💥New Chapter 11 Bankruptcy - DermTech Inc. ($DMTK)💥
De-SPAC'd molecular diagnostic company files to seek sale in bankruptcy (no stalking horse on petition date).
On June 18, 2024, CA-based DermTech, Inc. ($DMTK) and one affiliate (collectively, the “debtors” or “the company”) filed chapter 11 bankruptcy cases in the District of Delaware (Judge Dorsey).
Founded in ‘95, DMTK is a molecular diagnostic company that creates small adhesive patches that people can put on their bodies to test for melanoma.
The company’s flagship product is the DermTech Melanoma Test (“the DMT”). Combined with the DermTech Smart Sticker (shown above), patients can perform a non-invasive test for melanoma with a negative predictive value* of 99%.
A quote from former CEO John Dobak in a Forbes piece sums the vision up nicely:
“Where it would cost $1,200 to $1,400 for each test to go through the conventional route, DermTech’s sticker costs most patients on average $75 or less out of pocket after their insurance is billed. We could essentially eliminate all those biopsies.”
The company operates a 13,000-square-foot lab in San Diego, CA, with 60 employees. All stickers come into this facility, where scientists test and return them to the physicians/patients with the results. The whole process takes about five days.
The company went public in ‘19 on the NASDAQ under the ticker “DMTK” via a de-SPAC with Constellation Alpha Capital Corp. The business combination gave the company access to $29mm in gross capital at a pro forma equity value of $81.6mm.
While the product might’ve worked, it definitely was not ready to enter the market at the scale the company anticipated. Scaling labs and increasing SG&A expenses quickly ate up all — and more of — the revenues the company generated. The company promptly realized it’d need more cash to fund operations. In November ‘20, the company launched an at-the-market offering with Cowen and Company LLC (“Cowen”) that allowed it to sell stock at its choosing at an aggregate price of up to $50mm. The company entered a similar agreement again in ‘22, allowing for the aggregate offering of up to $75mm. Both of these provided temporary lifelines; neither produced sustainable capital to figure out how to get costs under control.
Just how bad were the costs? In ‘23, the company reported $15.3mm in revenues and a net operating loss of $104mm(!).
Outside of the operating expenses, the company also incurred significant expenses related to public listing requirements, lease obligations (more on this below), payor reimbursements, and securities litigations. All of this culminated in the stock price plummeting throughout ‘23 and into ‘24.
Good luck doing another ATM with performance like that ⬆️. This ain’t no meme stock.
And clearly no lender wanted anything to do with this cancerous performance.
Multiple times throughout ‘23 and ‘24, the company reduced its workforce and implemented cost-savings plans. None of it accomplished much. In Jan. ‘24, the company initiated a sale process with Cowen (now “TD Cowen”), and in Mar. ‘24, it engaged AlixPartners LLP as a restructuring advisor. Ultimately, the sale process and advisor fees became too costly, forcing the company to file for bankruptcy protection. The debtors file with the hopes of securing a bidder in the near future. For those keeping score, YES!, this is yet another chapter 11 bankruptcy filing seeking a sale sans stalking horse purchaser.
The debtors come into the filing with no funded debt obligations. As of June 17, 2024, roughly 35mm shares were outstanding, along with 2.8mm outstanding SPAC warrants at an exercise price of $23/sh, and 570 placement agent warrants at an exercise price of $9.54/sh. Additionally, the debtors have an office lease with Kilroy Realty Corp. ($KRC) that is currently in default due to the failure to pay $662k in past rent — making KRC the debtors’ largest unsecured creditor.
The debtors are represented by Wilson Sonsini Goodrich & Rosati P.C. (Catherine Lyons, Marsha Sukach, Shane Reil, Benjamin Hoch, Erin Fay) as legal counsel, AlixPartners LLP (Stephen Hartman) as financial advisor, and TD Cowen as investment banker.
A first day hearing is scheduled for later today, June 20, 2024, at 1pm ET.
*True Negatives / (True Negatives + False Negatives).
Company Professionals:
Legal: Wilson Sonsini Goodrich & Rosati P.C. (Catherine Lyons, Marsha Sukach, Erin Fay, Benjamin Hoch, Shane Reil)
Financial Advisor: AlixPartners (Stephen Hartman)
Investment Banker: TD Cowen
Claims Agent: Stretto (Click here for free docket access)
Other Parties in Interest: