Myriad Genetics, Inc. (NASDAQ:MYGN) Q1 2024 Earnings Call Transcript May 7, 2024

Myriad Genetics, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to Myriad Genetics First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Matt Scalo. Please go ahead.

Matthew Scalo: Thanks, Latif, and good afternoon and welcome to the Myriad Genetics first quarter 2024 earnings call. During the call, we will review the financial results we released today and afterwards we will host a question-and-answer session. Our quarterly earnings release was issued this afternoon on Form 8-K and can be found on our website at investor.myriad.com. I’m Matt Scalo, Senior Vice President of Investor Relations, and on the call with me today are Paul Diaz, President and Chief Executive Officer; Scott Leffler, our Chief Financial Officer; Sam Raha, our Chief Operating Officer; and Mark Verratti, our Chief Commercial Officer. This call can be heard live via webcast at investor.myriad.com, and a recording will be archived in the Investors section of our website along with this slide presentation.

Please note that some of the information presented today contains projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management’s current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time at the Securities and Exchange Commission, specifically the company’s annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual result to different materially from those contained in our projections or forward-looking statements.

I will now turn the call over to Paul.

Paul Diaz: Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today’s call, we will discuss highlights for our strong first quarter performance, provide an update of the progress that the team has made accelerating profitable revenue growth. First, I want to thank my Myriad teammates and our provider partners for their continued support and commitment to advancing our mission and vision to make genetic testing and precision medicine more accessible and helping people take more control of their health. We’ll now turn to Slide 4 to talk about our highlights for the quarter. We continue to deliver on our commitment to shareholders as we achieved double-digit revenue growth in the first quarter compared to last year.

Talking both volume growth and ASP improvements across the portfolio. Our focus on profitable growth continues into 2024 as we reported positive adjusted EBITDA when we’re close to breakeven on an adjusted EPS basis in the first quarter. We’re excited about the ongoing execution of our near-term strategic priorities that are driving growth and efficiency across the enterprise. We are seeing early wins in both Oncology and Women’s Health related to recent market dislocations as we continue to reinforce our oncology offerings with Precise Tumor and Precise Liquid, currently being integrated into our new labs. This morning we announced a reorganization of our international operation that I will provide more detail on as well as progress standing up our new Labs of the Future.

We continue to accelerate investments, clinical validation studies and EMR integrations. A large part of our transformation journey has been addressing our clinical validation data deficit. In 2024, we’ll see Myriad go to ASCO and ACOG with more publications, abstracts, and posters that we’ve seen in a long time. Mark and Sam will speak towards these and other strategic priorities on the call as well as important updates on upcoming product launches they will review. Next slide, please. Our strategic areas of focus are directly aligned with our customer expectations and the pillars we believe will drive long-term growth, innovation, and profitability for shareholders. Every provider survey we do and every customer interaction I have always point back to five things that providers, patients, and customers.

Our customers want tests that have strong clinical utility and validity, as well as a lab partner with the most comprehensive testing measures that meets their needs. Our customers care about fast turnaround time and tests that do not place unnecessary burdens on their staff. We also want tests that are affordable for their patients. Our four strategic pillars address these customer needs, which I will discuss on the next slide. Top-tier science and innovation are at the foundation of Myriad Genetics. We deliver products that are clinically validated and use in the real-world clinical settings. We’ve invested heavily in technology and in lab operations, automated, scalable, and cost-effective labs that are compliant with FDA quality management system requirements.

Our team is the key to make it easier to do business with periods of testing new best forms through results delivery, supported by our ongoing investment in EMR integrations, our new universal order management activities, and our patient provider portals. Finding these pillars with expertise across regulatory, compliance, and revenue cycle management, we find ourselves in a position to serve our customers at scale to profit. Next slide, please. Today, we announce reorganization of our European operations, better aligned company resources for our domestic opportunity, while continuing to serve key biopharma partners and patients outside of the United States. As part of the reorganization, Myriad signed definitive agreement to sell our EndoPredict business to Eurobio Scientific.

We will license the right to continue to produce and sell EndoPredict as an LDT in the United States as part of Precise Oncology Solutions. We will also license Eurobio the right to sell Prolaris in vitro diagnostic kits outside of the U.S. Strategic rationale for this group is part of our continued effort to accelerate profitable growth, while supporting our biopharma partners more efficiently. This also allows us to better position Myriad to grow our other global businesses more efficiently through strategic partnerships, including licensing and distribution. We would also call out that this does not affect your pain, which has been and remains an important market for Myriad Genetics. This transaction is expected to close in the second or third quarter of this year.

Last quarter we announced the acquisition of Precise Tumor and Liquid from Intermountain Precision Genomics. Sam will provide an update on the integration of the associated labs to our Utah, Salt Lake facility, which is making steady progress. Together, these transactions represent very capital-efficient ways to optimize and enhance oncology portfolios. These transactions are expected to be accretive for earnings and cash flows in 2025. I will close with comments on the FDA’s final rule regarding regulation of Lab Developed Tests. While we share many of the concerns raised by the industry regarding the use of the medical device framework for this industry oversight. We do view the final rule as generally positive for Myriad, as all of our clinical tests, CAP/CLIA, and New York State requirements.

We have a strong quality assurance with Regulatory Affairs team, as well as a long history of compliance to FDA quality tests. We plan to be proactive in working with FDA to ensure that our products continue to meet the use of the regulatory requirements. Sam will cover this in more detail later on the call. Now, I will turn it over to Mark.

Mark Verratti: Thanks, Paul. I will begin on Slide 9 to talk about our commercial teams. We continue to invest in tools and analytics that enable our commercial teams to better segment their territories and identify clinicians that could benefit from Myriad’s testing portfolio. We have seen positive results from the use of these analytic tools as our commercial teams continue to drive through and sustainable revenue growth. In the second half of 2023, we realigned our commercial salesforce incentives from volume-based targets to revenue-based targets. Overall, the shift better aligns our commercial teams’ goals with the company’s focus on reducing no-pays. We believe that the 12% revenue growth and positive ASP trends in the first quarter in part reflect our investment in these analytical tools and the realignment of our commercial team incentives and our ongoing focus on revenue cycle management, which Scott will talk about in more detail.

Most importantly, these efforts position as well for continued positive momentum throughout 2024. Next slide. Myriad continues to lead with differentiated insights offered by our MyRisk, RiskScore, hereditary cancer test. In the first quarter, hereditary cancer testing revenue grew 16% compared to last year with volumes up 9% year-over-year. We believe this consistent growth reflects a combination of our reputation as a leader in this area, the commercial team doing a better job driving home or differentiating messaging, improving relationships with genetic counselors, along with early competitive dislocation. Looking forward, we are excited about the omni-channel opportunity to drive MyRisk growth across all of our businesses. And we continue to accelerate our investment in clinical validation studies and EMR integration to address recent market dislocation with the most recent, with the most clinically differentiated hereditary cancer test on the market.

Next slide. As mentioned, no part of our portfolio has more upside potential than our hereditary cancer testing. Just for the unaffected population, there are an estimated 50 million women in the United States that meet guidelines for hereditary cancer testing. We’re making good use of the analytical tools as mentioned previously, to better identify and serve those patients. Additionally, through partnerships with LifePoint hospitals and some of that, we are expanding our reach even further. In the first quarter of this year, our Women’s Health team grew hereditary cancer testing revenue by 12%, compared to last year, while our oncology team grew hereditary cancer testing revenue by 20% over the same period. Our ability to serve more patients in both the unaffected and affected markets reflect these consistent results, and there are so much more upside for us to realize.

Next slide. Here at Myriad, we focus on ways to expand access to genetic testing. MyRisk with RiskScore is one of the best examples of how we are changing staff. RiskScore is the component of MyRisk that expands its benefits for people of all ancestries and is the only polygenic RiskScore in breast cancer validated for women of any demographic. Not only is this a major differentiator for MyRisk, but RiskScore is an example of our commitment to expanding access to genetic testing and increasing equity for care for all people. Next slide. MyRisk has been in the news a lot recently as more people become aware of the importance of genetic testing in the preventative care market. In today’s patient-centric healthcare ecosystem, many patients want to drive their own healthcare journey, which is why we have invested in resources like Mygenehistory for patients to determine their breast cancer risk online for free, and why we continue to provide free genetic counseling to anyone who takes MyRisk test.

Myriad is not just a lab partner. We are also a Women’s Health advocate whose objective is to provide insights that help people take control of their health and increase access to genetic testing. I will now turn to Slide 14 and talk about our prenatal business. In the first quarter, our prenatal revenue increased 22%, and volumes increased 9% compared to last year, reflecting market share gains and ongoing initiatives to improve ASPs. Our commitment to support providers negatively affected by the market dislocation continues to drive volume for this business, while our disciplined approach in adding quality accounts to the franchise has resulted in strong ASPs for both Prequel and Foresight. We see even more upside for this business as we await ACOG guideline expansion this year.

We believe the expanded guidelines will improve patient health and expand the market opportunity for carrier screening as clinicians are already ordering larger panels from us. Once ACOG moves, we believe the rest of the market and payers will adapt as well, which will likely result in ASP improvement, considering the large number of expanded panels that we currently run that are often not reimbursed. We look forward to ACOG guideline updates and the launch of Foresight Universal Plus later this year. Next slide. In the first quarter, GeneSight revenue increased 21% year-over-year, as we reported approximately 124,000 tests in Q1. ASPs improved both year-over-year and quarter-over-quarter, in the first quarter, reflecting improved revenue cycle management activities.

I want to end on Slide 16 and share what is in the pipeline for our products. I would remind investors of our upcoming launch of Foresight Universal Plus expanded carrier screening test in the context of anticipated ACOG expanded guidelines. This new test will feature an expanded panel as well as more efficient and cost-effective workflows. These guideline expansions would also support our multiple prenatal screening tests, FirstGene, which we hope to launch later this year. We continue to adapt to our oncology offering with the addition of Precise Tumor and Precise Liquid from our recent acquisition. Sam will speak towards the progress we are making integrating both these tests into our new labs. We are making tremendous strides in the development of Precise MRD.

Last quarter, we announced the research collaboration with the National Cancer Center Hospital East in Japan to use our highly sensitive Precise MRD test. We look forward to speaking more on MRD at ASCO this year, as well as Myriad’s other areas of research included in the seven abstracts accepted by ASCO across HRD, polygenic risk scores, germline registry studies, and our tumor-informed approach to whole-genome sequencing. Now, I will turn the call over to our Chief Operating Officer, Sam Raha.

Sam Raha: Thanks, Mark. Let me start on Slide 18 and provide an update of our Labs of the Future program. A quick reminder that the overall objective of this program is to strive innovation and operational excellence to continue delivering high-quality testing results at scale that meet regulatory requirements, while shortening turnaround time in support of our ongoing focus, improved patient and provider experience, all of which continue to differentiate us from other labs. As you may recall, we completed construction of our new lab facilities in South San Francisco and Salt Lake City in 2023. Highlights from Q1 of this year include completing and passing clinical inspections by New York State in Salt Lake City, by the state of California and CLIA in South San Francisco.

We also completed the validation of Prequel, our NIPS assay, in South San Francisco and completed the first phase of bringing up Precise MRD assay workflow in Salt Lake City. Our plan for South San Francisco remains to complete the move-in workflow validation and full-scale prenatal lab operations by the end of 2024. For our new Salt Lake City lab, we remain focused on completing the move-in process as well as the validation of sample processing for most of our oncology assays by the end of 2024 and running those assays at the scale by the end of Q3 in 2025. We are also in the process of integrating the recently acquired Precise Tumor, Precise Liquid test into our new Salt Lake City facility. Let me talk more about that now on this next slide.

You may recall that we completed the acquisition of select assets from Intermountain Precision Genomics last quarter, including lab instrumentation, workflows, and Precise Tumor and Precise Liquid assays, which together these two are genomic profiling tests with therapy selection that are part of our overall precise oncology solutions portfolio. Our immediate focus has been on retaining employees associated with the acquisition as well as testing continuity for providers as we move these operations to our new Salt Lake City facility. I’m happy to share that we have seen great engagement from our new team members and that turnaround time has already been reduced under our direct oversight. We’ve advanced our lab transition planning and started moving some instrumentation to Salt Lake City within the quarter.

We expect to start processing Precise Tumor samples in Salt Lake City in Q3 of this year as we also advance our work on Precise Liquid. And by the end of 2024, we expect to have completed the lab move entirely and to fully be operational for sample processing reporting in Salt Lake City. Next slide, please. Building on what Paul shared. Last week, the FDA released its final rule regarding the oversight of Lab Developed Tests or LDTs. Adding to Paul’s comments earlier, our current view that this finalized version of the rule is more favorable than the preliminary guidance. We believe that Myriad is in a good position to work within the new framework. First of all, the rule provides a continued path for LDTs approved by New York State Department of Health to serve the market without requiring immediate additional analytical or clinical validation through the FDA.

And, again, all of our on-market tests meet CAP/CLIA, New York State requirements. Second, we have a strong quality assurance regulatory affairs organization, over a decade of meaningful experience collaborating with the FDA on regulatory submissions, including two FDA-approved tests: MyChoice CDx and the BRACAnalysis CDx. We’ve also built and maintained a robust body management system, which is the foundational element for all the patient samples that we process and report on. While we are optimistic about the FDA’s new rule, we are also aware that the FDA intends to review labeling associated with LDTs and could review the sufficiency of analytical and clinical validation data for LDTs that are approved by New York State. Finally, I have personal experience running a business that is regulated by the FDA.

And since joining Myriad, I’ve been working closely with our teams to prepare and plan for increased FDA oversight and how we can use the LDT rule as a competitive differentiator for Myriad. Turning to the next slide, I’d like to end with an update on select operational highlights from the first quarter. We are proud to have a high level of organizational engagement across the company. We reflect it in a single-digit employee turnover level. In terms of market penetration, health care providers among our most important constituents. And their satisfaction with Myriad Genetics led to NPS or Net Promoter Score of 74 in the first quarter, up from 70 for the full year of 2023. A figure that has continued to improve over the past few years, and this is a testament to the focus and investments we continue to make in the patient provider experience.

In terms of efficiency and productivity, this quarter we increased commercial productivity by 11.5%, compared to the last quarter, as a result of the continued execution of our commercial transformation that Mark and his team are leading, including improved sales planning and process optimization. With that, let me turn it over to Scott Leffler, our CFO. Scott?

Scott Leffler: Thanks, Sam. I’ll start on Slide 23. We delivered a strong overall performance in Q1, led by 12% revenue growth year-over-year. This growth was primarily driven by Hereditary Cancer testing, Prenatal testing, and Pharmacogenomics, and speaks to internal initiatives such as an improving customer experience and continued execution by our commercials. Mark provided commentary as to have commercial teams with enhanced analytical tools are addressing healthcare provider needs and more effectively generating revenue growth. We believe these activities, in addition to ongoing progress in revenue cycle management, are important drivers of our Q1 ASP improvement of 2% over the year-ago period. Historically, ASPs in the first quarter tend to be soft due to resetting up deductibles and other adjustments that are spending up each year.

So the fact that we are starting off 2024 with such a strong ASP performance bodes well for the rest of the year. Next slide. On the Slide 24, we revisit some of the revenue cycle initiatives that our September 2023 investor events. We have made progress on multiple fronts, including ramping up EMR integrations, improving prior auth [ph] outcomes, automating our billing process, and expanding payer coverage. Myriad has seen a number of payers recently expand coverage of average risk populations that could benefit more tests. First quarter revenue reflects approximately $3 billion from a single payer, who expanded coverage of these average risk patients as well as other immaterial favorability from out-of-period adjustments. We are pleased with this continued progress against our long-term goal to reduce our no-pay rate, complementing the volume-generating potential of the business.

Moving to Slide 25, I want to highlight our financial performance by quarter. First quarter adjusted gross margin of 68.5%, improved 80 basis points compared to last year, overcoming headwinds associated with the IPC lab, and Precise Tumor and Liquid assays, which were acquired in February of this year and are still being integrated. First quarter 2024 adjusted OpEx to $139 million, increased sequentially from the fourth quarter of 2023, but decreased by 4% year-over-year. As reflected in our full year 2024 guidance, we expect our full year OpEx run rate to be higher than the Q1 amount as we ramp up spending to accommodate growth and strategic development. Our strong revenue growth and margins in Q1 drove significant improvement in overall profitability, including an adjusted EPS loss of about $0.1 versus a loss of $0.21 in the first quarter of 2023, as well as $4 million of positive adjusted EBITDA compared to a loss of $19 million in the prior year period.

Regarding financial flexibility on Slide 26. We finished Q1 in a solid position with approximately $104 million in cash, cash equivalent, and marketable investment securities, and have $41 million of availability under our credit facility. The first quarter is typically a high cash burn due to seasonal factors. However, we saw a meaningful year-over-year improvement in adjusted operating cash flow with an outflow of only approximately $9 million in the first quarter of 2024 versus an outflow of $25 million in the first quarter of 2023. Importantly, adjusted operating cash flow is expected to be positive the remainder of 2024. On Slide 27, we reiterate our full year 2024 financial guidance with a revenue between $820 million and $840 million, representing annual growth between 9% and 11%.

Our strong Q1 performance positions us well to meet or exceed our revenue guidance range, but I would also note that there are areas where we will increase that to accelerate actionable commercial opportunities in a changing competitive landscape to further drive the top-line, as Mark mentioned. An example of that accelerated spend would be our EMR integration efforts, where new customer wins are often dependent upon our ability to meet the IT requirements of prospective customers. Overall, we are optimistic regarding the business trends and the company’s ability to grow at or above industry growth rates. We remain comfortable with full year growth margin range of 69.5% to 70.5%, but adjusted operating expense growth between 5% and 7%, and adjusted EPS between breakeven and $0.05.

Now, let me turn the call back to Paul.

Paul Diaz: Thanks, Scott. We continue to build on the pillars of long-term growth profitability. It has delivered our strong results in 2023 and the first quarter of this year. Our clinically differentiated products supported by technology, deliver value in real-world clinical settings, and enable early detection and better treatment decisions for providers and their patients. Our modernized lab, commercial engines are example, where investments in automation and advanced technology are yielding improved workflows, faster turnaround times, and reduced operating costs. All of this reinforcing our position as a trusted differentiated lab with specialized expertise, best-in-class quality, the strong scalable commercialized underpinned by data, research, and technology with industry leading margins and business management.

We continue to energize the enterprise around our shared vision to make genetic testing and precision medicine more acceptable, helping people take more control of their health, and so they will provide us to better treat and prevent disease. I’d like to now turn it back over to Matt for take your questions.

Matthew Scalo: Thanks, Paul. As a reminder, during today’s call we used certain non-GAAP financial measures. A reconciliation of the GAAP to non-GAAP financial results, a reconciliation of the GAAP to non-GAAP financial guidance can be found in our earnings release and under the Investor Relations section of our website. Now, we’re ready to begin our Q&A session to ensure broad participation, we’re asking participants please ask only one question and one follow-up. Latif, we are now ready for the Q&A portion of the call.

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