Myriad Genetics, Inc. (NASDAQ:MYGN) Q2 2023 Earnings Call Transcript
Myriad Genetics, Inc. (NASDAQ:MYGN) Q2 2023 Earnings Call Transcript August 3, 2023
Operator: Greetings, and welcome to the Myriad Genetics Second Quarter 2023 Financial Earnings Call [Operator Instructions]. As a reminder, this conference is being recorded Thursday, August 3, 2023. I'd now like to turn the call over to Matt Scalo, Senior Vice President, Investor Relations. Please go ahead, sir.
Matt Scalo: Thanks, Dave. And good afternoon, and welcome to the Myriad Genetics second quarter 202030 earnings call. During the call, we will review the financial results we released today and afterwards, we will host a question-and-answer session. Our quarterly earnings release was issued this afternoon on Form 8-K and can be found on our Web site at investor.myriad.com. On the call with me today are Paul Diaz, our President and Chief Executive Officer; Bryan Riggsbee, our Chief Financial Officer; Nicole Lambert, our Chief Operating Officer; and Mark Verratti, our Chief Commercial Officer. This call can be heard live via webcast at investor.myriad.com and a recording will be archived in the Investors section of our Web site, along with this slide presentation.
Please note that some of the information presented today contains 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 to the documents that 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 projections or forward-looking statements.
With that, I will now turn the call over to Paul.
Paul Diaz: Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss highlights from the second quarter and provide an update on the progress we are making towards profitability in the fourth quarter of this year and sustainable growth and profitability in 2024 and beyond. Before we begin, I'd like to announce that we will be hosting an Investor Day on September 19th with a presentation and tour of our new state-of-the-art facility in San Francisco, named Dr. Walter Gilbert Innovation Center after the Noble Laureate and co-founder of Myriad Genetics. An invite will be sent out and registration details for this event will be posted to the Investor page of our Web site soon. Transitioning to the quarter, I first want to thank our Myriad teammates and our provider partners for their continued support and commitment to advancing our mission and vision to making genetic testing and precision medicine more accessible and helping people take more control of their health, enabling providers to better treat and prevent disease.
Total revenue grew 10% year-over-year after excluding an out-of-period adjustment of approximately $12 million of revenue in Q2 of last year, our third consecutive quarter of double digit top line growth. This growth was despite payer related headwinds in the quarter that are transitory and administrative in nature, which have largely been addressed in future periods. Bryan will discuss this in more detail shortly. Myriad Genetics drove significant volume growth in the second quarter across all of our products as our commercial and lab operations teams continue to execute in these underpenetrated markets. We believe we are gaining share in the hereditary cancer testing market each quarter, growing 20% in Q2 over the period of the quarter last year, driven by competitive account wins and increased adoption by providers of myRisk for patients whose family history puts them at a higher risk of cancer.
Despite payer headwinds in a difficult operating environment, second quarter saw Myriad maintain industry leading gross margins and reduced operating costs by $11 million for the first quarter, all while improving on our operating key metrics, which Nicole will address on the call, and exiting the quarter having generated $5.9 million of adjusted operating cash flow and significantly lowered our cash burn. In the quarter, we closed on a new $90 million asset based credit facility to replace our expiring line of credit and maintain a healthy level of financial flexibility. I'm also pleased to announce that we reached the settlement subject to court approval with a long-standing shareholder lawsuit and can now move forward without this distraction.
Bryan will speak to the details of both the new facility and the settlement later. Lastly, I want to reaffirm our financial guidance for the full year and reiterate we are on track to be profitable in the fourth quarter of this year. Transitioning to Slide 5. I'd like to outline again exactly what we think it takes to win in our sector. First, we strive to have the best science and products whose access and adoption are enabled by technology in our field. For us, this means having products that deliver value in real world clinical settings, to high quality actionable and differentiated tests, that helps support early detection and treatment decisions. Second, we need to continue to automate, scale and build cost effective lab operations to deliver on our mission and grow profitably.
Our Labs of the Future strategy allows us to improve workflows, test turnaround time and reduce costs through advanced technology and automation. Similarly, the investments we are making to modernize our IT platform will allow us to better serve our patients and provider partners at scale across all products and channels at lower costs. Third, a strong commercial platform ensures that our providers and patients benefit from partnering with Myriad Genetics so we can grow efficiently. And finally, to win, one needs best-in-class regulatory and revenue cycle management capabilities. Great science used to develop practical high quality diagnostic tests, operating in state-of-the-art facilities that reduce costs with the ability to get paid for our efforts is key.
Our payer markets team with deep industry experience continues to play an integral role in this and the development of our product pipeline as well as our commercial reimbursement strategies. We see this as a competitive advantage. With that, I'll turn the call over to our Chief Commercial Officer, Mark Verratti, to speak to our commercial capabilities in more detail.
Mark Verratti: Thanks, Paul, I'd like to start on Slide 7 and talk about our commercial team. We have made great strides in our commercial execution over the past year with changes made across the organization that enabled our sales force to effectively target and penetrate both new and existing accounts. The results speak for themselves with robust volume growth over the past four quarters. The majority of which are coming from existing accounts. This gives us confidence in the changes that we've made to the commercial team because growth in existing accounts means that tailwinds like market dislocation have to date not been the key drivers of our commercial performance. With that said, dislocation in select markets that Myriad operates in is starting to get noticed by our providers as peers in our industry struggle with everything from lengthening turnaround times to decreasing quality of service.
A true driver of our volume growth is our skilled and focused sales force with years of experience in Myriad working alongside providers and their patients equipped with new digital tools, scientific insights that help them better serve our current customers while adding new accounts every quarter. We'll now turn to Slide 8, and talk about our core business units. Our oncology business delivered $80.7 million in revenue in the second quarter. Reported test volumes were roughly 52,000. Hereditary cancer testing volumes from our oncology sales team grew 18% year-over-year after growing 16% in the first quarter of the year. Prolaris, our market leading prostate cancer 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, Prolaris 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 response for individuals with metastatic renal cell carcinoma. There is a significant lack of noninvasive testing platforms for this patient group. And while most MRD test 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 9. 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 onus continues to have a lasting effect on patients and their families in the US as those suffering failed 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 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 multiphase study designed to better understand GeneSight's ability to improve clinical outcomes and reduce overall health care 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.
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Nicole Lambert: 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 move 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 time 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, where over 86% of our employees voted us a great place to work. Our Net Promoter Score among providers remain 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 to life 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 BRACAnalysis 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 myRisk hereditary cancer test. Our EMR integrations with the likes of Epic and others not only help us get patient medical records from providers that 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 test 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 Bryan to discuss financial highlights in the quarter.
Bryan Riggsbee: 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 GeneSight volumes at 23% in the second quarter. Prolaris saw 13% quarterly volume growth from Q2 of last year and prenatal volumes, excluding contributions from SneakPeek 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 Blue’s 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 system issues mostly returned 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 the 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 cost 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 facilities 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, JPMorgan, Wells Fargo and Bank of America is now available to us.
As of June 30th, our accounts receivable balance allowed 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 set -- we have agreed to settle a shareholder lawsuit subject to court approval related to a number of alleged misrepresentation and disclosure items from 2019 and 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's 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.
Paul Diaz: Thanks, Bryan. As you've heard, we've had a lot of exciting organizational changes happen this year, but we remain focused and confident in reaching profitability in the fourth quarter. Balancing growth and innovation while keeping an eye on profitability is an ongoing challenge and opportunity, but we are continuing to be committed to it. In closing, I'd like to offer what we believe are our strength and strategic advantages. First, we continue to grow volumes and revenues consistently every quarter across our businesses, and we get paid for the tests that we offer. Second, we have a disciplined cost management structure as we expect to maintain our strong gross margins and manage our OpEx as we did this quarter, responsibly.
Third, we are committed to effective capital deployment in key areas that will improve the customer experience, including new tech enabled tools and capabilities, product innovation, our commercial capabilities and our lab to the future. Fourth and finally, our growth catalysts are clear as we continue to elevate our products to their full potential, launch new products and opportunistically look for strategic tuck-in acquisitions. All of this reinforcing our position as a trusted, differentiated lab with specialized expertise, best-in-class quality, a strong, scalable commercial engine underpinned by data, research and technology with industry leading margins and business management. Keeping patients and providers at the center of everything we do is starting to pay dividends and we are excited about finding new ways to make it easier to do business with us.
Everything from increased price transparency and affordability for patients to the rollout of initiatives like our EMR integrations with Epic and our unified ordering portal, along with improvements to Myriad Complete, our customized suite of services and workflow solutions. And now I'll turn it back to Matt for Q&A.
Matt Scalo: Thanks, Paul. And as a reminder, during today's call, we used certain non-GAAP financial measures. A reconciliation of the GAAP to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found in our earning release and under the Investor Relation section of our Web site. Now we are ready to begin our Q&A session. To ensure broad participation, we're 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.
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