Myriad Genetics, Inc. (NASDAQ:MYGN) Q3 2023 Earnings Call Transcript

Myriad Genetics, Inc. (NASDAQ:MYGN) Q3 2023 Earnings Call Transcript November 6, 2023

Myriad Genetics, Inc. beats earnings expectations. Reported EPS is $-0.03, expectations were $-0.08.

Matt Scalo: Good afternoon and welcome to Myriad Genetics Third Quarter 2023 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. On the call with me today are Paul Diaz, our President and Chief Executive Officer; Bryan Riggsbee, our Chief Financial 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 with 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 results to differ materially from those contained in our projections or forward-looking statements.

With that, I’ll 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 from our strong third quarter performance and provide an update on the progress we continue to make accelerating revenue growth on our path to profitability. First, I’d like to take a moment to reflect on the great work that the team has done to reposition the company over the last 3 years. Like many early entrants to a new market, Myriad Genetics relied on its early successes, but failed to adapt to evolving market conditions. This created overhangs in the business and complexity that inhibited growth and innovation. Unfortunately, misguided product development, the poor integration of acquisitions, outdated technologies, deteriorating facilities and litigation also rode the brand.

To return Myriad to a leadership position, we embarked on a multiyear transformation journey with 4 key objectives: First, to build and reenergize the team and refocus us on the patients and providers we serve and the mission we committed to; second, to modernize and expand our lab, IT and support center capabilities; third, to restore organic growth and profitability; and fourth, to build the company’s R&D and product management strength. While this hard work continues today, we can confidently say that we have made great progress on all 4 of these objectives as well as advancing our mission and vision to empower patients with the opportunity for better health, wellness, through genetic testing and precision medicine. Now on Slide 4, I want to highlight certain key performance indicators and operational activities that are fueling our growth.

First, we have continued to build an experienced and engaged team as demonstrated by our low turnover of just 9.3% and Best Places to Work designation. Enabling our teammates to perform at their highest level by putting tools and resources where they are needed most as we invested to upgrade our labs, IT infrastructure and support center capabilities. Driving our double-digit growth has been our focus on the patient and provider experience. Our Net Promoter Scores are strong at 69%, provider retention is up to 70%, turnaround times are down to just 6.3 days and we’ve added 5,000 new ordering providers to the franchise this quarter. Making it easier to do business with Myriad is starting to pay dividends, as we see market share gains across all our product lines and make progress on large account wins and new strategic partnerships.

Our payer markets and revenue cycle teams have been hard at work making sure we get paid for delivering on our mission. Recent highlights included a 4-year contract extension and Prolaris coverage expansion with UnitedHealthcare as well as GeneSight coverage determinations among a number of Medicaid and commercial payers. The team made great progress this quarter on improving ASPs, cash collections and DSOs. We talk a lot about the company increasing teammate productivity that we see across the entire business. Excluding SneakPeek, our COGS shrank to $179 per test in Q3 of this year as compared to $196 in Q3 of last year. Our adjusted gross margins improved to 70.4% and operating expenses as a percentage of revenue shrank from 80% in Q1 of this year to 72% in Q3.

And we resolved several legacy litigation matters, which provides more legal and financial visibility and operating focus moving forward. Lastly, we’ve made significant progress advancing our clinical validation efforts and prelaunch commercial and operational activities for Foresight Universal Plus, FirstGene and Precise MRD for biopharma partners. Turning to Slide 5. Myriad Genetics drove significant volume growth in the third quarter across the portfolio as our commercial and lab operations team continue to execute. We are gaining share in the hereditary cancer market, growing volumes 18% year-over-year in the third quarter, driven by competitive account wins and increased adoption by providers of myRisk. We continue to see momentum in our prenatal business as well, excluding contributions from SneakPeek, prenatal testing volumes grew 20% in the third quarter.

This third consecutive quarter of double-digit prenatal volume growth reflects ongoing commercial execution from our Women’s Health team as we strive to make it easier for providers to partner with Myriad. Other products like GeneSight and Prolaris also contributed to our fourth consecutive quarter of double-digit revenue growth. We continue to see our gross margins have been — and we’ve been diligent in our cost management activities as our operating — our adjusted operating loss of $2.2 million was reduced significantly from an operating loss of $20.6 million in Q3 of last year. Other highlights from Q3 included a raise in our full year revenue guidance, which Bryan will speak to later, a new 4-year agreement with UnitedHealthcare and a settlement of the Ravgen litigation, which now puts that legacy litigation firmly behind us so we can focus on running the business.

Lastly, I’m pleased to announce that Sam Raha, our new Chief Operating Officer; will join the company shortly. Sam brings over 25 years of general management, commercial and operations experience to the business and will hit the ground running on December 11, building on Nicole Lambert’s success in our lab operations, customer service, product innovations as well. Sam’s initial focus areas will include improving the patient provider journey and overall customer experience, executing on our Lab of the Future strategy, and identifying opportunities to strengthen supply chain management and procurement and helping us to grow our emerging biopharma business. I look forward to introducing Sam to the investor community in the near future and would like to again thank Nicole Lambert for 22 years of serving Myriad Genetics, its patients and providers.

And with that, I’ll turn over to our Chief Commercial Officer, Mark Verratti.

Mark Verratti: Thanks, Paul. I’d like to start on Slide 7 and talk about our core business units. In the third quarter, hereditary cancer testing volumes from our oncology sales team grew 15% year-over-year, well above the estimated industry growth, which speaks to our enduring franchise and improving brand reputation. Prolaris, our prostate cancer test continued its momentum with third quarter revenues up 18% year-over-year. We are pleased to share that UnitedHealthcare has issued a positive medical policy covering Prolaris in the biopsy setting for all risk groups. This policy will take effect on January 1, 2024, and represents another win for the urology teams they continue to reach patients with diagnosed prostate cancer to provide them and their physicians with important information needed for better treatment decisions.

This aligns with several other positive Prolaris policy that were released in the third quarter. Now I’ll move to Women’s Health on Slide 8. Myriad Genetics Women’s Health business serves women of all ancestries by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family. In the quarter, hereditary cancer testing volumes of Women’s Health increased 22% year-over-year, making 5 consecutive quarters of positive volume growth. Prenatal volumes, excluding SneakPeek, grew 20% in the quarter. With quarterly sales force productivity up 25% in Women’s Health and leading turnaround time, it’s no surprise that this team continues to outperform and grow our share of these markets. Recently, much attention has been placed on 22q microdeletion syndrome in prenatal screening tests.

We want to highlight that our internal data on Prequel’s positive predictive value for microdeletion syndrome, is significantly higher, nearly 2x that of our leading competitor. Lastly, I want to give a shout out to the SneakPeek team for reaching 1 million tests to date. And now that the test is stocked in over 4,000 Walgreens stores, we are optimistic on future test growth. Let’s move now to Slide 9 and talk about GeneSight. Mental illness continues to have a lasting effect on patients and their families in the U.S. as those suffering failed to receive proper medical treatment. GeneSight helps physicians better understand how antidepressants and other drugs will affect their patients. Importantly, for this patient group, the test can be performed with a single cheek swab sample that can be taken in the privacy of their own home.

In the third quarter, GeneSight volumes increased 19% year-over-year and 24% year-to-date as we’ve added approximately 4,000 new clinicians to the franchise during the quarter. Myriad continues to build on GeneSight’s solid foundation of clinical data, including a collaboration with Optum Genomics to create a multiphase study designed to better understand GeneSight’s ability to improve clinical outcomes and reduce overall health care costs. As mentioned at our Investor Day in September, we are pleased with the positive Phase I readout from our real-world study with Optum. I would also like to point out a couple of new partnerships and collaborations on the next slide. We recently announced the collaboration between Myriad and QIAGEN to develop kit-based companion diagnostic tests, combining our strengths in assay development, clinical testing and regulatory approvals, we are excited to offer a comprehensive global companion diagnostic solution based on a wide range of testing platforms to our pharma partners.

Not only are we excited about the opportunity to better serve pharma partners, but we hope that this collaboration sets the stage for advanced analysis and accessibility of MRD and HRD assays to potentially improve cancer treatment decision-making. Additionally, in the quarter, we announced a new partnership with Onsite Women’s Health to launch a new breast cancer risk assessment program to help more women understand their breast cancer risk. Combining Myriad’s strengths in hereditary breast cancer risk assessment with Onsite’s expertise in breast health services, this new partnership is expected to deliver personalized breast cancer risk insights to more than 400,000 patients that Onsite currently serves nationwide. I’ll now pass the call over to our Chief Financial Officer, Bryan Rigsby, to discuss the financial highlights in further detail.

Bryan Riggsbee: Thanks, Mark. I’d like to start by reviewing product volume trends on Slide 12. Overall, hereditary cancer test volumes in the quarter grew 18% year-over-year, marking 5 consecutive quarters of volume growth for hereditary cancer testing. Combined quarterly volumes for prenatal and carrier screen grew 20% year-over-year, excluding contributions from SneakPeek. Our pharmacogenomic test GeneSight experienced healthy growth of 19% in test volumes year-over-year in Prolaris, Q3 volumes grew 9% year-over-year. We credit the ongoing commercial momentum of the business to competitive account wins as well as disciplined execution from our tenured sales force. While Q3 has historically been a seasonally weaker quarter impacted by fewer patient provider interactions and general summer travel on a year-to-date basis, hereditary cancer and GeneSight test volumes have grown at or above 20% year-over-year and prenatal and Prolaris have grown at 14% year-over-year.

Now on Slide 13, we will discuss quarterly revenue trends. Excluding contributions from change of revenue estimates in both Q3 of last year and Q3 of this year, quarterly revenue grew 14%, marking 4 consecutive quarters of double-digit revenue growth. For the 9 months ending September 31 — or September 30, 2023, total revenue, excluding the contribution from change of estimates, grew 15% over the 9 months ending September 30, 2022. I would mention our third quarter 2023 revenue growth rate includes the negative headwind in tumor profiling revenue of approximately $3 million due to the completion of a commercial arrangement with one of our European biopharma clients — which biopharma clients, which ended in Q3 of last year. You may recall commentary from our second quarter earnings call this year that we, along with many peers in our industry experienced a negative impact to our revenue cycle process from the transition of multiple health plans to a new claims administrative process.

During Q3, we made substantial progress in resolving these issues and ultimately collected more cash than we expected, which drove the majority of the $7 million change of estimates that we experienced in this quarter. Excluding the impact of change of estimates from third quarter revenue, we expect sequential revenue growth of 3% to 6% from Q3 to our implied Q4 revenue guidance range, which is in line with historical seasonal trends. Moving down the P&L, adjusted gross margin was approximately 70%, compared to 68% in Q3 of last year and approximately 69% last quarter, reflecting the impact of the positive change in estimates as well as the impact of positive volume leverage. We’ll now turn to Slide 14 and discuss quarterly progression through the year.

We have seen nice improvement through the year on our path to profitability with first quarter showing an adjusted loss of $0.21, second quarter at an adjusted loss of $0.08 and third quarter an adjusted loss of $0.03. We remain confident in our ability to achieve our goal of reaching adjusted profitability and generating positive adjusted operating cash flow in the fourth quarter of this year. For the full quarter — for the full year, we have narrowed the adjusted EPS guidance range to a loss of between $0.33 and $0.28. I’ll now turn to Slide 15 to review our liquidity and cash flow. Looking at the balance sheet, we ended the quarter with $86.3 million of cash and marketable investment securities and expanded our asset-based credit facility from $90 million to $115 million.

With the capital needs for the construction of our new lab substantially behind us, we anticipate total liquidity of approximately $107.5 million at the end of 2023. We believe that this, along with our continued business momentum gives us financial flexibility as we enter 2024. Note that we have not made a final decision on funding the remainder of the shareholder lawsuit settlement. As you may recall, we have given ourselves the flexibility to use shares for the final payment, and as we make our final determination of whether to use cash, stock or a mixture of both for the final payment, we will continue to review our capital structure, funding requirements and alternatives available to us. As stated in the earnings release, the Ravgen litigation refers to a settlement, of which $5 million was paid on October 31, 2023, $5 million is payable on or before October 31, 2024, and $2.75 million is payable on or before October 31, 2025.

Any final payment of the $21.25 million is contingent on whether Ravgen is successful in resolving all outstanding patent reexaminations and litigation. If Ravgen is successful, contingent payment would be payable over a 5-year period beginning no earlier than 2026. Now on Slide 16, we are updating our full year financial guidance. We raised the midpoint of our 2023 revenue guidance by $10 million, representing 10% to 11% year-over-year revenue growth from 2022, which is in line with our long-term estimates. Adjusted gross margins are expected to be at the high end of our prior guidance. We increased our full year GAAP OpEx guidance primarily to include expected costs associated with the settlement of the Ravgen litigation and we narrowed our full year adjusted OpEx range with one quarter remaining in the year.

Adjusted operating expense in the current quarter reflected the impact of normal expense fluctuations based on timing, we expect Q4 expenses to decline from Q3 levels and be approximately $134 million at the midpoint of our guidance range. On Slide 17, we also want to take this opportunity to introduce our 2024 revenue guidance of between $815 million and $835 million or 9% to 11% growth over the midpoint of our 2023 revenue guidance range. This revenue — this range is consistent with our longer-term revenue growth target of 10-plus percent discussed at our September investor event and reflects the performance we’ve demonstrated over the last year. In addition, we reiterate our other long-term financial targets discussed in September, which include gross margins over 70%, annual growth in SG&A spend of approximately 5% to 6% and positive adjusted operating income and adjusted cash flow.

I’ll now turn it back over to Paul for closing remarks on the next slide.

Paul Diaz: Thanks, Bryan. As I mentioned in my introduction, we continue to build on the pillars required for long-term growth and profitability. Top-tier science and products with clinical differentiation and adoption are enabled by technology that deliver value in real-world clinical settings, and enable early detection and better treatment decisions. A commitment to continuous quality improvement and customer satisfaction powered by our modernized lab and commercial platform to improve workflows, test turnaround times and reduce costs through advanced technology and automation. Together with best-in-class regulatory reimbursement and revenue cycle capabilities. Great science used to develop practical high-quality diagnostic tests, operated an efficient state-of-the-art facilities with the ability to get paid for our efforts.

As discussed, excluding contributions from SneakPeek total test volumes year-to-date and 2023 have grown 18% compared to last year. And total year-to-date revenue, excluding out-of-period adjustments, is up 15% compared to 2022. We believe these results demonstrate our ability to execute on our long-term growth strategy as the investments we have made across the enterprise take hold. 2023 has been a foundational year and we are confident in our balance sheet as well as our forward-looking financial guidance and are pleased to put the rest of the litigation that has been an overhang for investors behind us. We continue to reenergize the enterprise around our shared mission and vision to make genetic testing and precision medicine more accessible, helping people take more control of their health and to enable providers to better treat and prevent disease.

I’ll turn it back to Matt now for Q&A. Thank you.

Matt Scalo : Thanks, Paul. And as a reminder, during today’s call, we use certain non-GAAP financial measures. A reconciliation of the GAAP and non-GAAP financial results and a reconciliation of 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 going to begin with the Q&A session. To ensure broad participation, we’re asking participants to please ask only one question and one follow up. Operator, we’re now ready for the Q&A portion of the call.

Operator: [Operator Instructions] Your first question comes from the line of Matt Sykes with Goldman Sachs.

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Q&A Session

Elizabeth Koslosky : This is Evie Koslosky on for Matt. So first, can you walk us through any progress you’ve made on addressing zero pays and what type of positive impact that could have on margins as we move into next year?

Paul Diaz : Yes. I think a lot of progress in the quarter. As you can see, year-to-date, $6.2 million of net out-of-period cash collections, DSOs are down, gross margins are up, which reflects ASP improvement and starting to feel more optimistic about the progress we’ve made beginning to follow the state biomarker laws. There are 14 states now, including California, that have passed them, 11 of those states, including California, should cover GeneSight. So we’re beginning to engage state by state. And this quarter, we saw 2 different payers under the biomarker laws, pick up coverage. Now these are bunts and singles, so it’s not going to be huge overnight successes, but we think the momentum there and the general recognition on things like prior authorizations within the Medicare program and other places, give us a lot of opportunity to continue to improve ASP.

And so good cost management and ASP improvement or what gives us the confidence that we can grow gross margins above 70% going into next year.

Elizabeth Koslosky : Great. That’s super helpful. And then great to see you’re still getting share within hereditary cancer testing. Could you talk through the market penetration within myRisk? I think in the past, you’ve said the market is only 15% penetrated. Has there been any progress in recent months? And what actions are you taking to further drive that?

Mark Verratti : Yes. Just to clarify, the 15% market penetration was in the unaffected market, which is where our Women’s Health team focuses, and so we see a great opportunity there. But quite honestly, for the hereditary cancer growth, we’ve seen it both in our affected population on the oncology side, where we continue to drive depth within our core customers, but we’re also winning back customers from the competition. And then we also see the same amount of growth on our Women’s Health side in the unaffected population where, again, we see a huge blue ocean opportunity there, and that speaks to the collaborations that we talked about on the call as well and being able to penetrate larger accounts, and quite honestly, just increase the adoption of both providers and patients.

Operator: Your next question comes from the line of Andrew Cooper with Raymond James.

Andrew Cooper : Maybe first, diving in a little bit just on the gross margin. You had that $7 million sort of makeup looking at the sequential gross margin movement. Just wondering if you could give a little commentary, it seems like maybe a little bit of an impact. But just — what are some of the key things we should think about as we think about 4Q and then heading into that 70-plus number for next year?

Paul Diaz : Well, thank you, Andrew. I mean as I mentioned in the operational highlights, we’re just seeing productivity in the sales force, as Mark said, 25% cost per test drop year-over-year. I mean, that’s net of inflationary increases. And as Bryan mentioned, just starting to see the leverage in the P&L. So we think opportunities continue to affect sequencing costs, opportunities to leverage our new labs, both in South San Francisco and Salt Lake we’re just beginning to start seeing some of that and the automation hasn’t even taken hold yet. We haven’t moved our Arches project over yet. So I would just say we’re increasingly optimistic about our ability to grow gross margins over the next couple of years. as we see Lab of the Future automation as well as the other productivity things that we’re focusing on take hold.

And as we talked about at the Investor Day, we’ve just identified a lot more opportunities to reduce no pays. And we think over the next year, that can be meaningful as well.

Andrew Cooper : Okay. Great. Super helpful. And then maybe just one on the guidance that you’re giving for ’24 already. Obviously, early to give that. But just was hoping you could give us a little bit more flavor for maybe some of the underlying kind of pieces where maybe there’s wider error bars versus more narrow as we think about that initial guide for 2024 already here in November?

Bryan Riggsbee : Yes. Andrew, this is Bryan. I’ll start and let Paul chime in. But I think that where we started just in really looking at what we’ve laid out over the last 4-plus quarters now we’ve seen double-digit top line revenue growth. And our stated long-term goal is for 10-plus percent. We just feel very confident that when you look at the midpoint of the current year guide based on what we’re seeing today in the business, that it adds up to something that’s in that range. So we felt like that was something that we wanted to make sure that people understood that not an aspirational, that’s kind of what the business is doing today.

Paul Diaz : Yes. I mean let me just underscore this. We grew 15% in year-to-date, excluding out of periods, and we continue to produce net positives there. And there’s just clearly — some folks still doubt we can do that, and we see a lot of momentum going into ’24. So the midpoint of the revenue guide is consistent with our long term. It’s 10% over the stated midpoint of the guidance this year, and we felt that it was important for investors and for shareholders to see that we have great confidence in that 10% plus particularly based on the 15% year-to-date and the momentum in the business. It’s just that clearly, there are people out there that don’t think we can do that, and we believe we clearly have demonstrated that and are just sort of now bringing things together here with our new labs and stuff. So it’s just — it’s an expression of our confidence and the visibility that we see in the business going forward.

Bryan Riggsbee : And I would say the only thing I would add, Andrew, is just that getting the United renewal behind us in October is obviously another thing that was incremental relative to where we sat back in the industry and that was a positive.

Operator: And your next question comes from the line of Rachel Vatnsdal with JPMorgan.

Unidentified Analyst : This is Neil on for Rachel. Just digging into the 2024 guidance just a little bit more. Can you give us any incremental color on that $815 million to $835 million guidance, it’s significantly above The Street. Is that mainly due to that United contract renewal, as you just referenced? Can you give us any sort of updated volume or price expectations heading into 2024? Or anything that you can sort of do just sort of frame the 2024 year would be super helpful?

Paul Diaz : So volumes are up 18%. Revenue year-to-date is up 15%. We see acceleration in customer acquisitions and wallet share. We see acceleration in market adoption and ASP visibility with the United contract and other recent wins. So that’s — those are the component pieces that would drive us to a high degree of confidence of that midpoint and that longer-term guidance, it’s not a really big numerical jump to get from our guidance this year to $825 million next year. It’s 10% off the midpoint of this year’s guidance. You have a follow up?