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

Our next session. My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team. We're joined by Scott Leffler, Chief Financial Officer from Myriad Genetics. Scott, thanks so much for being here.

Thanks very much for having me, and thanks, as always, to you and Bank of America for hosting us and being a great partner to Myriad.

I think we'll -- we've got 15 minutes here, so we'll go quick. If anyone's got questions, raise your hand, and I'll call on you right away.

But maybe just -- I think right now, it would be interesting to sort of -- we'll ask our usual closing question first. We save it for last, but I don't want to miss it. So I'll lead off with Scott, what do you feel is most misunderstood or underappreciated about Myriad Genetics?

Thanks for making sure that we don't miss that question. And I think it's especially important given particularly the movement in the stock over the last few months. Myriad obviously just reported a challenging Q1 and also updated our full year 2025 guidance to be reduced from our initial outlook that was released earlier in the year. And when you go back and look at the period, call it, from around early November through -- November '24 through the end of Q1, there were a number of headline, headwinds that we encountered, some of which under our control and some of which due to things that were outside of our control, but it was through an unfortunate coincidence that a number of these different headlines hit the company in a very short time period, impacting different product lines. And so understandably, that impacted our Q1 results and our full year outlook and has generated a lot of interest from investors around what comes next. And if there is one thing that I would encourage for investors, it would be to make sure that we're distinguishing between those headwinds that have more of a long-term and strategic ramification for the company versus those that are more tactical and short or medium term in nature. And so when you look at some of the items that we've cited relating to our Q1 performance or full year outlook, I'll just give a couple of illustrative examples, but there was a lot of confusion impacting our Prolaris product line that originated with the issuance of the updated NCCN guidelines in December. And that was a development that we feel really has no fundamental impact on the trajectory of the business over the medium and longer term. And we really feel like that's something that's more short term and tactical where we deliver -- we targeted to deliver a number of favorable proof points demonstrating the sustainability of the business line. And that helps to, in the immediate term or near term, at least, remediate or mitigate some of the concerns that investors have. And then similarly, we talked on the Q1 earnings call about some of the headwinds that we have relating to EMR integrations that have impacted our women's health business, particularly volumes for our unaffected hereditary cancer testing. And certainly, we look to do better from an execution standpoint in terms of EMR integrations. And we feel really good about having line of sight to taking EMR-related headwinds and turning them into tailwinds in the near term. And that's something that, again, is not representative of any kind of a major strategic hurdle that the company would tackle over the longer term, but it's something that through improved execution, the company can mitigate in the near term and again, take a headwind and turn it into a tailwind. And so not to say that there aren't other risks and developments out there, including the coverage environment for United for GeneSight that have a longer-lasting impact on the business. But I do think it's important for investors to distinguish between an item like United coverage of GeneSight that may have longer-term ramifications versus these other ones that are more imminently under our control if we're able to execute effectively as a management team.

All right. That's a great overview, Scott. I want to dig in on a couple of those points. I mean you just ended on GeneSight, so let's go there because that's -- I think that's been probably the biggest factor. You talked about the coverage decision and the fact that it's having longer ramifications. Just sort of steps you've taken over the last couple of months since that came to light, what can you do to try to mitigate that or offset that?

So in terms of engagement and the United specific element of it, obviously, United represents one opinion in the marketplace. They have a lot of financial firepower behind the decisions that they make. And it's difficult in one fell swoop to completely offset the headwinds that come from that. Obviously, as we've said in the past, we remain actively engaged with United, and we're hopeful that over time, we may be able to accomplish some kind of a mitigation or reversal of their position. But that's not something that we have immediate line of sight to. And in the meantime, we're looking to take other steps to offset. We've talked about some of the cost-out exercises for the GeneSight business that have already been executed, which includes a reallocation of some of the commercial dollars that we had previously allocated to GeneSight now to other parts of the business where we're investing more aggressively in other parts of the product portfolio, including Prolaris to ensure that we're able to offset the ambiguity around the NCCN guideline situation and make sure that we're putting our best, most aggressive foot forward from a commercial standpoint. One thing that I think is important to emphasize back to the GeneSight side is that -- I think that when the United coverage determination first came out, we got a significant amount of inquiry from investors about whether or not there was kind of a spillover risk in terms of United's coverage determination impacting coverage determinations for other payers. And at the time, we were fairly adamant that we had no reason to expect that there would be any adverse spillover impact. And I'm pleased to say that, that's the way it's played out. We haven't seen any other adverse spillover impact in terms of other coverage. And in fact, we continue to book new wins in terms of incremental coverage, including on the commercial side, including recently, we had a nice win, which was a commercial coverage win by Blue Cross Blue Shield of Arizona, which now covers GeneSight through their commercial organization. And so not to say that a win like that is going to offset the dollar headwind that the United situation created. But I think it really tells you a lot about the robustness of the value proposition of GeneSight and the arguments that we can bring to bear to support continued coverage determinations that are more favorable.

Why are you able to have so much success with other payers as opposed to UNH?

Well, obviously, our view is that UNH has called it wrong. And we feel great about the fact that we've had continued coverage on the Medicare side for an extended period predating certainly the commercial coverage from United. The biomarker legislation in some states is more favorable and helps in terms of the arguments that we bring to bear, from a payer market standpoint with a number of different payers to support incremental coverage. But the leveraging biomarker legislation in different states, I've always said, is kind of an arrow in the quiver of our payer markets team that over the years has just become better and better about bringing arguments to bear with different payers across our product portfolio to ensure that we have optimal coverage and it's working for GeneSight just the same way it's worked for the rest of our product portfolio, especially over the last 1.5 years or so.

And I just want to touch on also the resource reallocation away from GeneSight. Take us through sort of the timelines for that. As you do that, how long until that -- those resources become sort of fully scaled up, fully efficient. It's not going to be instantaneous, right?

For sure. And there's something of a gap there, and that was part of the reset in 2025 revenue guidance that we communicated in our last earnings call. And so I think that, obviously, as a management team, you always have to be reassessing where you're putting your investment dollars, and that includes the investment dollars that are allocated to your commercial organization. Generally speaking, we're looking to find ways to fund incremental investments wherever we can in the more strategic growth areas of our cost structure. That includes R&D and new product development and includes the tech side. And of course, it includes the commercial organization in order to optimize commercial penetration. And the juxtaposition of the kind of headline causing ambiguity around Prolaris that came from that update to NCCN guidelines, along with the kind of headline challenge of losing United coverage for GeneSight helped us to realize that it would make sense to reallocate dollars back towards the Prolaris side as a rededication of our commitment to that line of business in that space, where -- I think we came to realize that outside of the NCCN guideline thing and the kind of disagreement around the relevance or significance of Simon Level 1 criteria, what we also came to realize is that we probably should have invested more significantly in the commercial organization selling Prolaris in order to optimize our presence out there in the field, and that's something that we're looking to correct. But I think part of your question was around the timeline for that. And it's just a reality of ramping up any investment, including one in the commercial organization is that from the time that you commit the dollars to the time that you make the hires that you onboard and ramp them and start to see results in the book of business. It's not overnight. It's not 1 or 2 quarters. So our hope is that we start to realize the benefit from that in the second half of the year.

Let's touch on some of those more short-term tactical factors as well. You called out the EMR integration, disruption, you called that out on the call as well. Can you just sort of walk us through why that happened to the degree that it did and sort of how can you address that and ensure it doesn't happen again?

So we have been talking for at least the last 1.5 years or so about the significant investments that we're making in EMR integrations across our product portfolio and the provider universe that we serve. And I think this is an area where legacy Myriad was underinvested, and we wanted to make sure that we are caught up at the front of the pack instead of the middle of the pack in terms of our ability to integrate most efficiently with the providers that we serve. And so absolutely complete conviction that the investments that we have made and continue to make in EMR integration are the right investments to be making and that eventually, there will be a very favorable payoff from those. Having said that, I think we acknowledge that on the one hand, an EMR integration is not necessarily rocket science. But on the other hand, there is a muscle there that you need to exercise to get better and better at it. What we've learned is that we need to keep flexing that muscle, and we need to keep getting better and better at it. There are some areas where from a workflow and technical optimization standpoint, we need to make some enhancements, but we have line of sight to those fixes. Many of them are just onetime fixes that should completely remediate some of the challenges and inefficiencies that we've had. Some of it also, though, is more of an organizational phenomenon where historically, the commercial organization at Myriad has been a very high-touch organization that has provided active support to the providers that they serve in terms of workflow troubleshooting and things like that. When we introduce the EMR into the equation where you have a new and more technical environment, it's harder for our commercial resource -- our commercial team to balance the responsibility of selling the product at the same time that they're also providing kind of a tech support function. And I think one of our learnings has been that we need to more actively invest in the commercial support function that sits behind the sales organization in order to make sure that our sellers have the bandwidth to sell at the same time that we also have adequate support for providers who are going live on EMRs in order to completely onboard into the new environment. And that is something that we are rapidly putting into place in order to make sure that we can free up the bandwidth for our commercial team because absolutely, that's a big part of the headwind that we saw from particularly unaffected HCT volume in Q1. And we're hoping that we can fairly quickly turn that headwind into a tailwind and realize the benefits that we know are there for EMRs.

And then last but not least, on the Prolaris NCCN guidelines, talked about some of the confusion there, reallocating resource. Just sort of how quickly can that resolve? And sort of where do you see that going forward?

Well, so bear in mind that if you think about the before and after when the NCCN guideline update came out in December, from our standpoint, the positioning of Prolaris in the marketplace before the update came out versus after was really no different. The phenomenon around Simon Level 1 criteria had already been out there in the marketplace for an extended period. And while it probably did impact the upward growth trajectory of Prolaris when it happened, we were still pleased to be able to hold the line on Prolaris volumes and deliver positive revenue growth in 2024 despite the challenges around the Simon Level 1 criteria. And so we almost view it as a little bit of fog of war that's been created now with the ambiguity around the guidelines. But at the end of the day, there's no new information out there. It's something that our commercial organization has been effectively counter arguing against as part of their sales cycle. And we're comfortable that we're going to be able to hold the line on Prolaris performance again here until [ we use the point ] where we're able to realize the benefit then from the incremental commercial investments that we're making in Prolaris to support Prolaris. And then, of course, over the longer term to work towards achieving Simon Level 1 criteria ourselves.

Maybe just in the last minute we have left, I want to touch on some of the cost savings and OpEx reductions you talked about as well to offset some of these headwinds. Sort of walk us through the various baskets where you feel like it's -- you're able to pull that lever without doing more damage to the top line?

Sure. And I have 30 seconds to give you what's much more than a 30-second answer, but I'll just say that we've been committed since our budgeting process in the fall and winter of last year to finding ways to be more efficient in terms of our administrative infrastructure in order to direct more dollars towards the parts of our business that drive long-term strategic growth, including R&D, product development, technology and commercial. And so when we talk about reducing our planned OpEx spend, we're going to do it by reducing discretionary spend in other parts, being leaner and more efficient in order to make sure that the dollars are going when they need to be to be successful over the longer term.

All right. Well, thank you so much, Scott. Thanks, everyone. Really appreciate it. Covered a lot of ground there. Thank you.