Greetings and welcome to the Myriad Genetics Third Quarter 2019 Financial Earnings Conference Call. During the presentation all participants will be in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, May 7, 2019. I'd now like to turn the conference over to Scott Gleason, VP, Investor Relations.

Please go ahead..

Thanks, Kevin. Good afternoon, and welcome to the Myriad Genetics fiscal third quarter 2019 earnings call. My name is Scott Gleason. I'm the SVP of Investor Relations and Corporate Strategy. During the call, we will review the financial results we released today, after which we'll host a question-and-answer session.

If you have not had a chance to review the earnings release, it can be found on the Investor Relations section of our Web site at myriad.com. Presenting for Myriad today will be Mark Capone, President and Chief Executive Officer; and Bryan Riggsbee, Chief Financial Officer. This call can be heard live via webcast at myriad.com.

The call is being recorded and will be archived in the Investor section of our Web site. In addition, there's a slide presentation pertaining to today's earnings call on the Investors section of our Web site and which will be filed following the call on 8-K.

Please note that some of the information presented today may contain projections or other forward-looking statements regarding future events and/or the future financial performance of the company.

These statements are based on management's current expectations and the actual events or results may differ materially and adversely from these expectations for a variety of reasons.

We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K.

These documents identify important Risk Factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I'm pleased to turn the call over to Mark..

Thanks, Scott. I will start today's call by providing business highlights from our fiscal third quarter after which Bryan Riggsbee will provide our financial results and guidance which will be followed by more detailed information on our portfolio opportunities.

Revenue in the third quarter was $216.6 million which met expectations as a result of continued year-over-year growth in Hereditary Cancer revenue and 51% new product volume growth. The test run rate in the quarter once again exceeded 1 million test per year with 76% of volume from new products.

More specifically our prenatal test volumes grew 7% sequentially demonstrating the early success of our sales force integration and GeneSight volumes grew 19% on a year-over-year basis.

On an adjusted earnings per share basis due to the success of the Counsyl integration in Elevate 2020 programs, we posted one of our most profitable quarters in the history of the company with adjusted earnings per share of $0.46 representing a 35% growth in earnings on a year-over-year basis.

During the quarter, we also achieved significant milestones with the approval of a Medicare LCD from myPath Melanoma. The approval for another BRACAnalysis CDx companion diagnostic indication in Japan and the first U.S. PMA submission for myChoice HRD CDx as a companion diagnostic for niraparib in advanced ovarian cancer.

From a reimbursement perspective, we saw continued progress from commercial payers ongoing GeneSight technical assessments.

Our strategy to engage with employers directly to expand GeneSight and Vectra coverage saw positive momentum with the announcement of GeneSight coverage by Kroger and we are in discussions with nine additional Fortune 500 employers.

Additionally, the revised American Breast Cancer Society recommendation to expand genetic testing to all breast cancer patients sets the stage for significantly broader hereditary cancer testing coverage. Also, two landmark studies laid the foundation for broadening carrier screening guidelines to at least 38 genes.

This quarter we also signed an in-network agreement with UnitedHealth for prenatal tests effective April 1. ForeSight has now reached a major milestone having reported more than 1 million tests. This marks our fourth commercial product to achieve this milestone which includes myRisk, BRACAnalysis and GeneSight.

Our strategy to build a diversified product portfolio upon a solid hereditary cancer foundation continues to demonstrate success and with growing test volumes in under penetrated markets and increasing reimbursement, we believe we have the opportunity for transformational growth.

I would now like to turn the call over to Bryan for a view of our financial performance for the quarter..

Thanks Mark. I would like to start by providing a more in-depth overview of our fiscal third quarter financial results. Third quarter total revenues of $216.6 million were up 18% compared to the $183.1 million reported in that same period in the prior year.

As a reminder, our financial results for fiscal year 2018 have been adjusted to reflect the impact of ASC 606 accounting on our historical revenues. Hereditary Cancer revenue in the quarter $117.6 million up 4% compared to $113.1 million reported in the third quarter of fiscal year 2018.

Notably pricing has now been stable on a sequential basis for six consecutive quarters and volume has grown on a year-over-year basis for nine consecutive quarters. GeneSight revenue in the quarter was 29.6 million strong volumes growing 19% year-over-year despite adverse third quarter seasonality.

Once again, we set new records for total test volume and ordering physicians with 17,000 ordering doctors in the quarter.

Revenue from prenatal testing was 30.6 million in the quarter with test volumes up 7% sequentially as we have seen throughout the molecular diagnostic industry laboratory benefit management programs negatively impacted average selling prices for our prenatal products this quarter and we anticipate this will continue in the fourth quarter.

From a strategic perspective, we have several initiatives to increase prenatal ASP including initiatives for average risk, non-invasive prenatal screening coverage expanded carrier screening guidelines and the addition of reimbursement for micro deletions.

Vectra revenue in the third quarter was $11.3 million which was relatively flat on a sequential basis as we continue to focus on increasing profitable sample volumes. Prolaris revenue in the third quarter was $6.9 million and increased 8% relative to the fiscal third quarter of 2018.

We're continuing to pursue broader commercial coverage and are conducting studies to support expanding coverage beyond low and favorable intermediate patients. Fully reimbursed are current Prolaris volumes would represent greater than $60 million in annualized revenue.

EndoPredict revenues in the third quarter were 2.8 million growing 22% year-over-year. Growth in EndoPredict revenue in the quarter came from international markets due to expanding reimbursement coverage and increased test volumes in the U.S. market.

Lastly, revenue associated with our pharmaceutical and clinical services business was $16.1 million growing 17% year-over-year. Sale of the German clinic has yet to occur as the lead buyer backed out due to a change in their hospital acquisition strategy in this particular market.

We have several interested parties evaluating the clinic and remain optimistic about future sale. I would now like to discuss our financial metrics for the quarter. Adjusted gross margins were 77.8% compared to 76.2% in the fiscal third quarter of last year.

Relatively cost of goods sold only increased $4 million on a year-over-year basis despite double-digit organic test volume growth and the addition of the lower margin prenatal business. This is a remarkable achievement and a testament to our laboratory operations team and the Elevate 2020 program.

Moving on to our operating expenses, on an adjusted basis our research and development expense was $19.6 million compared to $16.4 million last year. The increase in R&D expense is entirely attributable to the addition of Counsyl. Adjusted SG&A expense this quarter was $111.4 million compared to $91.1 million in the third quarter of fiscal year 2018.

Year-over-year increase is entirely attributable to the Counsyl acquisition. On an organic basis, total expenses including cost of goods sold declined $4.4 million year-over-year despite strong year-over-year volume growth. This decline reflects a significant success of our Elevate 2020 program.

Adjusted earnings per share were $0.46 for the third quarter compared to $0.34 in the third quarter of last year an increase of 35%. In the quarter we achieved another milestone with Counsyl achieving positive operating income ahead of schedule.

Our fully diluted share count declined sequentially to 74.9 million shares outstanding in the quarter which was attributable to the completion of the $50 million accelerated stock repurchase program we executed in the second quarter.

This quarter we ended with $263 million outstanding on our credit facility and $190 million in cash and cash equivalent. Now I would like to discuss the key assumptions underlying our fiscal year 2019 financial guidance. For the fourth quarter we are guiding $220 million in revenue on an adjusted earnings per share of $0.48 cents.

It translates to full year revenue of $856 million adjusted earnings per share of $1.74. For our Hereditary Cancer business, we expect increased revenue due to stable Hereditary Cancer pricing and a sequential increase in tests volume by system historical norms.

GeneSight, we are anticipating sequential revenue growth with increased volume and stable pricing. For the prenatal business, we are assuming continued strong volume growth in the fourth quarter attributed to our expanded sales efforts which will be offset by lower pricing due to the continued impact from laboratory benefit management programs.

We are assuming modest volume growth relative to the third quarter for Vectra, Prolaris and EndoPredict. We are not assuming any revenue from myPath Melanoma from the positive LCD as the effective date will be in the first quarter of fiscal 2020 and we are just beginning to ramp up sales efforts.

For our pharmaceutical and clinical services business assuming revenue will be down sequentially after the exceptionally strong third quarter and that we will own the clinic for the entire fourth quarter.

From an earnings perspective we are anticipating that operating expenses will trend downward in the fourth quarter and we will have a higher tax rate more consistent with our guidance for the full year. Lastly, as we start to contemplate guidance for fiscal 2020, we wanted to provide an update on Hereditary Cancer pricing.

We made substantial progress with the Hereditary Cancer payer contracts and as a result are anticipating that Hereditary Cancer revenues in fiscal 2020 will be relatively flat compared to fiscal 2019, these increasing volumes will also offset very modest anticipated price decline.

Overall, we remain highly optimistic about the long-term financial prospects for the company with an organic adjusted earnings per share run rate of approximately $2 per share through three quarters in a number of potential transformational growth opportunities for the business.

With incremental GeneSight reimbursement and growth in our prenatal business, we believe we are well-positioned to achieve our strategic goals. With that, I will turn the call back over to Mark..

Thanks Bryan. I would like to highlight the progress we have made on our five critical success factors starting with the Hereditary Cancer business. This quarter we were encouraged that the American Society of Breast Surgeons expanded their guidelines to recommend Hereditary Cancer testing for all breast cancer patients.

This decision is based upon increasing clinical evidence that the rate of deleterious mutations found in patients is consistent regardless of age.

If other guidelines such as the National Comprehensive Cancer Network followed suit this would more than double the number of patients that make criteria in the United States and could lead to higher penetration with dramatically simpler patient identification.

Additionally, at ACOG we presented a second study once again showing that 23% of patients at OB/GYN practices met criteria for hereditary breast cancer testing. This data is a result of a number of expansions and testing criteria substantially higher than previously estimated.

We believe there are more than 35 million women that qualify for hereditary cancer testing in the United States and that market penetration is less than 5%. We also to continue to expand the market for hereditary cancer testing through a multitude of companion diagnostic programs.

This quarter AstraZeneca announced data from their POLO study where patients with pancreatic cancer who are identified as having a germline mutation by BRACAnalysis CDx had both statistically and clinically significant changes in progression free survival compared to patients receiving placebo.

Myriad plans to file a supplementary PMA for BRACAnalysis CDx conjunction with AstraZeneca's as new drug applications for this indication. This new companion diagnostic indication would represent 40,000 pancreatic cancer patients per year in the United States.

Additionally, we recently expanded our companion diagnostic partnership with AstraZeneca and Merck to provide BRACAnalysis CDx testing and patients with the metastatic castrate resistant prostate cancer.

Every year in the United States approximately 30000 men will develop metastatic castrate resistant prostate cancer and like pancreatic cancer current testing penetration rates are less than 5%.

Our tumor testing companion diagnostic business achieves a significant milestone in April with the filing of the first PMA module for myChoice HRD CDx in conjunction with niraparib for ovarian cancer patients who have received three or more previous lines of chemotherapy.

The submission is based upon the positive results of the QUADRA study where platinum sensitive myChoice HRD positive patients saw an objective response rate of 26% compared to only 4% in myChoice HRD negative population.

Proposed intended use for myChoice HRD is for ovarian cancer patients who may become eligible for a PARP inhibitor which includes the 200,000 ovarian cancer survivors. FDA approval for myChoice HRD would provide a pathway to the code and payer coverage for the test. The second critical success factor is to grow new product volume.

I would like to start with the prenatal business which grew 7% sequentially.

Prenatal strategy has three pillars providing a differentiated test offering through pioneering science, supporting our customers as trusted advisers with a field-based team that is more than double the size of our nearest competitor and offering a frictionless customer experience from Myriad complete application.

This quarter we continued to differentiate prequel with the launch of expanded aneuploidy testing for all 23 chromosome pairs rather than the three chromosomes routinely assessed by other laboratories.

This increased the sensitivity of the test by approximately 30% and provides an area of differentiation which is difficult to replicate for non-and-GS based technologies.

Additionally, data at the American College of Medical Genetics meeting from 58,000 patients study showed that the prequel past was highly accurate in patients even below a 4% fetal fraction cut-off. The presence of a cut-off did not improve the accuracy of the test.

This provides a critical area of differentiation as a prequel no call rate is 1 in 1000 patients with competitive laboratories have no call rates of approximately 1 in 20 patients.

Importantly patients who receive a no-call on a non-invasive prenatal screening test typically go on to receive highly invasive amniocentesis or eukaryotic testing is both expensive at an average cost of approximately $1,500 and poses a risk of miscarriage of approximately 1 in 200.

We also made great strides integrating the Women's Health sales force during the quarter which led to the 7% sequential volume growth in its seasonally weak quarter. These increasing volumes were driven by a 17% increase in total ordering physicians.

While we have seen early success week there is still significant upside as our sales team continues their training and gains experience selling these sophisticated products. Our newest commercial opportunity is with myPath Melanoma and we thought it useful to provide an overview of the product after obtaining Medicare reimbursement.

Every year in the United States there are approximately 2 million skin biopsies performed from melanoma and approximately 15% of these biopsies are indeterminant after review by board certified dermatopathologists. This translates into300,000 potential tests per year with the revenue potentially exceeding 450 million per year.

myPath is a proprietary RNA expression test that evaluates 23 genes associated with immune function cell differentiation and cell signaling pathways. Validation data for myPath is the most active ever in the melanoma diagnostic market therapy large validation studies that have demonstrated 90% to 95% diagnostic accuracy.

We also have strong clinical utility data with myPath Melanoma and a study of 218 patients that was published in medicine in 2016, myPath Melanoma reduced indeterminant diagnoses by over 50%. Additionally, a second study published in personalized medicine in 2017 showed an over 80% reduction in accessions for patients receiving a benign test result.

To-date, we have limited commercial sales efforts to select dermatopathologists perform more than 30,000 tests. We're in the process of expanding the sales team to eight representatives which will provide reach into 35% of the very concentrated U.S. market with only 1,200 practicing dermatopathologists.

Overall, we are excited about our pioneering efforts to personalized medicine to yet another disease state and expect to generate revenue in the second quarter of fiscal 2020 after coding and pricing have established.

Our third critical success factor is to increase new product reimbursement a most important initiative in this area is to expand coverage for the GeneSight test, if submitted our complete dossier to payers representing over 90% of commercial covered lives and continue to have positive discussions to continue strengthening the dossier, we are publishing data on two additional analysis from the guided study.

First analysis evaluates the subset of patients that entered the [indiscernible] medications with Gene drug interactions which is consistent with the indications for use for GeneSight.

GeneSight is indicated for use by physicians contemplating an alteration in neuropsychiatric medications for patients with moderate to severe depression after at least one medication failure. Obviously, patients entering the study on green medications are no longer being considered for alterations in their medication.

As such those patients were excluded in this analysis and the patients in the GeneSight arm had better outcomes in all three clinical endpoints of permission, response and symptom improvement. The results were statistically significant.

In another guided analysis the GeneSight combinatorial approach was compared to a single gene approach to demonstrate the additional value of the test in one specific example in this study GeneSight appropriately declassified 24% of patients classified as in the intermediate metabolizers by single gene tests into a lower metabolizer category.

Consistent with this reclassification, these patients had a clinically and statistically significant 58% increase in drug exposure with normal metabolizing patients. While these two additional studies are progressing through the publication process they will be available for payers although to-date we have had very few requests for additional data.

This quarter we also engaged with a large number of senior human resource executives from Fortune 500 companies to outline the value the GeneSight and Vectra provide by improving employee wellness and increasing their health care spend.

I'm pleased to announce that we have now finalized the GeneSight implementation agreement with Kroger, the fourth largest employer in the United States, which follows the Vectra agreement announced in July.

As part of this agreement, Kroger is implementing a medical intervention step from Kroger pharmacists, patients treating physician discuss GeneSight. Kroger currently has 3% market share among retail pharmacies in the United States with over 2,200 locations.

They are also in late stage discussions for coverage with an additional Fortune 500 company and have eight additional Fortune 500 employers in early stage discussions on GeneSight and Vectra. These employers are typically among the largest customers of national commercial insurers and are often a catalyst for changes in commercial payer coverage.

Another reimbursement goal is to increase reimbursement for ForeSight and to that end we announced an important new publication in genetics and medicine, which was the first data driven evaluation of commonly stated panel inclusion criteria for expanded carrier screening in over 55,000 patients.

The study evaluated the frequency of at risk carriers for 176 genes included in the ForeSight test and found that by applying the recommended 1 in 100 panel inclusion criteria, 38 of the conditions in ForeSight met all criteria.

A second independent study recently published in genetics and medicine evaluated 415 genes to cross 123,136 patients showed strikingly similar results finding that 40 genes would be appropriate for testing to meet 1 and 100 criteria.

We believe these studies will be pivotal to broadening expanded carrier screening guidelines from ACOG and ACMG that currently only recommend advances in spinal muscular atrophy testing screening for all ethnicities. Expanded guidelines will provide an opportunity to broaden coverage for the newly established expanded carrier screenings code.

With Prolaris, I'm pleased to announce several additional coverage decisions including group Blue Cross Blue Shield of Kansas, SmartHealth; Blue Cross Blue Shield of Northeastern New York; and Blue Cross Blue Shield of Western New York bringing the total number of covered commercial lives in the United States approximately 27 million patients.

Lastly with myPath Melanoma, we have now received reimbursement from eight commercial payers and a final local coverage determination from Meridian Healthcare Solutions or Medicare Administrative Contractor which becomes effective in June. Note that Medicare patients comprise approximately 35% of the melanoma diagnostic mark.

myPath Melanoma also has been recognized in the American Academy of Dermatology and NCCN guidelines, which recognize the potential of myPath Melanoma to aid in the diagnosis of equivocal lesions.

We are continuing to engage with commercial payers to expand reimbursement coverage for myPath Melanoma and believe the reimbursement dossier is well positioned for broader coverage.

Moving on to the international business, this quarter we received approval from the Japanese Ministry of Health Labor and Welfare for BRACAnalysis CDx as the companion diagnostic in first line ovarian cancer with olaparib.

Coupled with the metastatic breast cancer indication where we already have approval there are now approximately 22,000 cancer patients in Japan every year eligible for companion diagnostic testing.

As a reminder in the fiscal second quarter, we also submitted our application to the Japanese Ministry of Health Labor and Welfare for BRACAnalysis in Hereditary Cancer patients. Its application initially seeks approval for affected women with breast cancer or ovarian cancer, but could expand in the future to include unaffected patients as well.

Within EndoPredict, we have seen several recent reimbursement advances in the international market, first, nice improved EndoPredict for reimbursement in the United Kingdom in December.

Additionally, the first region in Italy has announced they will begin reimbursing EndoPredict and Greece has now announced coverage for all breast cancer prognostic tests as well. In summary, we remain very encouraged with our progress and the potential to transform the financial performance of the company.

Hereditary cancer business has returned to growth for two consecutive quarters. We are expecting stable revenue in fiscal year 2020. We have two material growth drivers with GeneSight and the women's health business with both have meaningful near-term catalysts.

Additionally, we continue to generate operating leverage and double-digit earnings growth as we execute on our Elevate 2020 program. With strong new product volume growth and increased reimbursement coverage, we continue to believe we have the ability to more than triple the earnings power for the company in the future.

With that, I would like to now turn the call back over to Scott..

Thanks Mark. As a reminder during today's call we use certain non-GAAP financial measures. A reconciliation of the GAAP financial results to the non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our Web site.

Now, we're ready to begin the Q&A session in order to ensure broad participation in today's Q&A session. We're asking participants please ask me one question and one follow up. Kevin, we are now ready for the Q&A portion of the call..

Thank you. [Operator Instructions] And our first question is from Bill Quirk with Piper Jaffray. Please go ahead..

Great. Thanks. And good afternoon everybody.

So, first off, Mark you're glad to hear that obviously again your gene dossier in front of so many private payers, should we still be thinking about them making decisions here in the next call it three to six months to see some of the -- shall we see some positive coverage decisions that's [indiscernible]?.

Yes. Thanks Bill. We still continue to believe and the progress -- they continue to make significant progress on the reviews of the dossier. So, we are still anticipating by the end of the calendar year that all of the payers will have gone through a tech assessment for GeneSight. So, I think that still is our expectation.

So, these take a while there's a very big dossier and as a result of that it requires some pretty extensive review, if you're going to do a fulsome dossier review and that's what's underway right now. So, I don't think we expect any change in timing and to the comments we made. We continue to see positive receptivity towards the data..

Understood. And then, as a follow-up two quick ones for Bryan, first off, if myPath Melanoma had been covered by Medicare if any, currently what would just the annual run rate be on that revenue. And then, secondly, in terms of the midpoint of guidance coming in here for the fourth quarter is that predominantly prenatal? Thanks..

Sure. Thanks Bill. Yes. I think the point around or the question around myPath Melanoma is just that we changed our strategy several years ago as we sought to get reimbursement coverage. And so, we're really just launching relaunching into that market in terms of hiring salespeople et cetera.

So, I think you're really talking about a really low number from where we start today. I think relative to the midpoint of the guidance, I think just in terms of, we continue to see similar trends are in line with what our expectations were. We're excited about the prenatal business.

In terms of the volume potential based on the larger sales force, I don't think I would point to anything in particular, I think we feel like our guide is in line with the range that we have provided previously..

Got it. Thanks guys..

[Operator Instructions] Next question is from Patrick Donnelly with Goldman Sachs. Please go ahead..

Great. Thanks guys. Mark maybe just quick one on the hereditary cancer side and you guys are talking about a slight pricing decline on the go forward. Historically, obviously, been talking quite a bit about stable pricing going forward given the long-term contracts that are in place.

So maybe just kind of help us think about what changed there, what type of decline it is? Is it a few contracts that came up early and got to decline? Just a little more clarity there would help..

Yes. Thanks Patrick. Yes. I think we took the opportunity obviously there's a number of long-term contracts and we're in discussions with those contracts with a variety of products.

Now, obviously, we have a pretty extensive portfolio with 11 different products and we took the opportunity to solidify some of those contracts as we were in negotiations potentially with other products or as some of their -- as they started to come up to their renewal. Yes.

I think we're still very pleased with the performance of the business, the volume continues to be strong and I think we're just noting that we expect some slight price decline for some of those, but frankly that decline is quite modest.

So, I think it's very consistent with everything we've said, which is that we continue to be at a premium relative to other laboratories. That premium has been justified historically with our quality advantages.

The magnitude of the premium has come down since the first time that we initiated these contracts such that we really are in a position to continue to justify that premium relative to other laboratories that are in there.

So, I don't think there's really any change in our narrative, I think this is very consistent with what we've always expected how this market would continue to evolve.

And if anything I think we've become more encouraged is that, we've now seen such a breadth of change in guidelines as to who's actually eligible for hereditary cancer testing and the potential with a significant expansion in breast cancer patient eligibility.

I think all of those are actually positives relative to maybe what we would have even thought even a year or so ago. So, I think those expanded indications are ones that we're excited about.

And of course, the other thing we noted in this that is new is that, we now have multiple study showing the numbers of women that qualify with those expanded guidelines in the unaffected marketplace is substantially larger than what we had originally expected.

And so, now, you've got a market that's over 35 million patients that are eligible for a hereditary cancer testing in the United States, which means we're really in low single digits from a penetration standpoint into that market.

So, I think we've got broader indications for use now growing volumes, the pricing I think is consistent with what we expected in this market and so we continue to be very encouraged about this business..

Okay. And then, maybe just one for Bryan on the guidance. I think you guys beat by $0.03, the raises for a little less [indiscernible]. You just talk through the moving pieces I mean was that the German clinic kind of shifting around.

Maybe just help us think about what the moving piece around and the guide there?.

Yes. Thanks Patrick. The point I would make on the guide and to as you look at the quarter as one of the things that happened during the quarter is, we had some tax reserves related to some physicians for which the statute expired and we had a positive impact in the quarter of about $0.03 relative to where our expectations were before.

So, I think if you adjust for that you're right in line with what our guide was previously..

Okay. Thanks..

Next question is from Tycho Peterson with JPMorgan. Please go ahead..

Hey, thanks. Mark –.

Tycho, we lost you there..

Tyco are you on?.

Operator, can we go to the next question and then we'll come back to Tyco if he comes on the line..

Absolutely. So next question is Derik De Bruin with Bank of America. Please go ahead..

Hi. This is Ivy Ma for Derik today. Thank you for taking my question. I just wanted to get an update on the few changes we talked about in previous quarters regarding GeneSight. You talked about additional Medicaid documentation requirements and there was some cash collection issue related to the LBM. So, would appreciate any color on those issues.

Thank you..

Yes. Thanks for the question. From the perspective of the Medicare compliance, we continue to make nice progress on ensuring that higher and higher percentages of the test orders that come in are compliant with the additional documentation requirements that that Medicare imposed beginning in the end of August, September.

So, I think we're making very nice progress on that. I think the team has done a good job on that.

And as you can see from the second issue from the standpoint of the adjustment we made revenue for some the laboratory benefit management programs, as you can see from this quarter, I think we returned to what you would expect from a revenue and a volume perspective.

So, I think we saw that the average selling prices stabilize in this quarter relative to where they were last quarter. And as Bryan noted in our commentary for guide for next quarter, we're also assuming stable average selling prices for GeneSight next quarter as well. So, I think those two issues are largely behind us..

Thank you. And as a follow-up, can you clarify the German lab, [indiscernible], I know we talked about the delay last quarter, but just wanted to see what's the issue there. And are you adding these revenues back to the '19 guide? Thank you..

Yes. I think it was really as noted in Bryan's commentary, it was -- we had a buyer in the last stages of negotiation that decided to back out. And they had a strategic change in their approach to laboratory acquisitions. And so, they backed out of that.

Fortunately, we have a number of other buyers that are in the queue and are very actively looking at that. And so that's why Bryan expressed optimism that we continue to expect the sale of the clinic..

Great. Thank you..

[Operator Instructions] And we have Tycho Peterson. Please go ahead..

Thanks. Sorry about that before. Mark, can you comment on the United decision at the end of April on their preferred Lab network program.

Just curious, you guys are excluded from that, if there are any implications for pricing and volume?.

Yes. And welcome back Tycho. Glad you got through. Yes. I think we really don't anticipate any impact from that as United noted in their commentary. This really doesn't change any of the procedures and processes or billing or contract pricing or any of those things that mechanistically are part of our agreement with United.

So, we're not really anticipating that there's no change in pre-authorization. And if you look at across the Board, I think United has something like 320 laboratories in network. I think only 7 were included in that announcement. So, it's obviously a smaller number of laboratories that ultimately got chosen.

But, from our perspective, we really don't see any changes in the way we plan on operating with United..

And then, for Bryan, on margins, operating margins were a little bit lower than we expected.

Can you just talk on how you're thinking about margins in the fourth quarter and going forward? And is Counsyl on track to achieve EPS accretion in the fourth quarter still?.

Yes. Thanks, Tycho. Yes. I would say that we're right on track with where we expected to be in terms of Counsyl. We said in the quarter that we reached operating margin breakeven in the third quarter. And so, I think we're on track relative to the financial performance for Counsyl.

I think as you look in the sequential margin profile obviously Q3 is a seasonally weak quarter. And so that has an impact on margins lower revenue and a cost base that is what it is. So, as you move into the fourth quarter and you see revenue increase you would expect to see improvement in margins as a result..

Okay. And then, last one can you just comment on accounts receivable because they did go up quite a bit. Just curious if there's any back story there. Thanks..

Sure. Thanks. Yes. Thanks, Tycho. The story on accounts receivable, a couple of things. First, if you're looking at the year-over-year comparison really Counsyl is in the number this year not in there last year. And we also as we mentioned on the last call, we completed the movement of our [Crescendo Lab] [ph] in the December quarter.

And so, as we moved into the current quarter and started processing those samples in Salt Lake City, we had to do an address change update with Medicare and so while that system was being updated, we were unable to submit claims, so there was a build up about $11 million related to Counsyl, excuse me, related to Crescendo claims.

We submitted those claims in March and they've significantly all been paid in April. So, we would expect Q4 to be a really strong cash quarter and are to decrease. The other thing that is impactful as you look at the sequential quarter change is just the timing of revenue in quarters.

March is a typically a strong month whereas in Q2 October is the strongest month. So, more time to collect the AR balance in the second quarter. So again, we would expect strong cash in Q4 and that balance to come back down. Thanks..

Thanks..

Next question is from Jack Meehan with Barclays. And that line is open..

Thank you. Good afternoon. I want to focus on GeneSight.

Mark have you had any interactions with the FDA on GeneSight since the beginning of the year and if so what have you discussed?.

Yes. Thanks Jack. I just refer back to the comments I think I made on the last call that serendipitously I was actually at a conference with [Dr. Geoff] [ph] and the day that 23andMe got clearance for their tasks, which of course was the other thing that came along with that was the posting of the commentary from the FDA on their Web site.

And so, we had a chance to talk at that point. It's not clear they were actually aware of GeneSight then and so I brought [Dr. Sharon] [ph] up to speed on the product, did in fact acknowledge that we would have a publication coming out relatively shortly and that I would send a copy of that manuscript if they were interested.

And so that's what we've done is mailed that to them and so they have that manuscript. So today that's really any of the discussions have really been largely that is just us following up on sending them over that publication..

Hey thanks. And then, as a follow-up on the payer front, we've seen Anthem and Evercore now both reviewed the published guide study and reiterated GeneSight non-coverage.

How are you planning to address any issues they raised in the coverage decisions and just what's your strategy for medical coverage with remaining health plans?.

Yes. Thanks Jack. I think it's interesting for both of these timing was such that by that time the guided publication came out beginning in January. We actually never had a chance to talk to either one of those payers about that publication before those policies were written.

Now what's important is actually the comments they made were actually not about the GeneSight dossier, it was really just quick comments about the guided study. Frankly they didn't have enough time to review the entire dossier, which only got submitted in January.

So, if you take Evercore for example that policy update was 1297 pages that policy that was a broad one. Everything had pretty much been updated on that even before the guided publication came out. So, there was some commentary about guided, but it wasn't really about the GeneSight dossier in its entirety.

And you can tell because there's no notations and references to all the other publications that are an extensive part of the dossier. Same thing was true with Anthem is, there was really no discussion with them and there were some comments.

Now I think as a result of the fact that we didn't actually interact with them after the publication, you'll note and I think you already have that there were a number of errors even in some of the comments that were made.

So, obviously, we'll be reaching out to them as they do a more extensive dossier review as opposed to just some commentary on the guided study and to have an opportunity clarify that. For example, some of the limitations noted by Anthem were irrelevant because they were not indications we were seeking.

For example, they noted that treatment naïve patients were not included in the guided study that was factually accurate. And of course, from our perspective irrelevant because we're not asking for coverage for treatment naïve patients.

And so, there were just some of those things that are going to be opportunities we'll have to correct as we have additional discussions with them.

I think the other thing to note, it's fair to say Evercore was really the one where the Medical Director had been focused on symptom improvement and what was an impactful to them and they were interested in -- is the data that I showed on this call, where if you exclude the patients that are not expected to benefit from GeneSight and focus on the 70% that are, you see statistical significance across the board on all of the endpoints.

So that data was of interest. They're certainly very interested in that publication and we're working as quickly as we can to get that that data into publication. So, I think that addressed the first part of your question Jack on those two.

As far as the other payers, we've had an opportunity to present to many of them post publication of guided and go through the complete dossier. We're obviously well positioned to respond in the event that they ask any questions.

But as I noted in my commentary, we really have not had a lot of questions in our direct reviews or subsequent to that as they've gone through the tech assessment process. So, there have not been a lot of questions, but we're well positioned to respond to any of those.

And of course, if any other questions have to do with the two papers I mentioned in the call today, which are let me see what happens if you exclude green patients and or how's your test compared to a single gene, we'll have publications well underway to answer those and manuscripts that are available.

We continue to be very encouraged by the interactions we've had with payers and employers as we noted, which is actually a unique approach now that we can use that. That's important. I would note that as you mentioned Kroger or as you mentioned Anthem, Jack, Kroger is actually a customer of Anthem's.

And so, it's actually very important for payers when their large customers choose to move on these types of innovative decisions on their own. That actually is quite impactful to payers because they like to be the ones that bring innovations to their customers.

And so, all of the Fortune 500 companies that I mentioned that we are actively working with right now have different large national payers that they're working with as customers. And so, we'll be taking that opportunity to ensure that they connect to each other and understand why this was so important to the employer.

It gives some other impetus behind a payer as they review their plan decisions..

There are no further questions from the floor. I'll turn the call back to you..

All right. Thanks Kevin. This concludes our earnings call. A replay will be available via webcast on our Web site for one week. Thanks for joining us this afternoon..

And that does indeed conclude your conference call for today. We thank you for your participation and you may now disconnect..