Myriad Genetics, Inc.

Thank you for standing by. Your conference call will begin in approximately two minutes. We thank you for your patience and ask that you please stay on the line. Thank you. Greetings and welcome to the Myriad Genetics Third Quarter 2021 Financial Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Tuesday, November 2, 2021. I would now like to turn the conference over to Nathan Smith. Senior Vice President, Investor Relations.

Please go ahead. All right. Thank you, Kevin. Good afternoon and welcome to the MERI Genetics third quarter 2021 earnings call. During the call, we will review the financial results we released today and after which we will host a question and answer session. Our quarterly earnings release was furnished this morning on Form 8K and can be found on our website at investor.meri.com. I'm Nathan Smith, the Senior Vice President of Investor Relations and Treasury. On the call with me today are Paul Diaz, our president and chief executive officer, and Brian Rigsby, our chief financial officer. This call can be heard live via webcast at investor.myriad.com, and a recording will be archived in the investor section of our website. In addition, following the call, the slide presentation will be available on the investor section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based upon management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's transition report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I will now turn the call over to Paul.

Thanks, Nathan, and good afternoon, everyone. Thank you for joining us. On today's call, we will discuss our Q3 results along with highlights from the quarter and our continued progress on our strategic transformation and growth plan. Before we walk through our quarterly results, and the business highlights, I want to thank our 2,400 Myriad Genetics teammates who continue to advance our mission of improving the health and well-being of all of our patients by revealing the answers inside each of us. Because of their hard work and dedication, we are expanding access to vital genetic insights for more patients every day. At the same time, we are enabling healthcare providers to better detect, treat, and prevent disease. Our work matters, and all of us at Mary Genetics are driven by this mission and vision. Despite COVID-19 headwinds and typical seasonal softness, our quarterly operating and financial results were strong. In the quarter, revenues of $167.3 million increased 15% year over year, and diagnostic test volumes of 252,000 were up 15% compared to last year. Excluding the impact of our divested assets, revenue increased 27% year-over-year, demonstrating strong growth in our core business. For the fourth quarter in a row, average revenue per test remained stable year-over-year and quarter-over-quarter, excluding the positive impact of prior period collections of $18 million year-to-date and $8 million in the quarter. Total operating expenses were $199.4 million, and adjusted total operating expenses decreased $1.6 million sequentially to $121.5 million. Our gap operating loss in the quarter was $79.7 million, with an adjusted operating loss of $1.4 million and an adjusted loss per share of two cents. At the end of this quarter, we have $413.6 million in cash equivalents and investments on our balance sheet. And as noted last quarter, our progress towards long-term profitability will not be linear, but our transformation is progressing as planned, and our business units are primed for growth going into 2022. Our path to profitability is clear, and we expect to deliver more consistent growth while maintaining our focus on cost and our customers. During the quarter, we closed on the divestitures of RBM and Vectrum and paid down our revolving credit facility. With all three of these divestitures closed, we can now intensify our efforts to drive growth and begin to look for strategically aligned acquisitions and invest further in our commitment to becoming a more consumer-centric, technology-enabled company. Our goal is to make each interaction between Myriad Genetics and our patients, partners, and provider partners as seamless and hassle-free as possible, while improving healthcare outcomes with the highest quality tests, genetic insights, and services available. As previously discussed, we continue to execute on four strategic priorities. First, we are working hard to develop best-in-class quality products, service, and accessibility to accelerate growth and reach more patients of all backgrounds. Second, we continue to invest in enhancing our enterprise capabilities to both improve patient and physician experience, rev cycle management, our commercial capabilities, and opportunities to innovate. Third, we are expanding access to our genetic insights through new digital tools and beginning to look for better ways to leverage our data to elevate our products to their full potential. And finally, we are committed to disciplined execution on a key set of initiatives to fulfill our mission and drive long-term growth and profitability. We continue to make progress on each of these priorities and are excited about the opportunities they will create in the future. In our women's health division, we're seeing increasing market interest by unaffected women for hereditary cancer tests following the launch of our MyRisk hereditary cancer test with risk score for all ancestors, the first and only test of its kind. Melissa Gonzalez, with the first five months under her belt, is leading our women's health business, and we've already seen marked improvement in our operating results. Employee turnover in this unit has gone from 57% this time last year to now just 8% in this most recent quarter. Beginning this quarter, our new sales team is fully onboarded serving current customers, and actively pursuing new ones. We expect to see continued stability, growth, and improved operating results under Melissa's leadership in our women's health division in 2022. We are also progressing towards the launch of a novel product that will deliver the clinical value of both our prequel prenatal test and foresight carrier screening to more expectant parents. The combined offering will simplify non-invasive prenatal and carrier screening workflows, which currently involves several samples from different tests. Today, only one out of three patients undergo carrier screening and non-invasive prenatal screening during pregnancy. This process is complex and time consuming, requiring three samples from two parents. Our new innovations deliver the key clinical content of prequel and foresight with a single maternal sample. The offering will provide a comprehensive assessment of a single prenatal test that is simple, accurate, and allow more patients to get answers fast. In oncology, we are pursuing a $5 billion market opportunity in tumor profiling as we prepare for our launch of our combined somatic, germline, and companion diagnostic tests for ovarian cancer patients. With this new solution, NeuroGenetics is advancing precision oncology. teaming up with Illumina and Intermountain Precision Genomics to merge the power of companion diagnostics, next-gen tumor sequencing, and world-class testing services. We're also excited about developing risk score risk stratification capabilities. With risk score, clinicians can gain critical insights to helping treat women with increased risk of breast cancer, but who do not have likely identifiable pathogen variants in one of their breast cancer genes. Our customers are working and collaborating with us closely, providing valuable feedback to ensure we meet their needs both now and in the future. They are also embracing our current portfolio, and our field teams are gaining traction with a large number of institutional wins at major health systems. In addition, we applaud the new NCCN genetic guidelines, which now apply to all individuals with a personal history of colorectal and endometrial cancer. The new guidelines apply specifically to those with a gene mutation prediction score greater than 2.5%, regardless of age. This was a significant step forward and a win for patients who can benefit from our oncology tests, expanding the patient population that qualifies for the test. In urology, the new NCCN prostate guidelines are favorable for both our Polaris prostate cancer tests, as well as the MyRisk hereditary cancer test. NeuroGeneX is the only company that can offer both the truma profiling and hereditary cancer test to urologists, as well as companion diagnostic tests for therapy selection. We continue to lead the biospace for patients with prostate cancer with Polaris and look forward to continued growth there. In mental health, our gene psychotropic test is seeing accelerated demand. This is a result of the test effectiveness in helping physicians better determine patient response to mental health medications with just a single sample from the patient. In addition, our ongoing commercial transformation has been a key business catalyst as we've right-sized our field sales force, expanded inside sales capabilities, and executed on a robust digital marketing plan. We are now seeing and meeting patients and clinicians online where they are looking for mental health treatments more and more. Volumes for GeneSight are growing in new provider segments including general practice physicians and nurse practitioners. Digital ordering has continued to grow and involve currently accounting for 10 to 15% of all GeneSight orders. Around 30% of our tests are now home-based kits. Our recently announced gene site test, including ADHD, is on track to exceed launch objectives in both projected and volume and revenue. We have prioritized collaboration across our business units to determine how each of our segments can grow substantially together and individually, and we'll have more to speak to that in the future. As we move forward, we are establishing a consumer-centric and tech-enabled approach is our foundation for future relationships with customers, physicians, and to ensure long-term growth and profitability. We're also focusing on reimbursement and cost of goods sold to help generate margin expansion. Our transformation plan is progressing as expected, although there remains to be a great deal of work to be done. We have successfully reset our base of operations, and refocus our organization to reduce complexity and cost and better serve our customers. We are now turning our attention to accelerating growth by investing in innovation and technology, including more customer-centric tech-enabled commercial capabilities and strategically sound acquisition opportunities. Once again, we had a strong quarter as we continued to execute on the plan that we laid out for investors in May. Our commercial transformation is starting to take hold, as you've seen in mental health, and we have a trusted brand and strong product portfolio, both of which continue to grow and enable us to fulfill our mission and expand our leadership in genetic testing and precision medicine. I'd like to now turn it over to Brian to discuss our Q3 financial results in more detail.

Thank you, Paul. I would like to start by giving you an update on our divested businesses. During the quarter, we completed the sale of our RBM business, to Q2 Solutions for $197 million in cash, and Vectra, our autoimmune business, to LabCorp for $150 million in cash. Our team has done an excellent job of executing on all three divestitures, and we are now in a great position to invest the proceeds back into key growth initiatives. Our plan is to use the gross divestiture proceeds of $380 million to strengthen our balance sheet as well as to fund investments in technology, our new commercial operating model, commercial model, and potential acquisitions. We had another solid quarter as we reported total revenue of $167.3 million, up 15% year over year. Our quarterly results benefited from strong test volumes, which increased 15% year over year. Additionally, we continue to see stable average selling prices across our portfolio of products. In the quarter, we did report an adjusted loss per share of two cents, but remain on track to return to profitability and deliver more consistent growth going into 2022. Adjusted gross margin was 71.7% and total adjusted operating expenses were 121.5 million. Like many others, we are experiencing increased inflationary pressures, including increased material costs due to global supply chain disruptions, as well as increased labor costs due to staffing constraints and increased competition for talent across the organization. Turning to revenue for our products, hereditary cancer revenue in the quarter was 79 million versus 81 million in the third quarter of last year. Our hereditary cancer test volumes were flat year over year and down 7% sequentially. ASP was flat sequentially, excluding positive revenue adjustments related to better than expected cash collections on tests ordered in prior periods. The sequential decrease in volumes is largely attributable to constraints and access to healthcare providers due to the COVID-19 pandemic, the impact of the Delta variant strain, and typical summer seasonality. Mental health delivered revenue of $24 million, an increase of 103% year-over-year, and 7% sequentially, representing solid growth five quarters in a row. We had approximately 2,700 new physicians ordering gene site in the quarter, and the total number of ordering physicians increased 6% sequentially. In women's health, revenue was $59.1 million in the quarter, an increase of 6% year-over-year. Prenatal test volumes increased 7% year-over-year, driven by our proprietary Amplify technology, which enhances the performance of our prequel non-invasive prenatal screening tests. In oncology, revenue in the quarter was $76.8 million, an increase of 32% year-over-year, and a decrease of 2% sequentially. Tumor profiling revenue increased 94% compared to the same period in the prior year. Sequentially, revenue increased 13%, primarily due to a one-time milestone payment of $4 million related to My Choice CDX global development work. Excluding the one-time payment, we saw a sequential decline in revenue consistent with typical summer seasonality. During 2020, we received $30 million in advanced Medicare payments from the CARES Act stimulus bill that addresses the economic fallout from the COVID-19 pandemic. These funds received as part of the CARES Act are offsetting against payments that are due for Medicare services. The company offset approximately $8 million quarter to date and approximately $14 million year to date for services performed during those periods against the prepaid Medicare balance. At the end of the quarter, the remaining balance of the advanced Medicare payments was $16 million. As mentioned earlier, total test volumes and revenue both increased 15% year over year, and our ASP was stable year over year and sequentially. Excluding the impact of our divested assets, revenue increased 27% year over year, primarily driven by a 20% increase in volumes, demonstrating exceptionally strong growth in the core business. Given the continued unpredictability surrounding the COVID-19 pandemic and its variant strains, As well as the impact it continues to have on the healthcare environment, customer behavior, and the ability to market test to physicians, we are not providing guidance for the quarter ending December 31, 2021, or for fiscal year 2021 at this time. We expect to resume providing financial guidance in early 2022. Looking at the fourth quarter, we do not expect approximately $4 million of My Choice CDX revenue tied to milestone payments to reoccur. In addition, due to the divestiture of the vector test, the $7.3 million in revenue in Q3 will not reoccur in Q4. We expect that those revenue comparison headwinds will be offset by positive improvements in volumes from our typical Q4 performance. We also anticipate a portion of the positive out-of-period cash collections to be sustainable in Q4, but not at the levels we have seen in previous quarters. From an expense standpoint, we expect total operating expenses to decline modestly on a sequential basis due to the divestiture of the Vectra business. We continue to be excited about the business going into Q4 and believe that Q4 will help set the stage for 2022. As a reminder, we provided the following forward-looking commentary at our investor day in May, which called for revenue growth of 8% to 10%, gross margin expansion of 100% to 150 basis points, and inflation-adjusted operating expenses in the range of $460 to $470 million going into 2022. While we remain confident in these long-term goals, we are feeling the effects of the macroeconomic environment, which has continued to limit access to certain healthcare providers and has exerted inflationary pressures on supply and labor costs. While the net effect of these will pressure our gross margin and OPEX assumptions, we are focused on mitigating these cost impacts. We believe that over time, the market will favor the most efficient providers and that our focus on improving customer service levels, new commercial strategy, and our plans for our automated lab of the future will position us to deliver on our long-term goals. I'll now turn it back over to Paul for closing remarks.

Thanks, Brian. We're pleased with the progress we've been able to make so far this year in a very difficult operating environment. Our primary focus is now accelerating growth going into 2022. We continue to invest in our business and work to elevate our products to their full potential and introduce new offerings next year while we are pursuing strategically sound acquisitions and new partnerships. Now more than ever, we are exploring new ways to illuminate the path to better health and wellness through genetic insights and look forward to a bright future ahead for Mary Genetics to better serve our patients and customers and deliver sustainable and profitable results for all of our shareholders. And now I'll turn it back to Nathan for Q&A.

Thanks, Paul. As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP financial results to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the investor relations section of our website. Now we are ready to begin our Q&A session. To ensure broad participation in today's Q&A session, we are asking participants to please ask only one question and one follow-up. Operator, we're now ready for the Q&A portion of the call.

Thank you. So, first question is from Dan Brennan with Cohen, and that line's open.

Hi, good afternoon. This is Kyle on for Dan today. Thank you for taking the questions. So, you mentioned during the call today on the focus for driving growth, and included in that is potentially strategically aligned acquisitions. Do you think you can maybe elaborate on that a little bit here? Maybe any gaps in the portfolio you think you'd like to fill or specific areas?

Well, I think there are sort of three areas. One is finding, you know, really good products, you know, within our areas of expertise that we can add value to. You know, we want to have a proprietary view about how we can help grow nascent products in the marketplace. And so I think we're now feeling confident that we can begin to look for those kinds of opportunities to expand our product portfolio and leverage the channels that we have in women's health and primary care and oncology. I think we're looking for ways to accelerate our tech enablement. That, as we've talked about, has been an area of underinvestment historically and where we've made up a lot of ground. And lastly, how we can leverage data to better differentiate our product offerings and deliver more than tests, right? Deliver the insights and the expectations of our customers for more interpretive data that they can use as part of a holistic care plan. And so those are sort of the areas that we're focusing on. And as we've talked about, you know, with $413 million of cash on the balance sheet, $230 or so undrawn on the revolver, it really gives us the financial flexibility to become more ambitious there and fund our internal investment activities as well.

Got it. Thank you. And on another note, so hereditary cancer volumes specifically in the women's health portion of hereditary cancer testing. Can you provide any color on how both volume and pricing has trended year over year and sequentially?

I'll start with the operations part of it, and Brian can add more color around the numbers. As we've talked about in previous quarters, this was an area of underperformance. We made a leadership change. We were not doing a particularly good job of selling prenatal tests and hereditary cancer tests out of our bag of products. One of the opportunities we see longer term is doing a better job of leveraging the channels and selling multiple products in the same channels. Melissa Gonzalez, who's an experienced healthcare executive in the Women's Health Channel, is really bringing the team together We've stabilized the sales force. We've got people on the ground now in a lot of open territories. And just bringing a lot of much-needed energy, enthusiasm, and discipline to the business. Really excited about the budget presentations you made last week and the opportunities for 22. So, you know, the women's health business has very much been a turnaround story. And there's a lot of opportunity there for us to participate in the underlying, you know, 8% or 9% growth of the marketplace. And we think we can capture more than our fair share of that over time. But again, Melissa's five months into it, and we're feeling optimistic about the opportunities for that segment in 22.

Yeah, and Kyle, I would just add on the ASP side, we've continued to see through the course of the year, and Paul referenced it in his remarks, you know, $18 million of positive out of period cash collections. I mean, really attributable to the great work of the RevCycle team here at Myriad and all their efforts over the course of the last year. And what that's really led to is stability across the portfolio in terms of our pricing and hereditary cancer, you know, through the course of the year has been stable as well. And we've talked about that through the course of the year. So I think, you know, to the extent that you can see a return of, you know, well, you know, preventive care visits, you know, and an inflection in volume with stable pricing, I think that's a good combination.

Yeah, and I'll just echo just from the operator's perspective, cash matters. It really reassures me that our revenue recognition is tied to cash collections and should give investors confidence that some of the issues that we had a couple of years ago on ASP and volatility there and challenges we had in collecting prenatal. You know, the team has just done a great job. KPMG has been helpful. We're really working to build a world-class payer markets and rev cycle capability here, which we think will be really important as we look to scale and grow the company and bring on new products and launch new products.

Got it. Thank you. Sure. Thank you.

Next question is from Sunge Nam with BTIG. Please go ahead.

Hi, thanks for taking the questions. Paul, could you talk about just a clarification for the combined test you're launching, the hereditary cancer tumor profiling next year? You talk about for ovarian cancer. Do you have plans to launch for the other indications throughout next year as well? Or how should we think about that from the timing standpoint?

Yeah, so definitely hope to launch with Ovarian, you know, early next year, Q2 probably, something like that. We want to get it right. I mean, one of the things that we've committed to is we're not going to launch unless we can launch successfully. And Faith and the team, Patrick, I mean, the support we're getting from KOLs and others, we're just doing a lot of more thoughtful groundwork before we come out in the marketplace and make sure our sales teams are prepared to do that. And really appreciate the partnership with Illumina and Intermountain, you know, to bring, you know, really the best of all the three companies together for a seamless customer experience and a single report with all the interpretations. That's big. You know, it's really, you know, 85% of oncologists want one report. They don't want to have to figure out two or three different reports. And that's differentiating in the marketplace. We are absolutely doing work to expand that. You know, to breast, pancreatic, prostate, that's going to take some more time. Those are bigger total addressable markets, but that is clearly in the work stream. Too early to tell when we'll be able to, you know, launch those offerings, but absolutely part of what we're working on in our R&D and tech development group.

Gotcha. Great. Um, and then my followup is we'd love to get more color around, you know, realize that there's still, um, limited access to the healthcare providers. Uh, would you be able to kind of give us more color in terms of, um, for, you know, the oncology channel versus women's health versus, um, you know, the psychiatrist, um, as far as the level of access you currently have versus prior to the pandemic?

Yeah. I mean, you know, to some extent, I think we're all recognizing that we're sort of in a new normal here. And so I think the Q3 to Q3 comparisons are the right ones. You know, you sort of had a stable or relatively stable COVID situation. And then this quarter was a little tougher, quite frankly, just because of the Delta variant. But, you know, look, at some level, some of these barriers are going to continue to exist. I would point you to the great work we've done in Genesight and with the support of Bain of moving to a more modern commercial model. 65 fewer external salespeople, 30 internal salespeople that are really increasing the velocity and the turnaround times and the customer satisfaction. 30% of the kits are home, and we need to bring the science to people where they can access it when they can't get into the office. a lot done in the patient portal there. And so now we're extending those commercial and technological capabilities to our other product lines. Next year we should see more unified ordering platforms, more back-end platforms on billing and customer service. So a lot of work to improve the customer and the provider experience. And so, you know, we generally feel as we've talked about, that we can achieve our long-term growth rates organically of 8% to 10%, and that we've got a lot of different ways to get there. But, you know, anticipate bumps along the way. I mean, it's a pretty volatile, you know, world. And as Brian talked, you know, we've got probably a little increasing inflationary pressure than we talked about at our Investor Day presentation. We're good cost managers here, and we're working on finding ways to lower sequencing costs But across all of our product lines, it's a little different story. As I said, in women's health, you know, it's more of a resettling a lot of open territories, helping people learn how to, you know, sell my risk as well as our prenatal products in that same channel. One of the challenges, quite frankly, is we have to send patients to two different ordering platforms to do that. So we're fixing that. So there are just little things that create unnecessary friction points that'll be solved here over the next couple of quarters that we think should support growth and ease of use for our customers.

Great. Thank you.

Thank you. So again, for questions, it's 1-4 on your keypad. Next question is from Puneet Sudha with SVB Lingering. Please go ahead.

Yeah. Hi, Paul. Thanks for taking the question. So I'll try to ask both of mine together if I could. And just wanted to just following up on the somatic germline test. I mean, just when you look at the overall competition in this space and given sort of the penetration levels sort of just to help us understand how do you position with multiple companies that are providing somatic testing in the marketplace. And then on Gene's side, if you could maybe just elaborate a bit on the coverage there, where do you stand in your ability to, you know, raise pricing there? Thank you.

Well, so on the first, you know, we certainly have some competition out in the marketplace. We think our offering will be differentiated. You know, some of those competitive offerings are really more marketing partnerships where people are doing the germline test and the tumor test and then, trying to send the reports separately but together. And so we think this is highly differentiated. Again, combining a Luminous TSO 500 capabilities along with the great work of Intermountain and then our sales force, our rev cycle on the commercial side. And this is the kind of partnerships that I think We all need to think about more so we can bring more products to market faster and more effectively and more cost efficiently. So, we think it'll be differentiated both in terms of the accuracy and quality. You know, no one else has the My Choice, FDA approved. That's an absolutely differentiating part of the three-piece puzzle here. And as you've seen, you know, we've got great traction and on my choice, CDX. And so I think if you look at the combined offerings that we're bringing together under one roof and the ease of use that we're going to make this for oncologists, it's, we should be able to capture more than our fair share of the marketplace. And as previously discussed, hopefully extend this beyond ovarian, you know, in the not too distant future. On Genesight, you know, we continue to work with payers. across the landscape, Medicare Advantage plans, you know, with the benefit of the LCD, with more Medicaid plans where we think there's a great opportunity in expanding coverage. And, you know, quite frankly, it's less about trying to get the highest price, but getting a price where we can expand coverage on a broader population that needs this test, particularly given how efficient we are and the great work Mark's team has done. I think our cogs are $336 for this product. Cogs are about 65. 65 for this product. So, you know, we've got a lot of margin on Gene's site. And so, quite frankly, I'm pushing the team for broader access, this goes right to the social determinants of health and the disparities. Mental health is pervasively an issue across all social economic and affecting young people. And we need to be part of addressing that. And what I'm excited about is the nurse practitioners. They're the ones who really see that secondary diagnosis of mental health issues. And we see it for seniors. I've been in that part of the world for many, many years. It's It's a secondary diagnosis but often the one that causes hospital re-hospitalizations and so we just see great runway for GeneSight in its adoption and our focus on coverage broadly across all payer types.

Next question is from Matt Sykes with Goldman Sachs. Please go ahead.

Hey, Matt. Hi, everybody. Thanks. Hey, thanks for taking my questions. Appreciate it. Maybe just following up on Penny's question on a gene site, maybe a bigger picture question, but, you know, as for mental health, telehealth has been a huge benefit, and I think there's some thought that that might remain fairly sticky in terms of how people choose to get treated. If it does, what kind of impact do you think that would do to broaden the population? You know, there's some pretty large underdiagnosis that goes on within mental health, but If telehealth were to kind of remain sticky at high levels for mental health, what do you think that would do for Genesight from a positive or maybe negative impact?

Absolutely supportive of our investment thesis. If you go to our website, you'll see some connectivity to connecting you to telehealth partners. We have a number of discussions at Eric Santa, our Chief Growth Officer, who did a lot of this at Rally Health at Optum, on the telehealth side at Optum. And he's leading that charge along with Mark and the mental health team. So we think this absolutely can help sustain the growth there. And there are a number of potential partnerships with telehealth and with some of the payers that, you know, focus on mental health issues as well where we think there's great opportunity. So we're in the early innings here. But it is the adoption by the nurse practitioners that, to me, is the most encouraging. They're the ones really dealing on the front line of this. And so improving the ease of use and access to the tests through our portal, through telehealth partnerships, that's absolutely how we think we can sustain growth in this business unit and continue to expand.

Great. Thanks for that. You know, you talked about the increase in inside sales for mental health in particular. Can you use that kind of same recipe for your other segments and other tests? Or are there certain, you know, specificities with those markets where that might not be the right solution?

No, I think, Matt, I think we talked about this a little bit. We are in the process of rolling out not exactly the same commercial model, but a more segmented approach using inside sales, using a lot more digital and social media awareness to have people come into the office and ask for our test or be informed about our test. So we're in the early innings of extending that into oncology and women's health, particularly women's health, you know, where so many women, you know, that's where they do their primary care. We see opportunities there. And ultimately, honestly, you know, we see the opportunity to cross-sell gene site into the Women's Health Channel as well. So, you know, we're a year away from being able to execute on that, but that's certainly an opportunity that OBGYNs and their advanced practice nurses face every day as well. So lots of fun stuff to do here.

Got it. Thank you.

Next question is from Derek DeBruin with Bank of America. Please go ahead.

Hey, this is Wolf on for Derek. Thanks for taking the question. Another one to follow up on those couple of June site questions. For those payers that are not reimbursing yet, what data do they still need to see? And are the patients that are ordering the tests at home skewing more self-pay, or how is that working?

Yeah, so that's an evolving picture for sure. We are making progress with payers. and, you know, getting through and showing the meta-study and other things. We have a VA study that should come out soon, and it will be very supportive for veterans with PTSD. It was referenced in a congressional report, you know, excited about the possibilities of extending gene site into the VA. And the team continues to, you know, validate the clinical efficacy. The more powerful story here is that clinicians need it, want it, And they're validating it. And we've got programs with Rush and a few other institutions where we're doing some collaborative work with them and some projects where we think we'll have some real-time data to support the clinical efficacy and the financial efficacy, quite frankly, of getting people to the right medication sooner. Quite traumatic for people to have to go to three or four different medications to solve to their ADHD and depression and anxiety and And there isn't any family in America that doesn't have somebody in their family who's struggling with these things. So it's not holding us back, but we continue to build the clinical case and the validation points there. But the need and the desire for this as part of a solution of helping manage mental health is very clear and very pronounced in all the markets that we're entering.

Great. And then just as a quick follow-up, on the combined carrier screening NIPT test, how are you thinking about pricing there? I believe you said that was maternal only, and if so, what are you doing for the father in the carrier screen?

Yeah, thanks for the question. It is only one sample. That's part of the uniqueness of the test. is that you're able to run and get the result just from mother. And with respect to pricing, we haven't really talked about that, but I think that we'll share more details on that as we get closer to launch.

Thank you. Next question is from Tycho Peterson with J.P. Morgan. Please go ahead.

Hey, Tycho. Good afternoon.

Apologies. It looks like that line disconnected. That would make our next question. Jack Meehan with Nifron Research. Please go ahead. Thank you.

Good afternoon. Hello. First, just a couple of clarifications. For the $8 million Nevada period sales, can you provide the breakdown by product? And then was the $4 million milestone payment incremental to that?

Yeah, no, the $4 million would have been incremental. That stands alone. That's very different because it was earned in the current period, so it was recorded in the appropriate period. Of the $8 million, I think about $4.5 million of that was related to hereditary, and the rest was sort of spread across the other products. Mainly prenatal. Yeah, mainly prenatal, but some across the other products. Okay.

And then appreciate the commentary around 2022. Data point I was hoping to provide is what portion of your hereditary cancer testing book renews with payers or maybe cut a different way. Do you think price declines will be in the three to 5% range you talked about at the analyst day?

Yeah, we're still feeling pretty good about the three to 5% overall pricing. Um, and, and generally feel pretty good about kind of where we're positioned with hereditary cancer. I know that's been a source of insecurity and concern for folks, but as we've talked about, the out-of-period collections just bolster our confidence and our revenue recognition and the quality of that, and we're seeing pretty good stability there. I know that's been a question that you've had, and we think we can build on the volumes and really start creating a lot more leverage there, particularly in women's health. We see, again, overall 3% to 5% pricing pressure next year. Some of that is PAMA, unless that's extended. And no particular contracts of any note expiring. And still signing contracts at pretty favorable rates in some places where people think we have a superior product and are willing to pay for it. I personally, as I've talked about before, I want to make sure that our pricing is accessible and that we have a lot more leverage in our P&L driving volume, not just holding on to price, a little philosophical change around here. But right now, we're feeling pretty good about pricing and feeling really good about our rev cycle capabilities.

Great. And just as a final question, I guess, can you help us with some of the moving parts on the path to profitability next year? I mean, I look at the quarter price. there was a cash EBIT loss of around a million. You had about 12 million that were one time, one nature or another. And we're talking about, you know, somewhere to the tune of 25 million and price reductions next year, kind of at the midpoint. And, you know, I was also hoping to get some color on the inflationary factors. Just, you know, what's the path to profitability?

Well, yeah. So we're not giving guidance today, Jack, as you know. I think the path is, consistent with what we've talked about. We're in a position now to really start growing volumes. The clarity of mission with the divestitures behind us, the stability that we're seeing in the sales force, the improved go-to-market on our value proposition, the work on ease of use and transparency with patients at the point of care, which is another thing that we're eliminating a lot of the competitive barriers that we have had. And I think we've demonstrated ability to be disciplined cost managers in terms of getting synergies and managing OpEx and managing the industry leading, you know, growth margins. And so we just want to recognize, which I know you and others do, that, you know, we've got increasing inflationary pressures going into next year. But as Brian reiterated, you know, we lost two cents in the most seasonally weak quarter. We were profitable last quarter, which is more representative of sort of the year. And so this quarter, we also had a bunch of legal expenses associated with the key TAM. There's always puts and takes in this thing, as you well know. So overall, you know, we believe we have a clear path on revenue, COGS, OPEX, to reach stable profitability next year. There's just a lot of puts and takes in any given quarter.

Thank you, Paul. Thank you, Jack.

We do have a question from Tycho Peterson with JP Morgan. Your line's open.

Great. Hi, this is Rachel. I'm for Tycho. Thanks for taking the question. So first, on NIPT, we've had broad coverage of average risk for about a year now, and then another player exited the market earlier this spring. So can you just talk about how shares shifted in that market and where you stand now?

I'm not sure if I can give a specific answer to that question other than I think we're getting our fair share and we have the ability to execute better. And those things take a while to play out. You know, Brian's comment on that and prior calls. the expansion of guidelines and things, they don't just sort of materialize in a quarter. They take a year or two to work themselves through the ether of ordering physicians.

Yeah, I was just going to add, I think that relative to share, it's hard to tell based on the data that's available in the market. But what I would say, I would say just that with respect to the average risk, most folks were already ordering the test anyway, so it's more of a reimbursement. sort of play. And you've seen nice recovery in our prenatal ASP over the course of the year. A lot of that's driven by the fact that we're now getting paid for tests that we weren't previously. So I think that's really where we've seen the benefit of that over the course of the last year.

Yeah. And as we've talked about, one of our goals is to reduce no pays, right? And so that's particularly important for Genesight, but important in all of our, it's one of those weird industry things that I've been trying to put my head around here is how many tests we don't get paid for, but it's something we're very focused on and continue to make progress on on a number of different fronts, whether it's coverage, you know, the patient portions and other things. So it's just an opportunity to make sure that our tests are both priced and affordable and accessible, but that we can cover our costs. And again, we've done a really good job of reducing clogs across and particularly sequencing costs across the enterprise. just have the ability that volume can really drive a lot of value creation for shareholders here, a lot of leverage in the P&L.

Great. And then my follow-up is on Genesight. So you guys have mentioned the inside sales team a few times on this call. I believe during the analyst day you mentioned that that was in the piloting phase. So can you just give us some color on the progress and any early trends that you're seeing, and also just how much further would you expand that inside sales force for Genesight?

Thanks. I think we've added another 17 people or so. I think we're up to 35, 36, something like that. And we're starting to do that in the other business units as well. And these folks solve to the friction in the system, particularly while we're building more technology to solve to the friction. And that's what we want. We just want, if a patient or doctor has a question or their nurse practitioner We want to answer it on the spot. We want to solve the problem. We want to be the company that gets you your results as quickly as possible. And that means you get the order next time. And so those folks have just done an incredible job in Mason. You know, I'd clone them all if I could. And we've just added a lot of capability there. And as I said, they've more than made up for the external 65-person order. you know, more expensive external salespeople in that division. And, you know, something that people said couldn't be done, but in other industries has been done and now we are doing.

Great. Thank you.

Thank you.

Anybody else on deck? No one else on deck.

Thank you, Kevin. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you all again for joining us this afternoon.

Thank you for your support, everyone. And that does indeed conclude our call for today. We thank everyone for participating and you may now disconnect.