I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink, and it's my pleasure to be hosting the Team Myriad CEO Paul Diaz joining us today and, CFO Scott Leffler. Great to have you guys here.
Thank you. Thank you. Appreciate the opportunity.
Absolutely. And also, Head of Investor Relations, Matt Scalo, in the audience. All right, so let's, m aybe just to kick off, Paul, I mean, obviously, transformation effort has been going on for a while. You've worked on multiple areas, revenue cycle management being one of the key ones, trimming the products, divesting the products, just realigning the efforts. Maybe at this point, I mean, just help us understand where, things still need attention versus where you think the transformation is more complete. Yeah.
Yeah, I mean, there's always things that need attention, right? It's a nd, with FDA preparedness and moving to, you know, higher sequencing technologies in our lab of the future, and our IPG acquisition and the launch of Precise Liquid, we've got plenty of great exciting stuff going on, and we'll talk about products later. You know, most of the new strategic efforts right now are a ccelerating clinical development efforts. So we're really excited about ASCO this year, where we'll have seven presentations, you know, seven publications. And that's all in preparation for some of the new product launches that I'm sure we'll talk about.
But, you know, the organic growth that we can drive, the gross profit growth that we can drive over the next couple of years is pretty exciting, and I think the baseline has been set for that. Mark's done a great job with the commercial team. Scott's got his arms around, you know, P&L management in a better way than we've ever had. Yeah, I just feel really good about the team. Dr. George Daneker, who's, you know, heading oncology for us. Who would have thought to have a physician oncologist, you know a big health system running our oncology business? So, we feel great about the team, the processes- and really very excited about, you know, 2025 and 2026, it will accelerate growth.
Got it. On the Q1, obviously, it's a strong quarter overall. How much of that was, would you say, just overall, you know, recovering the market or, or on some of the products versus where you're taking share? I mean, and now maybe I'll tie this into the disruption question, which was disruption was ongoing there. That asset then got acquired by a reference lab, but during that time, just help us understand your ability, how much sort of your ability to take share and what's your ability to take share, because these things, not necessarily, they don't just turn over overnight, and they're a bsolutely.
I mean, there's still a long sales cycle for that and it, and it's started a couple of years ago. So, you know, when, when some and, you know, not, not just the most public, you know, bankruptcy, but, many others, you know, so there's this underlying fragmentation that's being sorted out in the market. But look, I, I would tell you that Q1 was really just execution and a nice turnaround in our rates, particularly in Q1, which is typically a soft quarter for rates.
Good execution by Sam on COGS and the team. So there was nothing in there for any major market share shifts. And as I think we talked about on the earnings call, we see a lot of opportunity in the back half of the year there, but not really in our guidance. And so I think the rest of the year and the guidance, and, you know, point to the north end of our guidance, which is what we're shooting for, is really just execution.
You know, a few moving pieces, the IPG integration the deal we announced internationally in Europe to simplify. 'Cause, you know, one of the things I've learned over many years, 36 years in healthcare, unbelievable complexity is a killer of growth and accountability. So what we have really tried to do is make sure we're more focused and, and that everybody is aligned on the value for our patients and what we can do for our, our customers.
Got it. But, you know, does it change the market outlook longer term if it's, if there isn't, you know, the acquisition by a large reference lab or a company that was going into bankruptcy?
It doesn't change our view and for the general matter, 'cause we always have maintained that, you know, the share shift will happen among a number of different companies. Labcorp and Quest, you know will get their fair share, prenatal and certainly the hereditary cancer business that they acquired from Invitae is, was a good franchise. Much of that business was ours, though, and much of that business is not enamored with large reference labs. When you talk about variant interpretation, the kind of wraparound services that are required for a hereditary cancer business, and certainly the pairing of that with Precise Tumor and Precise Liquid it's just a different experience that most customers are looking for. And so we're pretty excited about, a nd that's on the affected side.
In oncology, I think it's wide open on the unaffected side in our women's health and imaging channels and our breast cancer risk assessment program, which is getting great traction you know, for the 25 million women that meet guidelines. And so, in fact, I think Invitae emerging from bankruptcy as Invitae would have been harder to compete with, than this outcome. And I think it's gonna be a good challenge for that team that I respect a lot. Adam's a friend. How do you get the cost synergies that you need to get the burn rate under control and maintain that level of service, high touch- that these customers are, I mean, those are gonna be, that's a tough thing.
Yeah.
I'm sure they'll do a good job because they've done a great job. They integrated- one of our assets that we sold. They did a really good job with that- But we're gonna get more than our fair share here, I think.
Okay. Okay. And when, let's just, before I get into GeneSight and a couple of other questions, so, so when we look at the second half, and then maybe into 2025, as you look across the franchise today, hereditary GeneSight, prenatal and capabilities and with the carrier testing and whatnot, just overall, tell us, like, which sort of segment and tumor profiling as well, what gets you most excited, and?
Well, it's all exciting, quite frankly because we're really transformation's done. And so now it's, you know, there's still a lot of runway in hereditary cancer. We're going to ASCO tomorrow where guidelines have been expanded for hereditary cancer testing. We're seeing more opportunities for adoption for hereditary cancer testing. And again, the unaffected market's only 15% penetrate, and health systems want to talk about that- as part of their women's health program, their preventative programs. And the pairing of that with mammograms is very exciting, s o what we've learned in our SimonMed and LifePoint Hospital and we're hoping to do more of this with Intermountain and some other systems as well. But obviously, the pipeline, we're pretty excited about, too.
FirstGene will be a very differentiated prenatal test- and better financial characteristics as well as really solving to the patient issue of access for carrier screening, b ecause getting dad to come in for a blood draw is very difficult. And then obviously, MRD, which, you know, our highly sensitive MRD, and I know one of your colleagues wrote about this, that there, you know, there are two highly differentiated MRD assays coming to market. And I think that's gonna make a difference when people talk about, you know, disease management and and particularly withdrawing treatment.
Okay. Okay. Then switching over to GeneSight, I mean, yeah, I think it was 20% growth, sequential ASP growth in Q1 as well. Maybe just talk to us about sort of how much of that work that you've done on the revenue cycle management improvement, how much of that is gonna continue to help the ASP, and how should we think about the ASP growth through 2Q and sort of the rest of the year?
Scott, do you want to?
Well, sure. And so just taking a step back for a moment from GeneSight, I mean, we, we were thrilled with our overall- ASP performance in Q1. And outside of one kind of unusual favorable that we did cite, our ASP performance, we did view as very sustainable and throughout 2024. We knew that we had an outsized ASP opportunity coming into this year based on some headwinds that we had identified last year that we knew we could go after for normalization, in addition to realizing some of the benefits from the other investments in revenue cycle management that we've had ongoing for quite some time now. And so overall, across the portfolio, what we showed in Q1 was a 2% ASP tailwind to revenue.
But there's some mix effect in there, and when you look at the individual products, we actually saw much better than 2% improvement across the portfolio, including GeneSight. So, overall, very well positioned for 2024. For GeneSight, specifically, the same tailwinds that I was talking about for the broader portfolio are also relevant for GeneSight, where the improvement, some of it was recovery from 2023 activity and also just winning in terms of basic blocking and tackling with meeting, for example, pre-op requirements for a higher percentage of the testing that we're performing, making sure that we're actively engaged with payers across the portfolio to update where appropriate, medical policy and things like that. And so every one of these wins is a sustainable win that we think- is gonna continue to pay off throughout the year and going forward.
Just help me understand on long-term growth, how should we think about both the hereditary business and sort of GeneSight? Because those are two large buckets for you.
Long-term growth from an ASP standpoint or just in general?[crosstalk]
Just overall, top line, long-term growth rate from a revenue perspective.
Well, so I'll give a knee-jerk reaction and then [crosstalk]
Well, yeah. So again, a little lost in the marketplace for some reason. We did, you know, 9% in 2022, 11% in 2023. We started this year at 12% top-line growth. People still have us growing, you know, at 8%. And, so I'm not sure how many more quarters we're gonna have to put down at +10, and now hopefully sustainable +12 to get people to see that we're not a 6%, 8% growing company. You know, as you and I were talking about before the session here gross profit dollars, n ot just gross margin, gross profit dollars are growing. Increasingly, when I hear from buy-side folks, that's the number that they're looking for.
Because the other bottom line stuff is investment and the and a function of scale. So we're pretty pleased, if you look at our guide, how much gross profit is growing year-over-year and how that can accelerate into 2025.
Got it.
Yeah, and just adding to that, you know, I think it was in our Investor Day last year prior to my arrival, but we talked about being a double-digit revenue grower, and now it's two or three proof points since then where I think we've really delivered on that promise, and with every bit of optimism based on everything we're seeing, both Myriad specific factors, but also broader industry factors- -that indicate that, certainly that, that's something that we expect to be able to deliver to, to our stakeholders.
And to Paul's point, it's not just about revenue growth, but it's about profitable revenue growth, and we are doing it in an increasingly profitable fashion a nd the fact that Q1, which is a seasonally challenging quarter for us from a profitability standpoint, the fact that we're basically breakeven from an adjusted EPS standpoint that we delivered positive EPS and then would expect, as we get into Q2 and future quarters, the seasonal challenge falls away, and we're well positioned to continue to improve upon our profitability profile.
Got it. How would you sort of characterize the sort of competitive landscape in pharmacogenomics today and your position in the market?
Yeah, we've had, you know, another company come out with a product. You know, well, we're really excited about some of the R&D work we're doing about other indications. We're going slowly there, though, because no one's willing to pay for this. There's a lot of excitement about the opportunity for pharmacogenomics. One of the things that we're really trying to do from a product management standpoint, it's not enough to have great science. There has to be proven clinical utility that our community physicians who is able to adopt and understands how to make it part of their practice and that the payers see value in. And so, GeneSight is unique that way. We set out to get our own codes for hereditary cancer and for GeneSight, which some criticized, and there were some transition issues last year.
I acknowledge. But being able to differentiate the product with our own clinical evidence and our own codes makes for a much more sustainable profitability picture, and allows us to think about new product launches, like potentially other pharmacogenomics in that, in that commercial engine that we built there that Mark and the team have built there because that's, it's a primary care engine. So leveraging our commercial infrastructure across products, and cross-selling across our different channels through EMR and other, that's what I think the future leverage really is here. That's ultimately how we bring OpEx as a percentage of revenue down.
Now, this year, we've got a lot of accretive EMR investments and other things and again, accelerating investments in MRD. But, that's why I'm sort of really focused on that gross profit. But I know, and I think we've demonstrated the ability to manage OpEx pretty well, and so as we turn that corner, EPS acceleration will happen as well.
Got it. Okay, makes sense. I want to maybe before I get into MRD, just touch on the, you know, sort of the expanded carrier screening and prenatal market. I mean, your Foresight upgrade is expected to launch within the next quarter, or so. Remind me again?
I think the press release is going out today, actually.
Okay.
Foresight Universal Plus is being launched, and we're going to be piloting it with some customers, but it's in the bag. It's going out, It's going out the door.
Okay.
Now, that's ahead of ACOG guidelines, so we're, we've made our best, yo u know, it's really focused on ACMG, which we think will, but, there may be some fine-tuning once we know what ACOG actually does. Then, again, going back to the payers, we got to, y ou know, there's a $20 million upside on the carrier screening we're not getting paid for today.
Okay.
So you know, guideline expansion and then ultimately getting in front of the payers more quickly, and we just hired a physician, Dr. Gina Moore, OBGYN, who is VP for our strategy and our payer markets group, you know, to get in front of payers the minute those guidelines come out. So we're not waiting around for 12 months to get, you know, reimbursement. So, so that's the kind of you know, grinding that we still need to do. Gina's a great add to the team.
Yeah. And how should we think about the ASP, both on the, you know, the carrier screening side and then the overall, you know, the NIPS business itself? Because with the 22q microdeletion, if and when that comes through, how are you thinking about that? And again, you know, there are companies that have created larger sort of evidence to stack there over time and such, but it seems like it just should benefit the industry overall.
Absolutely. And, you know, the prenatal business is being consolidated among four or five players as you know. With us right there in the mix. Prequel, with Amplify, is the most sensitive test on the marketplace, and there's more data behind that than any other test.
Sure.
You know, and others may argue differently, but it's, it's just not factually true. And similarly with Foresight, we're gonna have a superior product there, too. The opportunity, though, as you said i s for this tide to lift all the boats because so many of us, all of us, are not getting paid. And so guideline expansion, it sure will increase adoption, but it it makes a stronger case for the whole industry to get paid for these tests. And again t hat should lift all the boats here.
Okay. And any sense in, you know, again, as you speak with the industry participants, and more importantly, I mean, these guideline organizations and whatnot, sort of timing with either, you know, on the ACOG front?
We are hearing that it's in sort of the secondary review. should be out in the next 60 days. That's, that's what we are hearing.
Interesting. Okay.
So, not in our guide.
Yeah.
We'll see what which genes are in there. We'll see if 22q makes it in. That is all good for the industry and for for all the players. We're trying to make sure we're prepared in the labs. We're also trying to make sure we're prepared commercially, and we're trying to make sure that our payer markets team is ready to launch.
Got it.
I mean, you know, so I'm pushing Chris. I want to see the deck, like next week, so that the minute it comes out we're in front of Aetna and United and everybody else.
Okay. Got it. Just wanted to touch briefly on the EndoPredict. I think that was divested to Eurobio Scientific recently.
Yeah, we haven't closed on it yet but we're selling EndoPredict, Eurobio. And that's moving forward. The complexity around operating in Europe in a model where we were running the lab was, was pretty difficult. But I think importantly, we've licensed back the rights for EndoPredict in the U.S. And that's a product that's underappreciated. Obviously, Oncotype has a big share of that marketplace, but it is, it is a really good test with good, real good clinical. And as we think about breast cancer, so maintaining that in our U.S. and the revenue base that we still have, and more importantly, the operating income that the U.S. business generates we didn't lose that.
Okay. That makes sense, and that's important. But as you look at-[crosstalk]
That we run as LDT still.
Okay.
Right?
Yeah.
The kit business is essentially what Eurobio is good at, they'll do a better job than we will.
I see. Okay, makes sense. And just, you know, just looking at the rest of the portfolio, are there any other, any other smaller line items that you think are still up for divestiture or any-[crosstalk]
No, I think the pruning is pretty much been completed.
Okay.
Right now, some of our ongoing efforts always to build more clinical evidence around Prolaris.
Yeah.
I mean, it's a profitable test. It's a good test. We have a great market share, you know, at biopsy, but we need to get to level one in terms of our evidence base. Then we're hoping that to signpost, you know, launch a post-RP version of Prolaris as well.
Yeah.
So again, part of our oncology franchise. That was just an underinvested assay for many, many years.
Yeah. Just shifting gears to Precise Tumor and Liquid and the Intermountain, maybe just update us on the integration there and the lab move and all that. And then more importantly, you know, sort of how are you thinking about sort of, you know, penetrating this market further or taking some share, maybe potentially? But again, you have existing larger competitors. The market has been built over the last, you know, 10 years or so.
Yeah, same commercial infrastructure. Increasingly, customers want a comprehensive set of services. This is what we hear all the time, you know. And we've been growing Precise Tumor. And the pairing of Precise Tumor with MyRisk Hereditary Cancer is pretty compelling to folks.
And then for ovarian cancer, and hopefully, as we expand MyChoice beyond ovarian to breast and prostate not having to send a tissue sample to multiple folks is part of the ease-of-use issue. So, you know, I just remind folks that the contribution margin of driving more products through the same channel, through the same sales force, and the ability to drive that through the labs and the commercial team is highly accretive. So we were able to acquire IPG full rights to Precise Tumor and Precise Liquid.
When I came into this industry four years ago, that asset would have gone for $150 million. You know, we did not pay $150 million. We absorbed some operating losses in Q1 that we blew through. Right? So, I think that kind of transaction we'll do all day long, particularly with a good partner like the Intermountain Health System, a creative, large hospital system, and, good partners to us, so.
Got it. And then, you know, MRD is obviously an important topic in the space. Very large market. You have a larger competitor there, that's been, t hey were early in the market, so they have gained traction. But growth rates are significant here. I mean, if you just look at their growth rate. So, as you position into this market, just take us a little bit through the strategy, differentiation of the product, and sort of, how are you thinking about, you know, reimbursement and commercial execution there?
Yeah. So really excited about Precise MRD. And you know, hats off to Natera for the trail that they have blazed. They've done an incredible job. You know, if it's a $30 billion market, we're gonna be really thrilled to be number two or number three in that marketplace and be a fast follower but a fast follower that has the ability to launch this in our labs with foundational IP that protects our freedom to operate and built on the Prequel platform and the MyChoice FDA-approved platform. So we know what it's going to cost to run this, and we're running it now on X Plus. And so we feel really good about the research business that we're going to be doing the back half of this year for MRD. So we're going to be. We've already, e're going to be going to ASCO and pending some deals.
And that those pharma companies are really attracted, just like Memorial Sloan Kettering and others, about a highly sensitive test, one that looks at 1,000 sites, not 16. and so we look at all those pieces. But your point on reimbursement, I've actually been surprised about Medicare moving on this as quickly as it has. I think it's going to take more clinical utility evidence base to get the larger payers because it could be incredibly disruptive for the good. But depending on your MLR as a payer, maybe not. So our product management capabilities that were nonexistent four years ago look at this holistically.
What's the market want and need from clinical utility? What payers are willing to pay for? How are we going to run it through our labs? How do we launch commercially in a cost-effective way? A nd ultimately make this part of the clinical decision tree that community oncologists will need to go through. And so we're incredibly excited about the patient opportunity here and the opportunity for Myriad shareholders.
Got it. And then maybe just for you, Scott, I mean, just, even you looking at the overall gross margin performance that you're getting and, and, now positive with the free cash flow. Maybe just take us through the sort of primary drivers for operating leverage at this point of the transformation and having divested some of the assets and, ut you still have costs. I mean, you have, you have operational costs coming from some of these expansion of the new test as well.
Yeah. So, you know, overall, we've achieved a really attractive point in terms of the overall scalability journey of the company, and haven't completely realized it because with all the progress that we've made on the Lab of the Future project, there it is still kind of in the culmination phase. And so I think that when you look at the financial profile of the company, coming out of 2024 and into 2025, then you're really at the most attractive point where the Lab of the Future transformation has largely been completed, and the scalability, the long-term scalability that you're looking for is largely there across the board.
And then as I think Paul was referencing earlier, scalability doesn't just exist down at the gross margin level but you have a ton of scalability down to the EBITDA level, where our commercial organization has gone through its own enhancements and transformation over the last several years, increasingly getting more and more productivity just from a revenue per head standpoint in the commercial organization. And so we are at a really attractive point in terms of just overall drop through to EBITDA. And you can see that, some of that reflected in our EBITDA guidance for this year, where we are guiding to attractive EBITDA profile this year, but that's going to accelerate then in 2025 and the years to come. So overall, just a really good point from a financial trajectory standpoint.
Yeah, and particularly as you add the prenatal piece that we talked about. Foresight Universal Plus.
Yeah.
You know, potential guideline expansion and the leverage that that creates. FirstGene coming behind there, so really making that women's health franchise profitable. And then, you know, really, the opportunity in pairing Precise Tumor, Precise Liquid, and MRD coming behind, right? really not having a major impact in 2026 or 2027. But the core business can get us to these growth rates this 12% growth rate that we've achieved and sustain us there. Those other things help us move beyond that organically. And so the ROIC on that is pretty significant for our shareholders.
Got it. Maybe just last in the last minute, maybe ask you a question which doesn't get usually asked about, but, when we did diligence back in the day and even, you know, recently on Myriad, you know, it takes, t here was a branding perception for Myriad, especially with certain, let's say, genetic counselors and others. Just maybe walk us through, you know, how you've engaged them, and I think you mentioned at one point you were at the genetic counselors conference as well.
I go every year.
Yeah, and, so-[crosstalk]
They're an important constituent.
Yeah. So maybe tell me a little bit about how is that turning, branding turning around?
Yeah, and again, Invitae did a really great job, Sean and his folks on, y ou know, it was more about what they were doing and the experience they were generating but basically branding us as the company that was putting profits over people, with genetic counselors and others. It wasn't just genetic counselors. In these academic medical centers, you know, the oncologists can say what they want, but genetic counselors can stop the show, and they had. And so it, you know, started with an apology tour, going back to the Supreme Court case and, and, and then the perception that were created from there, not contributing data to ClinVar. Now, we're on the other end of the spectrum. We have an open source environment.
Our registry has got a million-plus patients in it. At ASCO, we're presenting two papers based on our registry. So, and we have the same view around MRD, and we'll be talking about that, in terms of we're not going to be using IP to limit access for patients. We're certainly going to use that to protect our freedom to operate and, and, and make sure we get returns on those IP investments. But I think those are going to be important points of differentiation, and others should be careful about treading water that we did back at the Supreme Court case and stuff. So, but it's an ongoing effort to win back the trust and hearts and minds and it's easy to lose reputation. It takes years to win it back, but we're making good progress there.
Great. Okay, excellent. Well, thank you for the time here.[crosstalk]
Thank you. Appreciate the opportunity.