Myriad Genetics, Inc.

test continues to reach patients with diagnosed prostate cancer to provide them and their physicians with important information needed for better treatment decisions. In the second quarter, Polaris volumes grew 13% year over year. Myriad is making strides with precise MRD as we are working with researchers at the MD Anderson Cancer Center using our high-definition MRD testing platform to inform treatment selection, surveillance, and respond for individuals with metastatic renal cell carcinoma. There is a significant lack of non-invasive testing platforms for this patient group, and while most MRD tests monitor 50 or fewer variants from a patient's tumor, Myriad's MRD assay can track thousands of variants using our whole genome approach for higher sensitivity. With improved operational efficiencies paying dividends, a high net promoter score amongst oncology providers, and a fully equipped sales force, we anticipate continued strong growth from our core oncology tests. We'll now move to women's health on slide nine. The Myriad Genetics women's health business serves women of all ancestries by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family. In the quarter, hereditary cancer testing volumes in women's health increased 21% year over year. marking four consecutive quarters of positive volume growth. This strong momentum is driven by competitive account wins and increased adoption by providers of MyRisk for patients whose family history puts them at higher risk for cancer. In prenatal, we are pleased to report a 12% increase in quarterly test volumes compared to Q2 of last year. This figure excludes any contributions from our recent acquisition, Gateway Genomics. Also in the quarter, we are proud to announce that we have reached over 1 million patients who have taken our prequel non-invasive prenatal screening test. Let's move now to slide 10 and talk about mental health and GeneSight. Mental illness continues to have a lasting effect on patients and their families in the US as those suffering fail to receive proper medical treatment. GeneSight helps physicians better understand how antidepressants and other drugs will affect their patients. Importantly for this patient group, the test can be performed with a single cheek swab sample that can be taken in the privacy of their own home. In the second quarter, Genesight broke another all-time quarterly volume record with 117,000 tests processed in Q2, up 23% over the prior year, as we have added approximately 4,000 new clinicians to the franchise during the quarter. Myriad continues to build on Genesight's solid foundation of clinical data, including a collaboration with Optum Genomics to create a multi-phase study designed to better understand GeneSight's ability to improve clinical outcomes and reduce overall healthcare costs. We believe that the ongoing success of GeneSight further demonstrates the effectiveness of our new commercial capabilities, digital marketing strategies, and focus on the patient and the provider. I'll now pass the call over to our Chief Operating Officer, Nicole Lambert, to talk about our operations.

Thanks, Mark. I'll begin on slide 12 and give an update on our laboratory operations team. Thanks to our commercial customer service and laboratory operations teams, we grew volumes over 17% and reduced COGS by 6% in the quarter, despite a challenging operating environment. Our lab operations team has shown tremendous resilience against these challenges, including a complex upgrade to our genetic sequencing platform, a successful FDA inspection of our Salt Lake City lab, and the beginning of our lab moves in Salt Lake City and South San Francisco. After some technical challenges in our MyRisk lab in early Q2 that impacted our turnaround times, our average lab turnaround times across the enterprise have returned to approximately 5.5 days. Turnover is also down to 9.6%, half of what it was in 2021, and our employee engagement scores are up to 61%. We announced last quarter that we are a certified great place to work. 86% of our employees voted us a great place to work. Our net promoter score among providers remains strong, between 63% and 84%. We also announced in Q1 that we have started sharing data with ClinVar. Providers and genetic counselors have been quite vocal about the importance of working with ClinVar, and 81% of the providers that were asked are aware of our partnership, with 13% saying they now have a more favorable view of Myriad. We encourage providers and counselors alike to share their thoughts and opinions with us because we are listening and we want to hear their feedback. Turning to the next slide, we have begun our transition to our new labs of the future, both in Salt Lake City and South San Francisco, which will be unveiled at our Investor Day on September 19th. In July of this year, the FDA conducted an inspection of our Salt Lake City laboratory, which focused on the quality systems related to MyChoice CDX and BRCAnalysis CDX. We're excited to report that the inspection was successful with no deficiencies. Our new facilities not only create a more cost-effective approach to running tests, but they foster an environment of innovation and collaboration amongst our commercial and enterprise support and our scientific teams. Our operating expenses and capital expenditures as they relate to the labs of the future are expected to decline over the next few years as we start to settle in and operate our businesses from those new facilities. I'll now turn to slide 14, and talk about the progress of our EMR integrations and our unified order management system. Here we can see the tremendous progress that we have made working with clinics using EMR integrations to deliver more test results for our MI-RISC hereditary cancer test. Our EMR integrations with the likes of Epic and others not only help us get patient medical records from providers, but it also means that providers who are already in those EMR systems do not have to provide those documents to us in addition to their normal workflow. We are pleased with the ongoing rollout of our new unified provider portal and our unified order management system, which not only help us get the information required by payers, but make it easier for providers to order tests from us, reducing the number of times we need to recontact them. We talk a lot about making it easier to do business with Myriad Genetics, and our operational initiatives revolve around improving the customer experience. EMR integrations and unified order management are examples of how we are doing exactly that. I'll now turn the call over to Brian to discuss financial highlights from the quarter.

Thanks, Nicole. I'd like to start by reviewing product volume trends on slide 16. Total second quarter organic volumes grew 17% over last year, representing four consecutive quarters of double-digit volume growth for the business, driven by strong double-digit growth in both hereditary cancer testing at 20% and gene site volumes at 23% in the second quarter. Prolera saw 13% quarterly volume growth from Q2 of last year, and prenatal volumes excluding contributions from sneak peak grew 12% year-over-year. Overall, the quarter reflected broad-based volume growth across the portfolio. Turning to total revenue on slide 17, recall that the second quarter of last year benefited from approximately $12 million in positive out-of-period adjustments, which were immaterial in the second quarter of this year. Excluding these adjustments, revenue in the second quarter of $183.5 million grew 10% year-over-year, marking a third consecutive quarter of double-digit revenue growth, a reflection of consistent volume growth and execution of our commercial strategy. Consistent with others in our industry, during the second quarter, we experienced a negative impact to our rev cycle process from the transition of multiple Blues health plans to a new claims administrative process. The process changes left many health plans unprepared to handle the sometimes complicated preauthorization process, leaving providers unable to obtain the necessary preauthorization required to support testing for patients as well as reimbursement. This administrator transition resulted in a headwind of approximately $4 million in the quarter. As of today, we have seen these systems issues mostly return to normal. However, there was some spillover into Q3. With respect to the claims which were denied payment and not included in second quarter revenue, we are engaging with a number of large payers to discuss payment for claims that we believe should have been paid and would have historically been paid. However, at this point, we do not have enough support to record revenue for those claims. Despite these payer issues, average revenue per test in the second quarter was flat sequentially from the first quarter of 2023. I'll now turn to slide 18 and discuss operating trends from the quarter and year to date. Healthy growth across our business units reflects comments Paul, Mark, and Nicole have already mentioned, including improved execution by a strengthened and highly motivated commercial team, as well as investments in core infrastructure and improving customer experience. Recall in Q1 we stated that adjusted operating expense would decline in the second quarter as the company implemented tighter cost controls across the organization and certain sales and marketing program costs subsided. Q2 reflects the impact of these initiatives with adjusted operating expense of $133.4 million, a decline of $11 million sequentially. Continuing to manage operating costs is an important step in our path to profitability in Q4. We'll turn to slide 19 now to review our liquidity and cash flow. We are excited to announce that we've generated $5.9 million of adjusted operating cash flow in the quarter, and looking at the balance sheet, we ended the quarter with $127.8 million of cash, including approximately $40 million drawn on our new asset-based credit facility that Paul mentioned earlier. I would like to provide some additional detail on changes to our capital structure from last quarter. As we have stated in the past, our previous revolving credit facility was set to expire in July of this year. This facility was a cash flow based revolver put in place in 2016. Leading up to the credit facility's termination, the company's lack of positive cash flow and profitability hindered our ability to use this facility. As a result, and to provide additional liquidity, the company entered into a new asset-based credit facility where cash availability is now determined by our accounts receivable balance and the size of the facility rather than by our cash flow. This new facility, which was provided by three of our banking partners, JP Morgan, Wells Fargo, and Bank of America, is now available to us. As of June 30th, our accounts receivable balance allotted us $23.5 million of additional available cash from this new facility. As you can see from our cash flow statement, we are adjusted operating cash flow positive and the capital needs for the construction of our new labs are substantially behind us. As noted in our press release today, we have agreed to settle a shareholder lawsuit subject to court approval related to a number of alleged misrepresentation and disclosure items from 2019 for a total of $77.5 million. We will pay $20 million of the settlement in cash next quarter, this quarter, leaving the remaining $57.5 million to be paid in early 2024 with either cash or equity. We expect the ultimate payment to be more weighted towards cash rather than stock. For example, if we were to pay an additional $30 million with cash, the remaining $27.5 million would then be paid in myriad stock, which assuming a $21 price per share would translate to approximately 1.3 million shares or 1.5% of total shares outstanding. Ultimately, we have allowed ourselves significant financial flexibility in how we choose to settle the final payment out of operating cash flows and available cash, but we will continue to evaluate various financing options, including the expansion of our ABL credit facility as the year progresses. Now on slide 20, Note that we are reaffirming our full-year revenue and non-GAAP financial guidance, and we reiterate our previously disclosed target of generating positive adjusted operating cash flow and profitability in the fourth quarter of this year. I'll now turn it back over to Paul for closing remarks on the next slide.