If you can hear me, good afternoon. We'll go ahead and get started. Welcome to the Wells Fargo Healthcare Conference. I'm Brandon Couillard , cover life science, tools, and diagnostics. We are thrilled to have Myriad Genetics with us at the conference this year. Joining us for this conversation, CFO, Scott Leffler, as well as Head of IR, SVP, Matt Scalo. Gentlemen, thanks for being here.
Thanks for having us, Brandon. Let me just say thanks to you and Wells Fargo for inviting us to participate. And for all of you that are here and interested in learning more about Myriad and our journey, I really appreciate your interest and continued partnership.
Maybe, just to start off, Scott, I don't know if you had some intro remarks kind of about, you know, the story, or just kind of bring us up to date on the evolution of Myriad, the transformation that's taken place. Been a long time kind of in motion that Paul's been talking about this turnaround, but seems to be really taking effect, you know, the last four, six quarters. Love to get your perspective on just the story broadly and the transformation.
Yeah, absolutely. Appreciate the opportunity. And certainly, for anybody that's already been familiar with Myriad over the years, encourage you not just to consider the ancient history of the company, but particularly focus on the most recent years. Because, as Brandon mentioned, we are four years into a transformation that was kicked off under our current CEO, Paul Diaz, and we couldn't be more excited.
I personally could not be more excited about being part of the company during this part of its transformation journey. Myriad obviously has been around for many, many years, a leader in the molecular diagnostics space, going back over 30 years to the origins of molecular diagnostics as it pertains to breast cancer. And over the years, accumulating a diverse portfolio that really encompasses our go-to-market strategy via three lines of business.
The three lines of business are women's health, oncology, and pharmacogenomics. We are accumulating an increasing number of proof points as far as our growth trajectory, where we are turning in quarter- after- quarter now of double-digit top-line growth. But what I think is meaningful about the way we're delivering that growth is that we are increasingly delivering growth on a profitable chassis. And that really is core to the transformation that has been executed under Paul's leadership, is the idea that in a space where historically it was not necessarily characterized by profitable growth, our ability now to increasingly grow the top line, but to do it in a profitable manner, is something that I think really distinguishes us.
In particular, culminating, of course, in our most recent Q2 results, where we reported 15% top-line growth, profitability on both an Adjusted EBITDA and Adjusted EPS basis. And really feeling comfortable that the efforts of the last several years of transformation, whether you're talking about the commercial transformation under our commercial leader, Mark Verratti, where we are delivering a higher level of sales force effectiveness than we have in the past. From an operational standpoint, executing on the Lab of the Future initiative that is culminating in a state-of-the-art operating environment over the next year for us, including increased levels of automation and scalability, which will continue to drive our performance into the future.
Of course, increasing levels of investment, both from a science and technology standpoint, in order to make sure that we're bringing the best, most clinically valid products to the marketplace, and to do it in a way that meets our stakeholders, our providers, and patients where they are, as far as ease of ordering and ease of use.
Before we dig into the questions, I want to give you an opportunity to maybe address the 8-K that came out this morning. Not sure if the stock's down 10% on that data point. It had to do with the update on the health economic study for GeneSight. Looks like a couple of things about, you know, some data you'd previously reported in April maybe isn't valid. Can you just kind of unpack, you know, what we should take away from that update? And is it driving the stock, you know, today, you think, or is it an overreaction, maybe just to that news point?
Sure. Well, you know, certainly the coincidence of the stock being down today, along with the fact that we issued this 8-K, it probably a good bet that the 8-K is having at least some impact on our trading levels this morning. Just to take a step back, and I know that during today's discussion, we're probably going to get pretty deep into the world of reimbursement and ASPs across our product portfolio, our revenue cycle capabilities and payer markets efforts. And so that all of that discussion is relevant to the 8-K that we issued this morning, because GeneSight is the product that rolls up under the pharmacogenomics line of business that I mentioned a moment ago. And GeneSight is our youngest product in what is already a very young space.
And I think across the board, regardless of what the company is and what the product is, the younger the product is, the tendency is that you have a less attractive reimbursement profile over time as you accumulate more and more acceptance of a test, or product, or service, then you're able to accumulate also more wins from a reimbursement standpoint. So GeneSight has always conformed to that. When we talk about across Myriad Genetics, having a no-pay rate of 44% across our products, which means that 44% of the tests that we provide go un-reimbursed. GeneSight, there's some variability within the product portfolio, and GeneSight is the product that has the worst reimbursement. Again, consistent with the idea that it's the least mature product that we've got in our portfolio.
So we have a ton of efforts across our revenue cycles and payer markets teams in order to identify the many different drivers of no-pay across the payer universe, and one by one, to go after those in order to remediate any gaps in order to make sure that we're optimizing reimbursement. And this is an area where, again, I know we're gonna talk about it more broadly across the product portfolio, but this is an area where we could not be prouder of the performance that we've turned in so far in 2024 across the product portfolio.
Where really, part of the transformation efforts of the last several years has been investing significantly in our rev cycle and payer market capabilities in order to help kind of raise the tide, really, for the broader industry, in addition to ourselves, as far as making sure that there is the broadest coverage possible across the product portfolio. Certainly, in terms of our year-to-date performance as of Q2, we're very, very excited about the progress we had made on GeneSight as well. There are a number of arrows in the quiver, so to speak, when our payer markets team goes to engage with payers to obtain coverage.
And certainly, one of the arguments that they look to make is one around the favorable economic impact of a test on the healthcare cycle, for lack of a better term. We had some favorable results in the phase I part of that study that we've talked about in the past. Just due to an issue with the control group with a third party that we're relying on, we weren't able to obtain a relevant control group for phase II of the study, and that's what triggered today's 8-K.
But again, I just wanna emphasize that at the end of the day, when I think about it through an investor's lens, or even through management's lens, for that matter, the argument around the economic impact is really one of many arguments that we bring to bear. And when we talk about some of the big coverage wins that we've already publicly discussed so far this year, including on our 2Q earnings call, where we talked about a big win in California, Blue Shield of California covering us for both Medicaid and on the commercial side for GeneSight. We made reference to an upcoming coverage win in the Southeast for Medicaid, which has now been realized.
There's not a slowdown or a stop in terms of continued expansion for coverage for GeneSight, and we expect to continue to deliver more wins in the future as our team continues to make more inroads. And so at the end of the day, I would say, taking a step back from kind of this one specific study or this one specific line of argument, it doesn't take away from, fundamentally, the clinical utility and the demand that we see for the product.
So just to clarify, is it your view that, you know, the third party that ran the study, did so incorrectly, with respect to the control group? You're gonna rerun the data and publish the new data, in the second half?
At the end of the day, they were unable to provide a control group, which validated the rest of the study, and so we will look to understand where there may be opportunities to bridge the gap, but you know, more to come on that as we continue to assess our options.
Okay. Maybe switching gears, you know, if we go back to, you know, the second quarter, another strong quarter of double-digit growth, nice margin expansion, positive Adjusted EBITDA for fourth straight quarter, kind of consistent with, you know, the trends you've been putting up the last, you know, year or so. What are some of the key highlights, I guess, that you would point to? Clearly, ASPs have continued to improve, and, you know, you commented about 2025 growth expectations, which seemed a little bit early to be doing that. You know, how did you come to that conclusion? And why now was the right time to comment, and kind of raise the bar even further o n 2025 expectations?
Well, certainly, in terms of the volume growth opportunity, I think it's something that we have a really strong track record around over a multiyear cycle across the product portfolio. And even going back to last year's investor event, where we were talking about a 10% plus revenue growth profile, the calculus around that was significantly impacted by the general perception that we were continuing to live in an ASP compression type of environment, based on the years that had come before that.
And I think really what has fundamentally changed our view about the long-term growth prospects and growth target, increasing that to a 12% long-term growth target, as we referenced on our last earnings call, was really based on the evolution that we are seeing, not just in terms of our own transformation efforts taking hold and manifesting, where the maturity of our rev cycle and payer markets operations are at a level that they've never been at before.
Not just in terms of the coverage wins that we have been talking about all year, but also in terms of understanding what's in the hopper and knowing that as we continue to put more and more capable individuals and teams in front of payers, continue to deploy arguments, including around biomarker legislation and so on, we have greater conviction and greater line of sight to the wins to come. And so those are the myriad specific drivers around what we view as the overall medium and longer term ASP environment. But also when you look more broadly, I think that people who cover the space probably have noticed that you do see some alleviation of ASP pressures across the broader competitive landscape.
I think some of it is based on the composition of that landscape, where perhaps you have less disruptive players that are having an adverse impact, but either way, you do see some amount of rising tide out there, which complements the Myriad-specific momentum that we believe we've built with our transformation, so when you take that favorable movement or evolution in the ASP environment and compare it to what we knew last fall or last winter, when we were talking about a 10% longer-term growth trajectory, you can see how fundamentally the calculus has changed for us, and that calculus around the ASP environment gives us more comfort that we can deliver a stronger revenue projection as well.
There are multiple parts to the ASP equation. You've talked about revenue cycle management. A lot of companies talk about RCM. Can you just kind of give us some context of how that has matured? How has it been sort of institutionalized now, in a way that is fundamentally different than perhaps you've operated, you know, historically?
Sure, and I think it starts with the transformation journey, changing this organizational focus from kind of growth with a volume focus or growth at all costs, to being one that's more focused on the notion of profitable growth. And there were a number of initiatives and areas of strategic prioritization that came from that, one of which, of course, was our organizational focus on revenue cycle. And when you're talking about a company that a year ago, we were talking about a 46% no-pay rate, and a few minutes ago, I referenced 44% as the current positioning, hopefully, with much more opportunity to continue to improve that over time in the short, medium, and longer term. But the answer, the fix for that, there's no one fix, right?
You're talking about hundreds of millions of dollars of lost revenue with an opportunity to recapture much of that. The root cause of every dollar of revenue or every test that goes unreimbursed can be different. There's a massive universe of challenge areas that we need to continue to work at mitigating, and so I think the answer to your question is, overall, just building out the scale and scope and sophistication of our revenue cycle operations, and some of it I've already kind of alluded to with the GeneSight comment, which is that some of it is about building up the arrows in your quiver in order to make sure that you're able to put your best foot forward in front of payers, in order to have them update their medical policy, for example, to conform to biomarker legislation or guidelines.
But there are significant tactical elements to it as well, in areas that we've invested in. So for example, the idea that we have the appropriate kind of frontline capabilities in order to execute on prior auth requirements across all of the different varied requirements that different payers impose. We are investing in robotic process automation in different areas, where it can help to eliminate human error or areas where we might have a timing gap as far as compliance with submission requirements. And so it's the combination, first and foremost, of prioritization, second, understanding the universe of opportunity and need, and second, then executing on the investments that you need in order to deliver on improvement.
The ASP story in hereditary cancer has, you know, turned on a dime, and that is the, you know, entire swing variable, right, in your ability to do high single digits or to do 12%, you know, top-line growth. What are the market forces that have enabled hereditary cancer ASPs to be stable and improving over the last several quarters, relative to what we thought was a business that's in secular decline from an ASP perspective?
Well, so I think there's a few different elements to the answer. The first thing that I would caution people to recognize is that the first half of 2023 was a very abnormal couple quarters for us, and I think for others in the industry, where there was some disruption relating to major payers transitioning to lab benefit managers that had some impact on reimbursements for some products. I think when you set that aside, what you've seen now is a good number of quarters, even you could call it a couple of years, of relative stability in pricing for hereditary cancer testing, and you know we see it in terms of different parts of the equation.
We see less pressure in terms of pressure coming from payers to reduce contract rates, which I think is a big part of kind of the longer-term secular downward trend that you were referencing. But when you combine that alleviation of downward pressure with some of the accomplishments of our team in terms of that maturation of our rev cycle capabilities, kind of eliminating any reason that a payer might have not to pay you through the improvement in your back-office work streams and so on, we think that the prioritization of those efforts and then the execution on the initiatives that we've identified is a big part of what has contributed to the stability in that space. And then there's the simple fact that there.
It's inevitable for any pricing trend to reach some kind of equilibrium level, and there's been, I think, enough downward pressure over a long enough period that it's easy to think that perhaps we've reached an appropriate equilibrium level for hereditary cancer testing. But what I'll say more generally also is that when you look at our longer-term revenue guide of 12%, we did not guide to ASP for a particular product or volume for a particular product, for that matter. Really, at the end of the day, we benefit from having a fairly well-diversified revenue stream, both in terms of the volume and ASP contribution from different products across our portfolio and business units....
And so we feel comfortable that even for whatever downside risks there might be in any one part of that equation, we also have optimism over a number of upside opportunities as well that would go to offset any downside.
You talked about, you know, as one other data point for 2025, hereditary cancer volume growing double digits next year with stable ASPs. How much and to what extent are share gains factored into that double-digit top-line outlook? And secondly, you know, how important are EMR integrations, which are kind of ongoing? You gave a target last year, I think, of 1,900 integrations. How important is that to the hereditary cancer growth story?
So I think EMR integrations, we really are committed as an organization to continuing to invest heavily in EMR integrations. And I think when you look at the transformation of the last four years under Paul's leadership, this is an area that really has gotten a lot of attention in terms of understanding the needs and priorities of our stakeholders, the providers and patients that they serve, and making it a seamless operating experience for them increasingly is becoming table stakes. And that is an area where we have had to invest incrementally and continue to invest incrementally. And certainly, I think that that's gonna be a part of our continued success in the future, regardless of what the, you know, specific volume number is that you're attaching yourself to or where that volume comes from.
Where I think, by the way, just to go off on a little bit of a tangent, where I think that really benefits us and other incumbents who are investing or have invested heavily in that, is that in a space that historically has been characterized by a fair amount of fragmentation, the more kind of table stakes you have, the harder it becomes for new entrants and for subscale entrants to continue to survive.
I think increasingly, whether you're talking about the risk of incremental regulatory burden in the space or the increasing costs associated with table stakes like these in terms of EMR integration, or even just the fact that it's a higher cost of capital environment, which makes it harder for subscale players to participate, it's something that adds, I think, some wind to the backs of us and other incumbents, and does help to provide some comfort that there is a longer-term share shift opportunity. Back to the question itself, there is a longer-term share shift opportunity as it becomes a harder and harder space to play in for a higher and higher proportion of the fragmented market.
Where are you? I mean, I don't know if you can quantify or give any specifics just in that EMR journey.
We don't have a number to report now, but we have been talking about incremental EMR investment all year, above and beyond what was kind of already built into our transformation game plan. That has been driven by what we have seen as an outside share shift opportunity coming available. We've talked about some expectation that as we get closer to the end of the year, we'll see a ramp-up in benefit from that. So, you know, more to come as we get further into the second half of the year, but we're encouraged by the progress that we're making.
I want to switch gears over to GeneSight. I mean, really, there are multiple factors that all comes down to influencing the no-pay rate, right? Which is a big number. What is the no-pay rate for GeneSight today? What was it a year ago? Where can it be in two years, you think, given state biomarker bills, expanded coverage, RCM, and just, I guess, the culmination of kind of all those positives?
Yeah. So GeneSight, as I had said earlier, is just being by virtue of being, if for no other reason than the fact that it's our youngest product, it has the highest no-pay rate. So GeneSight is over 60% no-pay rate. I don't have the number from a couple of years ago, but it has been incrementally improving over time as we have continued to make inroads in terms of our revenue cycle management. But you know, I wouldn't necessarily pinpoint a no-pay target over the next couple of years for GeneSight, except to say that we expect to be able to deliver incremental progress over an extended multi-year period.
That is part of, again, what gave us the comfort to increase our longer-term revenue target on our last earnings call. It is the idea that whatever downward pressure we might get anywhere in our portfolio on contracted rates, there is such an actionable opportunity when it comes to no-pay in order to offset any downward pressure on contracted rates, that our objective certainly is to make sure that those at least net out to holding the line across the portfolio on ASPs and potentially even doing better.
Which of those are the most impactful driver? Is it expanded coverage, is it RCM, is it state biomarkers? Lag, I guess, to each of them if you had to stack rank them in terms of importance?
Certainly, I think for GeneSight, it's expanded coverage, and we use some of the other items that you mentioned in order to kind of feed the discussions with them. And we also, I think, are doing a better job of making sure that our team is coming in with the best tools possible, partly in terms of just having experienced clinicians that are on the staff in order to sit in front of a medical director from a payer and speak as credibly as possible to them around the arguments for coverage. And certainly, biomarker legislation helps, particularly when you're talking about at the state Medicaid level and expecting conformance with state biomarker legislation.
But in general, there are a large number of arguments that come to bear. There are a large number of objections that you have to overcome, which is just part of the. It's the nature of the cycle, and certainly, there's an incentive for payers to resist until a certain threshold has been met. And I think our team is increasingly accomplished when it comes to meeting and overcoming any objection.
Switching gears over to prenatal or women's health. Still waiting on ACOG guideline updates. You know, back over the summer, maybe you thought it'd be sometime in the August, September timeframe. What's your latest view of the timing of that? And, I think you talked about it maybe $10 million-$20 million revenue benefit. Is that for microdeletions and carrier screening? And, you know, whenever that happens, you know, should we think about that as being incremental to the 12% growth you've talked about in 2025 s hould it be on top of that? I'm assuming you haven't baked that in since it hasn't fallen yet.
Yeah. So in terms of the first part of your question, you know, I think a lot of people have been wrong for a very long time trying to predict exactly when guidelines were gonna be updated, and so we do continue to believe that it is imminent. Having said that, it does continue to drag on, and so we, you know, remain optimistic that that the update will come in the near future, but of course, it has continued to drag on longer than most people expected. We have talked about a upside revenue opportunity of the order of magnitude that you're talking about. And really, at the end of the day, when guidelines are updated, there are gonna be a number of different drivers that impact revenue.
It will take some amount of time to play out, right? Because across the payer universe, if there's anything we've learned from all these different revenue cycle capabilities and experiences we've built out, it's that there's not necessarily ever gonna be an instance where you snap your fingers and every payer conforms in the manner that you expect or want them to immediately.
So there will be some amount of journey as far as how quickly you're able to get as large a proportion of the payer universe to conform to the new guidelines. But we do have the type of upside opportunity that you were mentioning, just based on unreimbursed tests today. That would be a subset of our kind of broader 44% no pay, and we would have a more imminent, actionable opportunity to realize that. Now, are we gonna snap our fingers and the day after guidelines are updated, we get that revenue? That is, you know, highly unlikely. It would play out over a multi-period sequence, but certainly, we would have a lot of momentum in terms of eventually picking up that revenue.
Okay. So if it happened, you know, this month, whatever, you know, think of it as more of a full year benefit in 2026?
Um, in 20-
Like-
I mean, I would say-
Like, 12 months.
I t's probably gonna play out over the span of six, 12, 18, 24 months, and the question is, what can you do to capture a high proportion of it in the earlier part of that timeframe?
Gotcha. I want to touch on the competitive landscape, the competitive dislocation of the market. When do you expect those share gains from the couple players that have exited the space to actually materialize? How much is factored into the second half outlook? And, you know, why will these customers come back to Myriad in hereditary cancer and in prenatal?
So, from a timing or sequencing standpoint, we already began to talk on our last Q2 call about seeing some amount of improvement in our Q2 results on the prenatal side, because there was a block of prenatal business that was just available earlier in the calendar year, and we began to see some favorable momentum from that that we expect to continue to manifest. In terms of hereditary cancer testing, we believe there is a share shift, an incremental share shift opportunity available. But as we've been talking about all year, the availability of that part of the market to shift over just for a number of reasons, it didn't manifest as early in the year as the prenatal side did.
And so we've been talking all year about the fact that we expect that opportunity to manifest in the second half of the year, probably a little bit later in the second half of the year. But at the end of the day, we remain very encouraged by what we're hearing out there from customers that otherwise would not necessarily be available to be one.
It is a big part of the reason that we've been talking all year about incremental accelerated investment in EMR, because, because maybe this was embedded in that last part of your question, but at the end of the day, either winning a new customer, just kind of organically in the market or a share shift opportunity, you're gonna have to satisfy the basic requirements from a workload standpoint, including EMR integration that your customers have, and we need to be able to show these customers, particularly large health systems, that we can meet them where they need us to be, but at the end of the day, we remain very encouraged that as those investments pay off and we can bring that capability to meet them where they need us to be, that that share shift opportunity is there for us.
I want to touch on just the revenue guide for the back half.
Sure.
You talked about third quarter revenues being down sequentially due to seasonality. You also lap a $7 million prior period revenue benefit from the third quarter of last year. So is there a chance that, like, ASPs actually dip year- over- year in the third quarter? And just how we think about just the phasing or pacing of the back half outlook?
Yeah, so agree with some of those foundational points you just made. We did make a comment on the earnings call to the effect that just from a typical seasonality standpoint, we'd expect flat to slightly down revenues in Q3 sequentially from Q2. And you are right that we are going to have to overcome what was a $7 million out-of-period good guy in Q3 of last year. And so you know, we're never going to make a commitment from a quarter-to-quarter basis on ASPs even though we feel very encouraged by the overall share momentum.
Just the nature of our revenue recognition, there is a certain amount of variability in it from quarter to quarter. Is it possible that in any given quarter, you might show a little bit of a step back in ASPs? It certainly is, but doesn't change the overall trajectory of the business in terms of the underlying health of our ASPs and revenue cycle operations, is that we remain as bullish as we had been previously.
Okay. On the OpEx guide, so for a while now, OpEx has actually been increasing at the same rate as revenue. You've not gotten much leverage there. The guide implies like $150 million a quarter in the second half compared to $140 million in the first. You know, it's up like high single digits for a second year in a row. What's driving that, and should we expect to see greater OpEx leverage in 2025, and where in the P&L will that manifest?
Yeah, I think so big picture, when you're talking about a longer-term revenue target of 12% , as we updated in our last earnings call, and while we didn't update an OpEx view on the last earnings call, you know, what we have historically said is you can expect something in that 6%-7% range. So the leverage is there, the expectation of leverage is there. The kind of step-up in second half of the year OpEx that you're referencing, that is something that we've been transparent about all year, and that is money that you want to be spending. That money is a reflection of the expectation that we're gonna have an acceleration in customer-specific EMR implementation in connection with share shift opportunities or new customer wins.
Combined with the fact that we are anticipating some amount of acceleration in R&D-type spend, that's the kind of money that we, as an organization, really want to be spending. We do. I think we made a comment to this effect also on the last earnings call. That is, when you look under the hood at the different components of our overall OpEx, we are seeing an increasing amount of OpEx dollars that are going towards tech, R&D type of spend, as opposed to OpEx growth that goes towards kind of more administrative parts of the organization, which we think is an absolutely positive manifestation of achieving some amount of operating leverage in our overall org structure.
Okay, that's helpful. Maybe in the last couple of minutes, I mean, you've talked about, you know, long-term margins. Well, you got a 70% gross margin. You're doing 3% adjusted EBITDA margin right now. You've talked about being able to expand gross margins 100 bps to 200 basis points a year going forward. Understand that model preceded you, but, as well as, like, a 10% OP in 2026. Sam is looking to optimize a huge bucket of COGS, Sam Raha, the COO, on an enterprise-wide basis now. Can you just talk about the level of confidence in the ability to take gross margins into the mid-70s right now? You know, what'll be the biggest drivers to getting back to a double-digit OP in a couple of years?
So absolutely. You know, our TTM-adjusted EBITDA now is almost $30 million, and so we feel. Certainly, that's not the long-term objective, but we feel really good about having that kind of profitable chassis to build on, particularly at a point where we feel like we're really on the cusp of realizing all of the operating leverage opportunities. And so when we talk about line of sight to double-digit operating margins, we think we absolutely have line of sight to that manifesting over the next couple of years. Down to the gross margin line, you know, I think 70% is pretty solid. I don't think stakeholders look at Myriad and say, "Boy, if only they get to 72, then I'd really believe it." You know, I think people look at that 70%, and they're satisfied that we're doing well.
Certainly, all of these different Lab of the Future transformation and other tailwinds, they give us comfort that we can at least maintain that level of performance, and to the extent that there's upside there over the next couple of years, we're certainly gonna look to deliver it. But we're not, we're not necessarily signing up for a 75% gross margin today.
Great. Unfortunately, we're out of time, so I have to leave it there. Scott, Matt, thanks so much for being here.
Yeah.
Everybody, have a great day.
Thanks for having us. Appreciate it.