Myriad Genetics, Inc. (NASDAQ:MYGN) Q1 2023 Earnings Call Transcript May 3, 2023

Myriad Genetics, Inc. misses on earnings expectations. Reported EPS is $-0.21 EPS, expectations were $-0.19.

Matthew Scalo: Okay. Good afternoon, and welcome to the Myriad Genetics’ First 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 Web site at investor.myriad.com. I’m Matt Scalo, Senior Vice President of Investor Relations. And on the call with me today are Paul Diaz, our President and Chief Executive Officer; Bryan Riggsbee, our Chief Financial Officer; Nicole Lambert, 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 Web site 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 are forward-looking statements.

With that, I will now turn the call over to Paul.

Paul Diaz: Good afternoon, everyone, and thank you for joining us. On today’s call, we will discuss highlights from the first quarter and provide updates on the strategic initiatives that are driving our long-term growth plan. So many positive changes happening across our organization. I want to take a minute to thank our Myriad teammates and our provider partners for their continued commitment to advancing our 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. Turning to Slide 4. Myriad Genetics had another strong quarter as we kicked off 2023 ahead of expectations. Total revenue grew 10% year-over-year, driven by another strong quarter of double digit volume growth in both MyRisk hereditary cancer testing and GeneSight.

Total volumes grew 21% year-over-year and 10% sequentially. Excluding SneakPeek, hereditary cancer testing volumes grew an impressive 24% year-over-year in Q1 after growing 16% year-over-year last quarter. For those who have may have doubted our ability to sustain GeneSight growth, we processed 110,000 tests in the first quarter, a company record, and saw approximately 4,000 new clinicians ordering GeneSight for the first time. We’re also very excited about the progress we made in our prenatal business, which despite some interruptions in the state of California, improved test volumes 12% year-over-year in the quarter, excluding contributions from Gateway Genomics. This quarter gives us confidence in our ability to achieve our full year financial guidance as well as reach profitability and positive operating cash flow in the fourth quarter of this year.

Additionally, we believe that our continued commercial execution, robust product pipeline and top tier talent will fuel our long-term growth even further. In the quarter, we announced several new exciting strategic partnerships, including an expanded partnership with Illumina to combine our unique diagnostic development and commercial capabilities to expand our emerging biopharma business and broaden access to HRD testing in the United States. We also announced a new collaboration with SimonMed Imaging, one of the largest independent outpatient imaging providers in the United States to improve access to our MyRisk hereditary cancer tests with riskScore for women of all ancestors. Nicole will speak to these new partnerships in more detail, and we are excited about a number of other similar business development opportunities under discussion.

At Myriad Genetics, we strive to provide best-in-class quality tests and scientific insights for our providers and their patients. From leading research and development in molecular and companion diagnostics to products helping to address our growing mental health prices, we are working at the forefront of innovation in our space. We also want to ensure that we are actively removing friction points for our patients and healthcare providers to make it easier to do business with us. Nicole will talk about some of the progress we’ve made in improving the patient and provider experience with new tools like our unified order portal and EMR integrations later on this call. Finally, improving access to our tests with patients of all demographics is extremely important to us.

Serving underrepresented populations with this disease through our patient outreach programs has proven to be very effective, and we are excited about our new point of care financial accessibility tools and payment program to improve access for all patients. Transitioning to Slide 6, I’d like to outline exactly why we think and what it takes to be a winner in our sector. First, we strive to have the best clients and products whose access and adoption are enabled by technology in our field. For us, this means having products that deliver real world results in clinical settings to high quality, actionable and differentiated tests that help support early detection and treatment decisions. Second, we believe we need automated, scalable, and cost effective lab operations to deliver on our mission.

Our Labs of the Future strategy, which Nicole will discuss later in the call, allows us to improve workflows, test turnaround time, and reduce costs to advanced technology in automation. Similarly, the investments we’ve made over the last few years in modernizing our IT platform allow us to better serve our patients and provider partners at scale across all products and channels at lower cost. Third, a strong commercial platform ensures our providers and patients benefit from partnering with Myriad Genetics, and that we can grow efficiently. And finally, to win, one needs best-in-class regulatory and revenue cycle capabilities. Great science used to develop practical high quality diagnostic test operating state-of-the-art facilities that reduce costs with the ability to get paid for our efforts is key.

Our payer markets team has deep industry experience and plays an integral role in the development of our product pipeline, as well as our commercial reimbursement strategy. We see this as a competitive management [ph] does not often receive the credit it deserves. With that, I’ll turn it over to our Chief Commercial Officer, Mark Verratti, to speak towards our commercial capabilities in more detail.

Mark Verratti: Thanks, Paul. I’d like to start on Slide 8 and talk about our commercial team. We have made tremendous strides in our commercial execution over the past year, with changes made across the organization that have enabled our sales force to effectively target and penetrate both new and existing accounts. The results speak for themselves with robust volume growth over the past two quarters, but majority of which come from existing accounts. This gives us confidence in the changes that we have made in the commercial team, because growth in existing accounts means that tailwinds like market dislocation have to date not been the key drivers of our commercial performance. What is driving our continued volume growth is our skilled and focused sales force, with years of experience at Myriad working alongside providers and our patients, equipped with new digital tools and scientific insights that help them better serve our customers, while simultaneously attracting new accounts to the franchise.

Our sales force is motivated by these new capabilities, because it makes the job easier, which is why we’ve seen turnover across our entire sales force drop down below 8%, something that we are incredibly proud of. I’ll now turn to Slide 9 and talk about our core business units. Our oncology business delivered 77.6 million in revenue in the first quarter. Reported test volumes were roughly 50,000. Prolaris, our market leading prostate cancer test, continues to reach patients with diagnosed prostate cancer to provide them and their physicians with important information needed for better treatment decision. In the first quarter, Prolaris volumes grew 22% year-over-year after growing 17% year-over-year in the fourth quarter of 2022. Polaris is the only test with two validated thresholds at the time of diagnosis.

One to identify which patients can safely go on active surveillance and the other to identify which patients need multimodal therapy who can safely avoid additional therapies like hormone therapy. In fact, third party research shows that Prolaris using active surveillance threshold identified almost twice as many patients who can safely go on active surveillance compared to our peers. Prolaris is not the only highlight in the quarter for our oncology business. Hereditary cancer testing volume in oncology grew 16% in the quarter year-over-year. And we added a number of experienced leaders to the group to help drive growth even further with improved operational efficiencies, like 15% reduction in turnaround times for our oncology tests compared to Q1 of last year, along with a Net Promoter Score of 73% amongst oncology providers and a fully equipped sales force.

We anticipate continued growth from our core oncology tests. Now, we’ll move to women’s health on Slide 10. The 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 32% year-over-year, making three consecutive quarters of positive volume growth. The strong momentum reflects a combination of deeper penetration of current accounts, new customer wins, and ongoing gains in addressing unaffected patients with a family history of cancer. We are also excited to announce that we have launched our unified ordering portal for the women’s health business in the quarter to simplify the ordering process for our customers, especially for those ordering more than one Myriad product.

We plan on converting all existing Myriad women’s health customers to our new unified ordering portal by the end of the year. In prenatal, we are pleased to report a 12% increase in quarterly test volumes compared to Q1 of last year. This figure excludes any contributions from our recent acquisition, Gateway Genomics, and features minimal contributions from the state of California due to ongoing disruption caused by the state’s revised prenatal screening program. We are very excited about this growth and look forward to continued strong performance. Let’s move now to Slide 11, and talk about mental health and 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 tests can be performed with just a single cheek swab sample that can be taken in the privacy of their own home. In the first quarter, GeneSight volumes grew 31% over the prior year as we’ve added approximately 4,000 new clinicians to the franchise, bringing Myriad to more than 26,000 active ordering physicians for the GeneSight test. We believe that the ongoing success of GeneSight further demonstrates the effectiveness of our new commercial capabilities, digital marketing strategies and patient-centric engagement initiatives implemented over the past year. On that note, I want to turn to Slide 12 and talk about our digital platform.

I’ve spoken about our digital capabilities before primarily as it relates to GeneSight, and I’ll give another shout out to the GeneSight team for the success they’ve seen in developing these capabilities and transferring them to other parts of the business, specifically in women’s health and urology. Now let’s look at this funnel, we should all visualize some of the examples of these digital capabilities. As you can see, last year we increased our total website traffic by over 10%. And more importantly, we learned how to convert that traffic into greater qualified leads. In other words, we’ve learned how to connect people who need GeneSight to our website. In 2022, we increased the number of qualified leads from website traffic by more than 50% compared to 2021 for both patients and healthcare providers.

Then our inside sales, outside sales and marketing teams equipped with new digital tools and automation technologies are barely able to convert those leads into actual orders. In 2022, we increased the number of leads converted to order test by more than 30% compared to 2021. These results are outstanding, and I just want to thank the team again for doing such a great job developing and executing on this digital platform. As we look to 2023, we plan to leverage these proven digital capabilities and drive growth even further. I’ll now pass the call over to our Chief Operating Officer, Nicole Lambert, to talk about our products and key initiatives.

Nicole Lambert: Thanks, Mark. I’d like to start on Slide 14 and speak about our products and priorities for 2023. While we have a full pipeline of new products in development, we want to make clear that our priority for 2023 is to maximize the full potential of our current products at MyRisk, GeneSight, Prequel, Foresight, MyChoice CDx, Precise Tumor and Prolaris. Our strong and consistent performance, particularly over the last six months, credits the success of these core products and our general organizational improvements made over the last two years have enabled us to focus on the markets where we have a right to win. Our core products are well supported by guidelines set by organizations such as NCCN and are widely viewed as standard of care.

We are excited about ACMG supportive of expanding carrier screening and look forward to any further announcements in support from ACOG that may follow suit. Because they are our key drivers of growth, we continue to prioritize and invest in our core product. So while we are very excited about our new product launches, we believe that it is important to focus on areas where we can take action and win now given the low adoption rate and the competitive environment. On the next slide, I’ll speak more about our operational initiatives. Myriad’s operational initiatives aim at improving the customer experience and creating an environment of innovation. We talk a lot about making it easier to do business with Myriad Genetics. That means listening to our patients and providers and taking actions to address their concerns and adapt however we can.

Recently, we added more genes to our primary MyRisk test and announced a partnership with ClinVar because our providers asked us to. Not only have providers responded positively to changes like these, but they know that we are listening to them and we want to hear from them. We are pleased that the ongoing rollout of our new unified provider portal and our unified order management system, which not only ensure that we are getting the information required by payers but they also make it much easier for providers to order our tests for their patients. It reduces the number of times we need to re-contact their providers for this information. Our EMR integrations with the likes of EPIC and others not only ensure that we are getting patient medical records from providers, but it also means that providers who are already in those EMR systems do not have to provide those documents to us outside of their normal workflow.

On the next slide, we can see the tremendous progress that we have made working with clinics using EMR integration to deliver more test results for our MyRisk hereditary cancer test. In January, we launched our new unified provider portal in women’s health, and we are already seeing tremendous uptake from providers. We plan to convert all existing Myriad women’s health customers to our new unified portal in the very near term. With that, let’s turn to Slide 17 and talk about our updates to Labs of the Future. Preparation for our new Labs of the Future are on track at both new facilities, one in west Salt Lake City and our new headquarters and central lab operations and the other in South San Francisco, the Walter Gilbert Research and Innovation Center, which is named after one of our Nobel Prize winning founders, Walter Gilbert, are both ready for moving this June.

In addition, we are taking steps to exit our current headquarters building in Salt Lake and are moving lab equipment to our new headquarters as we speak. These new facilities not only create a more cost effective approach to running our tests, but they foster an environment of innovation and collaboration amongst our commercial support and scientific team. Next on Slide 18, I’ll talk more in depth about some strategic partnerships that we made in the quarter. As Paul mentioned, we announced several new and exciting strategic partnerships this quarter, including an expanded partnership with Illumina and a collaboration with SimonMed Imaging. As such, Illumina’s TS0 500 HRD test is now available in the U.S. for research only. And the unique companion diagnostic alliance has been established to enable more clinical research for gene-based targeted therapies.

We look forward to working more closely with Illumina to broaden access to HRD testing in the United States. We are equally excited about our new collaboration with SimonMed Imaging, one of the largest independent outpatient medical imaging providers in the U.S. Together, we plan to launch a new hereditary cancer risk assessment program that combines diagnostic imaging with genetic risk assessment utilizing MyRisk with riskScore to enable affordable access to genetic testing and deliver personalized insights to better inform clinical care for millions of patients served at SimonMed. I’ll now turn the call over to Bryan to discuss financial highlights in the quarter.

Bryan Riggsbee: Thanks, Nicole. I’d like to start by reviewing product volume trends on Slide 20. We generated strong double digit growth in both hereditary cancer testing and GeneSight volumes in the first quarter. Prolaris saw an impressive 22% quarterly volume growth figure compared to Q1 of last year and prenatal volumes, excluding contributions from SneakPeek, grew 12% year-over-year. Total first quarter volumes grew organically 21% over last year. Overall, the quarter reflected really positive broad-based volume growth across the portfolio. During the first quarter, total revenue we generated 181.2 million in revenue or 10% growth over the year ago period, a second consecutive quarter of double digit growth in total revenue.

This growth rate reflects strong volume growth, which is partially offset by product mix and a challenging year-over-year comparison related to out-of-period cash collections. Recall that first quarter 2022 benefited from approximately $12 million in positive out-of-period adjustment, which were immaterial in the first quarter of 2023. In addition, SneakPeek price point creates a significant product mix impact. Taking these factors into consideration, underlying ASPs were in line with our long-term forecasted range of negative 3% to 5%. Healthy growth across our business units reflect a number of comments Paul, Mark and Nicole have already mentioned, including improved execution by a strengthened and highly motivated commercial team, as well as investments in core infrastructure and improving customer experience.

First quarter total adjusted operating expense of 144.5 million well above our prior commentary reflect higher than forecasted performance-based commissions and the timing of certain sales and marketing costs. We remain confident that these investments will continue to support our growth story and generate long-term shareholder value. We’ll turn to Slide 21 now to review our financial guidance. We are updating our 2023 guidance to reflect the strong Q1 performance. We are raising the low end of our revenue range by $10 million, yielding a range of 730 million to 750 million, or 8% to 11% growth over 2022. Gross margin for 2023 remains unchanged between 68% and 70%, and is expected to fluctuate in any quarter given seasonality. First quarter adjusted OpEx spend was higher than anticipated.

It is aligned with our revenue outperformance in the quarter. We are raising our 2023 adjusted OpEx guidance by $5 million to a range of 535 million to 555 million. We anticipate quarterly adjusted OpEx to decrease in nominal dollars through the remainder of the year. This will be accomplished through tighter cost controls across the organization and reflect some programs sunsetting throughout the year, including certain sales and marketing expenses that were incurred in the first quarter. Net-net, we are narrowing our 2023 non-GAAP EPS loss range to $0.24 to $0.36 with the midpoint unchanged. In addition, we reiterate our previously disclosed target of generating positive adjusted operating cash flow and profitability in the fourth quarter.

Moving on, in terms of the balance sheet, we ended the quarter with $109 million of cash, no debt and continue to assess our capital position in the context of our overall forecast to be profitable and generate adjusted operating cash flow by Q4. Our existing credit facility expires July 31, and we intend to replace it with a new secured credit facility to provide additional financial flexibility. Note that Q1 and the first half of 2023 reflects an elevated level of capital expenditures associated with ongoing progress in our Labs of the Future strategy and facility built out that Nicole reviewed. We expect CapEx to return to a more normal level in the second half of the year as these build out of these facilities is completed. I’ll now turn it back over to Paul for closing remarks on the next slide.

Paul Diaz: Thanks, Bryan. As you’ve heard, we have a lot of exciting organizational change is happening but we remain focused and confident on reaching profitability in the fourth quarter of this year. Balancing growth and innovation while keeping an eye on profitability is an ongoing challenge and opportunity for one we are committed to. In closing, I’d like to offer what we believe are our strength and strategic advantage. First, we continue to grow volumes consistently every quarter across our businesses. And we know how to get paid for our tests. Second, pricing for our products remain stable, and we have visibility into pricing moving forward. Third, we have a discipline cost management structure as we expect to maintain our strong gross margins and manage our OpEx responsibly.

Fourth, we are committed to effective capital deployment in key areas that will provide the customer experience, including new technology tools and capabilities, innovation, commercial strength, and our Labs of the Future to generate strong returns for our shareholders. Fifth and finally, our growth catalysts are clear as we continue to elevate our products to their full potential and opportunistically look for tuck-in acquisitions like Gateway Genomics transaction. All of this reinforcing our position as a trusted differentiated lab with specialized expertise, best-in-class quality, a strong scalable commercial engine underpinned by data, research and technology, with industry leading margins [indiscernible]. I also want to point out what a great job our teams have done in listening to our patients and providers.

We have re-approached the way we engage with customers and they are starting to notice. A great example of this as Nicole spoke to, their open source data strategy with ClinVar which is something that the genetic counselor community has been quite vocal about. Keeping patients and providers at the center of everything we do is starting to pay dividends. And we are excited about finding new ways to make it easier to do business with us. Everything from increased price transparency and affordability for patients to the rollout of initiatives like EMR integrations with EPIC and our unified order portal, along with improvements that Myriad complete our customized suite of services and workflow solutions. With that, I’ll turn it back to Matt for Q&A.

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

Q&A Session

Operator: Thank you very much. [Operator Instructions]. Your first question will come from the line of Andrew Cooper with Raymond James. Your line is open.

Operator: And your next question comes from the line of Dave Delahunt with Goldman Sachs. Your line is open.

Operator: And your next question comes from the line of Derik De Bruin with Bank of America. Your line is open.

Operator: And your next question will come from the line of Jack Meehan with Nephron Research. Your line is open.

Operator: [Operator Instructions]. Your next question comes from the line of Puneet Souda with SVB. Your line is open.

Operator: Your next question comes from the line of Mason Carrico with Stephens. Your line is open.

Operator: And they are no further questions. I’ll turn the call back to Matt Scalo for closing remarks. Thank you.

Matthew Scalo: Okay. Thanks, operator. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.

Paul Diaz: Thanks, everybody.