECH, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
(Unaudited)
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Common stock |
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Additional paid-in |
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Accumulated other comprehensive |
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Accumulated |
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Total stockholders’ |
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Shares |
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Amount |
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capital |
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loss |
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deficit |
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equity |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock from option exercises and RSU releases |
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— |
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— |
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— |
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Issuance of common stock from warrant exercises |
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— |
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— |
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— |
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Issuance of common stock from Employee Stock Purchase Plan |
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— |
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— |
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— |
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Unrealized net loss on short-term marketable securities |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Common stock |
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Additional paid-in |
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Accumulated other comprehensive |
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Accumulated |
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Total stockholders’ |
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Shares |
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Amount |
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capital |
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income/(loss) |
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deficit |
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equity |
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Balance, December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock at a price of $ net of $ |
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— |
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— |
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Issuance of common stock from option exercises and RSU releases |
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— |
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— |
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— |
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Issuance of common stock from warrant exercises |
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— |
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— |
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— |
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Issuance of common stock from Employee Stock Purchase Plan |
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— |
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— |
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— |
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Unrealized net gain on short-term marketable securities |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Reclassification of warrant liability due to Private SPAC Warrants not held by original holder |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance, March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
DERMTECH, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Change in fair value of warrant liability |
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Amortization of operating lease right-of-use assets |
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Stock-based compensation |
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Amortization of premiums, net of accretion of discounts on marketable securities |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventory |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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Operating lease liabilities, net |
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( |
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( |
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Accounts payable, accrued liabilities and deferred revenue |
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Accrued compensation |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchases of marketable securities |
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( |
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Maturities of marketable securities |
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Purchases of property and equipment |
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( |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock in connection with public follow-on offering, net |
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— |
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Proceeds from exercise of common stock warrants |
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Proceeds from exercise of stock options |
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Proceeds from contributions to the employee stock purchase plan |
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Principal repayments of finance lease obligations |
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( |
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Net cash provided by financing activities |
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Net (decrease)/increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental cash flow information: |
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Cash paid for interest on finance lease obligations |
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$ |
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$ |
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Supplemental disclosure of noncash investing and financing activities: |
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Purchases of property and equipment recorded in accounts payable |
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$ |
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$ |
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Reclassification of warrant liability due to Private SPAC Warrants not held by original holder |
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$ |
— |
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$ |
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Cashless exercise of common stock warrants |
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$ |
— |
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$ |
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Right-of-use assets obtained in exchange for lease obligations |
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$ |
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$ |
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Change in net unrealized (losses)/gains on short-term marketable securities |
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$ |
( |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
DERMTECH, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. |
The Company and a Summary of its Significant Accounting Policies |
(a) |
Nature of Operations |
On August 29, 2019, DermTech, Inc., formerly known as Constellation Alpha Capital Corp, (the “Company”), and DermTech Operations, Inc., formerly known as DermTech, Inc., (“DermTech Operations”), consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of May 29, 2019, by and among the Company, DT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and DermTech Operations. The Company refers to this agreement, as amended by that certain First Amendment to Agreement and Plan of Merger dated as of August 1, 2019, as the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged with and into DermTech Operations, with DermTech Operations surviving as a wholly-owned subsidiary of the Company. The Company refers to this transaction as the Business Combination. In connection with and two days prior to the completion of the Business Combination, the Company domesticated from the British Virgin Islands to Delaware. DermTech Operations changed its name from DermTech, Inc. to DermTech Operations, Inc. shortly before the completion of the Business Combination. On August 29, 2019, immediately following the completion of the Business Combination, the Company changed its name from Constellation Alpha Capital Corp. to DermTech, Inc., and then effected a
The Company is a molecular diagnostic company developing and marketing its Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) laboratory services including molecular pathology tests to facilitate the diagnosis of dermatologic conditions including melanoma. The Company has developed a proprietary, non-invasive technique for sampling the surface layers of the skin using an adhesive patch called the DermTech Smart Sticker™ (the “Smart Sticker”) in order to collect individual biological information for commercial applications in the medical diagnostic field.
From the end of the first quarter of 2020 and through the first quarter of 2022, there has been a widespread worldwide impact from the COVID-19 pandemic. The Company is considered an essential business due to the importance of early melanoma detection, which has allowed the Company’s CLIA laboratory to remain fully operational. The Company implemented additional safety measures in accordance with Centers for Disease Control and Prevention (“CDC”), Occupational Safety and Health Administration (“OSHA”) and other guidance within its CLIA laboratory operations. Additionally, and during this time, the Company transitioned administrative functions to predominantly remote work. Beginning in March 2020 and continuing through the first quarter of 2022, the ongoing COVID-19 pandemic has reduced patient access to clinician offices for in-person testing and reduced access by the Company’s sales force for in-office sales calls, which has resulted in a reduced volume of billable samples received during the first quarter of 2022 relative to the Company’s pre-pandemic expectations. The Company expects the ongoing COVID-19 pandemic to continue to adversely impact billable sample volume until patient access to in-person testing fully resumes, in-office access by the Company’s sales force returns to pre-pandemic levels, or telemedicine options are more widely adopted. Additionally, the ongoing COVID-19 pandemic has negatively affected and may continue to negatively affect the Company’s pharmaceutical customers’ clinical trials. The extent to which the COVID-19 pandemic will effect the Company’s future revenue is uncertain and will depend on the duration and extent of the effects of the ongoing COVID-19 pandemic on the Company’s pharmaceutical customers’ clinical trials.
(b) |
Basis of Presentation |
The condensed consolidated financial statements include the accounts of DermTech, Inc. and its subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”), Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements and accompanying notes do not include all the information and disclosures required by U.S. GAAP for complete financial statements and should be read together with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.
The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of March 31, 2022, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
6
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(c) |
Reclassifications |
Certain prior period information on the condensed consolidated statement of cash flows has been reclassified to conform to the current year presentation. These reclassifications did not have an impact on net cash flows.
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(d) |
Use of Estimates |
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the amounts of revenues and expenses reported during the period. On an ongoing basis, management evaluates these estimates and judgments, including but not limited to those related to assay revenue, stock-based compensation, short-term marketable securities, accounts receivable, accrued bonus, warrant liability, right-of-use (“ROU”) assets and the realization of deferred tax assets. Actual results may differ from those estimates.
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(e) |
Cash, Cash Equivalents and Restricted Cash |
The Company considers all highly liquid investments with remaining maturities of three months or less when purchased to be cash equivalents. The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the Federal Deposit Insurance Corporation legal limit. The Company maintains cash balances that have in the past and may, at times, exceed this insured limit.
Restricted cash consists of cash deposited with a financial institution as collateral for the Company’s letters of credit for its facility leases. Restricted cash is classified as noncurrent based on the terms of the underlying lease arrangement.
The following table provides a reconciliation of cash, cash equivalents and restricted cash that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
|
|
Three Months Ended March 31, 2022 |
|
|
Three Months Ended March 31, 2021 |
|
||||||||||
|
|
Beginning of period |
|
|
End of period |
|
|
Beginning of period |
|
|
End of period |
|
||||
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Total cash, cash equivalents and restricted cash reported in the condensed consolidated statements of cash flows |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7
(f) |
Property and Equipment |
Property and equipment is recorded at cost less accumulated depreciation. Property and equipment consists mainly of assets such as leasehold improvements, office, computer and laboratory equipment, including laboratory equipment acquired under finance lease arrangements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from
Amortization of assets that are recorded under finance leases in depreciation expense is included in cost of revenues on the condensed consolidated statement of operations. Gross assets recorded under finance leases were $
(g) |
Concentration of Credit Risk |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. As of March 31, 2022, the Company maintained $
(h) |
Revenue Recognition |
The Company’s revenue is generated from
The Company recognizes revenue from its assay and contract services in accordance with the core principles and key aspects considered by the Company. These considerations are described in detail below, first for Assay Revenue and then for Contract Revenue.
Assay Revenue
The Company generates revenues from its Pigmented Lesion Assay (“PLA”) and PLAplus (now referred to as the DermTech Melanoma Test) or “DMT” which may consist at the option of the ordering clinician of either (i) the PLA or (ii) the PLA and PLAplus) it provides to healthcare clinicians throughout the United States to assist in a clinician’s diagnosis of melanoma. The Company provides prescribing clinicians with its Smart Sticker to perform non-invasive skin biopsies of clinically ambiguous pigmented skin lesions on patients. The Company also offers clinicians a telemedicine solution where they can request the Smart Sticker collection kit be sent to the patient’s home for a clinician-guided remote collection on ambiguous pigmented skin lesions. A patient can also initiate the process by downloading the Company’s telemedicine app, DermTech Connect, which uses store-and-forward technology to allow the patient to take a picture of a suspicious lesion with their phone and have the picture reviewed by an independent clinician who is subscribing to the DermTech Connect platform to assess the suspicious lesion, and if medically necessary, order a DMT. The DermTech Connect app and telemedicine service were initially beta tested in Florida and is currently available in a limited number of states where permitted by law and applicable standards of practice guidelines.
8
Once the sample is collected by the patient via the telemedicine solution or by a healthcare clinician in person, it is returned to the Company’s CLIA laboratory for analysis. The patient’s ribonucleic acid (“RNA”) and deoxyribonucleic acid (“DNA”) are extracted from the Smart Sticker and analyzed using gene expression and sequencing technology to determine if the pigmented skin lesion contains certain genomic features indicative of melanoma. Upon completion of the gene expression analysis, a final report is drafted and provided to the clinician detailing the test results for the pigmented skin lesion indicating whether the sample collected is indicative of melanoma or not.
Contract Revenue
Contract revenue is generated from the sale of laboratory services and Smart Stickers to third-party companies through contract research agreements. Revenues are generated from providing gene expression tests to facilitate the development of drugs designed to treat dermatologic conditions. The provision of gene expression services may include sample collection using the Company’s Smart Sticker, assay development for research partners, RNA extraction, isolation, expression, amplification and detection, including data analysis and reporting.
(a) Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source during the three months ended March 31, 2022 and 2021, respectively (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Assay Revenue |
|
|
|
|
|
|
|
|
DermTech Melanoma Test |
|
$ |
|
|
|
$ |
|
|
Contract Revenue |
|
|
|
|
|
|
|
|
Adhesive patch kits |
|
|
|
|
|
|
|
|
RNA extractions |
|
|
|
|
|
|
|
|
Project management fees |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
|
|
|
$ |
|
|
The following table sets forth the percentages of total revenue or accounts receivable for the Company’s third-party payors and pharmaceutical customers that represent 10% or more of the respective amounts for the periods shown:
|
|
Revenue |
|
|
Accounts Receivable |
|
||||||||||
|
|
Three Months Ended March 31, |
|
|
As of March 31, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Assay Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payor A |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Payor B |
|
* |
|
|
|
|
% |
|
|
|
% |
|
* |
|
* Less than
There were no other payors or customers that individually accounted for more than 10% of the total revenue or accounts receivable for the periods shown in the table above.
(b) Deferred Revenue and Remaining Performance Obligations
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the condensed consolidated balance sheets.
In a majority of agreements that produce contract revenue, the Company receives a substantial up-front payment and additional payments upon the achievement of various milestones over the life of the agreement. This results in deferred revenue and is relieved upon delivery of the applicable Smart Stickers or RNA extraction results. Changes in accounts receivable and deferred revenue were not materially impacted by any other factors.
The Company records a deferred revenue liability if a customer pays consideration before the Company transfers a good or service to the customer. Deferred revenue primarily represents upfront milestone payments, for which consideration is received prior to when goods/services are completed or delivered. Upfront fees that are estimated to be recognized as revenue more than one year from the date of collection are classified as long-term deferred revenue. Short-term deferred revenue was $
9
Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing agreements. For agreements that have an original duration of one year or less, the Company has elected the practical expedient applicable to such agreements and does not disclose the remaining performance obligations at the end of each reporting period. As of March 31, 2022, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed agreements with an original duration of one year or more was approximately $
(i) |
Accounts Receivable |
Assay Accounts Receivable
Due to the nature of the Company’s assay revenue, it can take a significant amount of time to collect upon billed tests. The Company prepares an analysis on reimbursement collections and data obtained for each financial reporting period to determine the amount of receivables to be recorded relating to tests performed in the applicable period. The Company generally does not perform evaluations of customers’ financial condition and generally does not require collateral. Accounts receivable are written off when all efforts to collect the balance have been exhausted. Adjustments for implicit price concessions attributable to variable consideration are incorporated into the measurement of the accounts receivable balances. The Company recorded $
Contract Accounts Receivable
Contract accounts receivable are recorded at the net invoice value and are not interest bearing. The Company reserves specific receivables if collectability is no longer reasonably assured, and as of March 31, 2022, the Company did not maintain any reserves over contract receivables as they relate to large established credit worthy customers. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. The Company recorded $
(j) |
Net Loss Per Share |
Basic and diluted net loss per share is determined by dividing net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Because there is a net loss attributable to holders of common stock during the three months ended March 31, 2022 and 2021, the outstanding common stock warrants, stock options, restricted stock units (“RSUs”) have been excluded from the calculation of diluted loss per share of common stock because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted loss per share are the same. Diluted net loss per share of common stock for the three months ended March 31, 2022 excludes the effect of anti-dilutive equity instruments including
10
(k) |
Fair Value Measurements |
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy to prioritize the inputs used in the Company’s fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
|
March 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Marketable securities, available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Municipal debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
U.S. government debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total marketable securities, available for sale |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Marketable securities, available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Municipal debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
U.S. government debt securities |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total marketable securities, available for sale |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
The Company’s marketable debt securities are classified as available-for-sale securities based on management's intentions and are at level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active. The Company has classified marketable securities with original maturities of greater than one year as short-term investments based upon the Company’s ability to use all of those marketable securities to satisfy the liquidity needs of the Company’s current operations.
The fair value of the Private SPAC Warrants was determined using the Black-Scholes-Merton valuation model and included an unobservable input: expected volatility. Expected volatility is considered by the Company to be an unobservable input and is calculated using a weighted average of historical volatilities of a combination of the Company and peer companies, due to the lack of sufficient historical data of the Company’s own stock price. The model also incorporated several observable assumptions at each valuation date including: the price of the Company’s common stock on the date of valuation, the remaining contractual term of the warrant and the risk-free interest rate over the remaining term.
11
The following assumptions were used to calculate the fair value of the Company’s warrant liability using the Black-Scholes-Merton valuation model:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Assumed risk-free interest rate |
|
|
|
|
|
|
||
Assumed volatility |
|
|
|
|
|
|
||
Expected term |
|
|
|
|
|
|
||
Expected dividend yield |
|
|
— |
|
|
|
— |
|
The following table summarizes the changes in the fair value of the Company’s Level 3 liabilities (in thousands):
Balance as of December 31, 2021 |
|
$ |
|
|
Change in fair value of warrant liability |
|
|
( |
) |
Balance as of March 31, 2022 |
|
$ |
|
|
As of March 31, 2022 and December 31, 2021, the Company maintains letters of credit of $
The Company believes the carrying amount of cash and cash equivalents, accounts payable and accrued expenses approximate their estimated fair values due to the short-term nature of these accounts.
(l) |
Accounting Pronouncement Recently Adopted |
In May 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company adopted this guidance on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.
(m) |
Accounting Pronouncements Issued But Not Yet Effective |
The Company does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our condensed consolidated financial statements or disclosures.
12
2. |
Balance Sheet Details |
Short-Term Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of debt securities classified as available-for-sale securities by major security type and class of security as of March 31, 2022 were as follows (in thousands):
|
|
March 31, 2022 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gain |
|
|
Gross Unrealized Loss |
|
|
Estimated Market Value |
|
||||
Short-term marketable securities, available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
Municipal debt securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
U.S. government debt securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total short-term marketable securities, available-for-sale |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of debt securities classified as available-for-sale securities by major security type and class of security as of December 31, 2021 were as follows (in thousands):
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gain |
|
|
Gross Unrealized Loss |
|
|
Estimated Market Value |
|
||||
Short-term marketable securities, available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
Municipal debt securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
U.S. government debt securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total short-term marketable securities, available for sale |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
As of March 31, 2022, the estimated market value of debt securities with contractual maturities of less than twelve months was $
The Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. It was determined that
13
Prepaid Expenses and Property and Equipment
Condensed consolidated balance sheet details are as follows (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
Prepaid insurance |
|
$ |
|
|
|
$ |
|
|
Prepaid trade shows |
|
|
|
|
|
|
|
|
Prepaid software fees |
|
|
|
|
|
|
|
|
Prepaid employee compensation |
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
Property and equipment, gross: |
|
|
|
|
|
|
|
|
Laboratory equipment |
|
$ |
|
|
|
$ |
|
|
Computer equipment |
|
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
Construction-in-progress |
|
|
|
|
|
|
— |
|
Total property and equipment, gross |
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
|
$ |
|
|
Accrued Compensation and Accrued Liabilities
Condensed consolidated balance sheet details are as follows (in thousands):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Accrued compensation: |
|
|
|
|
|
|
|
|
Accrued paid time off |
|
$ |
|
|
|
$ |
|
|
Accrued wages, bonus and other |
|
|
|
|
|
|
|
|
Total accrued compensation |
|
$ |
|
|
|
$ |
|
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Accrued consulting services |
|
$ |
|
|
|
$ |
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
|
|
|
$ |
|
|
3. |
Stockholders’ Equity |
(a) |
Classes of Stock |
The Company’s amended and restated certificate of incorporation authorizes it to issue
14
(b) |
At-The Market Offering |
On November 10, 2020, the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) relating to the sale of shares of the Company’s common stock from time to time with an aggregate offering price of up to $
|
(c) |
2021 Underwritten Public Offering |
On January 6, 2021, the Company entered into an Underwriting Agreement with Cowen and William Blair & Company, L.L.C. as representatives of several underwriters (the “Underwriters”). The Company agreed to issue and sell up to
(d) |
Warrants |
SPAC Warrants
The Company previously issued a total of
The Private SPAC Warrants are identical to the Public SPAC Warrants, but they (i) are exercisable either for cash or on a cashless basis at the holder’s option, (ii) are not redeemable by the Company as long as such warrants are held by the initial purchasers or their affiliates and permitted transferees, and (iii) may be subject to the limitations on exercise as specified in the warrant agreement. As a result of these difference in features between the Public SPAC Warrants and Private SPAC Warrants, the Company concluded that the Private SPAC Warrants should be classified as a liability, if still held by the original Private SPAC Warrant holder, and marked to market each financial reporting period in the Company’s statement of operations.
In 2021, a total of
Placement Agent Warrants
In connection with several of DermTech Operations’ financings that took place between 2015 and 2018, DermTech Operations engaged a registered placement agent to assist in marketing and selling of common and preferred units. From 2015 to 2016, DermTech Operations issued
15
(e) |
Stock-Based Compensation |
The following table sets forth assumptions used to determine the fair value of each option on the date of grant issued under the 2020 Equity Incentive Plan:
|
|
Three Months Ended March 31, |
|
|||
|
|
2022 |
|
2021 |
|
|
Assumed risk-free interest rate |
|
(1) |
|
0.52% - 1.13% |
|
|
Assumed volatility |
|
(1) |
|
74.88% - 77.57% |
|
|
Expected option term |
|
(1) |
|
|
|
|
Expected dividend yield |
|
(1) |
|
|
— |
|
(1) |
The Company did |
The following table sets forth assumptions used to determine the fair value of the purchase rights issued under the Company’s 2020 Employee Stock Purchase Plan (the “ESPP”):
|
|
Three Months Ended March 31, |
|
|||
|
|
2022 |
|
2021 |
|
|
Assumed risk-free interest rate |
|
0.05% - 0.22% |
|
0.10% - 0.18% |
|
|
Assumed volatility |
|
52.58% - 64.55% |
|
68.44% - 69.34% |
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Expected option term |
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Expected dividend yield |
|
— |
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|
— |
|
The Company recorded stock-based compensation expense for employee options, RSUs, the purchase rights issued under the ESPP, and consultant options of $
2010 Stock Plan
In connection with the Business Combination, the Company assumed the DermTech Operations’ Amended and Restated 2010 Stock Plan (the “2010 Plan”), which provided for the granting of incentive and non-statutory stock options and restricted stock purchase rights and bonus awards. Under the 2010 Plan, incentive and non-statutory stock options were granted at not less than
2020 Equity Incentive Plan
On May 26, 2020, the Company’s stockholders approved the adoption of the 2020 Plan, which provides for the granting of incentive and non-qualified stock options, restricted stock and stock-based awards. Under the 2020 Plan, incentive and non-qualified stock options may be granted at not less than
The 2020 Plan authorizes the Company to issue up to
16
day of each fiscal year beginning in fiscal year 2021 and ending on the second day of fiscal year 2025, by an amount equal to the smaller of (i)
2020 Employee Stock Purchase Plan
On May 26, 2020, the Company’s stockholders approved the adoption of the ESPP, which allows for full-time and certain part-time employees of the Company to purchase shares of common stock at a discount to fair market value. Eligible employees enroll in a six-month offering period during the open enrollment period prior to the start of that offering period. A new offering period begins approximately every March 1 and September 1. At the end of each offering period, the accumulated contributions are used to purchase shares of the Company’s common stock. Shares are purchased at a price equal to
The ESPP authorizes the Company to issue up to
Management Warrants
Warrants to purchase DermTech Operations common stock were issued to executive officers of DermTech Operations in lieu of issuing certain stock options (the “Management Warrants”). The Management Warrants were assumed by the Company in connection with the Business Combination. The Management Warrants have a
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following as of March 31, 2022 and December 31, 2021 (in thousands):
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March 31, 2022 |
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December 31, 2021 |
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Warrants to purchase common stock |
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SPAC Warrants to purchase common stock* |
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Stock options issued and outstanding |
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Restricted stock units issued and outstanding |
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Authorized for future equity grants |
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Authorized for future ESPP purchases |
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Total common stock reserved for future issuance |
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*
17
4. |
Leases, Commitments and Contingencies |
Finance Leases
The Company leases certain laboratory equipment from various third parties, through equipment finance leases (previously referred to as “capital leases”). These leases either include a bargain purchase option or the terms of the leases are at least
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March 31, 2022 |
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December 31, 2021 |
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Gross finance lease obligations |
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$ |
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$ |
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|
Less imputed interest |
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|
( |
) |
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( |
) |
Present value of net minimum lease payments |
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Less current portion of finance lease obligations |
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( |
) |
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( |
) |
Total long-term finance lease obligations |
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$ |
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|
|
$ |
|
|
Operating Leases
Del Mar Heights Lease
On
The Del Mar Lease provides for a tenant improvement allowance of $
As the Landlord tenders possession of each portion of the Entire Premises for which the applicable improvements required by the Del Mar Lease are substantially complete, the Company will be obligated to make monthly payments of base rent with respect to such portion of the Entire Premises as set forth on Schedule 1 to the Del Mar Lease. In the event the Company exercises its option to extend the Del Mar Lease term, the Lease provides for monthly rent payments during the additional
During year ended December 31, 2021, the Company took initial possession of the first phase of its corporate headquarters, and the Company capitalized a right-of-use asset and related lease liability of $
18
payments in a similar economic environment. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the U.S. Treasury rate and an indicative Moody’s rating for operating leases.
In connection with this operating lease, in lieu of a cash security deposit, the Company’s bank issued a letter of credit on its behalf, which is secured by a deposit totaling $
Torrey Pines Lease
The lease term for all leased space has an expiration date of
The components of lease expense for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
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Three Months Ended March 31, |
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|||||
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2022 |
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2021 |
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Operating lease cost |
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Operating lease cost |
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$ |
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|
$ |
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Variable lease costs |
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Total operating lease cost |
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$ |
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$ |
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Finance lease cost |
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Amortization of leased assets |
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$ |
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$ |
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Interest on lease liabilities |
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Total finance lease cost |
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$ |
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$ |
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Other information |
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Cash paid for amounts included in the measurement of lease liabilities |
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Operating cash flows from operating leases |
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$ |
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|
$ |
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|
Operating cash flows from finance leases |
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$ |
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|
$ |
|
|
Financing cash flows from finance leases |
|
$ |
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|
$ |
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|
Right-of-use assets obtained in exchange for new operating lease obligations |
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$ |
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$ |
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Weighted-average remaining lease term of operating leases (in years) |
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Weighted-average remaining lease term of finance leases (in years) |
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Weighted-average discount rate for operating leases |
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% |
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% |
Weighted-average discount rate for finance leases |
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% |
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|
% |
19
The Company’s future minimum lease payments under operating and finance leases at March 31, 2022 are as follows (in thousands):
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2022 |
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2023 |
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2024 |
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2025 |
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2026 |
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Thereafter |
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Total |
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|||||||
Operating lease obligations, including interest |
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$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Finance lease obligations, including interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
— |
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|
|
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|
Total future minimum lease payments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
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|
Amounts presented in the table above exclude non-cancelable future minimum lease payments for operating leases that have not commenced as of March 31, 2022.
Legal Proceedings
From time to time, the Company may be subject to legal proceedings and claims arising in the ordinary course of business. Management does not believe that the outcome of any of these matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
5. |
Related Party Transactions |
During 2021 and 2022, the Company engaged EVERSANA Life Science Services, LLC (“EVERSANA”) to provide certain marketing services to the Company. Leana Wood, the spouse of Todd Wood, the Company’s Chief Commercial Offer, is an employee of EVERSANA. The Company incurred $
On October 1, 2019, the Company entered into a consulting agreement with Michael Dobak pursuant to which the Company will compensate Michael Dobak, in an amount not to exceed $
There were
6. |
Subsequent Events |
Del Mar Lease Amendments
In April 2022, the Company entered into two amendments to the Del Mar Lease. Pursuant to the first amendment to the Del Mar Lease, the Company elected to utilize a one-time increase in an allowance provided under the Del Mar Lease to make certain improvements to the Entire Premises. As a result, the Company will pay an increased monthly base rent to the Landlord, in order to repay costs relating to the additional design and construction. Pursuant to the second amendment to the Del Mar Lease, the Company elected to expand the Entire Premises to include
The Company considered subsequent events through May 3, 2022, the date the condensed consolidated financial statements were available to be issued.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Discussion and Analysis of Financial Condition and Results of Operations of DermTech, Inc. (together with its subsidiaries, “DermTech,” “we,” “us,” “our” or the “Company”) should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 10, 2022.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are intended to be covered by the “safe harbor” created by those sections. All statements, other than statements of historical facts, contained in this report, including statements regarding DermTech’s or its management’s intentions, beliefs, expectations and strategies for the future, are forward looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements are made as of the date of this report, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward-looking statements. The risks and uncertainties that could cause actual results to differ materially are more fully described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. We may disclose changes to risk factors or additional risk factors from time to time in our future filings with the SEC. We assume no obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results.
Overview
We are a molecular diagnostic company developing and marketing novel non-invasive genomics tests to aid in the diagnosis and management of various skin conditions, including skin cancer, inflammatory diseases, and aging-related conditions. Our technology provides a highly accurate alternative to surgical biopsy, minimizing patient discomfort, scarring, and risk of infection, while maximizing convenience. Our scalable genomics assays have been designed to work with our Smart Sticker that are used to non-invasively collect a tissue sample for analysis.
We are initially commercializing tests that will address unmet needs in the diagnostic pathway of pigmented skin lesions, such as moles or dark colored skin spots. The DMT facilitates the clinical assessment of pigmented skin lesions for melanoma. We have initially marketed this test directly to a concentrated group of dermatology clinicians and are currently expanding marketing efforts to a broader group of dermatology clinicians. The simple application of our Smart Sticker to collect samples non-invasively may allow us to eventually market the DMT to primary care physicians more broadly, beyond integrated primary care networks, and expand our efforts through telemedicine channels. We process our tests in our high complexity molecular laboratory that is certified under CLIA, College of American Pathologists accredited and New York licensed. We also provide laboratory services to several pharmaceutical companies that access our technology on a contract basis within their clinical trials or other studies to better advance new drugs.
Events, Trends and Uncertainties
The DMT (without the add-on test for TERT) became eligible for Medicare reimbursement on February 10, 2020. Each reference to the DMT in this paragraph refers only to the DMT without the add-on test for TERT. In late October 2019, the American Medical Association provided us with a PLA Code. Pricing of $760 for the PLA Code was published on December 24, 2019 as part of the Clinical Laboratory Fee Schedule for 2020. The final Local Coverage Determination, or LCD, expanded the coverage proposal in the draft LCD from one to two tests per date of service and it allows clinicians to order the DMT if they have sufficient skill and experience to decide whether a pigmented lesion should be biopsied. Our local Medicare Administrative Contractor, Noridian has issued its own Local Coverage Decision, or Noridian’s LCD, announcing coverage of the DMT. Even though the effective date of Noridian’s LCD was June 7, 2020, Noridian began reimbursing us for the DMT as of February 10, 2020. With Medicare coverage granted, we have the opportunity to approach commercial payors, and as a result, we believe that the DMT may generate significant revenues in 2022 and 2023. No LCD currently covers the optional add-on test for TERT available to those ordering the DMT.
Despite the grant of Medicare coverage for the DMT (without the add-on test for TERT), uncertainty surrounds commercial payor reimbursement, including governmental and commercial payors, of any test incorporating new technology, including tests developed using our technologies. Because each payor generally determines for its own enrollees or insured patients whether to cover or otherwise establish a policy to reimburse our tests, seeking payor approvals is a time-consuming and costly process. We cannot be certain that coverage for our current tests and our planned future tests will be provided in the future by additional commercial payors or that existing policy decisions or reimbursement levels will remain in place or be fulfilled under existing terms and provisions. If we
21
cannot obtain or maintain coverage and reimbursement from private and governmental payors such as Medicare and Medicaid for our current tests, or new tests or test enhancements that we may develop in the future, our ability to generate revenues could be limited. This may have a material adverse effect on our business, financial condition, results of operation, and cash flows.
Revenue Effects Related to COVID-19 Pandemic
Assay Revenue
Beginning in March 2020 and continuing through the first quarter of 2022, the ongoing COVID-19 pandemic has reduced patient access to clinician offices for in-person testing and reduced access by our sales force for in-office sales calls, which has resulted in a reduced volume of billable samples received relative to our pre-pandemic expectations. April 2020 billable sample volume was down by approximately 80%, commensurate with the closure of dermatology offices, compared to the average monthly billable sample volume for the two months preceding the beginning of the COVID-19 stay-at-home orders. Despite the downturn in billable samples in April 2020, we saw a stabilization of billable sample volume throughout the rest of the second quarter of 2020 and through the first quarter of 2022 as various states and dermatology offices reopened throughout the country. Despite not all dermatology practices returning to full operations, billable sample volume first exceeded pre‑pandemic levels in July 2020. Billable sample volume for the three months ended March 31, 2022 was 22% higher compared to billable sample volume for the three months ended December 31, 2021. Billable sample volume for the three months ended March 31, 2022 was 53% higher than billable sample volume for the three months ended March 31, 2021. Billable sample volumes could again be negatively impacted by the ongoing COVID-19 pandemic, including as a result of any resurgence of the virus or its variants.
In April 2020, we made available a remote telemedicine collection option for the DMT. Using the remote telemedicine collection option, a clinician can choose to assess the patient’s skin and suspicious lesion(s) via a teledermatology telemedicine appointment and, if indicated, submit a patient-specific order to DermTech for the DMT. In this case, a Smart Sticker Collection Kit is then mailed to the patient directly. During a follow-up telemedicine appointment, a clinician instructs and supervises the patient to collect their sample with the Smart Sticker. The patient then returns the collected sample(s) back to DermTech via a pre-labeled shipping envelope for analysis. Test results are made available to the ordering clinician within a few days.
In July 2021, we launched another telemedicine option available to patients through the DermTech Connect mobile application, where permitted by law and consistent with applicable standards of care and practice guidelines. DermTech Connect enables a user to take a picture of a suspicious lesion with their phone and submit the picture to an independent clinician to assess the lesion. As of the date of this report, DermTech Connect is only available to patients of clinicians subscribed to DermTech Connect in 44 states and remains limited in operations. Subscribing clinicians utilizing DermTech Connect charge a pre-determined amount for the patient services and no claims are submitted for reimbursement of the clinical telemedicine services. These subscribing clinicians pay DermTech a fixed amount for use of the DermTech Connect platform. The clinician can also determine, if they deem it medically necessary, to order the DMT, in which case a Smart Sticker Collection Kit is mailed to the patient, followed by at-home self-collection with remote virtual supervision by a DermTech patient liaison. Many state laws and regulations impose various requirements on the practice of telemedicine, the regulatory landscape is evolving and DermTech Connect is not, and may not become, available in all states. The telemedicine market is relatively new and unproven, especially within dermatology, and it is uncertain whether the telemedicine options for the DMT will achieve and sustain high levels of demand, consumer acceptance and market adoption, as well as face challenges in the regulatory landscape, which is complex and evolving.
While and to the extent that the COVID-19 pandemic continues (including as a result of clinician offices closing again due to a COVID-19 outbreak within the practice, or patients avoiding in-person visits to the dermatology clinic for fear of contracting COVID-19 or any of its viral variants), our revenues will depend to an extent on the willingness of clinicians and their patients to use our telemedicine option for the DMT, as well as on our ability to demonstrate the value of our telemedicine option to health plans and other purchasers of healthcare for beneficiaries. The duration and extent of the effects of the ongoing COVID-19 pandemic are uncertain and have, and may again in the future, adversely affect our revenues by reducing access to clinician offices by patients for in-person testing and by our sales force for in-office sales calls.
Contract Revenue
Contract revenues with pharmaceutical companies relate to ongoing clinical trial contracts and new contracts. Contract revenue can be highly variable as it is dependent on the pharmaceutical customers’ clinical trial progress which can be difficult to forecast due to variability of patient enrollment, drug safety and efficacy and other factors. Many of our contracts with third parties are structured to contain milestone billing payments, which typically are advance payments on work yet to be performed. These advanced payments are structured to help fund operations and are included in deferred revenue as the work has not yet been performed. These advance payments will remain in deferred revenue until we process the laboratory portion of the contracts allowing us to recognize the revenue.
22
The COVID-19 pandemic has negatively affected and may again in the future negatively affect our pharmaceutical customers’ clinical trials. The extent of such effect on our future revenue is uncertain and will depend on the duration and extent of the effects of the ongoing COVID-19 pandemic on our pharmaceutical customers’ clinical trials.
Optional Add-on Test for TERT (formerly known as PLAplus)
During the second quarter of 2021, we announced the launch of the optional add-on test for TERT (then known as PLAplus) available to those ordering the DMT, which delivers objective and actionable information to guide clinical management decisions for skin lesions suspicious of melanoma. This add-on test combines TERT promoter DNA driver mutation analyses as a reflex test to the DMT’s standard RNA gene expression test. TERT is individually associated with histopathologic features of aggressiveness and poor survival in melanoma. The combined tests elevate the sensitivity from 91% to 97% and maintain a negative predictive value of >99%, resulting in a less than 1% probability of missing melanoma. By combining RNA gene expression and DNA mutation analyses, the DMT provides a highly accurate non-invasive genomic test for enhanced early melanoma detection. For a discussion of the effects of the ongoing COVID-19 pandemic on recognized revenue derived from the DMT, refer to “Assay Revenue” under “Revenue Effects Related to COVID-19 Pandemic” above.
Financial Overview
Revenue
We generate revenue through laboratory services that are billed to Medicare, private medical insurance companies and to pharmaceutical companies who order our laboratory services, which can include sample collection kits, assay development, genomic analysis, data analysis and reporting. Our revenue is generated from two revenue streams: contract revenue and assay revenue. Assay revenue can be highly variable as it is based on payments received by private insurance payors that are not under contract and can vary based on patient insurance coverage, deductibles and co-pays. As much of our assay revenue is driven by the samples that are sent by physicians to our central lab for testing, a key performance measure for us is samples that are received and processed by our central lab successfully, also known as billable samples. Our laboratory services are ordered by customers on projects that may span over several years, which makes our contract revenue highly variable. Segments of these contracts may be increased, delayed or eliminated based on the success of each customers’ clinical trials or other factors.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses are primarily related to our specialty field sales force, market research, reimbursement efforts, conference attendance, public relations, and general marketing. We expect these expenses to increase significantly as we expand our direct consumer marketing efforts and continue to add to our specialty sales force, marketing and payor access teams throughout 2022.
Research and Development Expenses
Our R&D expenses consist primarily of salaries and fringe benefits, clinical trials, consulting costs, facilities costs, laboratory costs, equipment expense, and depreciation. We also conduct clinical trials to validate the performance characteristics of our tests and to show medical cost benefit in support of our reimbursement efforts. We expect these expenses to increase significantly as we continue to develop new products and expand the use of our existing products.
General and Administrative Expenses
Our general and administrative expenses consist of senior management compensation, consulting, legal, billing and collections, human resources, information technology, accounting, insurance, and general business expenses. We expect our general and administrative expenses, especially employee-related costs, including stock-based compensation, insurance, accounting, and legal fees, to continue to increase due to operating as a publicly traded company, particularly as we are now subject to additional requirements as a large accelerated filer.
Financing Activities
2020 At-The-Market Offering
On November 10, 2020, the Company entered into a sales agreement with Cowen relating to the sale of shares of the Company’s common stock from time to time with an aggregate offering price of up to $50.0 million. During 2020, the Company issued an
23
aggregate of 951,792 shares of common stock pursuant to the sales agreement at a weighted average purchase price of $20.97, resulting in aggregate gross proceeds of approximately $20.0 million. During 2021, the Company issued an aggregate of 530,551 shares of common stock pursuant to the sales agreement at a weighted average purchase price of $46.33 resulting in aggregate gross proceeds of approximately $24.6 million, reduced by $0.7 million in issuance costs, resulting in net proceeds to the Company of approximately $23.8 million. The Company did not issue or sell any shares of common stock pursuant to the sales agreement in the first quarter of 2022.
2021 Underwritten Public Offering
On January 6, 2021, the Company, entered into an Underwriting Agreement with Cowen and William Blair & Company, L.L.C. as representatives of several underwriters (the “Underwriters”). The Company agreed to issue and sell up to 4,237,288 shares of its common stock including up to 635,593 shares that could be purchased by the Underwriters pursuant to a 30-day option granted to the Underwriters by the Company.
On January 11, 2021, the Company closed the underwritten public offering of 4,872,881 shares of its common stock, which included the exercise in full by the Underwriters of their option to purchase up to 635,593 additional shares, at a price to the public of $29.50 per share. The Company’s aggregate gross proceeds from the offering, before deducting underwriting discounts and commissions and other offering expenses, were $143.7 million.
Results of Operations
Three Months Ended March 31, 2022 and March 31, 2021
Assay Revenue
Assay revenues grew $1.3 million, or 61%, to $3.5 million for the three months ended March 31, 2022 compared to $2.2 million for the three months ended March 31, 2021. Billable samples increased to approximately 14,370 for the three months ended March 31, 2022 compared to approximately 9,400 for the three months ended March 31, 2021. Sample volume is dependent on two major factors: the number of clinicians who order an assay in any given quarter and the number of assays ordered by each clinician during the period. The number of ordering clinicians and the utilization per clinician can vary based on a number of factors including the types of patients presenting skin cancer conditions, clinician reimbursement, office workflow, market awareness, clinician education and other factors. The ongoing COVID-19 pandemic has negatively affected and may continue to negatively affect our assay revenue by, among other things, limiting patient access to clinician offices for in-person testing and limiting access by our sales force for in-office sales calls. Additionally, assay revenue increased due, in part, to our new contracts with Blue Shield of California, Blue Cross Blue Shield of Texas and Blue Cross Blue Shield of Illinois.
Contract Revenue
Contract revenues with pharmaceutical companies decreased $0.1 million, or 40%, to $0.2 million for the three months ended March 31, 2022, compared to $0.3 million for the three months ended March 31, 2021. Contract revenue can be highly variable as it is dependent on the pharmaceutical customers’ clinical trial progress, which can be difficult to forecast due to variability of patient enrollment, drug safety and efficacy and other factors. The ongoing COVID-19 pandemic has negatively affected and may continue to negatively affect our pharmaceutical customers’ clinical trials. The extent of such effect on our future revenue is uncertain and will depend on the duration and extent of the effects of the ongoing COVID-19 pandemic on our pharmaceutical customers’ clinical trials. Many of our contracts with third parties are structured to contain milestone billing payments, which typically are advanced payments on work yet to be performed. These advanced payments are structured to help fund operations and are included in deferred revenue as the work has not yet been performed. As of March 31, 2022, the deferred revenue amount for these contracts, which is the advanced payments minus the value of work performed, was $1.4 million. These advanced payments will remain in deferred revenue until we process the laboratory portion of the contracts allowing us to recognize the revenue.
24
Cost of Revenue
Cost of revenues increased $1.6 million, or 80%, to $3.6 million for the three months ended March 31, 2022 compared to $2.0 million for the three months ended March 31, 2021. The increase was largely attributable to a higher billable sample volume in 2022, and higher consulting and software costs. As of March 31, 2022, a large portion of the costs of revenue are fixed, and these costs include the CLIA facility, quality assurance, management and supervision and equipment calibration and depreciation. The variable cost of revenue expenses incurred primarily relate to compensation-related costs for our laboratory scientists and technicians, laboratory supplies, shipping costs, equipment maintenance, and utilities. We remain committed to continuing the automation of our laboratory processes in order to become more cost efficient and productive.
Operating Expenses
Sales and Marketing
Sales and marketing expenses increased $8.9 million, or 137%, to $15.4 million for the three months ended March 31, 2022 compared to $6.5 million for the three months ended March 31, 2021. The increase was primarily attributable to higher compensation-related costs from the expansion of the commercial team, increased spending on marketing and payor infrastructure and activities, and additional consulting, software and travel expenses. We expect to add to our specialty sales force, marketing and payor access teams throughout 2022 and 2023, and increase spending on direct-to-consumer marketing campaigns, which would collectively increase our sales and marketing expenses significantly.
Research and Development
R&D expenses increased $4.0 million, or 182%, to $6.3 million for the three months ended March 31, 2022 compared to $2.3 million for the three months ended March 31, 2021. The increase was due to higher compensation costs of expanding the R&D team, including the addition of a new Chief Medical Officer, increased clinical trial costs and increased spending on laboratory supplies to support new product development. We expect these expenses to increase as we continue to grow the R&D team and focus on the development of our Luminate test, our basal and squamous cell skin cancer assays and other products in our pipeline.
General and Administrative
General and administrative expenses increased $3.4 million, or 66%, to $8.6 million for the three months ended March 31, 2022 compared to $5.2 million for the three months ended March 31, 2021. The increase was primarily due to higher payroll-related costs and stock-based compensation as we continue to add additional infrastructure such as human resources, billing, information technology and legal resources, and higher consulting expenses, audit fees, and insurance.
Interest Income, net
Interest income, net for the three months ended March 31, 2022 was $0.1 million compared to interest income, net of $34,000 for the three months ended March 31, 2021. Interest income, net for the three months ended March 31, 2022 consists primarily of interest earned on our short-term marketable securities.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability for the three months ended March 31, 2022 was a gain of $17,000 compared to a loss of $1.7 million for the three months ended March 31, 2021. The change in fair value of warrant liability is calculated by adjusting the value of the outstanding Private SPAC Warrants held by original holders to the current market value at each reporting period.
Liquidity and Capital Resources
We have never been profitable and have historically incurred substantial net losses, including net losses of $36.5 million for the twelve months ended December 31, 2020, $78.3 million for the twelve months ended December 31, 2021 and $30.1 million for the three months ended March 31, 2022. As of March 31, 2022, our accumulated deficit was $236.5 million. For the three months ended March 31, 2022, we had negative operating cash flow of $24.8 million. At the end of 2020 and throughout 2021, we raised approximately $44.5 million in gross proceeds facilitated through our At-the-Market Offering. In addition, we completed the 2021 Underwritten Public Offering in January 2021, which raised a total of $143.7 million in gross proceeds. We have historically financed operations through private placement and public equity offerings.
25
We expect our losses to continue as a result of costs relating to ongoing R&D expenses, increased general and administrative expenses and increased sales and marketing costs for existing and planned products. These losses have had, and will continue to have, an adverse effect on our working capital. Because of the numerous risks and uncertainties associated with our commercialization and development efforts, we are unable to predict when we will become profitable, and we may never become profitable. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.
As of March 31, 2022, our cash and cash equivalents totaled approximately $145.1 million and short-term marketable securities totaled approximately $54.1 million. Based on our current business operations, we believe our current cash, cash equivalents and short-term marketable securities will be sufficient to meet our anticipated cash requirements for at least the next 12 months. While we believe we have enough capital to fund anticipated operating costs for at least the next 12 months, we expect to incur significant additional operating losses over at least the next several years. We anticipate that we will raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements in order to support our planned operations and to continue developing and commercializing genomic tests. We may also consider raising additional capital in the future to expand our business, to pursue strategic investments or to take advantage of financing opportunities. Our present and future funding requirements will depend on many factors, including:
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our revenue growth rate and ability to generate cash flows from operating activities; |
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the willingness of clinicians and their patients to use our telemedicine option for the DMT and the duration and extent of the effects of the ongoing COVID-19 pandemic in reducing patient access to clinician offices for in-person testing and access by our sales force for in-office sales calls; |
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the duration and extent of the effects of the ongoing COVID-19 pandemic on our pharmaceutical customers’ clinical trials; |
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our sales and marketing and R&D activities; |
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effects of competing technological and market developments; |
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costs of and potential delays in product development; |
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changes in regulatory oversight applicable to our tests; and |
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timing of and costs related to future international expansion. |
There can be no assurances as to the availability of additional financing or the terms upon which additional financing may be available to us. If we are unable to obtain sufficient funding at acceptable terms, we may be forced to significantly curtail our operations, and the lack of sufficient funding may have a material adverse impact on our ability to continue as a going concern.
Cash Flow Analysis
Three Months Ended March 31, 2022
Net cash used in operating activities for the three months ended March 31, 2022 totaled $24.8 million, primarily driven by the $30.1 million net loss offset partially by non-cash related items, including $3.9 million in stock-based compensation, $0.7 million in amortization of premiums, net of accretion of discounts on marketable securities, $0.4 million in amortization of operating lease right of use assets and $0.4 million in depreciation. In addition, we had a cash inflow of $1.5 million from the increase in accrued compensation and $0.2 million from the increase in accounts payable, accrued liabilities and deferred revenue, which was offset by a cash outflow of $1.1 million through the increase of accounts receivable, $0.3 million through the increase of inventory, $0.1 million through the increase of prepaid expenses and other current assets and $0.3 million through the decrease of the operating lease liability.
Net cash used in investing activities for the three months ended March 31, 2022 totaled $7.5 million, which related to the outflow from the purchase of $13.7 million of marketable securities and $0.6 million from the purchase of equipment, offset by the inflow from the sale and maturity of marketable securities of $6.8 million. Additional laboratory equipment investment will be needed to install complex automation systems and other genomic testing equipment needed to expand testing capacity.
Net cash provided by financing activities for the three months ended March 31, 2022 totaled $0.5 million, which was driven by $0.5 million in proceeds from contributions from our employee stock purchase plan.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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Critical Accounting Policies and Significant Judgments and Estimates
Critical accounting policies, significant judgments, and estimates are those that we believe are most important for the portrayal of the Company’s financial condition and results, and that require management’s most subjective and complex judgments. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting estimates previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and disclosed in Note 1(h) of the condensed consolidated financial statements herein.
Recent Accounting Pronouncements
See Item 1 of Part I, Note 1(l) and Note 1(m) of the condensed consolidated financial statements herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our cash, cash equivalents, and short-term marketable securities are subject to economic risk which could affect our results of operations, financial condition and cash flows. We manage our exposure to this market risk through our regular operating and financing activities.
Interest Rate Risk
The primary objective of our investment activities is capital preservation to fund operations, while at the same time maximizing investment income without significantly increasing investment risk. To achieve these objectives, our investment policy allows for a portfolio of cash equivalents and investments in a variety of securities, including money market funds, U.S. government debt and corporate debt securities. Due to the short-term and conservative nature of our investments, we do not believe that we have a material exposure to interest rate risk. A 100 basis point change in interest rates would not have a significant impact on the total value of our portfolio.
Item 4. Controls and Procedures.
Disclosure controls and procedures enable us to record, process, summarize and report information required to be included in our Exchange Act filings within the required time period. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of December 31, 2021, the Company’s disclosure controls and procedures were not effective, due to the material weakness in our internal control over financial reporting discussed in Part I, Item 9A—Controls and Procedures in our Annual Report on Form 10-K for the year ended December 31, 2021.
Material Weakness in Internal Over Financial Reporting
A material weakness in internal control over financial reporting is a deficiency, or combination of deficiencies such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As the Company could not conclude that controls over the completeness, existence and accuracy of assay revenue and accounts receivable were designed and operating effectively as of December 31, 2021, the Company identified a material weakness in its controls over the financial reporting related to our assay revenue and accounts receivable process. Management identified the need to enhance our risk assessment process, enhance communications with our third-party service organization, and reassess the assay revenue and accounts receivable process to ensure appropriate design and operating effectiveness of controls.
Plan of Remediation of Material Weakness
To remediate these material weaknesses in our internal control over financial reporting related to assay revenue and accounts receivable described in Part I, Item 9A—Controls and Procedures in our Annual Report on Form 10-K for the year ended December 31, 2021, we plan to implement or improve documentation of alternative internal control procedures to verify the completeness and accuracy of customer contracts received and the delivery of test results. The material weakness cannot be considered remediated until the controls operate for a sufficient period and management has concluded, through testing, that our internal controls are operating effectively.
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Other than the changes made in remediating the material weakness described above, there has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
After giving full consideration to the material weakness referenced above, and the additional analyses and other procedures that we performed to ensure that our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with U.S. GAAP, our management has concluded that our condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors.
There have not been any material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Between January 5, 2022 and March 5, 2022, we issued an aggregate of 11,101 shares of common stock pursuant to the exercise of management warrants that were issued by DermTech Operations and assumed by us in connection with the Business Combination. These warrants had an exercise price of $1.08 per share and were exercised for an aggregate exercise price of $11,989.
The issuances of the shares were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act. The recipients of the shares represented their intention to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof, and appropriate legends were affixed to the securities.
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Item 6. Exhibits.
The following documents are filed as part of this Form 10-Q.
Exhibit No. |
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Description |
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Filed Herewith |
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Form |
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Incorporated by Reference File No. |
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Date Filed |
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3.1 |
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Amended and Restated Certificate of Incorporation of the Company, as amended |
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10-Q |
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001-38118 |
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11/10/20 |
3.2 |
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10-K |
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001-38118 |
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3/11/20 |
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10.1* |
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S-8 |
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333-263484 |
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3/11/22 |
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10.2* |
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S-8 |
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333-263484 |
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3/11/22 |
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10.3* |
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S-8 |
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333-263484 |
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3/11/22 |
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31.1 |
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X |
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31.2 |
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X |
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32.1** |
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X |
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101.INS |
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Inline XBRL Instance Document |
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X |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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X |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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X |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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X |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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X |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
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104 |
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The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 has been formatted in Inline XBRL. |
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X |
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* Management contract or compensatory plan or arrangement.
** This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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DermTech, Inc. |
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Date: May 3, 2022 |
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By: |
/s/ John Dobak |
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John Dobak, M.D. |
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Chief Executive Officer (Principal Executive Officer) |
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Date: May 3, 2022 |
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By: |
/s/ Kevin Sun |
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Kevin Sun |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
31
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John Dobak, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 of DermTech, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 3, 2022 |
By: |
/s/ John Dobak |
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John Dobak |
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Chief Executive Officer |
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(principal executive officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Sun, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 of DermTech, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 3, 2022 |
By: |
/s/ Kevin Sun |
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Kevin Sun |
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Chief Financial Officer |
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(principal financial and accounting officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 of DermTech, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies in his capacity as the specified officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: May 3, 2022 |
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By: |
/s/ John Dobak |
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John Dobak |
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Chief Executive Officer |
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(principal executive officer) |
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Date: May 3, 2022 |
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By: |
/s/ Kevin Sun |
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Kevin Sun |
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Chief Financial Officer |
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(principal financial and accounting officer) |
This certification accompanies the Quarterly Report on Form 10-Q to which it relates and shall not be deemed filed with the Securities and Exchange Commission or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.