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

Got it. Oncology, so Prolaris doing well, double-digit growth, sort of some additional color on your prostate cancer test and the growth there. And also since Exact got rid of their Genomic Health prostate test, do you see any sort of like benefits from that?

I haven't heard anything directly there, Derik. We match up against one of our other esteemed competitors. And the market is only 25% penetrated. So here, again, is like hereditary cancer, there's a lot of white space to grow. We grew 16% in Q4, 22% this quarter. We've got great coverage there, and it's a high-margin product. And like we're trying to do in the rest of our Oncology business, there's a great demand for many urologists to also order myChoice and our hereditary cancer testing. So the attachment rate is pretty high. We launched what we call the UroSuite of services in the urology channel and we're starting to see some of that happening. So when we think about our oncology products and we think about the different channels, the opportunity to leverage the FDA-approved HRD myChoice and the best hereditary cancer product out there MyRisk along with the Prolaris is pretty powerful across these different channels.

So maybe you can talk about some of your expansions into therapy selection and MRD and some of those initiatives and where you're going with that? And I guess what is differentiated about your approach because it's very -- there's a lot of people that are sort of going after that? I mean you've got a great channel. Is that your major franchise?

I think that sensitivity and accuracy based on the analytical validation work we've done already is as high if not higher than anybody and we've shared some of that at a prior one of your competitors' conference. We'll be announcing clinical validation studies with an academic medical center here shortly. But all the samples that we're running right now, we think we're going to have a highly sensitive accurate test that's tumor informed. The other 2 things that I would point to why we are excited to be a fast follower, let's say, in MRD is that we can stand this up in our labs today with the technologies we have with Prequel and myChoice. So operationalizing this in the labs and then putting it into our commercial channel are things that we can do. And there was a recent transaction, somebody valued a company at $300 million, maybe $400 million. Based on what I've seen, we are as good as that assay and have a lot more to build on. They don't have any of the capabilities we do to actually commercialize this and grow. So I think right now you're sort of getting MRD for free with Myriad Genetics or at least option value there that isn't being recognized.

Got it. And what are you doing in -- you have this relationship with Illumina, you're doing something there. Can you remind us what that is and sort of Intermountain relationship as well?

Yes. So we've started talking about this a little bit more, Derik. We have a growing biopharma business, which has helped fuel innovation into companion diagnostics which is now an $80 million business. What we're excited about is that over the last couple of quarters, the interest in us doing more research work for pharma partners like AstraZeneca and Merck and others has increased. There's a great deal of interest in working with them on MRD as well. And then the Illumina partnership, which has a couple of different components, it is putting myChoice ARD into their TSO 500 kit and it also allows us to work with some of these pharma partners to advance the expansion of clinical indications for myChoice. myChoice is only ovarian right now and the biggest white space is prostate and breast for us. So we see this as an emerging business line on a couple of different levels and we get paid so it's 100% pay. We don't have a no pay issue with our pharma partners. Always good to get paid.

Anybody have any questions from the audience? I think they're going to bring a microphone around, one second.

Are you going to have to do any clinical trials? And then can you talk about what Intermountain is doing to help you there?

Yes. So Intermountain is part of the trial work we're doing. But again we're working through the bureaucracy of other big institutions in terms of running samples and doing the MRD clinical validation work with 2 other institutions. So we've gotten great responses based on the analytical validation stuff that we have showed and the samples that we have run. And again I'm hopeful and pushing hard to see if we can announce something here in the next month or 2, but we're very close and are really quite excited about it as I said. I think that MRD is going to be a huge opportunity for patients and for the oncologists to treat them. I would say that I'm excited about the coverage determinations that have happened. I'm a little surprised, quite frankly, because I don't think we've done enough work yet on the clinical utility and how is this going to be used in practice and how does it really change the course of treatment. I'm a health service guy so I kind of think about those things a lot. But the good news is we have some really big customers that we are talking about not only doing the academic research; but putting it in their clinics, running it in their clinics, working with their docs to figure out how we're actually going to use MRD and then God forbid actually talking to payers about this as well as part of the work we're doing. So the bigger semantic for me, Derik, is that doing the clinical validation work is not enough. I think this industry has to do a lot more about how the science can be adopted in practice, how it changes the course of treatment and how does it change the cost curve for payers. And those are things that I think we need to spend more time and energy on and that we're pretty focused on at Myriad.

Whenever I've locked horns with my bankers, it's often because I actually talk about things like reimbursement and utility and how you get this stuff done as opposed to this sounds great, let's push it out like this. And we sort of get to the point like a lot of these assays tend to take longer and cost more than anybody thought. How much of a burden is this on your P&L right now?

Well, I mean look, there's no doubt that we've had an enormous tech deficit and deficit the investments in the commercial tools to really compete. Those tools have been built and are being rolled out now. So we feel really good about whether it's R&D or our new commercial capabilities and how we execute now, we think that that is fully embedded in our OpEx guidance. Certainly ran a little heavy the last couple of quarters as we saw some opportunities here to get after some share. But as we talked about on the call, we expect and we'll see that moderate just like our CapEx. Our Lab of the Future are done. We're starting to move in and we have to move the actual labs in and transition the products, but June 1 is kind of certificate of occupancy for both the new labs. So the majority of that CapEx, 95% of that CapEx is behind us. So I think you're going to see a lot more leverage in the operating model on the top end and then ultimately to free cash flow and EPS in the back half of this year.

Great. And returning to profitability?

By fourth quarter. I mean we fully expect that Q3 is seasonally pretty soft. Again I think you'll see moderation in CapEx and OpEx spending, but the real trajectory just historically for us is Q4. We have a great strong start to the year and April has continued to be a very strong month so we're feeling really good about Q2 as well as kind of the momentum going into Q3. But clearly we've put the stake in the ground about being profitable and generating cash flow in Q4, which is why we are comfortable that with our cash balance we have on the books now and the secured credit facility that we expect to finalize here in the next couple of months that we're going to have plenty of liquidity to run the company and grow the company.

Got it. I mean since you mentioned liquidity and cash, I mean you seem to be doing a lot of this organically. You haven't done a lot of M&A, a lot of tuck-ins and I think you did Gateway, but you haven't really done much beyond that. I mean is there anything that you feel like you need to add incremental to the portfolio?

We got a lot on our plate. I mean I would say the product -- I mean here's the funny thing too. For a products company, we had no product management people or skills so nobody was thinking about go-to-market, no one was testing markets, no one was thinking about how we position products. And so it's a learning process and what we have learned and Bain Consulting has helped us about our new product management team. We're constantly refining how we go to market and look at the opportunities for our core products. And I'm really focused on getting our core products to their full potential because that's the greatest return on invested capital for our shareholders and the best thing for our patients. And so that's hereditary cancer, that's our prenatal products, that's GeneSight and Prolaris. So we have a great portfolio of products. Now we still have to continue to tinker with them. So I mentioned Foresight, we need to expand that panel. But those are all high returns, if you will. So to me those are low risk, high returned investments of OpEx, in some cases small CapEx. So I'm not really feeling the pressure to go out and buy stuff, it's not proven. I think as we go into '24 and '25 and some of the lunacy comes out of the marketplace, we may see some tuck-ins that are worth considering. But I think right now we're just focused on getting to profitability and generating free cash flow before we step into any acquisitions.

So can you talk a little bit about how you have reinvigorated the R&D organization? Because you're right, I mean there was a stretch there that was underinvested.

For a biotech company, we weren't investing in the technology to enable the science either whether it was in the lab or commercially. And I will tell you the labs in my old hospitals were nicer than the labs that we've been running MyRisk at. So we really needed to invest in our people, we really needed to invest in our labs. Those investments have been made and it's creating a lot of energy in the company both in R&D and we're going to open our innovation center in South San Francisco. I can't wait to show it to you and show it to others and the automation that we've built there. And that's the other thing that in order to sustain the 68%, 70% gross margins that we believe we can maintain, automation is going to be part of that and that's been part of that investment as well. So yes, I just think we're going to just stay focused right now and down the road, there may be some tuck-in opportunities. But we've invested a lot in R&D and tech to the tune of probably $60 million, $70 million and a lot of that was just tech deficit, things like EMR that are contributing and just in the labs as well.

Any incremental questions? So Paul, I think we're coming towards the end. My standard closing question is always what's underappreciated about Myriad?

Well, I think as we've talked about; I think the people, the team, its experience, the depth of our science. We talk about MRD for example, like the leading MRD company right now outsources everything. So to be able to stand this up on technology that's running in our labs and to be able to operationalize this and then commercialize it, those are the capabilities that I think are underappreciated of the company. So everything from our regulatory teams to our payer markets teams to our customer service, R&D, standing this up in labs that are FDA approved and CLIA certified and New York certified. Some of the emerging companies go to do this, I think they're going to have a harder time than they think. So it's complicated and difficult and takes time and takes money.

I don't disagree with that. So well, thank you.

Thank you. Appreciate the opportunity to be here. Thank you all for attending.