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Cowen Initiates Coverage of DermTech With Outperform Rating

NEW YORK – Investment bank Cowen on Thursday initiated coverage of DermTech with a rating of Outperform and price target of $20.

In a note, analyst Ryan Blicker lauded the company's noninvasive test for early melanoma detection, PLA, which uses a proprietary adhesive patch sampling technology to measure aberrant gene expression in suspect skin lesions.

Blicker said that the firm is the only one of its kind with a commercial stage, noninvasive genomic test for this application. He also predicted that catalysts like testing reimbursement and a growing sales force are likely to drive an inflection in volumes and revenue over the next two years.

The company received a local coverage determination from Medicare in January this year. "With Medicare reimbursement secured and strong clinical/cost savings data, we believe broad based commercial reimbursement is a question of 'when', not 'if', Blicker wrote.

Although Cowen didn't include projections related to DermTech's future pipeline in its rating, the bank did note that the company is developing a series of other genomic assays using its noninvasive skin sampling platform and has several ongoing pharmaceutical partnerships across a variety of skin diseases.

Cowen estimated that the use of PLA for early melanoma detection represents a more than $2.5 billion annual revenue opportunity, based on a potential to displace a vast majority of the invasive surgical biopsies performed on suspicious skin lesions.

"We believe melanoma is a perfect application for a noninvasive rule out test like [DermTech's] PLA [because] 90 percent of biopsies are negative (and accordingly, unnecessary), invasive biopsies/wide excisions are not enjoyable for patients, and there are minor risks of associated complications. Use of the noninvasive PLA test eliminates the vast majority of these unnecessary biopsies, improves the patient experience, and reduces the total cost of care," Blicker wrote in his note.

"Importantly," he added, "the performance, clinical utility, and cost savings of PLA has already been well validated." Recent publications by the firm include a study published this March in the Journal of Drugs and Dermatology.

DermTech's shares rose about 7 percent to $11.37 in morning trading on the Nasdaq.