Welcome to the Myriad Genetics third quarter 2022 financial earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded today, Tuesday, November 1st, 2022. I would now like to turn the conference over to Matt Scalo. Please go ahead.
Thanks, Grant, and good afternoon and welcome to Myriad Genetics third quarter 2022 earnings call. During the call, we'll review the financial results we released today, and afterwards, we'll host a Q&A session. Our quarterly earnings release was issued this morning in Form 8-K and can be found on our website at investor.myriad.com. I'm Matt Scalo, Senior Vice President of Investor Relations, and on the call with me today is Paul Diaz, our President and Chief Executive Officer, R. Bryan Riggsbee, our Chief Financial Officer, and Nicole Lambert, our Chief Operating Officer. This call will be heard live via webcast at investor.myriad.com, and a recording will be archived in the investor section of our website 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 the expectations for a variety of reasons. We refer you to the documents the company files from time to time with the SEC, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and the 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'll turn the call over to Paul.
Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss our Q3 results along with highlights from the quarter and updates on our strategic transformation and growth plan. I want to start by thanking all of our teammates for their hard work and dedication this quarter to advancing our mission and our vision to make genetic testing and precision medicine more accessible. I want to thank our healthcare provider partners and their patients for their continued confidence in us. 2022 remains a year of strategic investment as we continue to build a foundation for accelerated growth and advance our mission of improving health and well-being for all. This was a challenging quarter for us as we faced external headwinds, including a stronger U.S. dollar, and failed to advance our commercial strategy as quickly as we had hoped.
However, we are pleased with our performance in many areas of the business in what is typically our seasonally weakest quarter of the year. After excluding divested businesses, quarterly testing volume grew 12% from the second quarter. Hereditary cancer testing volume returned to positive growth in the third quarter, up 4% year-over-year, and GeneSight had yet another strong performance, with volumes up 34% year-over-year in Q3. GeneSight continues to produce strong results with two years of consecutive quarterly volume growth, which we believe speaks to GeneSight's market durability. Finally, we saw double-digit quarterly volume growth year-over-year in Prolaris, myChoice CDx and BRACAnalysis CDx.
I'm also pleased to report that the MolDX program assigned the myRisk hereditary cancer test CPT code 81479, and provided favorable test-specific pricing for myRisk at $1,743 per test. This action supports long-term pricing stability for myRisk that some have questioned, and when combined with improving volume growth this quarter, reinforces our positive outlook for our hereditary cancer testing franchise going into Q4 and 2023. Despite significant cost pressures on wages, supply chain and freight charges, we continue to operate with strong gross margins, which year-to-date are approximately 70%, leveraging our strong balance sheet to support long-term growth. Let me spend a few minutes highlighting the transaction on the next slide. Gateway Genomics represents an exciting addition to Myriad Genetics.
Its leading product, SneakPeek, has already helped 750,000 parents learn their baby's fetal sex from home as early as 6 weeks into pregnancy. Also expected to be accretive to Myriad's growth rate, earnings and operating cash flows in 2024. The company's mission, strong reputation and overall approach to market, which is to explore new ways to provide genetic insights to women who are pregnant or planning a family, are well aligned with our vision for our women's health business. With over 4 million unique visits to Gateway Genomics. 9%-12% organic revenue growth with a number of catalysts on the horizon beyond that as we continue to execute on our transformation efforts. We continue to enhance our core commercial organization with prudent investments in technologies and innovations. We are excited about FirstGene, Myriad Genetics' next generation prenatal offering.
From broader coverage genes complementary to our current prenatal portfolio and targets a market of over 1 million patients in the U.S. We are preparing for a second half 2023 commercial launch.
We plan to launch our liquid biopsy technology for tumor profiling in the second half of 2023 as well. With this new test offering as part of our suite of precise oncology solutions, our provider partners will benefit from an overall ease of use and a better understanding of results. We continue to invest in new and emerging technologies to ensure that Myriad Genetics remains on the frontier of innovation. Lastly, our proprietary MRD product is on track with a research use only introduction in the second half of 2023 with our pharma and oncology partners. This will be followed by a commercial launch we expect to happen in the second half of 2024. We are excited about a number of differentiating features of our liquid and MRD technologies and how we can uniquely position them in this fast-growing.
Core business unit performances. Starting first with our mental health business unit. Mental health, mental illness continues to have a lasting effect on patients and their families in the U.S. as those suffering fail to receive proper medical treatment. Our GeneSight psychotropic test helps physicians better understand how antidepressants and other drugs will affect their patients. Importantly for this patient group, the test can be performed in a crisis by providing physicians with the information that they need to treat their patients. In the third quarter, the mental health business surpassed 2 million patients tested worldwide with the GeneSight test. Quarterly volumes increased 34% year-over-year, and we are celebrating over two years of consecutive quarterly volume growth from GeneSight. We believe that the performance of GeneSight this quarter. Medicare and Medicaid services preliminarily agreed to crosswalk GeneSight to PLA code 0175U.
Myriad Genetics' women's health business unit serves women of all ancestries by assessing their risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family. In the third quarter, the women's health business reported test volumes of roughly 109,000. In the quarter, the women's health team celebrated a return to positive quarterly volume growth for our hereditary cancer test, up 4% year-over-year, in what is typically our seasonally weakest quarter. As Paul mentioned, the MolDX program recently assigned the myRisk hereditary cancer test CPT code 81479, and provided favorable test-specific pricing at $1,743 per test. Prenatal testing volumes were stable in the third quarter, despite it being a seasonally weak period. Prenatal volume growth in the rollout of its revised prenatal screening program.
State of California held a public hearing on October twenty-sixth, where more than 200 stakeholders and 22 clinicians spoke out to preserve provider and patient choice for prenatal screening. On October twenty-eighth, the court granted a preliminary injunction to stay the exclusivity portion of the California prenatal screening program, and we expect to reclaim a portion of our disrupted business in the fourth quarter of this year. Lastly, we continue to progress towards the launch of FirstGene, our combined noninvasive prenatal screen and carrier screening test, which is expected to be available in the second half of next year. Our oncology business delivered $69.2 million in revenue in the third quarter. Reported test volumes were roughly 45,000.
Precise Tumor volumes continue to grow and are leading to additional orders of other Myriad oncology products, like myChoice CDx and BRACAnalysis CDx, as our oncology customers seek to use one laboratory that can interpret all of these test results in the context of each other. In the quarter, myChoice CDx reported its highest quarterly volume level in the U.S. ever. Myriad's Prolaris prostate cancer prognostic test grew in the mid-teens compared with the third quarter of 2021. The Prolaris test is designed to assess prostate cancer aggressiveness, helping patients and urologists make more personalized treatment plans. We're also excited about our expanded partnership with Intermountain Precision Genomics 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, a broad next gen tumor sequencing panel, and best-in-class germline testing services. I would now like to turn the call over to Brian to discuss our Q3 financial results in more detail.
Thanks, Nicole. I'd like to start by reviewing our year-to-date revenue growth. For the nine months of 2022, total revenue of approximately $500 million grew 5% after excluding revenues from divested businesses. We estimated an approximate 2% headwind to year-to-date revenue growth, driven by a $7 million currency translation impact this year and a $4 million non-recurring milestone payment from last year. Year-to-date performance is important as it minimizes the impact of changes in estimates associated with billing collection experience, which can fluctuate from quarter to quarter. Total change in estimates year to date represent a positive impact to revenue of $20 million. Revenue growth in 2022 has been driven by a variety of factors. We continue to enjoy strong demand for GeneSight, generating 40% volume growth year to date.
Hereditary cancer testing volumes have improved and returned to growth this quarter, increasing 4% year-over-year. In addition, our oncology products are experiencing continued volume growth with myChoice CDx testing volumes up 40% year to date. On this slide, we present a waterfall showing the drivers of revenue during the second half of 2022. As shown here, revenue is expected to perform consistent with historical seasonal trends, with a soft third quarter, followed by a sequential increase in the fourth quarter. The chart shows the normalization of the change in estimate, highlights the impact of foreign currency, which is a negative headwind to the back half of the year of approximately $7 million. Next, I would like to talk about pricing trends and volume growth in the quarter.
As Paul stated earlier, overall volume growth was strong in Q3, up 12% year-over-year, excluding divested businesses, driven by ongoing demand for GeneSight, where quarterly volumes grew 34% and renewed growth in our hereditary cancer testing businesses, where quarterly volumes grew 4%. Continued growth was also experienced for Prolaris, myChoice CDx and BRACAnalysis CDx. Underlying pricing of our genetic test products was stable in the quarter, excluding items like currency translation, change of estimates and a non-recurring milestone payment in the year ago period. Overall, our blended ASP is consistent with our expectations, and we are encouraged by increased visibility in pricing for our products with recent announcements such as the positive news regarding MolDX and a favorable test specific price for myRisk.
This next slide details our 2022 adjusted operating expense trend to demonstrate our prudent management of company expenses while investing in core growth initiatives. Consistent with others, we are dealing with an incredibly difficult operating environment that continues to have a significant effect on wage costs, supply costs, freight, et cetera. We continue to look for opportunities to reduce costs and redeploy operating investments to our growth initiatives. We have raised our adjusted operating expense guidance by $10 million for the remainder of the year to reflect the impact of the inflationary environment as well as incremental investments in research and development, technology and commercial tools, pipeline development and sales and marketing programs in an effort to access market share and support various growth initiatives. We are updating our fiscal year 2022 financial guidance to account for third quarter business updates.
We are now guiding to revenue of $668 million-$672 million and gross margins of 70%. We are increasing our adjusted operating expense guidance by approximately $10 million to reflect inflation and previously mentioned incremental investments. Inclusive of this increase to adjusted operating expense, our updated guidance reflects an approximate 8% year-over-year increase from fiscal year 2021 total operating expenses, excluding divested businesses. This increase remains in line with current inflationary trends and demonstrates prudent cost management even as the company invests in growth and innovation. We ended the quarter with approximately $258 million in cash equivalents and investments as compared to $284 million at the beginning of the quarter.
This decrease of approximately $36 million was driven primarily by capital expenditures tied to our investments in Labs of the Future and other technology investments. Operating cash flow was only -$2 million in the quarter. Moving forward, we continue to focus on cost management while working to return to positive free cash flow generation. Our cash balance, along with having no debt and access to capital markets, provides us with a strong capital position. As we continue to execute our strategic transformation and growth plan, we believe that we are well positioned to be a high growth, profitable, free cash flow generating leader in precision medicine, delivering important medical information to healthcare providers to improve patient care. I'll now turn it back over to Paul for closing remarks.
Thanks, Bryan. Before we move into the Q&A portion of the call, I want to summarize five key takeaways in context with our strength and strategic advantages. First, we are growing volumes consistently every quarter, and we know how to get paid for our tests. Second, pricing for our products is stable, and we have increased visibility into pricing moving forward. Third, we continue to have a disciplined approach to cost management. We expect to maintain our strong 70% gross margins and manage our OpEx with specific targeted opportunistic investments that we've laid out to capture market share. Fourth, we are committed to effective capital deployment in key areas that will improve the customer experience, including new tech-enabled tools and capabilities, innovation, commercial capabilities and our Labs of the Future.
Fifth, and finally, our growing catalysts are clear as we continue to elevate our products to their full potential, roll out our new solutions like FirstGene, MRD and Liquid, and opportunistically look for strategic and accretive tuck-in acquisitions like Gateway Genomics. All of this reinforces 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. Now I'll turn it back over to Matt for 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 a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website. Now we're ready to begin the Q&A session. To ensure broad participation, we're asking participants to please ask only one question and one follow-up. Grant, we are now ready for the Q&A portion of the call.
Thank you. If you would like to register for a question, please press one followed by four on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press one followed by three. One moment please for the first. As a reminder to register for a question, please press one followed by four on your tele-
Kicking off with the new myRisk code, can you just give us a sense how we should interpret that in terms of what impact it'll have on pricing going forward to your hereditary cancer business?
I think it's further evidence. I'll let Bryan dig in deeper, Dan, of the commitment we've had to stability in and our strategy around engaging both with Medicare, government payers and commercial payers to bring more transparency and more stability to pricing. We see it as a pretty significant step forward. We know that there have been a fair number of questions about this and some expected a much bigger drop. We were pleased with the outcome, and our team worked really hard with MolDX to recognize the unique characteristics of myRisk, and that's part of why we think we're enjoying this price.
That bodes well for our continued discussions with commercial payers and I think supports our long-term guidance of 3%-5% pricing pressure in this portfolio going forward. That's kinda how we see it. We see it as a really great step forward in terms of stability and transparency.
Got it. In terms of the 3%-5% down is still kind of. This kinda gets you into that ZIP Code to feel comfortable with the ZIP Code as opposed to giving you any kind of upward kind of upside to that number.
Yeah, I don't think this is the quarter to get ahead on anything. I would say it maintains our confidence in that 3%-5%, Dan, for sure.
Yeah. Dan, just to add, I mean, the pricing for the myRisk code is slightly below where it was priced historically. It's, you know, in the 5% down range. It's more of avoiding a more significant price decrease than sort of additive to where we were before, if that makes sense.
Got it. No, no.
Thanks.
That makes sense. Got it. Maybe just as a follow-up just on GeneSight, just give us a sense of, you know, the coding update there, kind of what, you know, how that filters through into the business and the numbers as we look out. As you kind of look forward, maybe just give us an update on kinda what you're seeing in the field now that we've had some time with the VA study. Just give us any kind of update on kind of impact of that study in terms of adoption rates and things of that nature.
I'll speak first to the GeneSight code. The process is still wrapping up with respect to, you know, final Medicare pricing. But the rate is known. I believe it's $1,336, and it's consistent with what's been in the market historically and talked about. I think there's really no update there. We would expect it to be finalized and effective January 1, and it'll be reflected when we give an update, you know, after the first of the year.
Yeah, Dan, kinda consistent with our strategy around all our codings. We think code-specific eliminates the confusion around miscellaneous codes or things like code stacking, that I think the industry is sometimes challenged with, and gives us a much better conversation with commercial payers. We're having really good discussions, leveraging not only the VA study but others. We have some other clinical and health economic studies underway. I would again point to the underlying trends and demand for GeneSight as strong market evidence of the demand for this product, and that is leading to good discussions with various commercial payers. We've continued to reduce our no pay and improve our execution under the contracts that we have to reduce no pay.
Just a shout-out for our rev cycle team for all the great work they've done there.
Great. Thanks, Paul. Thanks, Bryan.
Thanks, Dan.
The next question comes from the line of Matt Sykes with Goldman Sachs. Please proceed with your q-
Hey, Matt.
Oh, hey, guys. Thanks for taking my questions. Maybe my first question is just kind of talking a little bit more broadly about hereditary cancer. You guys have shown continuing improvement throughout this year. I'm just curious about the competitive landscape and how you see it now. I mean, a lot of your peers in that sector, there's some differences in sort of financial and operating situations there. Is part of some of the recovery that you're seeing or the improvement you're seeing, the result of share gains, and any way you can kind of characterize competitive landscape today versus, say, a year and a half ago?
I think I'm disappointed that we haven't seen more gains, quite frankly, Matt. You know, what we're finding, and Nicole can add, we're having kinds of conversations the last few months that we haven't had in at least the two years I've been here with big customers, big academic medical centers, and a whole wide range of participants in the hereditary cancer market. I think those will take the next few quarters to run forward and to convert from good conversations to contracts, and then from contracts that do system conversion to our EMR and portal. We're really encouraged by the field-based activity and certainly the distress in the marketplace that others are facing has enabled us to have new and fresh conversations.
It's also what we've done with myRisk in terms of expanding the gene panel, expanding the financial access and improving ease of use, which continues to be a big focal point. We're encouraged by the 4%, but at the same time, would have hoped to have seen more progress. Really seeing a lot of activity, accelerating here going into Q4, and I think bodes well for next year. Nicole, I don't know if you wanna add any color to that.
Yeah, I would agree completely, and I think what we're seeing in our market research is a significant improvement in customer perceptions of, you know, our reputation and the engagement that they have with us. That's leading some large customers to really take another look at Myriad and giving us opportunity to gain access in places we haven't had for a while, to have, you know, higher level conversations. We're just seeing across the market that people are taking another look at us, and they're having a positive experience.
Got it. Thanks very much for that. Maybe the second one for my follow-up, just, Bryan, you talked about the increase in the OpEx and obviously understandable given some of the, inflation and freight logistics, et cetera, but you're also continuing to invest in the business. As you're making those decisions and balancing the two, how are you thinking about sort of the inevitable path to profitability and balancing that OpEx versus making sure you're investing in growth, at the same time of taking care of some of the constraints that are in the supply chain and other things? I'm just curious about the thought process there with a view towards profitability.
Yeah, I think two comments there, and then Paul can chime in as well. You know, first and foremost, to your point around ultimately getting to profitability, we wanna position the business and the cost structure in a way that is long-term sustainable and really supports the business and generates free cash flows sort of on a standalone basis, as you would look at it separate and apart, sort of from the inter-entanglement and the investments that we're making to really drive, you know, our growth acceleration.
Then secondly, at the same time that we're doing that, you know, we're also every day going through to, you know, because it is a difficult operating environment, as you've noted, and looking for ways that, even in this current circumstance, that we can save money in certain places and utilize that money to reallocate more towards things that are gonna help to drive growth. Things that, you know, as you would see with a company that's 25 or 30 years, a lot of times you can build up some cost in the organization that you really need to take a look at to see if it's really driving the type of benefit that the company needs.
I just wanna highlight the fact that I'm really proud of the team and the work that they've done in order to be able to, one, handle the current environment and, two, be able to focus on the types of long-term, you know, innovation that, you know, Dale talked about at our Investor Day with MRD and liquid, et cetera. You know, I think it just really puts us in a great position, not only in terms of innovation, but also in terms of a, you know, a cash flow generation, you know, at some point in the future.
Yeah, just tying back to your first question, we just see a lot of market opportunity and then we're making up for deficits of investments that we had not made, and so we're aggressively pursuing those, because we do see those opportunities and that happens routinely. You know, we're just redeploying, as R. Bryan Riggsbee said, aggressively to the things and the customers. For example, we just signed a pretty big customer, and they required about half a million dollars of IT investment in a chatbot and different things for them. We said yes. We are making the moves in real time to respond to what customers are looking for, and going through a pilot with that customer, hoping to talk about it more next year as we move from pilot to operationalizing it.
That's a good example of the kinds of real-time investments we're making in response to market opportunities.
Okay. Thanks for the color. I appreciate it.
Sure. Thank you.
The next question comes from the line of Jack Meehan with Nephron Research. Please proceed with your question.
Thank you. Good afternoon. On the Gateway acquisition, Paul, can you talk about just the background on the deal? How long have you known them? And just talk about the value proposition. You're getting gender information at 6 weeks. In NIPT, you can get that at nine weeks. Just how do you get comfort, you know, the 20% growth they've been putting up is gonna be sustainable moving forward?
Well, thank you, Jack. First, a big welcome to the Gateway team. That's a big part of the opportunity as we see it. This is a team that has really demonstrated over the last three or four years an ability to engage with customers in the way that we have with GeneSight, and that we wanna, you know, populate our women's health business more broadly with. You know, we're quite confident, and Jack, you've seen my discipline around M&A on the underlying assumptions on the core growth of the business. We'll talk more in the quarters to come about the synergy opportunities across the portfolio. We see a pretty significant opportunity to re-energize our engagement with OB-GYNs and others.
You think about their 1,850 discrete customers in the commercial channel, complemented with our 7,500 and very little overlap there. Their own data suggests that almost 60% of the people that access a SneakPeek test go on to get an NIPS testing and look to Gateway for information and education. We see it building on the kind of strengths we've built in GeneSight and accelerating that process in our women's health business to engage with women, engage with OB-GYNs and others in the channel in a differentiating way, and are pretty excited about both the core and what we can do from a synergy perspective.
Great. I also wanted to clarify on the hereditary coding. I know in our conversations back in August, I was under the assumption you'd be migrating the 81432, 81433 for hereditary. Guess I'm just curious, is that no longer happening? What portion of your hereditary claims are myRisk that are gonna move to this new 81479 code?
Well, yeah. I mean, yeah, our plan going forward would be the appropriate code for us to use would be the miscellaneous code as opposed to the 81432 and 81433.
There's, and-
Yeah, I-
Just to clarify.
Oh, go ahead. I'm sorry
There's some BRCA that goes under different codes, correct? Like the BRCA CDx.
Yes. That's correct. Maybe offline, we can break that down for you further. The point I was gonna make, Jack, just more broadly is the diversification in our hereditary cancer pricing profile as we've grown myChoice, as we've grown BRACAnalysis CDx, and we've grown our international business. When I think about the exposure we had on hereditary cancer, commercial pricing and Medicare pricing, versus where we are today, and as I referred to earlier, our very deliberate efforts to de-risk that business so we can grow it's changed pretty drastically, both in terms of business mix as well as this improvement in transparency around coding. It gives us, as previously discussed, just a higher level of confidence in the 3%-5% range that we've talked about in terms of pricing pressure.
Now it's out, it's about growing and gaining market share, which is really where our commercial efforts are focused. We're, you know, as I've acknowledged, we're a quarter or two quarters behind where I had hoped we would be on some of the new initiatives and, you know, that's often the case, but we're feeling really good about what we're doing and the ability to gain share in the broader market as we discussed earlier.
Thank you, Paul.
Thank you, Jack.
The next question comes from the line of Mason Carrico with Stephens Incorporated. Please proceed with your
Hey, guys. Maybe just two quick ones for me, starting with GeneSight. Could you provide some detail on the Medicaid opportunity? Any color around GeneSight volumes that are coming from these patients now? Do you think the PLA code in combination with the PRIME study is enough to begin winning coverage of those plans in 2023?
Yeah, great question. A lot of energy in and around that. It's a significant amount of our no pay for GeneSight, like 85%-87%, something like that. There are at least three really good discussions going on in various states that the team is advancing. We're also advancing discussions with the VA on the heels of the PRIME study, where there's a tremendous amount of interest given the mental health challenges of our veterans. We hope to help solve that problem more directly as well. We would certainly hope next year to announce some wins on the Medicaid side, both on the and most importantly, the mental health crisis these states are turning their attention to coming out of the pandemic, which we're actively in discussions with.
Yeah, it's, there's a lot more work to do, but there's a lot of opportunity there as we see GeneSight going forward.
Got it. On Prolaris, could you just talk about what's driving the volume growth there over the past few quarters, and what sort of tailwinds do you see for that test, going forward, maybe from a volume as well as incremental coverage standpoint?
Yeah, Nicole, why don't you jump in? I'm actually going to the LUGPA conference here next week to meet with some big customers. We've been doing more of that as we've mentioned. Nicole, you wanna speak to,
Sure
Our urology team and specifically what's going on?
Sure. Absolutely. I think a couple of things are going on there, but they're consistent with what we're seeing in other parts of the business in that we're getting better at winning bigger. We have a number of partnerships in that space with, you know, uropathology groups that allow us to, you know, create a very user-centric, easy, you know, sort of easy experience for those customers to order the test, which just makes it a much more streamlined process. I think, you know, urologists are really seeing the value of the test. Across that call point, we're seeing great access. We're seeing, as Paul mentioned, access to larger customers, whether that's in large urology group practices, LUGPA practices, or with the deck on the pathology side. We're just getting better.
It's a good example of.
Got it. That's helpful.
Of the portal will be up early next year, which isn't available. I'd also mention the cross-selling opportunity with myRisk in that channel as well. That's starting to happen as well.
Got it. Thank you, guys.
Thank you.
The next question comes from the line of Derik de Bruin with-
Hey, guys. This is Nisarg on for Derik de Bruin. Wanted to start off on prenatal. A little bit of weakness there sequentially. You know, how should we kind of view the new run rate for the segment? Or do you think this was caused by more specific headwinds to you know to the quarter?
Yeah, I mean, clearly we're disappointed that we haven't made more progress in prenatal. I mean, we have a really differentiated test in Prequel in particular. We mentioned, you know, some disruption of service and confusion in the marketplace in California. That certainly didn't help. We'll be able to work through that now, as the state of California is revisiting its program, but more importantly, as the judges ruled against the exclusivity part of the program, which just limited access and choice, which we just thought was bad policy. Again, we're hoping to join that program and are engaged constructively with the state. Beyond that, you know, a big challenge we've had in ease of use has been the portal to be able to sell myRisk and our prenatal products.
That's gonna be another quarter before we roll it out. We thought we were gonna have it up and running here in Q3. It's gonna be distributed in Q4 and probably not fully operationalized until Q1. Again, the sales enablement process is a little behind where Marc and I and Nicole would like it to be, but Melissa is bringing the team together. I think people are really excited about Gateway and SneakPeek and what that can do to the business as well going into next year. The teams are meeting as we speak about cross-selling opportunities. A couple of quarters behind where I would hoped we would be in prenatal, but really excited about the future there.
Again, we just need to execute better over the next few quarters to get the growth that we would expect there.
Gotcha. That makes sense. One more. I know you guys have a lot of new products launching around the same time, mid 2023, later in 2023. Are we gonna see an increased operating expense for the commercial scaling in the back half of 2023, or, you know, sales force expansion or anything like that to note?
No, you will not. I mean, the work that Brian articulated is to move leverage and convert the rest of our business to the model that Marc built in our mental health business and the one that we see at Gateway, which is much more consumer influenced and driven, enabled by inside sales and technology. Again, I think one of the strengths of the company that we will hopefully prove to investors over the next couple of years is that we have a scalable commercial engine. We do not expect to be adding to our sales force going into next year or in the launch of these new products.
In fact, we're gonna continue to improve upon the execution of our sales force and the use of the tools like Salesforce, et cetera, which is part of what Marc and the team are working on.
Got it. Thank you.
Sure.
The next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.
Hey, thanks. Good afternoon. Paul, just starting with the Gateway Genomics, I'm curious if there was a COVID benefit over the last couple of years. You know, is the top line you know consistent you know 20% growth this year as well? Anything at all you can share with us in terms of the P&L profile between gross and operating expenses.
Yeah, I mean, you know, the business has been growing, you know, well in excess of 20%. But we, you know, transactions and integrations can be distracting. We're trying to make sure we get through that. You know, rule number one is don't break what you buy. This is a really good team. We're really excited that Chris Jacob and the team are gonna be part of our team. He's an excellent executive and is really gonna contribute to our strategic thinking in a lot of different ways, product development as well as our go-to-market strategy. The economics of the business are pretty straightforward. It is direct to consumer, so no reimbursement risk, which Brian likes. Healthy margins, 55% gross margins, and a scalable OpEx platform.
We'll make some investments there next year as we talked about to really accelerate growth in that business and get the cross-channel opportunities. We like the characteristics of the deal, both the return characteristics in the core and the upside synergies that it provides across our women's health portfolio. It's just the kind of synergistic, accretive bolt-ons that we wanna continue to look at across our business units.
Just one for Bryan. Was there a prior period revenue adjustment in third quarter? I don't see one in the release or on the deck. Just wanna make sure it was zero. Is that true?
Yeah. I think in the waterfall chart is probably the best way to kind of look at where we show the revenue estimate change that we had in Q2 of around $12 million positive, and it was a negative $5.3 million, I believe, in the current quarter, or thereabout. But I think it's in the pre-slide presentation and in the earnings release.
That's a $12 million swing.
Correct.
Quite frankly.
Yeah.
That's, you know, as Bryan pointed out, $20 million net to date.
You're right.
You know, that cash and the, you know, the negative $1.8 million of operating cash flow, we feel really good about the sustainability and our ability to self-fund when we're running the business as efficiently as we are.
Got it. Thanks.
The next question comes from the line of Julia Kim with JP Morgan. Please proceed with your...
Hi, good afternoon. Thanks for taking the question. Appreciate all the sales and marketing initiatives and revenue synergy opportunities you highlighted throughout the call and that you're announcing. I was just wondering if you could give us more color on the timeframe of implementing these opportunities, so that, you know, we can have a sense of when you might be able to reach full potential of driving all these revenue synergy opportunities.
Yeah. Are you speaking about Gateway Genomics specifically or just the broader commercial transformation initiatives?
More broadly, including Gateway.
More broadly.
integration, but also, you know, replicating the new sales and marketing model to oncology and women's health.
Yeah. No, it's a good question and the right question. I think it's gonna take several more quarters. You know, implementation and operationalizing these things are always harder. There's culture change, there's process change, and good discussions to actually convert a customer and have them make a change is always harder than one thinks. Nonetheless, I think Mark and Nicole and the team over the next several quarters will have many of our initiatives implemented, and certainly by the you know, I would expect that 80% of the initiatives will be in place by the middle of next year, and then we're really executing on new product launches on that, going back to the prior question about new product launches.
I think it's the next several quarters will be pretty telling about how we can continue to roll our technology solutions out, but have them embraced and implemented in the field. That's where, quite frankly, we could have done a better job this year on some of the rollouts. You know, we'll get better as we continue to execute, you know, and we'll learn from our mistakes as well as the things that have gone well.
Great. That's very helpful. Then specifically on the cross-selling for prenatal testing and hereditary cancer, how much incremental revenue synergy do you expect at run rate? You know, what percentage of women's health accounts do you target to achieve these bundled orders in the run rate?
I think the best way I can answer that question is generally, and then maybe Nicole can add some more color. I mean, I'm not sure we're prepared to give you that full breakout. I would say that historically, many of the customers have been primarily prenatal or primarily hereditary cancer. You know, not having a portal to enable cross-selling has been a big challenge. That, you know, we'll begin to address that as we roll out the portal in Q4 and fully implement it in Q1. The goal is, and certainly going into next year, you know, we need to be able to chew gum and walk at the same time. We need to be able to sell both products effectively in each of the offices. It's a mixed bag of the historical penetration we've had.
Nicole, I don't know, you can probably give some better color than I can around that question.
Yes, absolutely. With, you know, with all of our women's health customers that are just ordering one or two of our products, we always will talk to them about the second or third product and the opportunities that there are there. I think there are a lot of ways where our customer experience sort of got in our way because of the not, you know, full integration of Counsyl versus Myriad, where there are still places in the organization where a customer has to, you know, interact with someone in Salt Lake City when they're talking about hereditary cancer and interact with a customer service employee out in San Francisco when they're talking about prenatal testing. We didn't have that seamless customer experience.
What we are investing in as part of technology solutions is that even if our back-end operations are still located in two different places, it all feels seamless to the customer. They have one place where they can go to order multiple products. They have one customer service person that can check on the status of test orders. They have one clinical team that can talk to a clinician if a clinician has a question or if a patient calls in, everybody is cross-trained. I think that this is a place where we continue to improve, right? Where our clinical teams are all cross-trained, but sometimes there's still a gap across customer service, or sometimes the technology tools are not integrated. We continue to make those cross-selling experiences better for the customer, right?
Where if it still feels like two different companies, it's difficult to cross-sell. Whereas when you have a great experience with one and it's very easy to just order a second or third product in the same portal or with the same workflow, you're more likely to do that.
That's the hope for Gateway Genomics as well, right? To engage with customers much earlier and have them have a more seamless experience. Again, Kevin and the technology team are working hard. We just have to implement better in the field.
Great. Appreciate the color.
Thank you. Thanks, Nicole.
And then-
Mm-hmm.
The next question comes from the line of Puneet Souda with SVB Securities. Please proceed.
Yeah, hi, Paul. Thanks for taking the question. First one on MRD. Just wanted to get any updated thoughts on positioning for that product. You know, recently, MolDX asked one of your peers to do a comparative study in CRC, or submit, you know, publications, to support that test. How are you thinking about, you know, getting ready to sort of address all that MolDX or your MAC is going to ask in terms of indication expansion and, sort of, you know, how are you thinking about, patients potentially already getting locked into these assays for the next two to three years? You know, there are already two commercial tests on the market and these tests are recurring every three to four months.
Just wanted to get a sense of sort of how you're thinking about the competitive positioning in this market and entry into it.
Yeah, a great question. I think we're very much in the early days of liquid and MRD, and the oncologists that we speak to. Dale and the team have really made great progress, even since our investor day, on advancing clinical trials and our own internal analytical validation on the samples that we have been running. Really pleased with the outcomes there. We're in discussions with several academic medical centers, as well as some large oncology groups to partner on not only the validation around MRD, but quite frankly, the commercial implementation in advance of that. We're trying to learn from our own successes and failures.
You know, even since our investor day, I would say our confidence level has increased and our path to reimbursement, and I understand what happened with our competitors in terms of their submission. We'll learn from that and as we're learning from the success that others have had, which I think will make the path easier for us. As you've seen, you know, we have a history of success, and we talked about it earlier today with myRisk and with our FDA approval of myChoice and moving to new sequencing technology, other things of navigating the regulatory and reimbursement paths pretty successfully. That's a core capability of the company that I think you'll see bring to bear as we come to market with liquid and MRD.
Okay, great. Maybe this is for Bryan, should we imagine any pressure or myRisk being subject to PAMA down the road? Thank you.
Yeah. I believe the 81479, it would not be subject to PAMA going forward.
One of the big benefits is it's already incorporated in.
Yeah.
It is excluded from PAMA.
There are no further questions at this time.
Okay. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.
Thanks, everyone.
That does conclude today's call. We thank you for your participation and ask that you please disconnect your line.