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

Good afternoon, everybody. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this afternoon, Myriad Genetics. [Operator Instructions] And with that, let me turn it over to Paul.

Well, thank you, Tycho. Very much appreciate the opportunity to be here and really our 25-year relationship with JPMorgan. Before we begin, I want to remind everyone that we'll be making certain forward-looking statements during the course of the presentation and referring to certain non-GAAP financial measures, and we encourage you to visit our website for additional information about the company, including our public filings. So important to begin and emphasize the commitment that we have to being part of a health care system that we see as becoming increasingly patient centered and focused on wellness, prevention and engaging patients and providers with better tools to actively manage health and well-being. I'm certainly inspired every day by our 2,300 teammates, their dedication on delivering on our mission every day and the opportunity that we all see for genetic testing and precision medicine to enable to help address, detect, treat disease, lower costs and address the inequities, the access challenges we've seen, particularly over the past few years. For over 30 years, Myriad Genetics has been a leader in genetic testing and precision medicine. And over the years, we have helped millions of patients learn more about their hereditary cancers, risk, about their baby's health during pregnancy and help guide physicians and patients to the right medications to treat depression, anxiety as well as the best treatments for cancerous tumors. Today, we are delivering more than 1 million patient tests per year. And we're beginning to work to harness the data and the insights from these billions of tests for more opportunities for patients. So about a year ago, we reorganized ourselves into what we see as growing and emerging opportunities in 3 segments: mental health, women's health and oncology. These are sectors that are growing and underpenetrated as we see them today. And we're quite proud of our leadership teams and our operating teams that have really come together over the last 6 months. And we continue to expect operational improvements over the course of this year despite COVID headwinds. As we will discuss, we believe Myriad Genetics represents a unique investment opportunity, given our size, scale and reach into these segments and our best-in-class products and emerging tech, R&D and commercial capabilities and industry-leading operating and profitability margins. So let me talk a little bit about our transformation and growth strategy and the progress we have made there. Really 3 goals in mind as we've advanced our transformation plan. One, to continue to innovate, to improve clinical outcomes, ease of use for patients and providers and expand access to our genetic testing. Two, to continue to build the enterprise capabilities to accelerate growth and to meet the market opportunity we see in these emerging segments. And three, to continue to maintain focus on execution and delivery of consistent results with the goal of fulfilling our mission to patients and driving long-term growth and profitability. So our transformation plan has really been focused on 3 phases. The first phase, we successfully completed really ahead of schedule in terms of resetting our base of operations and hopefully giving investors a lot more transparency over the last 5 quarters that we can deliver on what we commit to do. This next phase that began in '21, we began to roll out our new brand strategy in a number of digital tools and work to prepare to launch new products enhancing capabilities like rev cycle that prove itself successful in the year. But really, this next phase is what we're most excited about is advancing our products to their full potential with our new technology tools and marketing and brand strategy. And more importantly, as we go into '22, building on those commercial capabilities with the launch of our new unified order portal that I'll speak to later, some new sequencing technologies that we're rolling out in several of our labs and the continued investment in tech, IS infrastructure to make us more successful and support future growth. We're excited about the new year and excited about the opportunities that these initiatives bring across the enterprise to support sales across all of the channels we operate in. I want to start and speak a little bit about our mental health business, which has really shown terrific growth and wonderful execution this year. As we all know, there's been an unprecedented mental health challenge in America as a result of the pandemic. More than half of diagnosed and depressed patients have tried 4 or more medications in their lifetime through trial and error, and that's just still not the right way to advance medication administration. We think GeneSight is part of the answer to that challenge to help providers and patients and especially in primary care to solve to the right medication administration and opportunities for these patients. A great source of productivity challenges in our society and creating bottlenecks as we've seen in supply chain and elsewhere. I would highlight that the commercial techniques and tools that we've implemented in GeneSight have really propelled growth. This is continuing to be a growing underpenetrated market. And then 95% of our providers now order through our online portal, and 15% and growing of our business originates from our digital marketing efforts. And 30% of our samples are collected with home-based kits. Again, trying to make sure that we can become more accessible to patients and easier to use for providers. This next slide gives you a picture of all the things that we're doing to really enhance our digital strategy and lead generation. And we've had some really great early success here with our inside sales models and driving customer engagement. And we believe this new commercial model that we rolled out in '21 will help continue to support the 20% growth that we've seen this past year. As I mentioned, over the last 5 quarters, we've seen 20% growth in GeneSight and really overcome a lot of the obstacles that I think people were concerned about both in terms of coverage and ASP. There's been great adoption, particularly in primary care and nurse practitioners. And the tools and the hard work of our neuro team continue to drive this growth as we see going into '22. Our next phase is many of the things that we did in the mental health business and in GeneSight, we're now rolling out into the other business units and hope to have the same success there. Happy to take more questions about GeneSight and coverage later. In women's health, it's a huge opportunity for us, a big market growing at 10%, again, in some ways, underpenetrated. We have, as we've talked about, a lot of operational challenges over the last few years here. But we're really excited about Melissa Gonzalez's leadership. Over the last couple of quarters, she's really brought the team together. Melissa comes to us with over 20 years of experience in the women's health segment and has really stabilized the operations team, stabilized the sales team. Q3 of last year, we had 57% turnover in our sales team. This past third quarter was 8%. It's kind of tough to build a building on a 57% turnover. This year, we're really excited to launch myRisk with a riskScore enhancement for our patients of all ancestries. With riskScore, we can help with a lifetime risk cancer risk for patients of all ancestries and really help address the inequities in our health care system. Next year, and we'll talk about it in a minute, we're excited to launch First Gene, which is a combination of our prenatal and carrier screening in one simple process, one maternal blood draw. And again, I'll speak to that in a little bit more detail in a minute. But First Gene is ready to launch over the next couple of months. And we think it will be a great source of strength for our women's health business. I mentioned the ordering portal before. One of the operational challenge and friction points that we had for our sales teams is trying to sell hereditary cancer and prenatal in gynecologists office. That is solved with the unified order platform. And so again, little things that really should create ease of use and support our sales teams to grow myRisk, riskScore as well as our prenatal products. So again, a little bit more about riskScore for all ancestries. We're incredibly excited about this, one simple maternal blood draw, a streamlined process that really help providers with a high accuracy, prequel prenatal test powered by our AMPLIFY technology, along with Foresight Carrier Screening. And it provides early insights in recessive disease and eliminates a lot of unnecessary amniocentesis. So really excited about this product launch, which should happen -- which is happening this quarter and -- no, excuse me, First Gene in first quarter of next year. Sorry, 1 slide behind there, my apologies. So turning our attention to oncology. We're certainly happy to come back and talk about riskScore and First Gene similar. With both of these product enhancements and new offerings really give us excitement about the opportunities along with the operational improvements in women's health going into this year. So let's talk about oncology. Clearly, we have had a legacy and a strength in germline and hereditary cancer and have been building on our companion diagnostic, myChoice CDx, FDA-approved leading companion diagnostic. What you'll see here in the next few slides is our real opportunities today to launch new -- our new precise tumor offering in partnership with Intermountain and Illumina. And we'll discuss briefly expansion of our companion diagnostic business beyond ovarian cancer to breast, prostate and pancreatic and also our plan in partnership with others and leveraging our current capabilities over the next few years to expand our offerings into liquid and MRD. And we'll speak more about that in a minute. This is all to kind of look at the whole continuum of [ cao ] cancer care and how we can support physicians and our patients through this journey, from high-risk screening with myRisk and our new riskScore to help guide surgical decisions and our CDx and precise tumor and under products to help with treatment selection and clinical trials where we continue to forge new partnerships. In the future, as I mentioned, we think we have many of the capabilities and are investing further in those capabilities to enter liquid to help with treatment selections where inadequate tumor samples are available and also for residual disease monitoring. Physicians know -- want to know the origins of cancer and want to monitor the changes more quickly to adjust therapeutic changes. And we'll talk a little bit about our road map into liquid and MRD in just a moment. But again, just a minute on Precise. So our new Precise offerings are really 2 things. my precise tumor, which is a new product launch in partnership with Illumina, and I'll talk about that in a minute but also a comprehensive solution that we are calling Precise Oncology Solutions. It really brings together our world-class germline test, the HRD gold standard that is myChoice and this new best-in-class genetic tumor profile in partnership with Illumina and Intermountain. I'm very excited to bring these comprehensive offerings and Precise tumor to market here in the first quarter of this year. I want to take a couple of minutes to talk about and call out what I think is a little bit underappreciated growth drivers in our portfolio, and that is, first, our companion diagnostics business. It is growing at $100 million-plus this year and, again, is based on our FDA-approved market-leading myChoice CDx. And our plans and aspirations, and we think we have the capabilities to do this in-house over the next couple of years is to expand beyond ovarian into breast, prostate, pancreatic cancer. And we think that opens up a significant larger market opportunity for us and one that we have established commercial channels and scientific capabilities to reach over the next several years. So pretty excited about that part of the portfolio. Similarly, and underappreciated is Prolaris. Prolaris has grown by 25% this year in a market that is almost $1 billion in size and only about 25% penetrated. And we think we have a differentiating product here and an improving customer experience. Terry White and his team have done a really good job executing here, taking advantage of expansion of coverage in Medicare and commercial. And we expect to continue that growth into '22 and continue to grow. And one of the places where we are seeing more traction in cross-selling our products and the unified ordering platform will further that as we roll that out this quarter is the ability to cross-sell even into urology practices our germline testing. And we're continuing to see some nice early pickup in that cross-selling opportunity. So many folks have asked what is the road map for us as we think about Precise tumor, Precise Oncology Solutions and where we go from there. So we've attempted to lay that out for you as best we can. We believe that through the partnerships that we have and the partial negotiations underway that we can expand into the liquid market in a narrow way and expand our offerings to oncologists. Similarly, with proven technology and clinical tools and the trials that we have underway and expanding partnerships, we believe we can expand into other indications our companion diagnostics, myChoice. And again, I would say that building on our core competencies in myChoice and myRisk and Foresight and Prequel where we do whole exome sequencing, we believe that together and with -- in partnership with others, in the not-too-distant future, not only can we expand into liquid but that we have the capabilities and a path to expand into MRD as well. So this begins to set out that road map and those ambitions for us over the next several years. And we'll be talking more about this as the year progresses. So I'd be remiss in not talking about for a few minutes, the things that are propelling our commercial growth and a great work that Nicole Lambert, our new COO, and Eric Santa and others have done. This gives you a sense of the size and scale and breadth of our commercial teams, over 800 sales, medical and customer service representatives, 95% coverage in terms of insurance and in network, 60,000 ordering providers and the continued investment, over $50 million in technical tools to enable customer engagement and more than $12 million investment in commercial and marketing capabilities. All of these are going to things like better market planning and intelligence segment planning, better brand management and marketing, really a higher level of accountability in terms of sales, operations and performance management. And we see more disciplined product and channel management in the future as well. And really, not to be underappreciated is how important the tech piece of this to enable the customer experience. I'll give some cent to that in the next slide. And this includes over 600 EMR integrations that we expect to complete by the end of 2022 and the launch of our new unified ordering portal at the beginning of this year, which will help consumers, patients order across all of our portfolio. So quickly, just some examples. We've seen some really early promising results from our consumer digital demand generation. Over 28% increase in conversions in the last quarter. And Eric Santa, the team are really exploring and expanding new telemedicine partnerships, as we talked about, with GeneSight almost 30% direct kit shipment. And this is where we think the delivery of health care is going for what we do. And so we are really getting behind and investing in a more digital experience for our provider partners and customers and really trying to bring the solutions to them to make it easier to access our services. Similarly, Myriad Complete will be rolled out this year. And it's a more comprehensive end-to-end solutions for customers to really make it easy from patient identification to ordering. And this feeds into the great rev cycle work that Bryan and others have done and to getting test results out the door faster to our provider partners and create more educational opportunities with genetic counselors and others. So this gives you the road map, as I guess would call it, in terms of improving the customer experience, all of which we think we can say will help support our growth ambitions. And with that, let me talk a little bit more about the business and how we see it rolling forward and the opportunities that we have to grow. First, as we look back on this past year, despite the COVID operating challenges, despite the distractions of divesting 3 assets and all that comes with that and restructuring our commercial and sales teams, we're really pleased that the restoration and stability of hereditary cancer, both growth and stability in ASP, the growth that we've seen in Prolaris, companion diagnostics and GeneSight, as I mentioned earlier, continued discipline and improvement in gross margins and profitability through better expense controls and not unimportantly, returning $400 million to the balance sheet and good AR improvement through rev cycle, that will enable us to move into '22 with no debt and $400 million of cash to support further growth. As we look beyond -- and we've got a lot of questions about how do we see achieving the 8% to 10% growth that we talked about back in May. Well, we believe actually we have further opportunities over the next few years to grow organically 9% to 12%. What I mean by organically, this includes our product launches and partnerships, which does not include M&A or any material CapEx investment. This is really predicated upon our confidence that we can continue to stabilize myRisk and the growth that we're seeing and think we can maintain in mental health, women's health through our new First Gene offering, oncology with Precise Tumor and Oncology Solutions. And in the future and beyond '24, hopefully accelerate even beyond the 9% to 12% with new partnerships and the M&A pipeline that we see evolving over the course of '22 and '23. So a little bit of a road map and building block for I know a lot of folks who wanted to get a better sense of how do we see getting ourselves a 12% growth over the next few years, and we hope this is helpful. Lastly, we want to provide guidance. And we've certainly can give you some more color in the Q&A section. We are guiding to $600 million and $700 million of revenue. We recognize that's a pretty big range, but we try to take potential COVID disruptions into account. We think we can continue to grow gross margins, even though the change of mix through the divestitures and the impact of inflationary pressures on the supply chain and wages will restrict some of the opportunity we saw to improve gross margins and similarly on adjusted operating expenses. Everyone is seeing to retain people, and we're doing a good job with that, hire the best people we can into the enterprise, keep sales forces motivated. We're seeing more pressure on wages than we certainly contemplated back in May at our Investor Day and more pressure on the supply chain. Nonetheless, we have a number of mitigation strategies both to maintain and improve gross margins and adjusted operating expense. And we commit to you to maintain a disciplined approach to our cost to try to deliver results in these ranges. And ultimately, that leads to what we hope is a midpoint of a $0.10 profitability to $0.20 profitability. But again, given COVID, we've felt it prudent to give you a pretty wide range on EPS as well. But hopefully, this helps a lot since we weren't able to give guidance last year in the context of all the divestitures and the organizational change. And lastly, I guess I would just encourage investors to consider as part of your investment considerations, the stabilization and growth that we brought to the business in the last 18 months, what we think is an industry-leading organization with size, scale and depth in the segment areas that we've talked about, an emergingly powerful commercial engine, best-in-class products, improving tech, data and research capabilities and really size and scale in the industry and margins and profitability profile in the industry that I think is as good or if not better than most of our competitors. So with that, we appreciate the time to present today. And Tycho, we'll turn it back to you for any questions. I know I got through that quickly, but hopefully, people can digest the presentation. And we're happy to follow up in the weeks to come with any questions any particular folks have, but let's see what we can do today.

Thanks, Paul. Great overview. I want to start with a long-term outlook. I don't know that people are expecting you to raise that. Can you just talk on what changed between 8% to 10% and 9% to 12%?

Yes. The component pieces that I spoke to, I'll go back to that slide if the deck will let me, here we go. So again -- and we have more ambitions. I mean this is really in line and Bryan has made this point. If we can grow with the market as you look at each of these segments, and if you go back to the presentation of what we think the market is growing in each of the segments, it's not particularly heroic. If we're growing in line with the market, we should be growing at 9% to 12%. And that is revenue, so that's netted out against the pricing compression that we believe that we will continue to see. So we don't think those are heroic, and I think they're consistent with the market growth. And we just need to make sure we can get our fair share of the market and continue to manage ASP through rev cycle and our contract negotiations. It's really predicated to a large chart about the continued stabilization of our hereditary cancer, which we are seeing, continuing to get market share back there and pretty stable ASP that we've seen over the last 5 quarters, and we believe that will continue. Similarly, the momentum in GeneSight is pretty significant and contributing more and we think will contribute more over the next couple of years. And as we said, we think women's health is a wide open space. We have one of the more mature commercial channels. And we think our opportunity to do a better job of selling both prenatal and hereditary cancer and now First Gene, our combined offering really gives us the opportunity to get to the higher end of that range. And similarly, in the time period we're talking about here, '22 to '24, that Precise tumor launch and, again, sort of the reorganization of Precise Oncology Solutions, And the expansion and growth of companion diagnostics through pharma partnerships, expansion into other indications beyond ovarian and the momentum we have in Prolaris, you added those things up, we think we can get to these numbers. And as we think about '24 and beyond, if we can execute on a liquid strategy and MRD strategy and some other things, we hope that there's more growth beyond that. But I think we've laid out a path here for you to hopefully give people more confidence that we can deliver organic growth in this 9% to 12% range. It's in line with the guidance that we put out for this year. So it's not all back-end loaded and presents a wide range because we need to have maintained some caution around COVID particularly in the first half of this year. So that's how we see getting there.

On the stabilization in the base business, I think NCCN recently expanded BRCA guidelines in the last couple of months to test all breast cancer patients from those who are only HER2-negative. So how meaningful could this be in terms of BRCA market growth for you? And does it stand to lead to a few years above market growth? And how is the somatic launch with Intermountain tracking as well?

Well, on the first, we certainly think it's helpful. I mean we are seeing really bits and pieces of expanded guidelines across the portfolio. You've mentioned one. Those things take time. to work through the system. So we try not to get ahead of ourselves in terms of when NCCN guidelines come out and how quickly that materializes into a commercial opportunity. But yes, those are very supportive of a market that we think will grow in the 9% to 12% growth and our ability, given the quality of our products to have our fair share of that. And similarly, we think the Precise Oncology Solutions really elevates the whole portfolio of oncology solutions because of the ease of use of bringing that to oncologists and breast surgeons in an easier portal and easier -- ease of use. And the Precise Tumor is one of the missing elements. Intermountain has a high-quality test powered by Illumina. We put it in our commercial infrastructure. They have the LCD for reimbursement. This is the kind of partnerships I think more people should be thinking about, bring the best of breed together and get to the market faster. So we hope to launch that in February and March, get some growth this year. But certainly, in '23, we think Precise Tumor and the Precise Oncology Solutions should be a great source of accelerating growth.

And on the oncology pipeline, can you talk a little bit more about the thought process in launching MRD and therapy selection? Those are obviously increasingly crowded markets, well-capitalized competitors. How do you differentiate?

Well, I think we're going to go about it in a different way. I recognize there's been a lot of investment, a lot of capital. A lot of people are ahead of us. But again, if you think about -- and I underappreciated 9 months ago and have spent a lot of time with our R&D teams and our technology teams, better understanding what scientific and technological capabilities we had in the enterprise. So when you think about Precise with AMPLIFY and the whole exome there, when you think about myChoice CDx, the FDA-approved companion diagnostics. And then you start drawing people out about what -- how can that expertise facilitate and give us the ingredients to move liquid potentially along with partnership with Illumina and Intermountain. And we have a lot of the building blocks. I'm not saying we have all of them. But we're creating a road map where we think we have a lot of the capabilities to get there. We don't believe we're going to take over the market in the way others have. But we think we can own our fair share of the market given our substantial presence in oncology and the demand that we're seeing for liquid when you can't get a tumor result, right? And so we view it going back to the continuum slide, if I can get back to that. It's all part of what we should be doing for patients. And as you sort of think across this continuum of care and you think about the clinical expertise, everything from our bioinformatics group to chemistry to Kevin, our CTO's technological capabilities, we've got a lot of the things. What we haven't done as a company historically has taken the skills and expertise we've had in these different acquisitions and figure out how to call them together to advance these ideas. And others have gotten ahead of us, and we're playing catch-up. But our view is that we don't have to go out and spend $500 million to do this. We'll do it in kind of a niche-y way, and we think it can serve our patients and support further growth.

Maybe a question or 2 on GeneSight, just an update on private payer conversations. Should we expect additional coverage decisions this year? And then what's the latest around primary care channel?

Well, the primary care channel is really what's driving the growth. It is the demand and the explosion of mental health issues in America in the context of pandemic. A lot of that demand is being driven by the nurse practitioners who really have to deal with the day-to-day of this. We continue to make incremental -- I would say that it's a lot of blocking and tackling. We've entered into a couple of value-based agreements for GeneSight. We're excited about the VA study results that should come out soon. And hopefully, the VA system that has obviously a lot of its own mental challenges will look to GeneSight as part of addressing the needs for veterans. We're excited about that. So it's a lot of blocking and tackling. And as you saw in the previous slides, really reenergize commercial strategy to meet the need in the marketplace. I would not hold out for any big announcement on coverage, but we're getting coverage on new Medicaid plans. That's a longer road. We're expanding coverage, as I said, in some value-based arrangements. And we expect that to continue even as we build a bigger body of clinical evidence that gets some of the doubters off the sidelines. And it is the demand from patients and providers that are driving this 20% growth. And we don't see that dissipating and particularly with Medicare coverage to support it. So we're quite excited about the trajectory for GeneSight.

Maybe last one on women's health. You're launching the first gene test. That's not coming until 2023. But combining NIPT and carrier screening, is that something physicians are asking for? Or payers are asking for? What's the impetus?

Absolutely. Well, the impetus is, it's just like in precise oncology solutions. Doctors are busy. They want a single source. They want one report. They want one portal to go into it. They want to know if they want myChoice CDx and Precise Tumor, they can get in one place. That's where they order -- the ordering platform across the enterprise. If you're a urologist that's ordering Prolaris, we have an increasing number of urologists also order. So [indiscernible] on selling -- on women's channel -- well -- we seem to be [indiscernible] here on the Internet.

Okay. I think we're going to leave it at that. We're out of time anyway. Paul, I want to thank you for taking the time today.

Yes. Appreciate it very much.