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Is DermTech (DMTK) Making Money?

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DermTech (DMTK) has become one of the fastest growing stocks around. For example, DermTech’s share price rose from $11.49 on 11 December 2020 to $25.75 on 28 December 2020.

Strangely, the basis of DermTech’s success is a tragic disease, melanoma or skin cancer. The share price exploded because DermTech Inc. (NASDAQ: DMTK) unveiled a sticker that could diagnose melanoma on 21 December 2020.

To elaborate, DermTech’s smart sticker lifts skin cells from spots on the skin. The doctor sends the smart sticker with the cells to DermTech’s GeneLab.

How DermTech could cash in on Skin Cancer

At the Gene Lab, DermTech’s patented process tests the sample for two genes associated with melanoma. If the GeneLab detects those genes, the doctor can perform other tests.

The hope is that DermTech’s smart sticker can reduce the need for surgical biopsies. In a biopsy, a surgeon cuts out a piece of the skin for testing. Ideally, the DermTech PLA sticker could faster, less invasive, less painful, and cheaper.

Skin cancer could be a lucrative business. DermTech estimates patients and insurers spend $3 billion on 3.5 million to four million surgical biopsies for cancer each year.

DermTech claims its Melanoma test looks 10,000 times closer than a traditional biopsy. In addition, DermTech’s test examines information from a whole mole, so it is less likely to miss melanoma than traditional biopsies.

How DermTech could Save Lives

DermTech’s test could save lives because Melanoma accounts for 1% of skin cancer cases but causes most skin deaths, the American Cancer Society claims.

The American Cancer Society estimates that doctors will diagnose around 100,350 Americans with melanoma in 2020. Frighteningly, around 6,850 Americans will die of melanoma in 2020.

The number of melanoma cases could increase as the population ages. The American Cancer Society estimates that the average age of a melanoma diagnosis is 65.

DermTech’s Growing Market

The number of Americans over 65 could grow from 52 million in 2018 to 95 million by 2060, The Population Research Bureau estimates. Around 16% of Americans were 65 in 2018, that percentage will increase to 23% in 2060. Furthermore, melanoma is one of the most common cancers in young adults, particularly young women, The American Cancer Society reports.

Thus, I think there will be a growing market for DermTech’s tests. As people age, spend more time outside, and wear less clothing, more of them will need tests for skin cancer. DermTech could provide the tests.

Melanoma testing could save lives because the survival rate for cancer is higher with localized melanoma. Localized means the cancer has not spread beyond the skin where it started. If they localize the melanoma, it is easier for a doctor to remove or treat the disease.

Melanoma testing could save lives because the survival rate for cancer is higher with localized melanoma. Localized means the cancer has not spread beyond the skin where it started. If they localize the melanoma, it is easier for a doctor to remove or treat the disease.

Is DermTech Making Money?

DermTech (DMTK) loses money and offers scant moneymaking potential. DermTech reported a quarterly operating loss of -$9.40 million on 30 September 2020.

In 2020, DermTech’s quarterly operating loss grew from -$5.12 million on 31 December 2019. Similarly, DermTech reported a negative quarterly gross profit of -$250,000 on 30 September 2020. The quarterly gross profit rose from -$600,000 on 30 June 2020 and fell from $350,000 on 31 March 2020.

Moreover, DermTech’s revenues are small. DermTech reported quarterly revenues of $1.36 million on 30 September 2020. The quarterly revenues fell from $1.59 million on 31 December 2019.

Similarly, DermTech reported a negative quarterly cash flow of -$8.16 million on 30 September 2020. The quarterly operating cash flow fell from -$6.08 million on 31 December 2020.

Why Investors buy DermTech

Consequently, DermTech reported a quarterly ending cash flow of -$46.48 million on 30 September 2020. Similarly, DermTech reported a quarterly financing cash flow of $60.12 on 31 March 2020. However, the -$1.04 million 30 September 2020 financing cash flow shows DermTech pays its debts.

DermTech had a tiny value; $51.53 million in cash and short-term investments and $57.02 million in Total Assets on 30 September 2020. These small numbers will cause many people to wonder why investors are buying DermTech (DMTK)?

I think an incredible level of revenue growth attracts people to DermTech (NASAQ: DMTK). For example, Stockrow estimates DermTech’s revenues grew by 140.06% in the quarter ending on 30 September 2020.

Similarly, DermTech’s revenues grew by 37.46% in the quarter ending on 30 June 2020 and 161.24% in the quarter ending on 31 March 2020. DermTech began 2020 a revenue growth rate of 147.89% for the quarter ending on 31 December 2019.

In my opinion, Mr. Market grossly ovevalued DermTech at $25.75 on 28 December 2020. I think investors need to avoid DermTech, despite the growth because this company makes no money and has almost no value. My suggestion is to avoid DermTech until management demonstrates it can make money.