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Craig-Hallum Initiates Coverage of DermTech With Buy Rating

NEW YORK — Craig-Hallum Capital Group on Monday initiated coverage of molecular diagnostic firm DermTech with a Buy rating and a share price target of $23.

In a note to investors, Craig-Hallum analyst Alexander Nowak highlighted DermTech's early melanoma detection test — called pigmented lesion assay, or PLA — which uses a proprietary adhesive patch sampling technology to measure aberrant gene expression in suspect skin lesions.

The test is painless and more sensitive than skin biopsies, giving it an advantage over traditional melanoma screenings performed with scalpels, curettes, and needles, Nowak wrote. It can also be performed at home, opening the door to telemedicine and direct-to-consumer applications.

Nowak noted that PLA is fully reimbursed by Medicare at $760 and that private payor coverage is on the horizon. Earlier this year, DermTech published the results of a year-long study demonstrating the utility of PLA in real-world settings, which the La Jolla, California-based company is using to convince commercial insurers to cover the test. 

PLA's adhesive patch and proprietary lab analytics "are a true platform technology" that could be applied to other dermatological procedures, Nowak stated. The company is currently developing a test for non-melanoma skin cancer called Carcinome, a test for UV-precancer risk called Luminate, both of which are expected to launch in 2022.

At the same time, DermTech has agreements with companies including Biogen, L'Oreal, and Johnson & Johnson to evaluate this technology in clinical trials for psoriasis, atopic dermatitis, and acne. "Companion diagnostics or comarketing could enlarge the pure-play dermatology [total available market] even more," Nowak wrote.

In September, Cowen started coverage of DermTech with an Outperform rating at a price target of $20.

During early morning trading on the Nasdaq, shares of DermTech were up 10 percent to $12.70.