Myriad Genetics, Inc. (NASDAQ:MYGN) Q2 2022 Earnings Conference Call August 4, 2022 4:30 PM ET
Foster Harris - IR
Paul Diaz - CEO, President & Director
Nicole Lambert - COO
Bryan Riggsbee - EVP, CFO & Treasurer
Conference Call Participants
Kyle Boucher - Cowen and Company
Jack Meehan - Nephron Research
Greetings, and welcome to the Myriad Genetics Second Quarter 2022 Financial Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded today, Thursday, August 4, 2022.
I would now like to turn the conference over to Foster Harris. Please go ahead.
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 8-K and can be found on our website at investor.myriad.com. I'm Foster Harris, Senior Associate of Investor Relations. On the call with me today are Paul Diaz, our President and Chief Executive Officer; Bryan Riggsbee, our Chief Financial Officer; and Nicole Lambert, our Chief Operating 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 website, along with this slide 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.
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 health care provider partners and their patients for their continued trust and confidence in us. And as '22 remains an exciting year for Myriad 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 6 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 operation standpoint. GeneSight, Prolaris and myChoice CDx saw their highest quarterly volumes ever this quarter. And our Hereditary Cancer business is beginning to stabilize. And our prenatal business saw a 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 $0.04 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 3 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.
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 failed 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 PRIME Care 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 PRIME Care 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 reported $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 RiskScore for all ancestries, the first and only personalized 5-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 1 of the breast cancer genes. The remaining 95% will be left with an unclear residual risk. RiskScore 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 microdeletions screening on an opt-in basis, not as a default, for the 5 common microdeletion syndromes. In addition, we continue to progress towards the launch of FirstGene, our combined noninvasive prenatal screen and carrier screen test, which is expected to be available early next year. We will talk more about FirstGene 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. myChoice 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 prostate test -- 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 myRisk germline cancer results, myChoice CDx companion diagnostic test and Precise Tumor, a tumor profiling test powered by Illumina's TSO 500 technology and processed by Intermountain Precision Genomics. We are 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, while 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 are delighted to have been recognized with this designation.
I would now like to turn the call over to Bryan to discuss our Q2 financial results in more detail.
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 at 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 myChoice CDx exited the second quarter with their highest reported quarterly volume levels to date.
Pharmacogenomic testing and Mental Health delivered first quarter revenue of $33.1 million, an increase of 46% year-over-year and 13% sequentially. GeneSight 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, the 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 qui tam 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 flow -- our cash balance, along with having no debt and access to 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 growth -- 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 health care providers to improve patient care.
I'll now turn it back over to Paul for closing remarks.
Thanks, Bryan. 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 11, 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 on 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 FirstGene, 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 11 at the NASDAQ market site, with presentations taking place from 10:00 a.m. to 12:00 p.m. Eastern. We are excited to have our speakers, including Dale Muzzey, our Chief Science Officer, to speak about our upcoming product launches and enhancements. Kevin Hass, 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, will talk about replicating our commercial success with GeneSight across the rest of the business. Bryan Riggsbee, 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 through 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 Myriad 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.
Thanks, Paul. As a reminder, during today's call, we use certain non-GAAP financial measures. A 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. [Operator Instructions]. Operator, we are now ready for our Q&A.
[Operator Instructions]. And the first question is from the line of Dan Brennan.
This is Kyle on for Dan. How's it going? 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 attached to that, what percentage of the addressable GeneSight opportunity today isn't really accessible now due to reimbursement limitations?
Well, we think the PRIME study was a very positive development, particularly given it was published in JAMA in 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 health care practitioner and psychiatric side.
One physician we talked to sort of said it best. We think that the treatments that we do to reduce symptoms, where speed of recovery are measured in days, and GeneSight helps to do that measured in weeks and months. And so that's really what this is all about is improving access is something that helps get patients on the right medication to reduce their symptoms and get people back to productive lives. So we've seen great adoption. And again, while it's early innings, most of the feedback we've gotten is pretty positive from the clinician and health care practitioner community.
Great. And then just on the OpEx side, you raised total OpEx guidance for 2022. Can you just -- what exactly are you seeing is the best opportunity in the market for opportunistic investments? And what could this mean for the growth trajectory over sort of the next 12 to 18 months?
Yes. Thanks, Kyle. I think in terms of the operating expense investments that we've made and plan to make going forward, I think -- we believe there's been, 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, those are the incremental things that are -- I think, are going to really support growth in the coming period. And we just felt like 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.
Yes. 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 -- in more detail at our Investor Day, these are still large, underpenetrated 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 genes from myRisk 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 in growth. And this is just a continuation of that, but an acceleration of some of the commercial investments that we've made in GeneSight 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.
And the next question comes from the line of Derik De Bruin with Bank of America.
This is [indiscernible] for Derik. I wanted to start -- to start off, so 2 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?
But 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 Bryan talked about, really picking up steam in the fourth quarter, which is usually our strongest, going into 2023 and '24, where we expect, again, to drive growth to the higher end of our long-term guidance.
Got it. That makes sense. And then just one more quick one. Were there any benefits from catch-up payments in the quarter?
Yes, that was in our slide deck. It was $11.7 million in the quarter, and that compared with $13.3 million 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 million.
And the next question is from the line of Jack Meehan with Nephron Research.
So on GeneSight and the PRIME Care 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.
We disagree with you, Jack, on that point. And we'll be in a position to spend a lot more time at that at 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 2 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. It's 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 GeneSight 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.
Looking forward to it. And then on Hereditary Cancer testing, I 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 within guidance, what you're assuming in terms of a potential financial impact?
Yes. And Jack, well, I think, first of all, the transition -- the coding transition is sort of been well known. I mean that process started last year. And so we had built that into our guidance for the current year. And I think it's something that's been well known by us.
The other thing that I think is important from us to note is that over time, a lot of the ordering clinicians have moved to the CDx test, which is unaffected. So there is no -- that will still utilize the same coding as the same 81162 code. So again, it's contemplated -- it was contemplated in our guidance at the beginning of the year and still is contemplated.
Jack, that's the same question, the same answer we gave you last time you asked. So I'm not sure if you're expecting a different answer.
Well, the announcement only came out at the end of May. So this is fairly new. Do you know when it goes effective with Noridian for Utah?
I'll have to get the specific date for you on that, Jack.
We'll follow up at our Investor Day with that specific question, Jack.
And there are no further questions at this time.
Well, great. We want to thank you guys all for participating today. And again, we are really pleased about the progress in the quarter. 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?
And lastly, a replay of this call will be available via webcast on our website for 1 week following the call. Thank you.
That does conclude today's conference. We thank you for your participation and ask that you please disconnect your line.