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

Hey, guys. Good afternoon. My name is Tejas Savant, and I'm the life science tools and diagnostics analyst here at Morgan Stanley. Before we begin, I would like to remind our listeners and folks in the room for -- of the important disclosure information can be found at morganstanley.com/researchdisclosures. And if you have any questions on those, you can chat to a salesperson. It's my pleasure today to host Myriad Genomics -- Genetics, sorry. I'm speaking on behalf of the company. I have Paul Diaz, CEO. Thank you so much, Paul, for coming in.

Maybe to start Myriad has come a long way since where the company was back in 2019. Just bring us a picture for what the asset looked like when you got there 3 years ago. What's changed since? And what sort of stays the same?

Well, from day 1, I was really attracted to the team and the mission of the company. But like a lot of companies that have had early success. We sort of lost our way. And principally, we lost our way in terms of focusing on patients and providers. And there were some execution issues for sure, and we've worked through a lot of that. So as you know, we began a transformation process. It started with looking at our core businesses and products and determining where do we have a right to win, where did we see the growth, and focus matters. And so we went through a number of divestitures that helped us clean up the balance sheet. But the most importantly, it helped us focus in the areas where we really do think we have a competitive advantage and opportunity to grow. And they were in oncology, Women's Health and our pharmacogenomic GeneSight in the Metal Health division. So...

Got it. Makes sense. Let's start with oncology and the hereditary cancer business. You mentioned sort of gaining share in hereditary cancer testing, driven by account wins. What, in your mind, differentiates Myriad's offering from other competing products out there? And what have you done to improve HCP perception?

Yes. So this is where we had lost a lot of share over the years despite having the best product in the marketplace. So our hereditary cancer product, myRisk with RiskScore is by far the preferred product in the marketplace. Our go-to-market was faulty, and we had lost customer loyalty because of a lot of frictions in terms of the ease of use and not contributing data to clean bar and other things got a sideways with generic counselors and others in the marketplace. The product itself is quite differentiated in that it gives you with risk score our prognostic piece, your risk for breast cancer and lifetime. But more importantly, it's highly accurate in terms of the ability to see across all ancestries risk for cancer. And what I would say, and I'm not sure we'll talk about it more, the hereditary cancer business has really turned. We saw 4% growth that's really turned into almost 20% growth here over the last few quarters. And that's happening across all our channels, Women's Health, affected patients in oncology, but also some new channels like imaging and urology. So it's the area where we think we actually are the most bullish and continue to see really great momentum.

Got it. You've had sort of several competitor exits there. How has that sort of shifted the dynamic for you guys?

Yes. I think it's an evolving landscape for sure. There are public examples of companies that have structured -- that have had tough times. And I think that is going to continue for some. I mean I think there are still companies -- in particular, there are a lot of small private companies that are really running out of runway. And so we're seeing a lot of market dislocation. That's not good for the industry, but it is certainly providing us with opportunities to earn share and grow as someone that we hold ourselves out to be reliable and dependable and the customers can count on. In terms of market share gains, there's a lot of customers where we have 30% or 40% of their volume and some of our other competitors that they're having some challenges have the other 30%, 40%. So we think that there's going to be continued opportunities to gain share and get more wallet share out of those customers. But equally, adoption rates are increasing and accelerating as people are really recognizing the need for hereditary cancer screening as part of a normal risk assessment program.

Got it. That was actually sort of my next question. I mean it's a large eligible patient population, but penetration rates are still fairly modest. And I just wanted to get your take on why that's the case that despite these tests being available for so many years, penetration sort of remains pretty modest?

Yes. I think that's right. I think that what you've seen over the last couple of quarters coming out of the pandemic is physicians and other advanced practice nurses and others understanding better. I think there's been an educational gap about where genomics fits in, in terms of risk assessment. But with recommendations changing from mammograms or more focus on breast density, for example, and just a general better understanding of the role that genomics can play and the fact that pricing and costs are coming down, again, I think we're early days. We're only 20% penetrated in the 23 million people that meet guidelines for hereditary cancer testing. So despite what some people were telling me when I joined the company, I think we have a lot of runway here across these different channels to grow hereditary cancer.

Got it. And I guess just a follow-up there. What convinces you that some of the recent strength that you've seen there isn't just sort of catch up post-pandemic? And is there a structural shift? I mean, to your point on growing awareness around keeping up with it.

Yes. I think there's certainly a part of that. Certainly, there's been some pent-up demand. But what we are seeing, again, going back to the educational piece to the recognition that breast cancer survival rates can change materially when you get in front of it. And they are sadly many examples of women, for example, who -- and some friends, quite frankly, that had the BRCA genes, when got a double mastectomy. And during that procedure, they found the cancer. And that can be avoided by doing more screening earlier. And again, I think you're seeing the educational levels. And our partnerships with SimonMed and the partnership we're launching with Lifepoint Hospitals are recognitions that within the larger health care ecosystem, people are seeing a greater role for genomic testing broadly, but hereditary cancer testing specifically.

Got it. Switching gears to prostate. Polaris continues to be a decent growth driver for you within oncology. But there is competition there. Talk to us about just the competitive landscape, the differentiation versus the Decipher or Oncotype? And then I have a quick follow-up.

Yes. So really excited about the progress with Polaris. Keeping in mind that the Polaris is earlier detection in terms of biopsy. So we're primarily in the urology channel. But frankly, we just don't see our friends at Veracyte there very often. So we're sort of in the same space but in different channels, in different markets. Or sensibly 30%, 40% penetrated with 2 leading companies. So we think we have a lot of runway there. We have more coverage opportunities in terms of payers. It is, as you said, growing at 13%, but one of our higher-margin products. So again, we continue to see opportunity there. We're going to be talking more next week at our Investor Day about building a broader body of clinical evidence. I think the Veracyte team has done a better job than we did in terms of putting out the data. And we'll be talking about product enhancements and the expansion of where Polaris can go in terms of PRP as well next week.

Got it. Makes sense. What about some of the AI-enabled imaging tests on the market? Antara AI is one that's been on our radar. Is that something you sort of like watch closely as well? And how do you think about that?

Yes. So we're -- I think one has to be thinking about that. I mean I think one of the things that we've learned is innovation is always going to trump IP and only the paranoids survive. So I think we always have to be asking ourselves how do we innovate and how do we stay ahead of the science and the technology. So we're having some discussions with a number of different companies about the AI opportunities here in many areas. And so not just in customer service, but in product development. And so I do think that is something we have to keep an eye on and lean into. And it's something that we've got about 7 folks in the company right now who are thinking about AI across all our functional areas and where it can play that help us grow and be more efficient.

Got it. And do you envision that sort of being an organic push? Or do you see that sort of potentially as an inorganic sort of area of investment?

I think partnership is the way to go here. I mean there are a lot of companies, obviously, a lot of capital, and we need to stay focused on the areas where we can be differentiated. And whether it's Epic or Microsoft, Google, we've been engaged in many conversations about potential collaborations and partnerships. So I think that's the way that we will go in terms of figuring out how to leverage AI across the organization.

Got it. Let's switch to the pipeline, so to speak. I mean, on precise MRD, you've got a clear path to reimbursement, and we are seeing more companies developing MRD and recurrence monitoring assays. With increasing competition, can you speak about your differentiation, both sort of clinical and operational in terms of how you envision switching into that market?

Well, I won't steal our Chief Science Officer, Dale Muzzey's thunder for next week because he's going to be much more articulate. But our MRD as we are building it, and we'll talk about that part of it is much more sensitive than most of the other MRD assays out there in terms of variance of thousand. And to your point, and I think this is a point of differentiation for this industry right now, we have to be able to operationalize these things at scale to bring it within a cost structure that payers are going to want to pay back. So certainly, getting through guidelines and clinical evidence is critically important. We've announced some of those studies already. But figuring out how this is going to work in clinic and how do payers think about the opportunity here to change the treatment process is going to be important. And so as Dale will talk about, we're building our MRD on existing capabilities. So circulating DNA within the technologies we have at Prequel with AMPLIFY. And on the tumor side, it's our myChoice HRD FDA-approved technology and platform. So these are -- we're not sending this out anywhere. We have a more sensitive test. We think we're going to be able to bring it in at a cost that payers will be excited about in terms of the total cost of care. And ultimately, we understand that we're positioning ourselves to be a fast follower, but we're quite comfortable with that. There's plenty of market opportunity here and those who have the best products and that can deliver it at the most efficient way, I think, ultimately, will be successful. And we believe we will be among those companies.

Got it. To your point, I don't want to steal your thunder ahead of the Analyst Day, but in terms of order of priority for indications for MRD, is it fair to assume that given this is going to be a broader panel relative to sort of 15 to 50 gene sort of MRD assays out there. You will probably look at low shedding tumors first such as breast, prostate, et cetera?

Yes. I mean what Dale would say and will say is that it really is relevant to all -- sensitivity is relevant to all cancer types. But we see the opportunity and where our clinical studies are directed are the areas where we have brand reputation and commercial capabilities. And so breast and prostate, for example, are sort of primary indications that we're focusing on ovarian as well. So again, much of what we're trying to do in terms of our new product management muscle, and we're going to be going through all the products next week is making sure that we are really intentional about our go-to-market strategy and how that inform to R&D, how that inform to lab operations and build up and to have a more holistic view before we actually launch the products.

Got it. And what is your thinking on test costs? Because one of the questions we get is 1,000 micro panels may not be sort of commercially viable? Or do you anticipate that the payers will recognize the higher sensitivity and sort of pay you appropriately?

I think there's going to be great pause on sensitivity if you're deferring treatment, right? And so you're going to hear your physician, you're going to be wanting to be really sure before you forego treatment. And right now, maybe we're overtreating which is the other opportunity here, right? And so I think sensitivity is going to matter a lot. And us being able to launch this commercially and operationally in our new labs of the future with the leverage we have, if you look at the gross margins that we have already at 70%, we think we're going to be able to manage those COGS in a way that, as I said, that we need to make sure that payers view the utility of this too. So we're feeling pretty good about the COGS as they're penning out at least initially here.

Got it. Anything you can do to pull forward the commercial launch. I think you've talked about 2025 as the time frame. And just in light of the competition and -- yes.

Well, I think companies that launch prematurely and then stumble and some of the MRD companies, their studies have stumbled. So we're going to get this right, whether it's first gene or MRD or Precise Liquid, we -- our view is that we need to make sure that we've covered all aspects of it. The science, how it's going to work in clinic? Is it going to be integrated with EMR? Are we going to get paid for it in terms of fire off processes and medical necessity reviews. So we just want to have a high confidence level and success before we launch, whether that's '25 or early '26. But right now, we're on track, and we'll talk about it next week to launch MRD commercially in '25.

Got it. Fair enough. Speaking of Precise Tumor and Precise Liquid, just philosophically, do you envision this -- the therapy selection market as a tissue first and then reflex the liquid where tissue isn't an option? Or are you liquid first and tissue next sort of...

I mean that's really a physician preference issue, but the way that we thought about it is that around 15% of the cases, you don't have enough tissue. So you need to make sure you have the liquid option. And I think, again, that will evolve in terms of the sensitivity in terms of that. I think there's been -- we need to do a better job, and this is a good example of how we could have done a better job with the launch of Precise Tumor. Because the fact that it covers many variance as it does and is RNA expression and it's backed up by 75 studies that Illumina did in terms of this makes it a highly competitive product as compared to some of the others. And the part for us winning wallet share here, which is really has significant contribution margin because we're not adding more sales force. We're not -- is to drive that through hereditary cancer, myChoice HRD and give providers the ability to do that with the same sales force with the same EMR integrations. And so that's the leverage ultimately, I think our industry and we, at Myriad Genetics are focusing on over time.

Got it. Quickly on the biomarker bill, buzz around that, potentially Texas coming online here. How does that sort of impact your business going forward? How large is that opportunity?

Yes. Let me speak to that broadly because in the first half of this year, we really saw payers as -- we'll get into what's driving their behaviors, but payers really starting to get much more aggressive about prior auth around medical necessity reviews, increasing the burdens and expectations there, even as some are talking about loosening prior authorization requirements. These biomarker bills are important. So there are 13 states now that have passed them. All of them are in ecology, but of the 13, 10 will also cover GeneSight. And so some of the lessons we've learned in the first half of this year and that we're executing on already is we're making great progress in some of the coding changes that we had to work through. The prior authorization, we've really -- we've hired 13 more people to engage in that even as we invest in the automation and systems to do that. It's a little bit of an arms race here with the payers, quite frankly. But what we've learned and when things don't go well, you examine and you learn is that we have a lot of opportunity to improve our strategy and tactics around revenue cycle, including prior off. We've left money on the table, not being aggressive enough there. And these biomarker laws, specifically give us an ability to be stronger advocates for our oncology products and for GeneSight in these states. And so we see a lot of opportunity over the next couple of years.

Got it. Switching to Women's Health, Paul, just a big picture question really. Do you see the NIPT and carrier screening markets now is being in a more sustainable place in terms of market structure?

There's been a lot of dislocation there. And I think that will continue, quite frankly. As I mentioned before, I think there are a lot of smaller players that don't have all the capabilities they're going to need to ultimately be successful not only just on the science, but commercially and again, rev cycle matters and being getting paid matters. So I think there is more market opportunity. We are hopeful and expect ACOG to expand guidelines. And we're preparing -- we'll talk about this next week to expand our carrier screening capabilities to in line with those. And we're targeting a January 1 availability of that. So we're excited about the opportunity there, both in terms of sustaining the volume growth that you've seen in the last couple of quarters, but also the ASP opportunity over time here. I'd be cautious that even though guidelines might expand this year that the payers will take at least another year to get there. And -- but nonetheless, for example, in some of the payer discussions we're having right now, we're already starting to advocate for that and trying to get at least a conversation going ahead of guidelines expansion in terms of the payers, but it's -- those are tough discussions these days.

Someone else in the industry told me once that no payer wants to be first, but no payer wants to be last either. Is that something you agree with when it comes to these sorts of situations?

They definitely don't want to be first. I don't think they care about being last unless there's political pressure brought to bear on them in other areas, right? And so I've had a fair amount of experience on the payer side and as well as the services side. Look, everyone is trying to do their job. I mean, I don't think people come to work as payers not trying to do the right thing. I think that our system, our fee-for-service system, quite frankly, is structured poorly and it drives the wrong behavior sometimes, both for us as well as for the payers. Ultimately, in a more value-based system, I think that those who that can create value for patients are going to be more successful. And I think we'll continue to inch towards that over time.

Got it. Two questions on California. So obviously, with the prenatal screening program sort of changes there, do you think that could be a template for what other states try to do? And the second part of the question is, of course, that's reversed course now. And what are you seeing with respect to share shifts over there? Has that sort of returned to where it was pre-implementation? Or do you lose some accounts in the process?

So we lost some accounts in the process. It was about 8% of the business. The good news here and may not be public or will make it public, the state decided not to appeal. So the exclusivity provision that the program had has been rightly determined to be illegal. So we are getting back to those customers. And we are growing our Women's Health customer base and share and we'll be growing in California as well. We're still interested in participating in the program, but we're not going to participate in the program that doesn't work, and they've had a lot of problems with the program and the portal and the pricing. But at least the provision that excluded us and others from providing services at the expense of patient provider choice has been resolved. So we're excited to be in California in a bigger way here.

Got it. Got it. FirstGene combining sort of NIPT with carrier screening, talk us through sort of the benefit on the turnaround time and remind us of your time lines to launch there? And how does that sort of change the demand, if at all, for the stand-alone offerings?

Yes. I mean there's some slight chance for cannibalization. But really, FirstGene, as we've done our product management work and our market intelligence work, we think we'll kind of stand-alone for the most part in terms of the offering. We've gone to a number of providers as part of this process to introduce FirstGene way before launch and discuss with providers how they see it and that's informed our product development process. We'll talk about the specific time lines, but we're roughly on track, maybe a quarter or 2 behind again, with the idea of making sure that our carrier screening panel has been expanded before launch. So I don't want to launch FirstGene until we know what ACOG does, and we've expanded the panel there, right? So -- but that's still on track for next year. We think ease of use really matters. Part of the success of GeneSight is a cheek swab at home. 95% of the orders done online. We see a greater role for consumer-initiated tests even we want -- and this is what SneakPeek is showing us that consumers today want to have answers before they get to the physician office. So when they talk to their doctors and their nurse practitioners, they're talking about treatment. They're talking about the behavior changes, not what the report said or do I need to run the report. So the real powerful thing is it's a maternal blood draw. And that's a simple ease-of-use access. And so we're trying to do R&D on sample collection at home wherever we can, leveraging technologies like Snap and thinking about that across the portfolio. And we think that's a broader theme and a lot of technology happening in that area. So some place we're spending time.

Got it. Switching to GeneSight, Paul, I mean, where are things there on securing additional commercial coverage or perhaps coverage from different Medicaid plans? And how should we be thinking about ASPs into the back half and '24.

Yes. I think you'll see ASPs improve across the portfolio in the back half of the year. Again, as we've worked through some of the rev cycle challenges, it has been a tough slog in terms of coverage for GeneSight. We're getting lots of small wins, but I've continued to try to remind investors don't expect any big wins here anytime soon. And advancing the medical policy has been difficult even with the VA PRIME study and other work that we're doing. We do have a study with Optum Genomics that's going to be released soon that showed significant reduction in psychiatric hospital days and emergency room visits with the use of GeneSight. So that's real world evidence that we're going to be excited to share that we've developed with claims data with Optum Genomics. But we are winning coverage decisions in terms of lots of small plans, as you mentioned, Medicaid plans. The challenge in some places -- so there's a state, for example, where the state is issued, the PLA code. One managed Medicaid plan has adopted GeneSight. That actually was a new coverage determination just recently. But one of the other managed Medicaid plans has refused to cover it. So we're going to go back in there with the state and push for coverage. But it's a little bit of a trench warfare there state by state. The biomarker laws are going to help, the 10 states that GeneSight should be covered by the biomarker law.

Got it. Got it. And to your point on sort of GeneSight evidence generation, reimbursement, especially being a bit of a slog. How do you think about the fit of GeneSight for the rest of the portfolio? How does it fair on margins? And talk to us about the opportunities to leverage the GC channel for depression?

Yes. So again, our go-to-market there is really focused on primary care, and that's a big opportunity for us broadly. The investments that we're making that we'll talk about next week at the Investor Day around our unified order management system, this is about the ability to sell products across all of these channels and get more leverage out of our sales teams and more revenue per salesperson. And GeneSight has been enormously successful with inside sales and those things and principally focused on nurse practitioners who are the people dealing with depression in most instances. So we're trying to replicate that model where we can.

Got it. Makes sense. Quickly on the financials. Are the payer headwinds in terms of the Blues transitioning to a new claims process playing out as anticipated? And have you managed to recoup any of those prior claims?

Yes. So a little early to talk about what we've recouped in the quarter, but we've made really good progress. And as Bryan said on the call, most of those issues have been resolved coming into the quarter. And we are making progress on the recruitment piece as well. We'll talk more about that, obviously, when we release the quarter. So again, it's an unfortunate part of the friction that happens here. But again, it's been a cause for learning for us in terms of how we create better systems and processes around this and invest, whether it's an advocacy or rev cycle to improve ASP. And I think coming out of the last couple of months, we have more opportunity to grow ASP over the next couple of years than we would have thought maybe 6 months ago as we've looked under the cover and some of the things that we have been executing on as well.

Got it. One on the balance sheet. You expect to have about -- I think it was $100 million in cash plus your new credit facility at year-end. And then you've got about $58 million to pay as part of that shareholder lawsuit settlement. Have you decided on the cash versus equity component? And how are you thinking about the various options on the table to extend your cash runway?

Yes. So first and foremost, we're going to be generating free cash flow here by the fourth quarter. And our CapEx requirements, as we talked about have been down significantly and everything is on track there. So I think a big point of competitive differentiation is that we're going to be profitable in generating cash flow next year. And so being able to fund our own operations. We're going to continue to evaluate our liquidity needs and financial options. We're quite comfortable with our ability to run the company, and we haven't made a decision yet on how we're ultimately going to settle the lawsuit, whether all cash or stock or what mix, and we'll continue to evaluate that and continue to listen to shareholders' perspectives around that. And so we'll -- I'm sure we'll be talking about that here at the end of the quarter.

Got it. Well, that was a great overview. Thank you so much, Paul. We appreciate your time today.

Thank you. Thanks for everyone for participating.

Of course.

Thanks.