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

Good afternoon, everyone. My name is [ Martina Sarowitz ]. I'm from the Growth Life Science Tools and Diagnostics team, part of Julia Qin's team. So it's my pleasure to introduce our next company, Myriad Genetics. Just as a reminder, following the presentation, we will have a Q&A session. [Operator Instructions] And with that, I will turn it over to Paul.

Great. Thank you, and thank the JPMorgan team for inviting us today. Obviously, it's great to be in person with everyone, and I want to thank everyone in our audience today and those online. I understand there may not be any Georgia fans in the crowd here, but thank you for coming today. We're excited to give you an update and tell you about our plans for the future. First, I will remind you that we'll be making certain forward-looking statements and that you can find more information about us and our GAAP reconciliations on our website. With that, it's been a busy couple of years. We've made a tremendous amount of progress over the last 2 years in what we've called our transformation and resetting the base of our operations and are really excited now to move into the next stage of the cycle for us, which is about organic growth, deployment of capital and particularly Dale will highlight the launch of our new products that we're quite excited about. But very much, we feel like we're doing a much better job in delivering on our mission for patients and continuing to be a better partner to the health care providers that we work with. So a little bit about Myriad Genetics for those of you that aren't familiar with us. We've been a leader in genetic testing for over 30 years. We have over 60,000 unique provider partners that we've done business with for many years. And as you can see, we have a Net Promoter Score of 73. That's something we've been really focused on as a company. We also test our trust factor with Edelman, and I'm pleased to say that our scores both in terms of trust and customer engagement continue to improve even with all the difficulties that we're seeing in the marketplace. We continue to have an organic growth target of over 10% going into '24. And we think our industry-leading margins are a consequence of a lot of the discipline in our operations, and we can certainly delve into that more in the Q&A. And lastly, as I said, we're really excited about moving forward as we come out of this transformation phase into a growth phase, and we see a tremendous amount of opportunity organically and inorganically to do that. A little bit of context is important. So everyone here knows health, care and everyone knows coming out of the pandemic that the needs and the goal of being more patient-centered into our health care system and moving to a more value-based system is very much on the top of everyone's minds. We believe genetics and precision medicine specifically can play a much bigger role in that process. And we believe at Myriad Genetics, we can play a big role as partnering with institutions in terms of that. We also, though, unfortunately, see a lot of dislocation in our industry and a lot of turbulence that's not good for anyone. But certainly, it does present opportunities for us to deploy our human capital and provides both organic and inorganic growth opportunities as we work through the industry difficulties and position ourselves. We are organized really into 3 areas: Mental Health, Women's Health and Oncology. These are 3 emerging growing areas. We'll dive into those in more specific terms. But we're -- again, we're excited about the base of operations that we've set and the opportunities we have going forward. I'll call out particularly GeneSight's momentum, which we see continuing going into '23. We've seen exceptional growth in terms of GeneSight and the commercial model that we have deployed there. Part of that is how we've engaged with providers differently coming out of the pandemic with our digital engagement, and we'll talk about that here in a second. But we see an emerging goal of doing more work online. So you can see 95% of our tests are ordered online, and over 25% of our tests are done with home-based kits. We very much are leaning into that kind of innovation, and we see greater adoption of that. For GeneSight, we see growing adoption by providers and engagement by patients, and we'll see that on the next slide. And we very much have a goal of improving payer coverage this year and reducing our no pay rate. So a little bit about the GeneSight model because it is a model commercially that we're extending into our other channels. We've done a really great job, our GeneSight team, moving forward with a model that's much more focused on digital engagement and inside sales that's much more cost effective, as you can imagine, in terms of customer acquisition cost. And that has meant that we've engaged with providers and engaged with consumers who have in turn turned into leads, and we converted those leads with an inside sales force of 35 people much more cost effectively. We have great outside salespeople, but those folks have really converted this Lead Generation and is making that model highly scalable and effective. We're now in the process of rolling those processes out in our women's health division where we see similar opportunities. In women's health, we've repositioned this business. This quarter, we're rolling out many of those solutions. But even in '22, we started seeing traction in growing our hereditary cancer business, growing the number of prescribing providers. Importantly, improving our ASP by almost 20%, which has now made our prenatal products profitable on a direct margin contribution basis. And as we'll talk about in a minute, our Gateway Genomics acquisition, which we're pretty excited about. Dale will talk about FirstGene, our product, our 4-in-1 prenatal offering that we'll launch later this year. We think that's, again, going to be a further catalyst for growth as we think about going into '24. So a little bit about our Gateway Genomics acquisition and SneakPeek. This is a home test kit. About 70% of the business is online. Really great engagement scores by providers and patients. And again, you can see like GeneSight, we are leaning into a different way to do business with providers and patients. And again, 4 million unique visitors. We see great opportunities to use that relationship with these patients and convert these customers into prenatal testing patients and as well as cancer screening patients. So about 60% of the SneakPeek patients go on to get an IPS testing, and so that's a great cross-selling opportunity that we see over the next couple of years. In oncology, and I won't steal Dale's thunder, we are -- again, we've been a leading hereditary cancer, and we have a leading FDA-approved myChoice CDx product. Prolaris is a leading product in prostate. But now we are filling out the rest of our product portfolio so that oncologists and others can see the opportunity to work with us across the continuum of care of oncology. Dale will talk about our new product offerings there that we're pretty excited about, both in terms of their clinical utility, and their commercial adaptability. And again, I mentioned earlier, really the changing way that we are facing the market commercially, we have really gone through a lot of soul-searching in the organization to figure out not only how we continue to evolve our leading quality of our products, but to change the way that we engage with patients and with providers. And so that has meant attracting new talent that we're pretty excited about in terms of our commercial team, deploying new marketing capabilities as we did mention in GeneSight, and we've recently acquired with Gateway, strengthening our messaging in terms of our products and their differentiation. And again, lastly, solving to the friction points in the customer journey, whether that's affordability or the friction around transactions and billing and really just making being a better provider and easier to work with, with our customers. Again, a really excited active pipeline that Dale will take you through. But again, across our business segments, we're really excited about these organic growth opportunities. We'll be launching FirstGene later this year. Precise Tumor, we launched just recently in 2022. That is a differentiated product as well, 500 genes, RNA as well as DNA. And again, as Dale will describe, we're very excited about the launch of Precise Liquid and Precise MRD later this year. Lastly, we've talked a lot about our transformation. This is just a visual to give you some context about all the different things that we've been working on, whether it's our labs of the future and moving to newer sequencing technology, our new facilities that we're going to be moving into this spring and then the automation that will come with that. So we're very focused not only on the quality of the science that we're delivering, but bringing those in at a cost that make our products more accessible and more competitive and certainly more attractive to payers as well. So with that, let me turn it over to Dale.

All right. Thank you, Paul. Yes. My name is Dale Muzzey. I'm the Chief Scientific Officer of Myriad Genetics. It's a privilege to serve in that role, and I'm just grateful to all of you for being here to spend some time with us. So I want to follow up on a couple of the topics that Paul put on the slide a couple of minutes ago. And in particular, in Q3 of this year, we will be launching our FirstGene 4-in-1 prenatal screen. Later in the year, we will be rounding out our Precise Tumor portfolio. This is our Comprehensive Genomic Profiling. We currently have solid tumor offering out there, but we will be adding a liquid biopsy offering. In Q2 of this year, we will be introducing an RUO version of our Precise MRD and subsequently commercializing that later in '24. And I'm not going to go into depth on this in this presentation, but we are also working to move a lot of our panel-based screening to an exome platform. This will be more scalable, more efficient. We can integrate that into a single location and just do that more effectively, also facilitate the growth of those panels. So I am going to go more deeply into FirstGene, Precise Tumor and MRD. But let's start with FirstGene. So this is going to be a transformative product in the reproductive space. We call it our 4-in-1 prenatal screen. I'll unpack that in a minute, but I just want to start with a couple of the highlights. So if you compare this test to really the only alternative in this sort of combination reproductive screening, FirstGene will have 3x the number of genes, 2x faster turnaround time, 3x fewer samples that fail, and importantly about 3x lower cost. The cost profile of this test is similar to carrier screening alone, NIPS alone, and it really combines all of this together. That really drives us to make efficient products that can be offered in an accessible way to the most number of people. So let's look at what's actually in it. So as I said, 4-in-1 screen. First, it offers NIPS for common antibodies. So it tries to be screening for common aneuploidies, so it's a trisomy screening chromosomes 21, 13 and 18. Next, it does carrier screening for common conditions in the mother. So this includes conditions like cystic fibrosis and SMA. So these are just the first 2 elements of FirstGene, but I want to really dwell on them for a second. These are guideline-based recommended screening. They are reimbursed well in medical policies of payers. And again, that's really just 2 parts of the test, and we've worked with the AMA to ensure that they can be built on the same date of service. Now the third part really is revolutionary to reproductive screening. Rather than just being able to say that a mother is a carrier for a recessive condition like cystic fibrosis. In addition to that, it will be able to look at the fetal genome to assess whether the fetus is affected with cystic fibrosis, a carrier or normal. So again, sort of the utility of carrier screening is to understand this risk of a recessive condition. Well, FirstGene can both say if the mother is a carrier, but also look at the fetus and say if the fetus is affected. Ordinarily, you would need to go screen the father, possibly do an invasive procedure like an amniocentesis after that. This is a screening modality that can really eliminate that risk. So in addition to NIPS and carrier screening, fetal recessive status is interrogated with FirstGene. And then fourth, we will look at the fetomaternal blood compatibility. So we can look at the genome of the mom and the fetus and if -- basically assess whether the mother needs to take an immunosuppressant. So those are the 4 things that are in FirstGene. I want to now stress that sort of in one part and this is really important. All of this is done on a single blood drawn from the pregnant mother. You do not need to screen the father at the same time, and this is extremely important in a reproductive setting, where the father is not the OB/GYN's patient. Sometimes you don't know who the father is. And even when the other is around, a lot of times fathers don't get screened. So because FirstGene does not need to screen the father, it's easier to administer. And it, as I said, provides really comprehensive information. So not only is there a lot in the test, but the test will perform really well. And that is because we are reporting the AMPLIFY technology that we deploy on all of our NIPS tests with Prequel today into FirstGene as well. Now if you're not familiar with AMPLIFY, the plot on the left shows that -- what it does is increase the fetal fraction of a sample. So we are taking a blood draw from a pregnant mother but trying to learn about the fetal genome. The fetus' genome is only part of the DNA that's in the tube. With AMPLIFY, what we do is we increase the relative amount of that fetal DNA prior to sequencing. And that means that you have better resolution, better visibility into that fetal genome. So we do that on Prequel today or NIPS. We will do that on FirstGene as well. So that's shown on the right, where you can see that the fetal fractions that we have with FirstGene are considerably higher than that only other competitive offering in this sort of combined screening space. And that just means that you will get better results with FirstGene, but also that the test will fail far less frequently. So altogether, this 4-in-1 screen is nearing the end of its development. It is awesome, and we are super excited to bring it to market in mid-'23. I'm going to get to MRD in just a minute, but I do want to take the slide to make an important note about our Comprehensive Genomic Profiling Screening. So we currently have Precise Tumor on the market. This is a, as Paul said, more than 500-gene panel that looks at DNA and RNA from solid tumor test, but we also wanted to bring to market a liquid biopsy offering that is complementary to that. So these will both look at the same number of genes, 523 of them, but they can be used kind of together. It's like you can either have a solid tumor test. If there somehow isn't enough solid tumor, we can reflex to the liquid test. It can be used as a stand-alone liquid test. Basically, it rounds out that CGP offering. And importantly, this isn't just some test that's never been used or characterized in literature. This -- the panel underlying this has been published in more than 75 peer-reviewed publications. So it's extensively clinically-validated, and we're proud to offer it and happy to round out that solution later this year. All right. Let's move on to MRD. So I'm going to talk a little bit about the data and the approach, but I want to start with just some of the high-level take-homes. So relative to kind of some alternative approaches that are more common in the field right now, our Precise MRD will look at 30x more sites. As a result of that, the detection threshold should be more than 10x lower, so you can find the tumor fractions that are lower, recurrence of tumors earlier. And this is all really achieved by looking at about 100x more of the cancer genome. So we're not just looking at the exome, we're going to look more broadly at the genome. And as noted there in green, we are deep in negotiations with a leading cancer center and look forward to announcing a pilot study hopefully soon. I know a lot of you know a lot about MRD. I just want to take a minute to unpack this. So there are a couple of ways that you can deploy this clinically. There are then also some different ways you can build it on a technical level. The clinical deployment, you may be familiar with. You can use MRD for tracking the progression of therapy. But on the other hand, there is tracking whether there's recurrence, and that's what's sort of shown here at the top. That imaging may not be able to detect recurrence until a long period of time after surgery, whereas MRD would actually find that recurrence at an earlier time point. So you get a lead time advantage. So in order to have that lead time advantage, you really need a sensitive and specific offering. And so we looked at, well, which of the different approaches for MRD gives us -- like best gives us that? And so you can perform either a tumor-informed approach or a tumor-naive approach. The tumor-informed one is more sensitive and specific. There are more biomarkers that you can go after and to have a better result. The tumor-naive one, the main advantage is really that it can be performed earlier. But what I want to stress, and I've talked with many of you about this, we've asked this question, it is really only earlier at that first time point. At that first post-surgery time point, it might be a little bit faster than a tumor-informed one. But once you have performed the assessment to build a tumor-informed assay, it can be run very quickly at all subsequent points. And MRD is a marathon. It's not a sprint. You have to check in at multiple times. And in fact, it gets more valuable kind of as you go through the progression of therapy. And I would much rather, have the patient have something that is more accurate like at the 3-month, 6-month, 9-month, 12-month time point than something that's faster at the post-surgery time point. So this was some of the thinking that went into us selecting to pursue a tumor-informed strategy. And our Precise MRD is basically a high-definition MRD assay, and we look across the entire genome. So let me unpack that here a bit. So another reason to affect this tumor-informed approach is that it builds upon competencies we currently have in-house. So the first couple of steps of MRD are tumor and normal sequencing and bioinformatic identification of somatic variants in the tumor. This is what we do every day with our myChoice CDx. The latter 2 steps of a tumor-informed MRD, cell-free DNA isolation with targeting capture and then deep sequencing on that. That's what we're doing -- have been perfecting for years now with FirstGene. So we're basically, in order to launch this precise MRD, leveraging tools we already have completely in-house and adapting them and optimizing them to perform MRD, and I'll show you that data in a minute. So overall we pointed this at the entire genome. The exome is frankly just too small to find the variance that we need to track. The genome is 100x bigger than the exome, and as such, really contains 100x, on average, more sites to track. And so instead of being limited to 16 to 20 to 50 sites that are present in the exome, we can look across the whole genome, where there's thousands, hundreds of them. And so that is really powerful. That higher number of sites gives higher sensitivity in more tumors, and that gives ultimately earlier detection of recurrence. This is particularly important as well in tumors that do not have high tumor mutation burden. So prostate cancer, for instance. A lot of times, that has very, very few somatic variants. And so if you're looking just at the exome, there's literally just not enough to track with high sensitivity. We've looked at a lot of prostate cancer samples. Across the genome, you have plenty to track because you have 100x more territory that you're looking at. So again, that will lead to a higher-performing test. So let me show you some of the data, and the performance really is excellent. So plotted here is the tumor fraction. A series of dilutions, each tenfold. So you have 1%, 0.1%, 0.01% and so on. That's on the X-axis, and the Y-axis is the percent of sites that we looked at that have circulating tumor DNA detected. This is an experiment that had about 300 sites per sample. Note that this is across different tumor types, so colorectal, endometrial and ovarian. We've tried this in further different tissue types as well. And at 0.1% -- excuse me, 0.01% tumor fraction, the dash blue line there in the middle, irrespective of cancer type, but really driven again by the number of sites looked at, the percent of those sites that were positive for circulating tumor DNA is about 10%. So what I mean by this is we looked at 300 sites. And at that low tumor fraction, 30 of them showed evidence of tumor. That's good. Okay. And if you had like 30, it might be 28, it might be 32, but you're confident about that result. Whereas if I only had 10 sites or 16 sites to start with and only 10% of them light up, that's like 1 or 2 or sometimes 0, in which case you just entirely missed it. So looking at more sites gives you much, much more power at those levels of tumor fraction. So at a 0.01% tumor fraction, where a lot of competitor assays have kind of fallen apart, Precise MRD by being powered by the genome looking at more sites has higher than 99% sensitivity. This lets it go down to lower tumor fractions of 0.001% and still be highly performing, and we're pushing it as well, down to be less than 1 part per million. So again, it works really well across tumor types. And I want to just talk to the last slide about some of the milestones that we have for 2023 and moving on into 2024. So first, in 2023, we will be launching by the middle of the year research use-only version of this test. Importantly, it is run entirely in-house, mostly automated, built for scale. We will be submitting an analytical validation for a peer review and also sending abstracts to conferences to share our data with the world. We will be partnering on retrospective clinical validation, as I said, with leading cancer center. These are longitudinally-collected samples and will help drive studies that will be published in '24. We'll begin a prospective clinical validity study. We have already actually commenced this study. We're working with Intermountain Healthcare and also getting other institutions onboarded right now. So excited about that. And finally, having this RUO MRD launch means that we can work closely with biopharma partners that are interested in this really like high-definition MRD powered by the whole genome. In 2024, we will launch Lab-Developed Test. So this will likely be focusing on BRCA-related cancers like breast, ovarian, prostate, pancreatic and so on. We have a lot of expertise in that, as you may know, and so it makes sense for us to look at that for MRD. We will publish those clinical validity studies that were based on the prior year's analyses. Those can drive submission for reimbursement with CMS. We will commence a clinical-utility study to really deeply investigate how people are using this MRD in the clinic. It's important evidence that's needed to just drive the field of MRD forward. And finally, again, kind of building off of the seeds we planted for ourselves this year, we will scale the laboratory operations. So we've already automated quite a lot of the workflow, both in the software and the molecular side, and that means that we can really dig more deeply into that like we have in a lot of our other tests to make things that are low touch, high capacity and high quality, all with a low-cost profile. So with that, I'm going to pass it back to Paul.

Great. Thanks, Dale. So let me try to wrap it up so we can get to Q&A. Again, we're going into the year feeling really good about our market position as compared to last year. As you all recall, Omicron was a real challenge for us and many others at the end of the year and in the first couple of months, so we feel a lot better about kind of where we are operationally going into the New Year. Again, we continue to maintain even in a tough inflationary environment, really strong gross margins, really leading industry gross margins based on the discipline we have in rev cycle and managing cost. And now we see tremendous leverage with inorganic -- with organic growth and just driving volume through our P&L. So continue to be disciplined in terms of how we run the business and how we deploy capital. And for those of you that are investors or thinking about investors is something that we assure you that we will stay disciplined even with all the noise around us in terms of capital deployment and human capital deployment. Our path to growing organically is really driven by articulating our clinical differentiation, advancing this new commercial model, which we know is working and starting to work more in the other businesses and making the process easier for our customers. The ease of use after clinical validation is top of mind for providers given the complexity of their day-to-day. And finally, as we discussed, we're really excited about accelerating growth beyond the 10% or 12% going into '24 with these new product launches. And with that, we'll wrap up and start some Q&A.

Okay. Well, thank you for the great presentation. Let's start with the Q&A if you can hear me. Okay. So, I guess, the first question is, how should we think about revenue in Q4 in 2023. Any color you can share with us? [ Qualitative ] color ?

I think we're feeling fine about the guidance that we gave, cash collections and other things this quarter. I mean, I think it will continue to demonstrate what we've shown over the last 8 quarters in terms of consistent performance, and we feel good about the jumping-off point here in the first week of January. So beyond that, and we haven't given guidance for '23 yet.

Okay. On the Analyst Day, I remember you guided to 9% to 12% revenue growth by 2024. Right now, it sounds like you're guiding to around the midpoint of 10%. What was the rationale for that change?

Yes. So we struggled with that a lot. Yes. Look, I'm still pointing 12%-plus growth. We want to manage expectations. There's a lot going on in the marketplace. The 9% to 12% is still the range that I would guide people to. And to whatever confusion, I'm still internally working everybody a 12% plus organic growth. That's our goal. That's our target, and we'll continue to work towards that.

Sounds good. So given the time lines of new -- regarding the growth rate. So given the time line of some new product launches, some of the delays in the rollout of commercial initiatives and current macro backdrop, so how confident are you in being able to achieve that growth rate? And what are potential sources of downside and upside next year?

Well, you've identified some of them. I mean there are the daily headwinds of access to physicians, and that's seemingly stabilized in terms of the pandemic and those kinds of challenges, and there are the day-to-day operational things and moving our new labs into the new sites and those kind of things that we want to be careful about and make sure that we maintain redundant processes. I think certainly the dislocation in the marketplace is creating new opportunities for us to engage with customers. And our own corrective actions in terms of some of our business policies, whether it's sharing ClinVar data, we're making it easier to work with. As I said, we're rolling out the portal in women's health this quarter and other initiatives. So I think that in terms of the things under our control, we feel really quite good about. And again, I will continue to point to the high end of that range as our goal going into '24.

So it sounds like you selected women's health as your next target for replicating the success you had with GeneSight. What was the rationale for focusing on that business segment?

Well, when I got to the company, everybody had kind of written off GeneSight for dead. And the team, we did some soul-searching, and we looked at kind of how we have gone to market. And we have gone to market with the traditional, let's hire 65 more salespeople and throw more salespeople to the market. That was not working in the pandemic. So we really challenged ourselves to think differently about how we can engage with consumers, how we can engage with providers. And we rolled out a new model, and it's proven to be quite effective, and I think it's where health care is going. Patients are engaging online, being educated. And they're going into their doctors' offices, asking smart questions. And it's no different than the pharma ads you see on TV. People are not spending billions of dollars to not get people to go into the physician office asking for their drug. We want them to ask for a Myriad Genetics test.

Okay. So regarding GeneSight, given the improvements in volume you've seen so far, how should we think about these metrics going into '23? And what tailwinds in terms of volumes you could think about and pricing given the inflationary environment for the next year?

Yes. So GeneSight continues to perform great, and we continue to see 3,000-plus new prescribers every quarter. We continue to see what we saw on the funnel, great engagement and we think the momentum there continues. The opportunity for GeneSight, quite frankly, is more drop through to EPS by improving coverage and reducing no pay. That's something we're doing across all our product lines. We are really looking at our payer contracting, which is a small part of it. But prior authorization, all the other things that go into rev cycle. These are things that we are doing pretty much better than everybody else in our industry and continue to be a source of leverage for us. And you see it in our ASP across our products, and you see in the difference between our book income and our cash, which again to me and Brian, this is something we look at pretty intentionally. And I think the industry is having to do a lot of soul searching about that right now.

Moving to oncology, similar question. How should we think about testing volume for hereditary cancer over the next 12 months given the volume stabilized last quarter?

Yes. So we're optimistic. I mean, I think we have started to turn the corner, as I mentioned, our engagement scores with providers, the self-inflicted wounds that we did many years ago in terms of how we engage with people we've corrected. And obviously, the challenges that our competitors have had have given us an opportunity to get back into hospital systems and physician offices and make the case for the differentiated product that myRisk is, which was recognized recently by Medicare with our own code because of the distinguishing characteristics of myRisk. That's important. So now when we go into an oncologist office or the growth that we're seeing for unaffected persons in women's health, that's a great opportunity. People that meet guidelines, there is reimbursement, and there's very low penetration. So we're pretty excited about regaining our momentum in growth by way of our own actions and commercial execution, but also because our competitors have given us an opportunity to get back in and win share back.

So I'll just check if there's any questions in the audience.

Oh, I'm sure there's no question.