Dive Brief:
- Dermtech has filed for Chapter 11 bankruptcy protection and laid off 20% of its staff to support its push to find a buyer for its cancer test technology, the company said Tuesday.
- The San Diego-based company, which makes a skin patch to test for melanoma, began looking for a buyer in January as a mix of reimbursement challenges and costs related to R&D, facility leases and more created financial problems.
- After almost five months of outreach and negotiations, Dermtech decided Chapter 11 “provided the clearest path to maximize value” because the bankruptcy code provides benefits to buyers.
Dive Insight:
Dermtech promoted its cancer test as an alternative to using a scalpel to biopsy suspicious skin lesions. The test has a higher negative predictive value and lower cost, according to the company, but failed to take off commercially. Dermtech reported test revenue of $14.4 million and operating expenses of $104 million in 2023.
The bankruptcy filing describes how “substantial costs” related to developing, making and selling its products, plus spending on property and reporting obligations, affected Dermtech’s finances. Dermtech’s landlord filed a complaint in May alleging the company failed to pay more than $660,000 in past due rent. Efforts to grow sales to cover costs were hindered by reimbursement challenges, the company said.
Dermtech tried to raise money late last year, according to the filing, but the efforts “only yielded highly dilutive financing offers.” That led the company to start exploring strategic transactions and later engage a restructuring advisor. Dermtech disclosed a decision to lay off 100 employees, 56% of its workforce, in the weeks after it engaged the restructuring advisor.
The company is still in active talks with several parties about potential deals, according to the filing. Dermtech said marketing its assets “as a going concern with the benefits afforded to a buyer under the Bankruptcy Code will provide significant advantages that were not available during the prepetition marketing process.”
With $15 million in cash on hand, Dermtech is seeking to sell its assets on a timeline that balances the needs of its debtors with its “significant prepetition marketing efforts.” A virtual hearing was scheduled for Thursday.
Seeking to preserve cash, Dermtech has laid off another 15 employees. The company entered into retention agreements with four senior leaders including CEO Bret Christensen. Dermtech will pay the four executives one-time cash retention awards of up to $510,000.