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Oppenheimer Initiates Coverage of DermTech With Outperform Rating

NEW YORK – Oppenheimer on Thursday initiated coverage of molecular diagnostic firm DermTech with an Outperform rating and a share price target of $53.

In a note to investors, Oppenheimer analyst Kevin DeGeeter said the firm conducted a survey of 30 dermatology professionals to understand barriers to the test's adoption, demographic profiles of users versus non-users, and views about the use of genomic assays for identifying skin cancer.  

DermTech's early melanoma detection test — called pigmented lesion assay (PLA) —applies a proprietary patch sampling technology and measures aberrant gene expression in suspect skin lesions.

Major barriers to adoption include lack of reimbursement for current users and lack of awareness of the test for non-users. However, DeGeeter pointed out that with the 2021 inclusion of PLA in National Comprehensive Cancer Network guidelines, existing Medicare coverage, and broadening commercial coverage, Oppenheimer expects barriers to patient access will recede over the next three to five years.

Demographic analysis revealed few noticeable differences between current users and non-users of PLA based on geographic location, community density, practice type, years in practice, patient volume, or cosmetic-to-medical mix.

DeGeeter also noted that the eventual lifting of COVID-19 restrictions on patient office visits and the return of medical conferences may provide tailwinds for PLA awareness.

Most respondents in the survey had a positive perception of increased use of genomic data — while some believed current use of genomic data was adequate — in oncology-related screening in dermatology. PLA users tended to have more bifurcated follow-up decisions than non-users, either biopsy or benign classification, which DeGeeter believes indicates that the assay reinforces confidence in diagnosis.

"While our survey is not designed to evaluate clinical utility, the findings may suggest some dermatologists are more confident in [their] decision to either biopsy or categorize a pigmented lesion as likely benign following PLA testing," DeGeeter said. "We view achieving our growth outlook as a commercial execution story with significant potential upside from a large addressable market of [more than] 4 million pigmented lesions currently referred to biopsy each year."  

Earlier this month, DermTech raised $143 million in a public offering of common stock. Oppenheimer served as a lead manager for the offering.

In December, Craig-Hallum started coverage of DermTech with a Buy rating at a price target of $23.

During mid-morning trading on the Nasdaq, shares of DermTech were up about 2 percent at $43.66.

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