Is DermTech Stock A Buy?

Is DermTech Stock A Buy? Summers were once defined by long days of sunbathing, but that’s not really an option anymore. The dangers of too much sun exposure are well-known, and most physicians recommend liberal use of sunscreen – even when the skies are cloudy and gray.

Nonetheless, skin cancer remains the most common form of cancer. In fact, there are more cases of skin cancer than all other types of cancer put together. 

In the United States, approximately two people die from skin cancer and related complications each hour, and one out of every five people are diagnosed with the disease by the time they reach the age of 70.

The good news is that this type of cancer is extremely curable. The five-year survival rate is 99 percent when it is caught and treated early.

Sadly, too many people don’t get their diagnosis in time, and the cancer spreads to vital organs. Once this occurs, the survival rate is just 23 percent. 

The key to reducing and eliminating skin cancer-related deaths is early detection, but the standard method of diagnosis is inexact. Certain biotechs have decided to tackle this issue head-on by developing faster, less expensive, more accurate diagnostic tests. 

DermTech is the first to succeed. Investors are excited, but given the jump in share prices, they are asking is DermTech stock a buy?

Is DermTech Test Effective? 

The traditional method of diagnosing skin cancer relies on human expertise. A dermatologist examines areas of concern and sends samples of suspicious skin growths to the lab for a biopsy.

The biopsy process consists of an expert examining the cells under a microscope. While the results are accurate much of the time, error rates can be as high as 17 percent. 

DermTech offers a new kind of test – the DermTech Pigmented Lesion Assay (PLA) – which takes human skill out of the equation.

Instead, a DermTech “smart sticker” is placed on the questionable area of skin. As it is pulled away, a bit of RNA sticks to the adhesive. Rather than looking at the test sample through a microscope to determine whether cancerous cells are present, the material is genetically evaluated through cutting-edge technology. 

To date, this new test has proven itself 99 percent effective, and it appears capable of catching melanoma sooner. Better still, it is non-invasive and less costly than a traditional biopsy. Do those benefits make DermTech stock a good investment?

Is DermTech Stock A Buy?

By any measure, better diagnostic testing for any sort of cancer is sure to be in high demand.

DermTech has already projected annual sales of $1.5 billion for tests performed on Medicare patients, and that doesn’t include the additional revenue that will come once private health insurance companies approve the test for payment.

Most estimates indicate DermTech could see an additional $1 billion or more from those patients each year.

DermTech’s big moment came after business hours on December 29, 2020. The company announced that Geisinger Health System issued a positive medical benefit policy for the DermTech test. That’s the first step to widespread use of this testing method. Within hours of the market’s opening on December 30th, DermTech’s share prices were up a full 25 percent. 

As more insurers agree to cover the DermTech Pigmented Lesion Assay (PLA), sales will increase. The late-December jump could be the start of something big. Given the possibilities, most industry analysts agree that DermTech stock is a buy.

What Could Hurt DermTech Stock?

The biggest risk to investors of a biotech stock is the possibility that a promising product fails during clinical trials. DermTech appears to be out of the woods with regard to that issue.

That leaves the next-biggest risk, which is the possibility that a growing company fails to manage the financial side of the business. 

The market for DermTech’s diagnostic test is massive, and as insurance coverage increases, revenues will increase as well. However, that doesn’t guarantee profits in the short-term – and even long-term profits aren’t a certainty.

DermTech seems well-prepared to manage its business, thanks to a highly-qualified leadership team. Executives come from high-level positions at companies like Allergan, Exagen, and Incyte (INCY), where they gained the skills necessary to successfully lead a biotech firm. 

In short, while a purchase of DermTech stock carries some level of risk, there is no indication that this is a high-risk investment.

Who Competes With DermTech?

The beauty of investing in DermTech is that its product is one-of-a-kind. DermTech is first to offer a non-invasive skin genomics test, and the company’s pipeline includes a more advanced version of the DermTech Pigmented Lesion Assay.

In addition, it has a collection of other tests in various stages of clinical trials. Together, these tests will cover the entire spectrum of skin cancers. 

There are certainly other companies interested in creating next-generation skin cancer tests, but it appears likely that DermTech will hold a commanding lead in market share long before anyone else gains approval for a similar product. That bodes well for DermTech in terms of fending off competitive challenges.

Is DermTech Stock A Buy? The Bottom Line

The bottom line is that DermTech aspires to eliminate skin cancer deaths. Its new test is faster, more accurate, and less expensive than traditional biopsies.

More importantly, it is non-invasive and can be self-administered by patients in their homes. Those features alone are expected to increase early detection of cancerous cells. 

In other words, DermTech may very well be on the path to achieving its goal – and it is likely to generate profits along the way. Most industry analysts agree that DermTech is a strong addition to any portfolio. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.