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

Welcome to Bank of America's 2022 Healthcare Conference live from Las Vegas. I'm Derik De Bruin, the senior life sciences and diagnostic tools analyst. And our next company is Myriad Genetics. And with us from Myriad is Paul Diaz, President and CEO. Paul, welcome. Thanks for being here.

Great to be here. Thanks for the invitation.

So Paul just to -- you're 2 years into the CEO role?

Not quite.

Not quite 2 years in, yes. And I first picked up coverage of Myriad in 2001, right? So I've got -- been looking at this going to be a long time. I think you've done more to change this company in a year than the prior management teams did in '20 proceeding with that. So can you sort of recap the changes you've implemented and the trimming of portfolio, the organization? Just sort of like give us a recap because I mean it's a completely different organization than it was for many, many years.

Well, thank you. First of all, it's a great team. And none of this would have been possible without Nicole Lambert, Bryan Riggsbee and the whole team getting behind the need for change. And to some extent, I think about it in terms of my own personal diligence that I did about the company. The company has got great roots, great traditions and a really strong foundation in the science that really matters to change people's lives. I think all I've done is add an outside perspective, and we've partnered with a number of different outside firms, KPMG and Bain consulting, in particular, to get us to really think about what the customer needs are, what our competitive position was and what it needed to be. And now sort of 6 quarters into our transformation, I think we're starting to see the fruits of some of that labor. So we're quite excited about our future. Notwithstanding the tough margin conditions, we're all in.

Yes, I mean it is difficult these days. So let's -- I just want to sort of like bang through some of the different end markets and just what's going on with it. A lot going on with some of these. So I mean, your core business has always been hereditary cancer testing, ACT. So the -- where is volume growth in that market right now? And how should we sort of think about it? I mean, obviously, you've expanded well beyond the initial BRACAnalysis products. And I think -- but I think it's still difficult for a lot of people to get a sense of the volume growth because also we're going to talk about pricing in a minute like that. So let's talk about volume growth in the market. Where is sort of the expansion is going? And then we'll go down from there.

Well, no doubt that we gave up the right to lead in hereditary cancer, not because of the quality of our products, but because of the customer experience and the customer journey. And the information systems necessary to be successful in the commercial age today. Our competitors were born in a digital world, we were born in a fax world and we didn't really sort of forgot that. So what we tried to highlight this quarter in our earnings release was a number of the different strategic initiatives that have just been rolled out. More transparency at the point of care, which was a friction point. We've expanded by 15 genes that oncologists really wanted to see. We've been particularly challenged in women's health, where we've been on 2 different ordering platforms. So there's just been a lot of things and what we did with Edelman and Bain was really looked at the customer experience, both providers and patients. Our transformation plan was really geared around that and fixing those things. Now we do expect and we are starting to see in our recent numbers that we're not only gaining customers, we're starting to see throughput. Women's health is taking a little longer because we've had leadership changes there and restructured our sales force. So we really believe that these different initiatives, information technology initiatives, EMR integration, 600 that are underway. I mean it's just a lot of different things. We are starting to drive our hereditary cancer volumes and then we can talk about ASPs. So we definitely see a recovery -- and look, the backdrop is -- in some ways, I think the playing field has been a little level as well in terms of some of the idiosyncratic issues of some of our competitors. So I think it's a new environment for us to gain share, regain share and grow in an underlying market that I think is growing at almost 15% so.

But it is -- but you do have -- I mean, you do have more competitors today, right? I mean just -- I mean even the Exact Science is buying companies [indiscernible] and so, it's like, how are companies going -- are they all going after the same pie and it's just a matter of like we're -- but trust us because our database is better or our service is better like this is like what's the sales pitch?

Well I think all that matters. So we tend to look at not only the total addressable market, but what's actionable. So I'll give an example. Prolaris, our prostate test is doing rather well. We're starting to cross-sell my risk there as well. So it's a question of how much leverage we can get into the different channels. And what I see, and again, not 2 years into this sector yet, but a lot of great investment in science, but I think people are pretty behind on the commercial side and certainly on things like rev cycle that matter and other things. So -- and we're, I think, in the second or third inning of this industry, including hereditary cancer. So I think we can regain a leadership spot here over the next couple of years, and there's plenty of market to grow and differentiate ourselves from our competitors.

And how do we think about -- how do you think throughout sort of like the pricing environment is?

So we've talked about what will be ongoing pricing pressure in this industry, and we talked about our long-term growth expectations, taking 3% to 5% pricing compression into account. We mitigate that. And you see it in our gross margins of plus 70% with the blocking and tackling around rev cycle and working through prior auth internally and the system enhancements that we're doing today to automate those processes and be a better partner to the payers as well. So again, I think that's part of the -- you've written about scale and capabilities. And I think those are the things that we were building in terms of a platform that others are going to have a tough time doing in an environment where their balance sheets aren't quite as good a shape as ours.

And can we talk a little bit about just Q1 dynamics, I mean a little bit of a slowdown there, obviously, given COVID related for particularly, if you're in the women's health space. Sort of what are you seeing trends right now like mid…

So March -- the first 6 weeks of the year were tough. We tightened our belts around cost, quite frankly. Again, we try to react quickly to these things. And I think we saw that in the quarter mitigate some of that volume pressure in the first 6 weeks. As we continue to move to more of the digital experience that we've done in our neuro business and bring that over to the other businesses, I think we can get through some of those troughs a little bit better. But we're seeing a really strong rebound in March, and that's continuing into April so.

Great. Prenatal. So let's go that one. That has been an interesting market recently, given all the news headlines and sort of like concerns in the media, FDAs sort of coming out. Can you sort of like distill what the sort of controversy is right now and sort of how your franchise is responding to some of these questions?

We've taken the concerns raised to heart. We've gone back and revisited our marketing and the claims that we make. I think we are differentiated in terms of Prequel with Amplify in terms of the accuracy. And while some of our competitors and you have to opt out for microdeletions, for us, you have to opt in. That's where a lot of the noise is here. And so, I think they're just differentiating processes for us and a different risk profile for us as opposed to others. Whether that's our prior off process, whether that's the other ways that we've preferred to done the blocking and tackling here.

And how should we think about also pricing in this market as well?

Stable. Again, rev cycle for us has been over the last 7 quarters. And again, Bryan has done a great job leading that effort. We've seen ASP grow. And with respect to the quarter, we know that a lot of folks are asking about the $12 million in prior period collections, I would say $3 million to $4 million of that is in the base. It's carrying over, meaning that you will continue to see that in our baseline going forward. So -- and that's separate and apart from, I don't know, maybe we'll see another $3 million to $4 million out of period this quarter. We're certainly going to continue to try to do that. I doubt you'll see $12 million again though.

Got it. So let's move on to GeneSight. I mean, look, I think there's clearly a need for better targeting of drugs for depression. But there's still some sort of -- there's still controversy around the utility of GeneSight and pharmacogenomics products, in general. So to me, the way to best address this is just data, right, clinical trial data. So what are some of the things that you're doing to sort of improve the data for these things? And sort of like -- because yes, you did -- there was a 1 trial for GeneSight and some of the data points were not -- endpoints were not hit and so like this so it's a little bit messy like this. So what do you do to sort of address it just sort of like overcome from the hesitancy?

So we've had a number of other studies that I think are supportive. I think here in the near term, the VA study will be issued, hopefully this quarter or next. I think that will validate. And clearly, we have more work to do there. And we do have a team working to continue to build a better body of clinical evidence. In the meantime, patients need this. And the ordering practitioners are seeing the value of GeneSight. And I get anecdotal calls all the time about the people that we've affected positively to get on the right meds. And with people having to do the trial and error of 4 or 5 different drugs over a 2-year period, it isn't holding us back. We're adding 2,000 to 3,000 new prescribers, and we're growing at nearly 25% compounded. There's a real need out there. And we're making progress on the payer side as well. So we're quite bullish about the prospects for GeneSight. But understanding that we've got more work to do in terms of the clinical facility.

And once again, I mean, there -- what's the competitive landscape look like there? I mean, GeneSight literally -- correct me if I'm wrong but I mean, it is a premium-priced product to a lot of the other tests that are sort of out there. And is there -- do you -- are you detailing sort of against these other cheaper products? I mean like what are you doing? So let's talk about the competitive landscape and talk about your [indiscernible]

So capital is always going to flow to winners, right? And so, we certainly understand that the progress we've made at GeneSight, which some people were skeptical on has attracted more interest. And we've heard and seeing one of our competitors, frankly, struggle and some new competitors emerge, I think one of the philosophical changes that I've tried to instill at Myriad Genetics is that only the paranoid survive, meaning that we always have to be innovating. We always have to be thinking about the customer experience and the clinical utility. And we should always assume that there's going to be innovation and more competition in everything we do, and that, that will affect pricing. But these are large growing markets. And for GeneSight, as we know, the mental health crisis in America is significant. So we just need to continue to execute there. And I think if we can do that, given the gross margin profile and the efficiencies that we have and how well the team has executed there, that's going to continue to be a winner for a while.

And how do we think about expanding commercial payer coverage?

So it's an effort across the board, everything from hopefully using some of this new data that we hope to get in the next several months and going back to some of the larger payers; leveraging off of the success we've had at state Medicaid levels. We've got some activities there. Medicaid is really where a lot of the coverage could follow the bottom line. We have a very high no-pay Medicaid part of that business. And that just kind of drive -- When I came to this industry, I just couldn't believe they don't test the people, they give away for free. That's just not in my DNA. We're trying to tackle that across the board quite frankly. But we see coming out of the pandemic as people -- payers can refocus on the broader healthcare issues and not just how they're going to take your COVID patients, the opportunity to engage. And again, we're engaging with all payers, Medicare Advantage plans as well as Medicaid plans.

So you're applying for a PLA code. How does this help you in the long run? And doesn't this potentially open up for some Medicare price compression?

There's certainly some risk there. We think it's de minimis. We think the bigger opportunity, quite frankly, is to have more clarity and transparency around the single code. It sort of validates our position. And so, we see more upside than downside in applying for the code in the same way that we've done for some of our other products. So the pricing pressure is going to happen anyway, right? So I'll take 25% compounded growth of a product with a $60 COGS every day.

Got it. DTC efforts in this area I mean…

So the way I would look at this is we're less of a direct-to-consumer than more consumer engagement. Our -- and this is an issue that the FDA raised appropriately. Our place is not to direct consumers to doing -- to taking our test. Our place is we want consumers to be able to ask their physician is GeneSight something that can help my family member or may get on the right drugs? And so, what we've seen and continue to see even recently with some paid media is the need is so large that we're just getting more traffic to our website. That's translating into more 95% of our trusts are ordered online. And my hope is that we can get almost all of our tests to be a cheek swab, kid-at-home that we can get results back in 4 or 5 days. So that's something that we're pushing across our product portfolio because it's that experience that we think is -- and we're seeing it with GeneSight, being able to order online, send a kit to your home, the physician and the patient gets the report at home. That's the experience people are looking for.

You've mentioned -- well, you haven't mentioned, but your Myriad is expanding into more of the precision oncology space, as opposed to just doing testing now, you're looking at therapy selections, you're moving to look at liquid biopsy space. Not exactly a -- not exactly virgin territory. There's a lot of competition. There's a lot of -- there's a lot of established players out there. So what's Myriad's differentiation in going to this market? And it's like why would your MRD tests or whatever tests you're offering be differentiated from the myriad of other tests that are out there?

Yes. So it's really funny when I get this question. So we're in the early days of what MRD and liquid can do and as a tool for physicians. And so it's not like I look at the market and study the market and see a highly penetrated. We certainly are later to the party than others. But leveraging our current capabilities in terms of my choice which is FDA-approved highly touted product, leveraging the capabilities from Prequel, our Amplify technology and what's coming with FirstGene that we're very excited about. And being able to do that organically with $10 million a year of OpEx as opposed to spending $400 million, $500 million to acquire that, I think the ROIC is pretty clear. And so we're quite excited that not only can we come up with a really good product that's competitive. But remember, we're in this channel. And the ability to put this into our commercial channel, along with the other precise oncology solutions is great leverage. And that's how I think about it is how do we leverage the assets that we have with new products and new offerings and respond to the oncologists' need for this.

Got it. Let's talk a little bit about the operational metrics and margin profile. So you had an Analyst Day last year that you sort of outlined top and bottom line perspective. Can you sort of recap that, I guess, just how should we think about the overall margin progression in the business and where it goes? I mean, it's fallen since 2019, but then again, you've divested a lot of products, and you've -- there's a lot of moving pieces going on. So if we look at Myriad today, what's the organic revenue -- top line outlook, what's the margin outlook? How do you get back to sustainable real profitability?

Yes. So well, we're positioned as well as anybody to accomplish that, quite frankly. So we've talked about a long-term growth rate of 9% to 12%, incorporating pricing compression and organic growth without deploying capital, that we can continue to maintain as we mitigate pricing and wage rate inflationary challenges with lower sequencing costs and our Lab of the Future investments. And we're -- you saw that this quarter, you continue to sort of see that. So in the 70% to 72% gross margin range, which again, I think is pretty strong, relatively speaking. And we've talked about our roughly our $480 million OpEx that we can manage that, including repatriating more dollars to R&D at around 4% to 5% growth rate. And so, it's no more complicated than that, quite frankly. And so, if we're good stewards of the balance sheet and can find opportunities in terms of some of the market dislocation here over the next couple of years to accelerate growth and find new products, I think there's a lot of leverage when you're talking about a 70% to 72% gross margin, and you can manage OpEx in a disciplined way.

Yes. I mean Myriad got into trouble historically by just expanding into too many markets…

And that is not what we're doing. Strategy is about choices, and we've made those choices. And we think women's health and oncology are clearly the bigger market opportunities for us right now. And we're looking whether it's Alzheimer's or early detection or other things, but we're not going to get too distracted. And I think that's something that absolutely the Board and I will commit to shareholders. We are not going to commit the sins of the past of getting too distracted or not focusing on areas where we can win.

Got it. And just on the -- and going back on the capital deployment thing, it's just like sort of -- are you looking at -- I mean, is it -- would you do more aggressive share buybacks, or did you -- like this or is it more really just keeping the powder dry for strategic options?

I think it's more likely the latter, but I think market conditions for sellers take a lot longer -- to play out.

Yes, we're not there yet.

We're not there yet, sadly. So our goal is to come out of the other end of this in another 6 quarters in a much stronger position to grow and participate and be a leader in this really, I think, novel what attracted me to this area is that it's early. It's very early on the opportunity for patients and shareholders here.

Yes. Any questions from the audience? And so, I guess, when you look at some of the new products that came out there, I mean, you mentioned FirstGene. Can we get a sort of like an update on that? What that offering…

Yes. Really excited about that. We think FirstGene can be a real differentiator in women's health. We've made a lot of changes there, and we have a great leader and Melissa Gonzales as the sales team has been reorganized and we'll launch the portal there in Q3 of this year. So a lot of the customer friction points we're addressing. But the opportunity to launch FirstGene next year in addition to Prequel and Foresight as a product offering that with one maternal blood draw can give you those insights for a whole new group of patients, we think is just a catalyst as women's health group needs to really start gaining back a leadership position. So we really see FirstGene as something that accelerates growth next year and we hope to launch in Q2 or Q3 of next year.

Got it. And speaking of product launches, what on the Precision Oncology side of the business, how should we sort of think about that? I know you're rolling out some stuff with Intermountain?

Yes, We're very pleased in the early stage of the precise oncology solutions and particularly precise tumor. The thing that's driving that, going back to the transformation plan is 82% of oncologists want a somatic and germline test, but they want one report. They don't want co-marketing agreements. They don't want to have to distinguish that and they want to order it on a portal. And so we're bringing myChoice, the differentiated product, myRisk, a differentiated, high-quality product together with the partnership with Intermountain on precise tumor and giving those oncologists all 3 answers, if they want 1 or 2. And in the early innings here, we're seeing a very high attachment rate. So the real growth driver here is part of how we get back on track with hereditary cancer with -- it's not so much precise tumor. It's how it lifts the rest of those solutions.

And when you look at that top line expectations, what's sort of the delta between the 12% and then the lower end of the range?

Well, we have -- we're going to have an Investor Day in August. We're going to update our view around the 9% to 12% growth rate and everything else in the financial model that we talked about as sort of click down into the different pieces. We clearly know that we need to demonstrate stability in hereditary cancer is rightfully a question that we need to better address. We talked this quarter about a lot of the different solutions that we think help get us there and the different updates to the product gene expansion and those things. But what we'll also do is spend time at that Investor Day going through the new product launches, both in terms of clinical utility and what we think is the addressable market there. So liquid and MRD are outside of that 9% to 12%. So I think that, that can accelerate growth above the 12% over time. And we certainly hope to get at the top end of that range, if not more, by '24 so.

Got it. Any -- we're sort of winding down to the bottom of our time together. Standard question I ask companies, biggest misconceptions, what's misunderstood about Myriad?

I think we're starting to change the perception that we're kind of an old state company. And I think people are starting to see the new Myriad Genetics for what it can be. I think the biggest misconception and it goes around this MRD piece, is people don't appreciate the talent that we have in our tech group and our R&D group that just didn't have a chance to exercise its muscles over the last few years. And I spend time every Friday with that group because I've got a lot to learn, but mainly because I want to say yes to them about the things that they think are possible. And so, I think what the market underappreciates is how much bioinformatics and other capabilities that we have to do the things that we're talking about.

Yes I mean it's interesting from my perspective of just having covered the company for such a long time. I think some of my frustrations with Pete was the fact is that you did not see the innovation that came out of it. I mean, they went chasing Flurizan and these other sort of like unicorns that never materialized and yet the investment -- and the investments in what was a phenomenal franchise were never made. And then certainly, you never saw from -- I think the issue has always been, it's like if you look at counsel, if you look at your prenatal business, you look at GeneSight, I mean a lot of that has been acquired versus sort of like homegrown. So I think there is absolutely this concern about what is the innovation, what is it because you haven't really sort of seen that in the past. So I completely agree with you. I do think that is a challenge to the company.

Yes. I think it's a rightful challenge. For me personally, there were a lot of other things to focus on the last 6 months, I've been really focused on this. And what I'm really excited about, and I think we have the team excited about and Dale, our Chief Science Officer, is now people are talking about what's possible. And the things that we can do, and they're getting permission to go do them. So -- and again, we're partnering where we can to get there faster and those kind of things. So I guess it's those 2 things. I think people underappreciate our capabilities but that also means they underappreciate our ability to do these things with really disciplined deployments of capital, right? We just don't need to go out and buy, spend hundreds of millions of dollars to buy things we can build.

Yes. I mean it's -- yes, I mean, I think it also is it's like the -- there's so many options in the genomics space right now. There's just like a lot of stuff like there, and there's a lot of promises to be made.

We'll see many are there 12 to 18 months from now.

Well, I hope I'll be here 12 to 18 months from now.

I hope you're here 12 months now too, but it's going to be a very -- we've seen these cycles before. It's going to be a very tough time here for a lot of folks, a lot of good folks who've done a lot of great work, but yes, it's going to be a tough time for folks.

Thank you, Paul and good luck.

Thank you. Appreciate it.

Appreciate it.

Thanks, everyone.