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spk02: Greetings and welcome to the Myriad Genetics second quarter 2022 financial earnings conference 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 today, Thursday, August 4th, 2022. I would now like to turn the conference over to Foster Harris. Please go ahead.
spk05: Thank you. Good afternoon, and welcome to the Myriad Genetics second quarter 2022 earnings call. On the call, we will review the financial results we released today, and afterwards, we'll host a Q&A session. Our quarterly earnings release was issued this morning on Form 8K and can be found on our website at investor.myriad.com. I am Foster Harris, Senior Associate of Investor Relations, On the call today are Paul Diaz, our President and Chief Executive Officer, Brian Rigby, our Chief Financial Officer, and Nicole Lambert, our Chief Operating Officer. This call can be heard live via webcast at investor.meria.com, and a recording will be archived in the investor section of our website along with this live presentation. 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 on 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 annual 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 forward-looking statements. With that, I will now turn the call over to Paul.
spk03: Thank you, Foster. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss our Q2 results, along with highlights from the quarter and updates on our strategic transformation and growth plan. First, I want to thank all of our teammates for their hard work and dedication this quarter to advance our mission and our vision to make genetic testing and precision medicine more accessible to help people take more control of their health and enable providers to better detect, treat, and prevent disease. I also want to thank our healthcare provider partners and their patients for their continued trust and confidence in us And as 22 remains an exciting year for Mira Genetics, we continue to build a foundation for accelerated growth and advancing our mission of improving health and well-being for all. We are pleased with the progress we made in the second quarter of 2022. After excluding divested businesses, quarterly revenues of $179.3 million increased 7% year-over-year and 9% for the six months ended June 30, 2022. in line with our long-term revenue guidance. Diagnostic test volumes of 260,000 increased 9% year over year, demonstrating strong continued growth in our core business. Average revenue per test in the quarter decreased 2% year over year, excluding divested businesses, primarily due to shifts in our product mix as compared to the second quarter of last year. Despite ongoing COVID disruptions, and significant inflationary pressure in the quarter, our team did a great job from an operations standpoint. Genesight, Polaris, and My Choice EDX saw their highest quarterly volumes ever this quarter. And our hereditary cancer business is beginning to stabilize. And our prenatal business saw healthy growth in the quarter with potential opportunities in the near future to increase market share. Adjusted gross margins improved 30 basis points from last year to 72.4%, and our adjusted earnings per share of 4 cents decreased 8% year over year, primarily due to income from now divested businesses such as Vectra and RBM in the second quarter of 2021. We ended this quarter with $283.6 million in cash, cash equivalents and investments, and no long-term debt. positioning us to invest in the future and the strategic opportunities we see in the market. Myriad remains a trusted, differentiated partner with specialized expertise underpinned by three strategic priorities. First, we continue to invest in innovation to develop best-in-class products, improve the quality of our services and customer experience to reach more patients of all backgrounds. Second, we are building new enterprise capabilities to improve engagement, accelerate growth, and leverage our size and scale to address new market opportunities, including M&A. Third, we are focused on disciplined execution as we work to deliver on a key set of initiatives to fulfill our mission and drive long-term growth, profitability, and free cash flow. We continue to make progress on each of these priorities and are excited about the opportunities they will create in 2023 and beyond. With that, I'd like to turn things over to Nicole Lambert, our Chief Operating Officer, to discuss Q2 operating results and the new innovations in more detail.
spk00: Thank you, Paul. I'd like to start with our core business unit performances, beginning with our mental health business unit. Mental health continues to have a lasting effect on patients and their families in the U.S. as those suffering fail to receive proper medical treatment for a variety of reasons. Trial and error are common when determining the most effective medications to treat depression, anxiety, ADHD, and other mental illnesses. Recently, the Journal of American Medical Association published results of our PrimeCare study, the largest pharmacogenomics randomized controlled trial ever conducted in mental health. The study, funded and conducted by the U.S. Department of Veterans Affairs, achieved both of its co-primary endpoints and found that major depressive disorder remission rates were significantly improved when clinicians had access to GeneSight psychotropic test results. The PrimeCare study further reinforces the body of evidence supporting the clinical utility of pharmacogenomic testing and the GeneSight test as important tools for medication selection in the treatment of major depressive disorder and other mental illnesses. Driven by GeneSight, our mental health business recorded 33.1 million in revenue for the second quarter of 2022, an increase of 46% year over year. Reported test volumes were roughly 95,000, our highest quarterly volume for GeneSight ever. We believe that the performance of GeneSight this quarter demonstrates the effectiveness of our new commercial capabilities, digital marketing strategies, and patient-centric engagement initiatives implemented over the past year. Our GeneSight test helps physicians better understand how antidepressants and other drugs will affect their patients with just a single cheek swab sample that can be taken in the privacy of their own home. In the quarter, approximately 99% of total GeneSight orders were made through our unified ordering portal. We are excited about the continued success of GeneSight and new initiatives that are making ordering the test and receiving results increasingly simple. We will talk more about these capabilities and initiatives at our Investor Day next week. Shifting to our women's health business, last year we enhanced our MyRisk hereditary cancer test with risk score for all ancestries. the first and only personalized five-year and lifetime breast cancer risk assessment for all women. Since launching this test, we have helped tens of thousands of women from non-European backgrounds get the information they need to effectively manage their risk of developing breast cancer. With traditional germline testing, only 5% of patients will test positive for a pathogenic mutation in one of the breast cancer genes. The remaining 95% will be left with an unclear residual risk. Risk Score gives those women and their doctors a personalized risk assessment that allows them to plan for more aggressive surveillance or surgical interventions that can prevent disease and help them live longer, healthier lives. In the second quarter, our women's health business reported 70.1 million in revenue, a 4% increase year over year. Reported test volumes were roughly 117,000. In our prenatal portfolio, revenue was up 13% in the quarter compared to last year. Our prenatal products allow patients to understand risk to their pregnancy sooner. Our prequel prenatal screen with Amplify technology provides results to more than 99.9% of patients. And we offer micro deletion screening on an opt-in basis, not as a default for the five common micro deletion syndromes. In addition, we continue to progress towards the launch of Firstgene, our combined non-invasive prenatal screen and carrier screen test, which is expected to be available early next year. We will talk more about First Gene at our Investor Day next week as well. Our oncology business delivered 76.1 million in revenue in the second quarter. Reported test volumes were roughly 47,000. My Choice CDX saw a strong quarter, reporting its highest volume ever, up 63% year over year. In addition, our Prolaris prostate cancer prognostic test reported its highest quarterly volume level ever as well. The PROLARIS test is designed to assess the prostate cancer aggressiveness and measures how fast prostate cancer tumors are growing. We recently launched Precise Oncology Solutions, which combines our MyRis germline cancer results, MyChoice CDX companion diagnostic test, and Precise Tumor, a tumor profiling test powered by Illumina's TSO500 technology and processed by Intermountain Precision Genomics. We're excited about the expanding partnership with Intermountain Precision Genomics, and expanding it further to offer Precise Liquid, a liquid biopsy therapy selection tool in 2023. With these new solutions, Myriad Genetics is advancing precision oncology by merging the power of FDA-approved companion diagnostics, next-gen tumor sequencing, and best-in-class germline testing services. We will talk more about Precise Liquid along with our plans to develop a minimal residual disease MRD product for our pharma partners in 2023. but we simultaneously gather clinical validation needed for commercial MRD product as well. Lastly, we are excited to have recently been selected to join UnitedHealthcare's Preferred Laboratory Network. This network recognizes lab partners that have met higher standards for access, cost, data, quality, and service. At Myriad, our team is committed to delivering on our patients, our providers, and our payer partners every day. We're delighted to have been recognized with this designation. I would now like to turn the call over to Brian to discuss our Q2 financial results in more detail.
spk04: Thank you, Nicole. I would like to start by reviewing our revenue by product. Total revenue in the second quarter of 2022 was $179.3 million, an increase of 7% year over year and 9% sequentially after excluding divested businesses. Total revenue was adversely impacted by approximately $2 million in the quarter and $3 million year to date, as a result of foreign exchange rate differences compared to rates during 2021, which represents a headwind of approximately 100 basis points to these growth rates. Hereditary cancer revenue in the second quarter was $79.4 million, a decrease of 8% compared to the second quarter of last year, with quarterly volumes decreasing 4% year over year. This compared to the first quarter of 2022, when hereditary cancer quarterly revenue decreased 7% year over year, and quarterly volumes decreased 12% year-over-year shows relative stabilization in our hereditary cancer testing business. Further evidence of this can be seen in our sequential growth of 12% in Q2 compared to last quarter with sequential volume growth of 7%. Prenatal revenue in the quarter increased 13% year-over-year and 4% sequentially, with ASP increasing approximately 17% as compared to the prior year. Improvements in ASP reflect the benefit of investments made in our revenue cycle management plan and the incredible performance of our revenue cycle team. In oncology, tumor profiling revenue increased 11% compared to the same period in the prior year and increased 3% sequentially. Contributing to that growth, both Prolaris and MyChoiceCDX exited the second quarter with their highest reported quarterly volume levels to date. Pharmacogenomic testing in mental health delivered first quarter revenue of $33.1 million, an increase of 46% year over year, and 13% sequentially. Gene site volumes in the second quarter of approximately 95,000 set the record for the test's highest quarterly volumes. We are updating our fiscal year 2022 financial guidance. While we reiterate our revenue and gross margin guidance for the year, we are increasing our operating expense guidance by approximately $20 million. As a result of current market conditions, this quarter, we decided to start making opportunistic incremental investments in research and development technology and our sales and marketing programs in an effort to access market share and support various growth initiatives. An example of this investment being our integration project with Epic to integrate our full line of genetic testing solutions with Epic's expansive network of 600,000 physicians and more than 250 million patients. We believe this partnership bolsters our growth plans of scaling patient-centric tech-enabled commercial capabilities with over 600 electronic health record integrations this year. Inclusive of this additional operating expense, our updated fiscal year 2022 total operating expense guidance reflects a 6% to 8% year-over-year increase in fiscal year 2021 total operating expenses, excluding divested businesses. This remains in line with current inflationary trends and demonstrate strong cost management even as the company invests in our growth and innovation programs. Looking at our revenue profile for the remainder of the year, we expect the third quarter to reflect typical seasonal declines in volume from the second quarter due to summer holidays. As in previous years, we expect the fourth quarter of this year to be our seasonally strongest quarter. We ended the quarter with approximately $284 million in cash, cash equivalents, and investments. as compared to $339 million at the beginning of the quarter. This decrease of approximately $56 million was primarily driven by a payment of $48 million in connection with the settlement of the Ketam lawsuit filed in 2016. Moving forward, we continue to focus on cost management while we're working to return to positive free cash flow generation. Our cash balance, along with having no debt and access to the capital markets, provides us with a strong capital position. As we enter 2023, we expect to be profitable and generating positive cash flow from operations on an adjusted basis. As we continue to execute our strategic transformation and growth plan, we believe we are positioned to be a high growth, profitable, free cash flow generating leader in precision medicine, delivering important medical information to healthcare providers to improve patient care. I'll now turn it back over to Paul for closing remarks.
spk03: Thanks, Brian. We are pleased with the progress we made this quarter in a tough operating environment. Lastly, we'd like to reiterate that we will be hosting an investor day next week on August 11th to give an update on the company's progress on our new commercial strategy, our plans for the labs of the future, our new technology tools, and our research and development product pipeline. We know our sector is facing significant market pressure and that some of our competitors are struggling to deploy financially sustainable, value proposition, and growth model. While our transformation is still underway, I'd like to emphasize that our scientific, technological, and commercial platforms are built upon a sustainable and solid financial foundation. We are continuing to take concrete steps to make our platform scalable, including investments in technology, marketing capabilities, and remote selling. And we are excited to bring new products like First Gene, Precise Liquid and MRD to market on our platform over the next few years. We are confident that this sets Myriad apart from its peers and puts the company on a trajectory for innovation, growth, and shareholder value creation. As mentioned on the call today, we will be hosting an investor day next week in New York City on August 11th at the NASDAQ market site, with presentations taking place from 10 a.m. to 12 p.m. Eastern. We are excited to have our speakers, including Dale Muzzy, our Chief Science Officer, to speak about our upcoming product launches and enhancements. Kevin Haas, our Chief Technology Officer, will speak about the technology enablement and other projects we have been working on. Nicole Lambert, our Chief Operating Officer, will speak about our new lab of the future and our more customer-focused operations. And Mark Verratti, our Chief Commercial Officer, We'll talk about replicating our commercial success with Genesight across the rest of the business. Ryan Rigsby, our Chief Financial Officer, will give more color and transparency into our financial performance and our short-term and long-term guidance. All of these things and much more to come next week, and we look forward to seeing you all there. Finally, our focus and goal will continue to be to accelerate growth during the remainder of this year going into 2023. as we also invest for the future, elevate our products to their full potential, and introduce new innovative offerings. We look forward to a bright future ahead for Mira Genetics as we continue to work to better serve our patients and customers and deliver sustainable growth and profitability for our shareholders. I'll now turn it back to Foster for the Q&A.
spk05: Thanks, Paul. As a reminder, during today's call, these certain non-GAAP financial measures or reconciliation of the GAAP to non-GAAP financial results and financial guidance can be found under the investor relations section of our website. Now we're ready to begin our Q&A session. To ensure broad participation, we're asking that everyone just ask one question and one follow-up. Operator, we are now ready for our Q&A.
spk02: And the first question comes from the line of Dan Brennan. with Cowan and as a reminder to register for a question press the one followed by the four on your telephone keypad right now you will hear a three-tone prompt to acknowledge your request and one moment please for the first question and the first question is from the line of Dan Brennan please proceed with your question hey Dan hey good afternoon this is this is Kyle on for Dan how's it going thanks for taking the question
spk07: I want to start with Genesight, if we could. Could you provide any more color on what your expectations are for the impact of the PRIME study on Genesight volumes and maybe attach to that, what percentage of the addressable Genesight opportunity today isn't really accessible now due to reimbursement limitations?
spk03: We think the PRIME study was a very positive development, particularly given it was published in JAMA and a very highly respected piece. The initial feedback has been quite positive. As we said at the time of the announcement, we think that this really enables us to sustain the trajectory of the growth as we look to expand coverage and get more adopters both on the healthcare practitioner and psychiatric side. You know, one physician we talked to sort of said it best. We think that the treatments that we do to reduce symptoms or speed of recovery are measured in days. And gene size helps to do that measured in weeks and months. And so that's really what this is all about is improving access to something that helps get patients on the right medication to reduce symptoms. their symptoms and get people, you know, back to productive lives. So we've seen great adoption and, you know, again, while it's early innings, most of the feedback we've gotten is pretty positive from the clinician and healthcare practitioner community.
spk07: Great. Thank you. And then just on the OPEX side, you know,
spk04: um can you just uh you know what exactly are you seeing is the best opportunity in the market for opportunistic investments and you know what could this mean for the growth trajectory over sort of the next 12 to 18 months thank you yeah thanks kyle i i think in terms of the operating expense investments um that we've made and and plan to make in going forward i think um you know we we believe there's been you know as you've seen quite a bit of disruption in the marketplace And as we noted in our commentary, we believe there's the opportunity to retake market share and really position the business for growth in 2023 and beyond. And so as we look at things like sales and marketing, investments in technology, You know, those are the incremental things that I think are going to really support growth in the coming period. And we just felt like, you know, now is a great time and a great opportunity to put a little capital behind that in order to really drive growth in the upcoming year.
spk03: Yeah, and I'll just add, we began to make those investments this quarter. First, because we saw that we were getting traction on these investments and the marketplace was reacting well to them. As we'll speak more later, in more detail at our investor day, these are still large, under-penetrated markets. But what we also feel is that the competitive landscape has been leveled at the same time that we've been improving the quality of our products, expanding jeans for my risk, and improving the ease of use. So we've been on a path the last 18 months to, quite frankly, manage costs better so we can reinvest growth and this is just a continuation of that but an acceleration of some of the commercial investments that we've made in gene site that we think will prove successful in our other businesses and to get behind the launch of precise liquid and accelerate the potential launch hopefully next year of MRD for research and that quickly to be followed with MRD for commercial use so We're pretty bullish, and ultimately, we hope that this pushes us to the high end of our long-term growth range of 9% to 12% to 12% and beyond.
spk07: Great. Thank you so much.
spk02: And the next question comes from the line of Derek DeBrun with Bank of America. Please proceed with your question.
spk06: Hey guys, this is Nisar Ghan for Derek. It's Nisar Ghan for Derek. So I wanted to start off. So two straight quarters of sales beats. You guys reiterated the guidance here again on the top line. Are you expecting some sort of headwinds in the back half here or is it just the kind of seasonality again?
spk03: I mean, a third quarter is always seasonally slow. And, you know, we continue to see the ups and downs of COVID in terms of restrictions in offices. You know, we're getting better just like everybody on adjusting to what is the new normal. Again, the rollout of our digital tools and portals, we'll be rolling out the portal for women's health in the third quarter. You know, all of that won't materialize in terms of use as we train people into the fourth quarter. These are all the things to sort of try to take that volatility out of access in terms of physician offices. But, you know, again, this is the final year of our transformation of putting these capabilities in place. And this summer we're retraining sales forces and redeploying our efforts. And so it's really about, as Brian talked about, you know, really picking up steam in the fourth quarter, which are usually our strongest, going into 2023 and 24, where we expect, again, to drive growth to the higher end of our long-term guidance.
spk06: Got it. That makes sense. And then just one more quick one. Were there any benefits from catch-up payments in the quarter?
spk04: Yeah, that was in our slide deck. It was 11.7 million in the quarter, and that compared with 13.3 in the prior year, same quarter. So it was down, and then it was down from the first quarter as well, where I think we had 12.4.
spk06: Great. Thank you.
spk04: You're welcome.
spk02: And the next question is from the line of Jack Meehan with Nefron Research. Please proceed with your question.
spk01: Thank you. Good afternoon. So, on GeneSight and the PrimeCare study, I know you guys are excited about the results, but some of the leading KOLs have voiced their opinion, which is given the lack of blinding, the remission benefit may have been driven entirely by the placebo effect. I'd be curious to get your take or response to that.
spk03: We disagree with you, Jack, on that point. And, you know, we'll be in a position to spend a lot more time at that on our investor day next week. That is not how the folks that we've been talking to have responded to that, and be happy to get into that in more detail next week. But we met the two primary endpoints, and we think it's just part of an increasing body of evidence to support GeneSight and the clinical utility. And most importantly, clinicians are embracing GeneSight because it's helping manage patients. It's helping reduce medication errors, getting people on the right treatment. And so we're continuing to do more clinical validation work, both retrospective tests and future tests. But we think this result of an independent 2,000-person VA-led, unfunded-by-us study is incredibly supportive of the gene site value proposition and the general response has been quite positive. Again, happy to get into it in more detail with our scientific crew next week at our investor day.
spk01: Looking forward to it. And then on hereditary cancer testing, was curious to get your thoughts on the Medicare coding. So it looks like there might be some transition that's going to take place. Could you just walk us through the timing on that and, you know, within guidance, what you're assuming in terms of a potential financial impact?
spk04: Yeah. And Jack, well, I think first of all, the, the transition, the coding transition is, has sort of been well-known. I mean, that process started last year, and so we built that into our guidance for the current year. I think it's something that's been well-known by us. The other thing that I think is important for most to note is that over time, a lot of the ordering clinicians have moved to the CDX test. which is unaffected, so that will still utilize the same coding as the same 81162 code. So, again, it's contemplated. It was contemplated in our guide at the beginning of the year and still is contemplated.
spk03: Jackson, that's the same question and the same answer we gave you last time you asked, so I'm not sure if you're expecting a different answer.
spk01: Well, the announcement only came out at the end of May, so this is fairly new. Do you know when it goes effective with Neridian for Utah?
spk04: I'll have to get the specific date for you on that, Jack.
spk03: We'll follow up at our investor day with that specific question, Jack. Okay. Thank you.
spk02: You're welcome. And there are no further questions at this time.
spk03: Well, great. We want to thank you guys all for participating today. And again, we are really pleased about the progress in the quarter. You know, we are still in our transformation journey. and are excited about the continued progress, hopefully in the back half of this year, and mostly the trajectory going into 23. So thank you all for your time today, and we look forward to seeing many of you at our Investor Day next week. Foster?
spk05: And lastly, a replay of this call will be available via webcast on our website for one week following the call. Thank you. Thank you. Thanks, everyone.
spk02: That does conclude today's conference. We thank you for your participation and ask that you please disconnect your line.
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