Myriad Genetics, Inc. (MYGN) Earnings Call Transcript & Summary

Hi, everyone, welcome to the 2021 JPMorgan Healthcare Conference. My name is Casey Woodring and I'm a member of the life science tools and diagnostics equity research team here at JPMorgan. Today, it's my pleasure to introduce the management team from Myriad Genetics. As a reminder, if you would like to ask a question, please feel free to submit via the presentation web page. And with that, let me turn it over to Paul.

Great. Thank you, Casey. Thank the whole JPMorgan team, Tycho and the rest of the team, for allowing us the opportunity to present here today. And let me send a shout-out to all of my teammates at Myriad Genetics for their incredible efforts over the last few months of continuing to manage through this pandemic and how hard everyone is working to be responsive to our patients' needs. We are excited today to give everyone an update of our transformation plan. And the progress that we're making. There's still a lot to do, but we'll give you a sense today of the progress that we've made, and a glimpse of some of the things that we're working on for the future. So with that, let me start. Obviously, I'll give the obligatory reference to forward-looking statements on Slide 2 and non-GAAP disclosures. Please read these disclosures as they are important in the context of today's presentation. So thanks again for joining us. I would be remiss to not start with our incredible commitment to our mission and the opportunity that we have for our patients. It really is why our team comes to work every day, particularly under the current difficult operating environment. And we do see and are excited about the opportunities that genetic testing and precision medicine can make for a health care system broadly that I think recognizes that we need to change the way that we do business and the opportunity we have really to get in front of disease and help transform the way we do health care. So let me begin to tell you a little bit about the basis for our transformation thesis on the next slide. On Slide 4, I've spoken with many of you about this in the past. I believe, and was attracted to Myriad Genetics because of what I just described. We're in the middle of a huge change in the way that we think about public health and health care in America and in the world. And the opportunity for genetic testing and precision medicine, we believe, affords us a great opportunity to fulfill our mission and to create value for all of our stakeholders. We have a company that has a long tradition and a great reputation in terms of our products and our brands. Even though that we've struggled over the last few years in terms of some operational execution issues that we'll talk a little bit about. But we're excited to share with you the transformation plan today that really goes to the heart of resetting the base of our operations, getting our products to their full potential and developing those capabilities to allow us to really accelerate growth in the future. And that is all possible, again, because of the great team that we have in the organization, the culture of excellence that we have and the fortune that I have in terms of the management team and the partners that -- and friends I have started to develop in the management team. So on the next slide, I'll begin to describe to you our 4-point strategy. And not particularly complicated, and that's a lot of what you'll hear today. We really want to focus on execution. And while we have been an organization where I know my teammates have always put our patients first, I'm not sure of our organization and the investments in our capabilities have always allowed us to be the best in terms of the patient experience and the physician experience and easy to work with. So we really are reinvigorating a patient first, customer first culture, which is easy when people are already so dedicated to that. And the way we're going to go about doing that in the way that I think we start thinking about our company is more than just a testing company. We believe that we can be a solutions company. Part of that solution is really to be a technology company because we -- the ability to leverage technology to reach and expand our mission, to make it easier for us to work with, to play offense in terms of growth is something we're quite excited about, and you'll see some examples of how we're reinvesting in that. This includes ramping up our direct-to-consumer and digital marketing strategy and really trying to position our sales force with the best-in-class training and tools to do that. We announced last week, and we'll talk about in a few minutes here, our -- completion of our strategic operating reviews, where we are -- see the greatest opportunity for growth, and that is in the area of women's health, oncology and mental health. And so within those products that we'll talk about, we believe we have an opportunity to regain market share, regain our competitive position and find new avenues for growth. And that comes down to, quite frankly, reeducating people about the clinical differentiation that we have in our products, bolstering that message and thinking about the synergies we have to leverage technology and cross-sell our products. We also believe that, that will open up the opportunity for new opportunities for growth, some of which we'll talk about in a moment and that we announced this morning. And that includes new products, new innovations that we'll be talking about later in the year as well as more opportunities to create direct-to-consumer experience in products. The change in mindset also includes more of a partnership orientation. So I think what you'll see and you saw announced with Illumina today is a view that we want to participate in an expanding health care ecosystem that going it alone is not always the most effective path and that we want to figure out how we can leverage our capabilities and that of our provider partners, our payer partners to reach more patients and create more value. And lastly, there's an untapped potential in the company given its long history and tradition to really leverage the data to be a solutions company. And we'll be talking more in the future about the opportunities to leverage our data for our patients and hopefully monetize that value. So let me spend a second on the next slide to say a little bit about how one should think about the time line associated with our transformation plan. And this is Slide 6 that I'm referring to now. Today, we are in what we are describing as sort of the reset of the base of the operations. Last week, we officially launched our transformation office, and that is staffed with both internal folks up and down the organization and supported by Bain & Company, Avalere and some new folks that we are hiring are going to permanently staff our transformation office and the project management office going forward. The focus here, as one can imagine, is to continue our COVID recovery, to look at those areas where we can regain organic growth. And part of what you saw in the announcement last week and focusing on our 3 primary areas is the ability to reprioritize our innovation, research and technology initiatives around women's health, oncology and mental health. Establishing a clear financial position, where we are very focused on. And you saw progress last quarter. And over the next several quarters, we hope to continue to see that stabilization. Even though, again, I'd caution this all to remind ourselves that we're likely going to be in this COVID environment until the summer, until this second half of next year. But we're excited about what we're doing in this first phase. And as I mentioned earlier, moving this year into launching a new commercial strategy, that I'll speak to in a minute, to elevate all of our products to their full potential. And then lastly, this year will be a year to build capabilities to allow us to accelerate growth as we look to '22 and beyond, both in terms of launching new products, current product enhancements and having those capabilities to successfully execute on a go-forward M&A strategy. So let me spend a few minutes on Slide 7, talking about what I mean by a new commercial strategy, and this is being developed now. Our hope is to launch an enterprise-wide commercial strategy in the second and third quarter. That is not to say that we're not currently -- that we are not currently making great strides in each of our business units and products to enhance our commercial strategy, but we want to have an enterprise-wide approach to how we think about our customers, their expectations, our brand, the technology opportunities that we have to reduce friction with our customers, thinking about our pricing strategy and how to really build a technology-enabled sales force that can be both more effective and more cost efficient. So over the course of the year, I think you'll see us build out these capabilities and that will, again, as I referenced earlier, position us for new product launches in a more systemic way, in a more disciplined way and allow us to consider M&A going forward. So again, most importantly, on the heels of the announcement last week and moving on to Slide 8, we really are focused on 3 areas. We believe women's health affords us huge opportunities given our current products and the demands and opportunities to really empower women and their families with health care and with the information to manage their care. Similarly, oncology, we've made some announcements today that I think we've improved our competitive position. We recognize we have some catch-up to do. We've got great products in a growing market, both in women's health and oncology and the ability to cross-sell products in these 2 business units, whether it's Prolaris or myRisk or our prenatal products in a much more effective way. And lastly, all of us recognize the increased stress and burden that the pandemic has put on families and individuals around depression and under mental health issues. And we really see GeneSight as part of the solution of giving people a path to finding the right meds at the right time to deal with the depression and struggles that people are having. We're excited about the potential growth catalysts in each of these areas, both in terms of improving economics in prenatal coverage as well as looking at our new commercial strategy in women's health. We'll talk some more about somatic and tumor testing in a moment. We've got the benefit of increased and improved reimbursement for Prolaris. And I'll speak in a few minutes about the great progress we've made internationally both in terms of reorganizing, but more importantly, our growth, particularly in Japan with our new products and the additional coverage that we have there. And then in GeneSight, which is really in the early parts of its life cycle. And while we've had some challenges historically, I'm quite proud of the team and the work that's been done over the last few months in terms of piloting some new digital tools, really how we've adopted and adjusted our operating model to the new LCD and the ability now to reach into primary care offices with the product. And we are looking at telehealth partnerships and other ways to expand our reach there. Again, across all of these 3 areas, we see a growing market and really an ability to reposition ourselves to be a leader in each of these 3 areas. So turning now to Slide 9, if you would, please. We'll talk a little bit more about women's health and some progress we've already made. Hopefully, you've seen or heard about our amplified technology for prenatal testing, that has really significantly improved the accuracy of our test. It's been a great launch. It's really facilitated some nice growth here as we've managed through COVID and are bouncing back. We've worked through the rev cycle issues that we had as part of a prior acquisition. And again, we've got expansion of coverage and the ability, we think, to really grow our prenatal business. And the other area that we're really excited about in terms of women's health is global ancestry and making ourselves available in what we do broadly to a broader part of our population. We all have seen the challenges and the disparities in our health care system, and we want to be part of being responsive to that. So we're making great progress on expanding risk or -- for global ancestry to make sure that, that signs and that information is available to folks of all ethnicities. And lastly, as I've mentioned, a great deal of investment in the customer experience, both digitally and otherwise, and I'll talk about some examples there. In oncology, very excited to announce what I hope is the first of many partnerships to help us expand our reach and leverage our capabilities and that of an important partner of ours, Illumina, which is the partnership we've announced today to develop kits with Illumina and expand our international presence, leveraging our proprietary myChoice CDx and Illumina's capabilities to reach more patients. So quite excited about that. I mentioned Prolaris and the expanded reimbursement coverage there that went into effect December 6. I'll remind everyone that it will take time, quarters, not just weeks, to fully implement that coverage and to take advantage of the opportunity as we start engaging not only Medicare fee-for-service, the Medicare Advantage and hopefully, broader conversations in terms of Prolaris on the commercial side. And lastly, in oncology, as I mentioned, we've had just tremendous growth and support both in Japan and Europe, France and Germany, in particular, in terms of myChoice CDx, from BRACAnalysis CDx and are excited about the opportunities international for those products. In terms of the announcement last week, sometimes in order to grow, one needs to take a step back, and we've done that. We've taken a step back in all our products, in all our business units to figure out where we think we really can compete, where we really think we can grow and add value for our patients. And so one of those areas is internationally. So we've taken a little bit of a step back and reorganized ourselves there. The team has done a great job. And -- but we're really excited about our growth opportunities, as I mentioned, in Germany and France and in Japan with our new products and with the Illumina myChoice CDx kit collaboration. Turning my attention -- our attention to GeneSight now on the next slide, forgive me if I didn't reference the page numbers, but on Slide 12. Here, again, we're really taking a step back. We've got the opportunity now in primary care, but we're evaluating a number of different options to think about how we can better position GeneSight in the marketplace, help demonstrate the value proposition in a more compelling way clinically and from a cost reduction standpoint, but we really believe in the opportunities for GeneSight. We've got some great pilots in terms of our digital experience and pilots. I believe last quarter, we had 1,700 new physicians order GeneSight through our new direct marketing initiatives. We've added inside sales force. So really proud of the team and the work being done here. And again, excited about the future in '21 and '22 as we've repositioned GeneSight in the context of the opportunity for primary care. Next slide talks a little bit about that expansion, both in terms of increased sales force, but I would say equally, we're excited about the traction we're seeing early in our pilots in terms of online engagement, direct-to-consumer targeting and obviously, everyone is concerned about mental health issues and the opportunities here, and we're excited to be, hopefully, part of that solution, working with health care providers, working with our payer partners and increasingly working with large employers who are seeing the productivity challenges and are seeing the opportunity to make GeneSight part of their offering. So on the next slide, and I'll just pause for a second. I want to just give a few examples because there's a lot more going on, and the team is working on -- we will share some of this in our Investor Day, but we have a number of different strategic initiatives, but I wanted to give you a little bit of a sense even today with some of the things that we're working on and particularly the great work that our technology team is doing to change the customer experience. So turning to Slide 15. Really think about this opportunity for us across all of our products to have a standardized way to reach our customers, both in terms of educating our customers about their risk, educating our customers about their opportunities for care, partnering with different telehealth providers and expanding access to our services and information, including how one pays for a test through technology-enabled portals. And so you'll see already improvements that we've made to our website. And I think in the months to come you'll see that standardized across the company where these capabilities, you'll see across all our product lines, hopefully, over the next 12 to 18 months. An example of that, and again, just the missed opportunity in terms of execution, and this is some information I've shared before, but one that, as an operator, excites me is we have almost 1 million patients coming to our website looking for information about hereditary cancer and taking the quiz. Half a million of those folks, if you think about this funnel, a pretty good conversion rate of people actually taking the quiz. So there's 1 million people who have an interest, who have completed the quiz and almost 300,000 who meet criteria for reimbursement. But we didn't execute well on all of this. And now we're creating an ability to do that so that we can do a whole lot better than the 1.7% conversion rate. So these are patients that we're not spending customer acquisition cost to get into our system to have an interest. These are 1 million patients who have a need who have shown interest. And we have an opportunity to help them with this journey and obviously create opportunities for us and some low-hanging fruit in terms of our business model. So the next couple of slides, beginning on 17, just give you some examples of Katy's journey and how we are hoping to improve that, how she begins to think about her family risk for cancer, searches the Internet comes and takes our quiz about what our future state is. What are we going to do to help Katy, both in terms of her learning, her understanding and evaluating her options. So as you can see, providing her with the information coming off of here family history, giving real-time cost estimates and a personal follow-up, whether she has a position or doesn't have a position. And again, the whole idea here, and you can read the slide, is to create an experience for Katy and others that is seamless, engaging and empowering for her and for her family. So let me turn our attention to the announcements we've made over the last few weeks in terms of the business and the core. As you've seen and read, we've made the determination to divest RBM, our autoimmune business and our dermatology business. We think these are great products. We think these are great teams and great brands, and we think there's a lot of potential for these. We just don't think that we're in a position to give them the support they need to reach their full potential and invest in the things that we need to in women's health, oncology and mental health to be successful in the areas where we think we can win. So over the next few months, we will keep you updated about these divestitures. We really have seen a lot of strong interest in all 3 of these assets. We want to find a really good home for our people, for the products, again, where they can thrive and grow. And we're pretty confident that we can achieve an outcome here that is both great for our teammates, but also accretive to our earnings and provide some significant cash proceeds for reinvestment in our new growth initiatives. And again, we'll update you as this moves along, but we've had management presentations already for RBM and dermatology. We've got a lot of progress in this. Bryan can answer some more questions in the Q&A, and we'll keep you posted as we move along to this process. And again, really proud of the team, how they're continuing to focus on our patients as we move through this process. So we're not in a position at this point, so early in our transformation process. And as I mentioned, really, the new commercial strategy will be launched in Q1 and Q2 of this year, and we see stabilization really more in the back half of next year because of COVID and so -- but we did want to give you a sense of the opportunities we have to continue to improve operating income and consistency. We've talked about $40 million in cost savings, some additional cost savings out of our international restructuring, the desire to continue to reinvest in technology and the R&D that we think will help us get to full potential in our current product lines. And we have made a great deal of progress in rev cycle, but see more opportunities there. Many of you have heard me talk about the frustrations I have with our no pay. So these are patients that we are -- have sold our products to and are incurring all the costs, additionally in the reports and the cost of goods, and are not getting paid. And so that's low-hanging fruit as we improve our rev cycle capabilities. And Bryan is leading a great effort there, and he and KPMG are developing a great road map to build on the work that's been done this year, and we're quite excited about the possibilities there, again, just in terms of better execution. So I know that was -- I went through that pretty quickly. I wanted to allow more time for Q&A. And again, quite excited about our future. And a big shot out again to my teammates and all of my partners in Myriad Genetics for all their hard work over these many months and for placing their trust in me and -- because change is difficult and trust is hard to build. But I'm really appreciative of the trust that people are placing in me and placing in the management team and that you all are placing as we begin this journey together. So with that, that concludes sort of the formal presentation, Casey, and ready to open up for questions. And Scott and Bryan will join me.

Great. Well, thank you for that. Maybe to start, we can talk a little bit about your Illumina partnership that you guys announced this morning. Maybe just can you talk about what that would mean in terms of near-term revenue and any sort of milestones that we should be looking for upcoming? And how quickly will this accelerate your international expansion, as you alluded to?

Well, we've got great momentum right now internationally. But one of the things that we are committed to doing as a management team is not getting ahead of ourselves and making sure that no one gets too excited about stuff that's early stage of execution. So we're quite excited about this. Illumina is a great partner. This is a great opportunity to leverage their technology, our proprietary capabilities. But we're months and quarters away from being able to articulate sort of specific milestones and targets. Obviously, we've done that work in order to reach this space and to come together on this. So we think it is a partnership that could win for both companies and most importantly, for our patients. But I'm just a very disciplined, methodical guy. And so you're not going to see any numbers coming from me on this until we have a lot more visibility on what it means.

Fair enough. I guess, a follow-up to that would be, do you have a lot more sort of these partnerships in the pipeline? And you alluded to that this is going to be a strategy of yours moving forward the strategic partnerships, is that a core sort of focus of the orders in the near term?

Yes. I think it's among the core. Look, I think there are enhancements to our current products that we are working on. And hopefully, in the months to come that we'll be talking about, I think there are opportunities for us to advance a direct-to-consumer opportunity for many of our products to engage the broader ecosystem of people who are online searching for answer, searching for information about their health care spend. And that means -- and I think this is happening across health care services, where I spent 28 years and in the payer world, where I've spent a fair amount of time. I think there are great opportunities to work with health systems, with payers to think about value-based payment opportunities and across our product line. So this is just 1 example. And I guess what I'd reinforce is that the company historically has been more a go it alone. And I just don't think the world has time for that. What we need to do as a health care system is leverage our capabilities and partner with people who have other capabilities and figure out how to get to market faster and more responsive to customer and health care provider needs. So I think partnerships is just 1 way to do that. And I could see us doing more with employers, more with payers as well as health systems and other great companies like Illumina.

Got you. Maybe shifting gears a little. Can we talk about the latest volume trends that you're seeing entering 2021? I know that you previously noted to exiting September at around 90% pre-pandemic levels, and this was up from, I think, 75%. So can you just talk a little bit about what you're seeing in terms of hereditary cancer and GeneSight, specifically volume trends?

Yes. As I said there, Casey, and you weren't with us then, and I've said repeatedly, we were quite proud of the work that the team did and what we reported last quarter. And given the resurgence of COVID, and quite frankly, the last couple of days have been just horrific, I think one should just be prepared, as I've said before, for pretty flat couple of quarters here. And even hanging on to the gains that we've made requires a lot of work, but we're making steady progress. And some of the COVID pressure we're mitigating with some of our new sales strategies and some of the new efforts. But we're not prepared to give any new numbers or guidance on trends other than to say we continue to see stabilization in both volume and rate and ASP. And we're going to work to build on our last quarter, but it would be a mistake for anyone to get too far ahead of the last quarter results for the next couple of quarters.

Following the coverage decision from UnitedHealthcare, can you give us an update on private payer conversations for GeneSight? And should we expect any additional private payer coverage decisions for GeneSight in 2021?

Well, I'll start, and then Scott or Bryan can chime in. Look, we're really pleased about the coverage expansion under the LCD. These things take time. So now we're in a position to start those conversations on the Medicare Advantage side. We've got a number of different strategies that we are pursuing, the potential partnerships that I think will make it even more interesting as people are focusing on mental health and the cost of managing mental health and disease, given the current environment. But I don't have any other specific coverage determinations to talk with you about today other than the access to primary care now and the ability to think about the LCD as a way to open doors in the Medicare Advantage side and more broadly on the commercial side beyond United is an opportunity for us. But Scott, I don't know if you want to add any more specifics?

No, Casey, I think the only thing I'd say is that one thing we definitely have seen is just given the mental health crisis that we're facing right now in the United States, we have seen kind of increased interest from the payer community in terms of solutions to help solve that crisis, which obviously GeneSight has shown the ability to improve outcomes for patients. And so we're working on all our products right now to find strategies to try and accelerate coverage, GeneSight included. And I think that's something you could expect to hear more about when we have our analyst event coming up here in the first half of this calendar year.

Casey, other thing that I'll just -- and I apologize if I'm being redundant. I mean I think our opportunity is more about our commercial strategy and execution. So thinking about our brand, our messaging, our customer experience to make that a more frictionless experience, the opportunity to take our rev cycle process to the next level, to reduce no pay, to engage consumers more directly, I think that's where the low-hanging fruit is, and that's the blocking and tackling that we're going to be really focused on this year across all our product lines. And then the other thing I would underscore is that, that new commercial strategy around pricing and brand, et cetera, will be rolled out in Q2 and Q3 of this year. So we'll hopefully see signs of that. We're already seeing some great signs of that, but more so. And the idea is to have a more standardized approach across the whole enterprise that we can leverage and learn from each other across products, and that will help with the cross-selling as well. So that's where I think we're putting a lot of time and energy around right now. We're certainly going to continue to pursue better payer coverage. But we think where we have not executed as well in the past and where we have some opportunity this year is really on rolling out a new commercial strategy and executing on that.

Okay. Maybe following up on that, how should we think about operating margins as you kind of reinvest in this commercial strategy and kind of reinvigorate your R&D?

So probably not a good time to get into the model and specific numbers generally. So -- but I would say that we still enjoy healthy gross margins. We're still looking for ways to reduce the cost of sequencing and lower cost of goods. And obviously, have the opportunity to be more efficient in terms of our OpEx and to reinvest in technology and those things where we think we've underinvested in over the years. So you saw in the presentation today some of those steps to rightsize our operating expense. We'll obviously have the allocable overhead associated with the divestitures that we will be focusing on. But this is a time for reestablishing growth and reigniting growth and probably not a lot to add right now in terms of margins and any specifics here.

Okay. Maybe 1 more before we break. And that is I'd be interested to hear your strategy for expanding test volumes for patients with low family histories and to what extent has the risk score and indication expansion been helping increase penetration there.

Scott, you want to start, or Bryan?

Sure, Paul. Casey, I think when we look at riskScore, we've talked about in the past, one of the advantages of that product is, since every patient gets canceled, you have seen physicians more willing to test patients' family histories that are not as extensive, maybe as patients they've tested historically. I think to Paul's earlier point, though, our real focus is on expanding access in a much broader sense. And part of the way that we do that is through the direct-to-consumer and digital marketing strategies that we're investing in. Paul talked about the hereditary cancer quiz, our conversion rate and the opportunity to improve that. And so I think that's really where our area of focus is right now is on how do we use technology to help drive a broader audience for our services.

Okay. Great. Well, it looks like our time is up. And so I guess we'll leave it at that. Thank you all for taking the time with us today. Appreciate it.

Thank you, Casey. Appreciate it. Give our best to Tycho, and appreciate you guys allowing us for participating in the conference today. Thank you.

Yes, certainly. Thank you.