Scott Gleason - Myriad Genetics, Inc. R. Bryan Riggsbee - Myriad Genetics, Inc. Paul J. Diaz - Myriad Genetics, Inc..

Sung-Ji Nam - BTIG LLC Doug Schenkel - Cowen and Company, LLC Tycho W. Peterson - JPMorgan Securities LLC Stephen Unger - Needham & Co. LLC Puneet Souda - SVB Leerink LLC Derik de Bruin - Bank of America Merrill Lynch Brandon Couillard - Jefferies LLC Jack Meehan - Nephron Research.

Greetings and welcome to the Myriad Genetics Fourth Quarter 2020 Financial Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. And as a remainder, this conference is being recorded Thursday, August 13, 2020.

I'd now like to turn it to Scott Gleason, VP, Investor Relations. Please go ahead..

Thanks, Keith. Good afternoon. Welcome to Myriad Genetics fourth quarter 2020 earnings call. During the call, we will review the financial results we released today after which, we will host a question-and-answer session. If you've not had a chance to review our quarterly earnings release, it can be found on our website at myriad.com.

I'm Scott Gleason, the Senior Vice President of Investor Relations and Corporate Strategy, and on the call with me today will be Paul Diaz, our newly announced President and Chief Executive Officer and Bryan Riggsbee, our Chief Financial Officer.

This call can be heard live via webcast at myriad.com, and a recording will be archived in the Investors section of our website. In addition, there's a slide presentation pertaining to today's call on the Investors section of our website, and which will be filed following the call on Form 8-K.

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

Thanks, Scott. This quarter, Myriad faced a significant challenge from the global pandemic and its impact on elective testing volume. These times have been challenging but I am extremely proud of our team at Myriad who are the very best in the industry.

They have done an incredible job of rising to the challenge and ensuring that we are able to continue to serve patients and providers that depend on us. As the quarter progressed, we saw a significant recovery with volume increasing on average to 75% of pre-pandemic levels by the end of the quarter.

Importantly, the biggest recovery was with our core hereditary cancer franchise. Much of our progress was due to new improvements in telemedicine and direct-to-patient sample collection kit shipments. We will look to continue to build upon these capabilities in the coming quarters.

Importantly, despite the challenges we faced in fiscal year 2020, we generated positive operating cash flow and our cash balances improved from the fiscal third quarter to the fiscal fourth quarter. This is due to the aggressive cost management initiatives taken by the company to mitigate cash burn at the end of the fiscal third quarter.

We were excited to receive a new GeneSight LCD covering all healthcare providers licensed and qualified to diagnose the condition and prescribe relevant medications, either independently or in arrangement. And we have since received new GeneSight pricing.

The net impact of these changes is expected to be neutral to slightly positive to our GeneSight average selling price and supports our primary care expansion for GeneSight in fiscal year 2021, which I will discuss in more detail later in the call. Most importantly, I am pleased to have Paul Diaz join us as our new CEO.

Paul was previously the CEO of Kindred Healthcare and has broad experiences in healthcare services across many segments. He dramatically expanded the revenue base of Kindred Healthcare during his tenure as CEO and turned the company into a Fortune 500 company prior its acquisition.

Myriad is extremely fortunate to have a leader of his calibre and experience, and I look forward to working with him this year on reinvigorating the business strategy executing on pending catalyst and positioning the company to exit the year with increased momentum. With that, I'll turn the call over to Paul..

Thank you, Bryan, for that kind introduction. let me begin by first thanking our Chair, Louise Phanstiel, and you, Bryan, who served admirably as our Interim CEO for your leadership and support through this management transition. More importantly for guiding Myriad through a period of unprecedented change and challenge.

I'd also like to thank the entire Myriad team and our physicians and payer partners for their extraordinary efforts to continue to serve our patients through the COVID-19 crisis.

I've been inspired these many months by the dedication of healthcare professionals across the US and the Myriad Genetics team specifically for the difference they continue to make in our patients' lives and the opportunity we have to make an even bigger impact going forward.

I'm excited to join the talented management team and board of directors of Myriad, an organization dedicated to helping patients and physicians identify the risk of developing disease, accurately diagnose disease, assessing disease progression, and aiding in therapy selections.

Myriad has a rich history, reputation and powerful genetic tools along with the unique database of clinical and biological information that can empower patients as consumers and stewards of their own health and wellness.

Working with physicians and payers, this information can guide treatment decisions, improve clinical outcomes and lower healthcare costs. Our company has a tremendous opportunity to transform its business and strategically position itself for sustained profitable growth.

We will look to leverage the company's culture and capabilities of innovation and revitalize our approach to the commercial effectiveness of our products and improve our digital sales and marketing capabilities with the customers in mind.

Finally, there are significant opportunities to improve Myriad's financial positions and invest in innovation and R&D to accelerate the launch of new products. Thank you for the opportunity to speak with you today. And I look forward to reporting back to you on our progress and plans for future growth.

I'm now pleased to turn it back over to Scott for the financial results..

Thanks, Paul. I'm pleased to provide more information on our financial trends and outlook for fiscal year 2021, starting with our hereditary cancer business. Hereditary Cancer revenue in the quarter was $39.9 million compared to $119 million in the fiscal fourth quarter of last year.

Looking at the components of revenue change, test volumes declined 58% and pricing declined by 20% on a year-over-year basis. Volume declines in the quarter were largely attributable to the global pandemic.

We ended the fourth quarter with test volume levels of 72% of pre-COVID-19 baseline from early March and have held relatively steady at these levels through July. From a pricing perspective, we saw year-over-year pricing declines decreased from 28% in the fiscal third quarter to 19% this quarter.

We expect another significant reduction in the year-over-year pricing headwind in the first two quarters of fiscal year 2021 as we annualize the CPT code transition impact with the impact of our new long-term contracts.

As a reminder, this fiscal year, there will not be a net negative impact on hereditary cancer pricing from PAMA due to provisions in the CARES Act. Moving on to GeneSight, revenue in the quarter was $8.5 million versus $29.8 million in the fiscal fourth quarter of last year.

Looking at the components of growth, test volumes declined by 69% year-over-year and pricing declined by 7% year-over-year. From a volume perspective, we saw the significant impact from the global pandemic.

However, this quarter, we annualized the impact associated with the discontinuation of our GeneSight ADHD and analgesic tests, which will lead to more favorable comparisons in coming quarters. GeneSight volume increased to approximate 50% of our pre-COVID-19 run rate by the end of June.

In the quarter, we had adjustments of $6.3 million related to settlements of payer claims dating back as far as 2012. The identification of these settlements was predominantly found by our internal review process. These adjustments negatively impacted Hereditary Cancer and GeneSight revenue and average selling prices in the quarter.

These settlements were partially offset by improved cash collections leading to a net $5.2 million in out-of-period adjustments for the quarter. Prenatal revenue in the quarter was $16.6 million compared to $25 million in the fiscal fourth quarter last year.

Test volumes in the quarter declined 11% year-over-year and by the end of the quarter were close to our pre-COVID-19 run rates. From a pricing perspective, average selling prices declined 26% year-over-year.

As with the hereditary cancer business, we expect prenatal pricing headwinds to begin to mitigate as we transition through the first half of fiscal year 2021, especially as we hope to see the positive impact of some of our new revenue improvement programs we have implemented specifically for the prenatal market.

Vectra revenue in the third quarter was $7.2 million versus $12.2 million in the same quarter last year. Vectra volumes declined 42% year-over-year and pricing improved 2% year-over-year. Vectra volumes in the quarter increased to approximately 85% of their pre-COVID-19 run rate by the end of the quarter.

Prolaris revenue in the third quarter was $4.5 million compared to $6.3 million in the fourth quarter last year. Prolaris test volumes declined by 32% year-over-year due to the pandemic and pricing increased by 5%.

Lastly, revenue associated with our Pharmaceutical and Clinical Service business was $9.9 million versus $18.5 million in the fiscal fourth quarter of 2019. The sale of the German clinic led to $6.2 million of the year-over-year decline in revenue.

The COVID-19 pandemic did negatively impact clinical trial activity leading to lower revenue from our pharmaceutical partners. However, Myriad RBM was involved in a number of COVID-19 related clinical trials, which helped to offset some of those headwinds. I'd now like to discuss our financial metrics for the quarter.

Adjusted gross margins were 60.9% compared to 76.8% in the third quarter of last year. Adjusted gross margins were detrimentally impacted by a lower fixed cost absorption due to lower test volumes associated with the COVID-19 pandemic and by year-over-year pricing headwinds.

Adjusted research and development expense was $16.1 million compared to $19.3 million last year. Adjusted SG&A expense this quarter was $83 million compared to $112.7 million in the fiscal fourth quarter of last year.

Total adjusted operating expenses including cost of goods sold were $135.5 million in the fiscal fourth quarter and declined by approximately $41 million on a sequential basis and $47 million on a year-over-year basis.

The expected decline in expense was offset by quicker than anticipated volume recovery in the business and due to higher than anticipated legal expenses in the quarter. Adjusted earnings per share were a loss of $0.31 for the fourth quarter.

Earnings were positively impacted by approximately $14.6 million in one-time CARES Act stimulus payments from the US government, which were reported on the other income line in the income statement. We ended the quarter with $224 million outstanding on our credit facility and $255 million in cash and cash equivalents.

Our cash position benefited from $29.7 million in accelerated payments from Medicare, which will serve as prepayment for future claims. Due to the uncertainty associated with the coronavirus pandemic, we are not providing annual or quarterly guidance at this time for fiscal year 2021.

However, we would like to provide you with some commentary related to our current business trends. We are currently seeing test volumes on average at approximately 75% of normal and expect that to continue for the remainder of the quarter. This trend has been consistent throughout late June and July.

The mix is slightly unfavorable to historical trends with lower priced prenatal products performing better than the average. From an expense perspective, we are expecting our cost of goods sold to increase this quarter, but for gross margins to improve meaningfully into the high 60s given better fixed cost absorption on higher test volumes.

We also anticipate a $20 million sequential increase in operating expenses as we have reinitiated direct selling and marketing activities, anticipate higher commission expenses and are planning on bringing back some furloughed employees consistent with the increased volume.

We are currently in discussions with laboratories, employer groups, and healthcare service providers to provide COVID-19 testing services. As we noted on our last quarterly call, we are working to launch COVID-19 testing.

Our Salt Lake City laboratory launched COVID-19 testing and began receiving samples in late July, and our Mason, Ohio and South San Francisco, California labs will be up and running in August. We plan to exit August with capacity to run approximately 3,000 tests per day.

Our goal with this launch is to help with the pandemic response and to do our part to provide testing capacities for the national testing effort. We are currently receiving about 250 samples per day and will provide an update after the fiscal first quarter. Additionally, we recently agreed on new pricing for our GeneSight test with MolDX.

We are not providing details on pricing, but coupled with the expansion in coverage, we believe the net impact will be neutral to slightly positive to our GeneSight average selling prices. In the fiscal first quarter, we are completing the hiring process of 65 new sales reps with a mix of direct and inside sales personnel.

In addition, we're updating our systems and processes to comply with the performance of the LCD.

Given we will be early in the launch of the expanded sales team and the implementation of a new LCD, we do not expect to see a significant impact on GeneSight revenue from the sales force expansion in the quarter, but believe this impact will increase throughout fiscal year 2021.

In terms of Prolaris, we are awaiting Medicare action on our reconsideration request for coverage for non-favorable, intermediate and high-risk patients. Looking at our prenatal business, we are not assuming any positive impact from new guidelines for average risk testing or expanded care screening guidelines.

We continue to work with both ACOG and ACMG on guidelines which support standard-of-care testing within the industry. For the full year, we are currently assuming a gradual recovery in the business as we transition through fiscal year 2021.

And while results will vary by test, we hope by the end of the fiscal year, we will have returned on average to a relatively normalized testing environment. While we are clearly seeing a dramatic impact on our business due to the global pandemic, ultimately this will be a transient event.

We continue to believe Myriad is well-positioned to achieve scale within the personalized medicine industry and a number of pending business catalysts could further improve our profitability profile. With that, I'll turn the call back over to Bryan to discuss some of the key business highlights in the quarter..

Thanks, Scott. Now, I would like to discuss some of the key business highlights in the quarter beginning with our progress on GeneSight. This quarter, Medicare issued a final LCD covering pharmacogenomic testing, which became effective on August 3.

There have been some misunderstandings around this LCD, and I would like to highlight a few clarifying points. First GeneSight is covered under the LCD as a multi-gene panel and was one of the listed tests in the coverage articles, which were recently issued. Medicare is not requiring us to make any changes to the test in order to receive coverage.

As Scott mentioned, we received a new price for GeneSight for MolDX. We believe that the change in pricing along with the expansion of the market available for reimbursement will be neutral to slightly positive to our overall GeneSight average selling price.

Importantly, the new LCD expands coverage with a number of patients who will now be eligible for testing by allowing all licensed health care providers, licensed and qualified to diagnose the condition and prescribe relevant medications either independently or in an arrangement to order the tests.

This enables expansion into the primary care setting where approximately 60% of anti-depressant prescriptions are written in the United States. Additionally, the new LCD does not require a prior medication failure.

Overall, while we are not aligned with some of the language in the LCD around combinatorial testing where GeneSight is the only pharmacogenomic test that has demonstrated the ability to improve outcomes in a large prospective study, the LCD provides us with a broader market opportunity for the product.

Based upon this LCD and coverage from United Healthcare, we are currently implementing our plan to expand GeneSight into the primary care setting. We plan to complete the hiring of an additional 65 sales reps this quarter, consisting of a mix of both direct and inside sales personnel.

We will strategically position these reps in markets with the greatest opportunity. We also recently initiated a consumer advertising pilot focusing on social media in three key markets in the United States.

Based upon the success of this campaign, we could implement further consumer marketing programs on a broader basis later in the fiscal year, dependent on the investments generating a positive return on invested capital in a short time.

In early July, we launched a new version of the test collection kit for GeneSight, specifically designed for home sample collection. With the increasing prevalence of telemedicine broadly and in the field of psychiatry, this test kit is an important enabler for physicians who will not be physically present with the patient during their visit.

Once the test is ordered by the physician, the patient kit is designed to be easy to use with a clear process and step-by-step instructions. The kit utilizes a buccal or cheek swab the patient can use to collect DNA from the inside of their cheek.

After collecting the sample, the patient puts the swab into a confidential pre-paid and pre-addressed shipping envelope to return it to our laboratory where it's paired with the healthcare providers order for processing. So far, we have seen high compliance with test kit shipped directly to the patient for the sample collection step.

Moving forward, we increasingly see an important role for telemedicine and psychiatry post the pandemic and we are currently working on strategies to capitalize on this trend. This quarter, we also published a new study in psychiatric research demonstrating that GeneSight is superior to single-gene testing at predicting blood drug levels.

This study evaluated 191 patients from the guided study who were taking either citalopram or escitalopram which are routine first-line treatments for major depressive disorder. Current Clinical Pharmacogenetics Implementation Consortium guidelines only make recommendations for citalopram based upon cytochrome P450 2C19 metabolizer status.

However, scientific evidence supports the role of additional genes, cytochrome P4502D6 and cytochrome P4503A4 in citalopram metabolism.

In the study using the combinatorial approach used by GeneSight Psychotropic test identified more patients with decreased metabolism in combinatorial pharmacogenomic testing explained or variants in citalopram blood levels when compared to single-gene testing with almost twice the predictive power.

Moving on to our hereditary cancer business, I'm pleased to announce that this quarter, we published two important studies on our riskScore test.

The first study was the validation of the polygenic risk score component of the test, which evaluates key single nucleotide polymorphisms in a variety of genes known to be associated with higher breast cancer risk.

The validation found at the odds ratio for developing breast cancer was 1.47 per unit standard deviation in the riskScore translating to women in the top 1% of patients having a threefold higher risk of breast cancer in average risk patients.

The second riskScore study was published in the Journal of the American Medical Association Network Open and demonstrates the ability of Myriad's polygenic risk score to improve breast cancer risk stratification in women diagnosed with pathogenic mutations in common breast cancer genes.

The study evaluated over 150,000 patients and approximately 10,000 patients who were carriers of pathogenic mutations in common breast cancer genes. The study demonstrated that patients with high penetrant genes such as BRCA1 and BRCA2 did not warrant changes to clinical management.

However, breast cancer risks in patients with moderate penetrant genes such as CHEK2, ATM, and PALB2 could very significantly warranting different clinical management considerations. For example, patients with a PALB2 mutation historically have been assessed to have an approximately 50% lifetime risk for breast cancer.

However, after incorporating the data from the riskScore test, patients' risk varied between 26% to 79%. Myriad plans to launch the risk modification for CHEK2 this fall patients risk vary between 26% to 79%. Myriad plans to launch the risk modification for CHEK2 this fall followed by additional gene.

Myriad has the only clinically validated risk modification tool and we believe this will further differentiate our market-leading hereditary cancer test. This quarter, we launched a new AI ChatBOT named Gene to support our hereditary cancer business.

The ChatBOT can provide certain information to patients answering over 500,000 questions and interfaces with our leading hereditary cancer quiz. Gene will interactively engage individuals online providing them with education about hereditary cancer prior to taking an online assessment to determine if they may be a candidate for genetic testing.

For those who complete the preliminary assessment and meet criteria for further evaluation, Gene will automate a pre-test process that sends an educational link that displays interactive multimedia content and gives the option to start a live conversation with a patient educator who is a certified genetic counsellor.

Gene can also assist in finding a healthcare provider. We plan on launching the Gene ChatBOT for our ForeSight and Prequel Prenatal tests and for companion diagnostic testing in oncology later this calendar year and further integrating this technology into the patient workflow to reduce cost and increase test volume.

This quarter, we achieved a major milestone with FDA approval of myChoice CDx as a companion diagnostic in first-line maintenance therapy in a varying cancer with olaparib. We expect subsequent approvals in both Europe and Japan during fiscal year 2021.

We are working with our pharmaceutical partners and local governments to make myChoice CDx testing available to European patients. In our prenatal business, we recently launched our proprietary AMPLIFY technology, which further increases the already market-leading accuracy of our Prequel non-invasive prenatal screening test.

The proprietary AMPLIFY process works by preferentially sequencing the shorter cell-free DNA fragments, which are predominantly associated with the fetus in the maternal blood.

This amplifies the fetal fraction, the percentage of DNA associated with the fetus, in the maternal blood an average of 2.3 times and even greater amount in maternal blood samples with a problematic fetal fraction below 4%, the cut-off from any laboratories.

In the analytical validation of over 1,000 pregnant women using the AMPLIFY technology, no woman had a fetal fraction below 4%. Our Prequel test already had the lowest no-call rate at one in 1,000 samples and it's validated to be accurate in high BMI women, which comprised 50% of pregnancies in the United States.

We believe the AMPLIFY technology will further differentiate our non-invasive prenatal screening offerings in the marketplace.

We also recently published a study in Genetics in Medicine comprising over 93,000 patients which showed the challenges associated with ethnicity-based guidelines for carrier screening used by both the American College of Medical Genetics and the American College of Gynecology.

In clinical practice, physicians struggle to implement ethnicity-based guidelines for patients of mixed descent and approximately 40% of individuals do not know the ethnicity of both their paternal and maternal grandparents.

Following ethnicity-based guidelines from ACOG and ACMG would have resulted in 77% of carriers of severe genetic disease being missed in the study. We also recently received favorable medical policies from four major payers including a top five payer in the United States for Prolaris.

In aggregate, these payers added approximately 26 million covered lives for Prolaris. In addition, we received Medicare coverage for all prostate cancer patients for BRACAnalysis CDx and we're the only germline test approved for this indication.

Finally, with Vectra in July, we also launched the new radiographic progression risk tool on the Vectra test report. We believe this new tool will provide an added value to physicians with the Vectra test. We plan to launch the cardiovascular disease risk tool later this year at the American College of Rheumatology Annual Meeting.

I would like to finish by saying it has been a great honor to serve as Interim President and CEO of Myriad and I've been inspired by the dedication of our team to work through the challenges we faced in the second half of fiscal year 2020.

I'm excited about what the future may bring for the company and look forward to working with Paul to return the company to the long-term growth and drive shareholder value consistent with our scale and positioning within the industry. With that, I am pleased to turn the call over to Scott for Q&A..

Thanks, Bryan. As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP financial results to non-GAAP financial results and 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 our Q&A session.

In order to ensure broad participation in today's Q&A session, we're asking participants to please ask only one question and one follow-up. Operator, we're now ready for the Q&A portion of the call..

And the first question is from the line of Sung-Ji Nam from BTIG. Please go ahead..

Hi, thanks for taking the questions and welcome aboard, Paul. So, my first question is on your telemedicine direct-to-patient sampling strategy, just kind of curious where you are with that in terms of what percentage of your patients are currently taking advantage of that.

What your capabilities and – or the infrastructure, if you have the capability and infrastructure to meaningfully expand from where you are today as well?.

Yeah, Sung-Ji, I don't know off the top of my head what the actual percentage of patients, but it actually got relatively high this quarter in terms of the patients that were taking advantage of kind of the telemedicine approach and not going to actually receive a test kit from the physician.

We've been working – I think when we think from a strategy standpoint of where medicine is going, that's obviously going to play an increasingly important role in the future. When you look at areas like psychiatry, where telemedicine lends itself exceptionally well to patient care, there's big opportunities for telemedicine.

And so, we are currently looking at a number of strategies. It's probably too early to talk about some of those, but we definitely are evaluating a number of things in that area..

And, Sung-Ji, I would just add, I think to Scott's point when we first started, obviously GeneSight was that one of the first that we deployed and I believe we had said we were around 60% at the time. That number's trailed off to some extent as physicians have returned to the office.

But in answer to your final question there, it's certainly something that it is scalable, and we would be looking to scale that broadly going forward..

Great. Thank you so much.

And then my follow-up is just would love to hear any update on the private payer side for GeneSight, if you're making any progress there or has the pandemic made it more challenging to make any progress there?.

Sure. Thanks for the question. Yeah, I think that the pandemic has made a lot of things more challenging. Everyone is focused at this point I think really across the healthcare system on doing what's necessary for patients in order to expand COVID testing and to get patients into the physician office and get them the treatment that they need.

We're certainly continuing to engage with payers, but not only payers, we've talked about PBM partnerships and other collaborations as well to look for ways that we can further deploy GeneSight and get patients that are experiencing major depression, which is terrible, to get them well.

So, nothing to report at this time, but certainly I think the team is well engaged and we've certainly made progress through the year..

Great. Thank you so much..

The next question is from the line of Doug Schenkel from Cowen. Please go ahead..

Hey, guys. Good afternoon. Maybe to – with a welcome to Paul. And I wanted to – it may be too early to ask this question, but I wanted to get your take on whether the combination of your addition to the team and what we've seen as the start of kind of a changeover or evolution at the board level.

If your addition and that trend in combination is likely to lead to some change in incentive structure and target metrics for the company? Maybe it's too early to answer that question, but would love to hear do you think there are changes that need to be made in that sense?.

Yeah. Thank you.

Look, it's a little too early to get into specifics, but I would say that the board and I and the time I've spent with the management team thus far are committed to really a bottom up total review of our businesses, our products, and that would include looking at new KPIs and just following up the discussion on telemedicine and digital marketing opportunities, I think there's a tremendous opportunity there to reach more consumers, reach more physicians.

And we need to build metrics around those new initiatives as well. So, I think in the months to come, we'll complete our strategic review, and I'm sure that out of that strategic review will come new performance indicators that we'll be talking with you about. As Bryan said, telemedicine is a good example.

These are opportunities for us to partner with people on the telemedicine business.

And one of the things I know that the new board members and I are excited about and the entire board is excited about are, having more of a partnership orientation to the broader healthcare ecosystem, something I've done a lot in my career and I'm excited to move the team in that direction..

Okay. Super helpful. Thank you for that, Paul.

And I guess it's a – I'll admit it completely unrelated follow-up, just thinking about the Counsyl business, thinking about reproductive, there's a little bit of false precision here, but the reality is when we look at least some of the public competitors out there that you overlap with, it does seem like you're continuing to lose a little bit of share.

This deal relative to original target certainly hasn't gone as planned thus far. You talked about some exciting new data and product characteristics that you think will potentially change that position. I just want to make sure that's right.

Do you think what you discussed on the call today in terms of the attributes of your reproductive products are going to be enough in combination with your existing commercial team to kind of turn things around for Counsyl?.

Yeah, Doug, I'll take the question.

Yeah, certainly, I think that we've experienced some challenges with the reproductive business over time as we've brought that business into the fold of our women's health infrastructure and we've invested in new tools ease of use and in some of the studies and the readouts on those that we've talked about here today.

I believe the net of all that is that we believe going forward in that business is part of the women's health offering. And I believe that the team is perfectly capable of playing and winning in that space, because we have great products and we have great science behind it..

Okay, that's great. Thank you, guys. I appreciate it..

The next question is from line of Tycho Peterson with JPMorgan. Please go ahead..

Hey thanks. I'll start with on GeneSight, volumes are covered to 50% of pre-pandemic levels, everything else was 75%.

So why is their volume recovery lagging? And then can you just help us think through the map a little bit more on why a reset on pricing with MolDX ends up being a neutral as you're trying to push in the PCP channels, it is just that you have better line of sight on higher private payer ASP or why would it be neutral. Thanks..

Yeah, thanks Tycho. And I think the actual recovery for GeneSight was more in that 57% range. I think that was mis-stated, it was 57%. So, still, it's lagged where we've seen some of the others, I think part of that is just we've historically focused on the psychiatry channel.

And so, I think that it's just more channels driven than anything the nature of that interaction, just it does not allow for as much in – potentially as much in-person, person-to-person contact. And so, I think that's probably why you're seeing some lagging there.

Also, there's somewhat a – I mean it's not is – there is somewhat of an elective nature to that in terms of having that interaction. With respect to the GeneSight pricing, I think the reason why we made the commentary that we believe it'll be neutral to slightly positive on balance is really driven by a couple of things.

First of all, we're running a significant number of tests today are not insignificant number of tests today for Medicare beneficiaries in the primary care channel.

They're not paid for and when you couple the expansion of the market covered by Medicare along with a price change that is not so significant as to bring the overall number average down, that's how we get to a place where we believe it'll be neutral to slightly positive..

Tycho, so not a larger number of Medicare patients will get paid for now. And so, you have a higher percentage of claims paid at a slightly lower price..

Got it.

And then for a follow up, just going back to Paul and the announcement tonight, I'm just curious, Paul, your background at Kindred, not necessarily in the diagnostic space, so how do you think that kind of translates over into the diagnostic world? And it would be helpful if we could just hear from you a little bit more about where you see the opportunities? You mentioned telemedicine, you mentioned more partnerships.

I'm just curious as you think about the business today, do you see opportunity for more M&A, portfolio reshaping? How do you think about your first year in job or some...? Thanks..

Yeah. Thank you. Well, first I think it's a tremendous opportunity for growth here and I was attracted to that growth opportunity through both discovery and innovation, but specifically, I think Myriad is an incredible platform to create a market leader in precision medicine.

My experience in building adjacent businesses and cross-selling and doing M&A, which you refer to as well, it's pretty varied.

I would say that my private equity experience coupled with two public companies, where I've both bought, spun off, merged successfully through a hospital-acquired Gentiva would give you a sense of sort of my historic ambitions for growth and expansion. And again, I think that that platform here lends itself to that growth opportunity.

The other thing I would just say from a personal investment thesis that the underlying market for what Myriad does and a great reputation for its product is large and growing that it is a trusted partner as I did my due diligence.

And I like the economics of the business model and this I believe there are multiple levers for growth and margin expansion. So, pretty excited to be here.

My experience at Kindred and in multiple other segments, I think gives me a pretty good background and wide field of vision to help this team think more aggressively about where we can succeed, but also to be more focused, and I think that's one of the things we're going to examine through the strategic review, make sure that we're focused on those areas that we can win and be a leader in..

Great. Thank you very much..

Thank you..

The next question is from the line of Steve Unger with Needham. Please go ahead..

Hi. Just, one quick question on, I realized that volumes may be difficult to forecast over the next couple of quarters. But I wanted to understand clearly what your expected pricing negative impacts are for hereditary cancer and prenatal, let's say, over the next two quarters..

Yes. Steve. I think that obviously we didn't, we weren't in a position to provide guidance either for the upcoming quarters or for the year.

I think what I would point you to is a qualitative assessment that we provided relative to both of those products and that, as we come to the back half of the calendar year and into next – the first part of next calendar year, we'll lap some of the comps that really made for negative comparisons in previous quarters, namely the Hereditary Cancer code switch and then the changes that we made in the Prenatal billing area.

So I think that those would be the biggest drivers of Hereditary Cancer pricing change as we look to the back half of the year – calendar year. And then also the other factor that's out there is the payment delay that was part of the CARES Act.

Those will be the things I think would be relevant as you think about Hereditary Cancer and Prenatal pricing..

Okay. And then I noticed that you have roughly $33 million of deferred revenue on the balance sheet this quarter. Could you discuss what's that related to and is it the CARES Act. And did you receive grant money from the CARES Act....

Yeah, we had said on the – during the prepared remarks that we had received advance payments from Medicare as part of the CARES Act. So that's what that dollar figure relates to..

It was prepayment on future claims, Steve..

Got it, okay. Thanks, I appreciate it. Thanks..

Sure..

The next question is from the line of Puneet Souda from SVB Leerink. Please go ahead..

Thanks. So Paul, first of all, great to you have onboard. Welcome into the seat. I appreciate your thoughts on industry and diagnostics overall, and I know it's totally early in these times.

But maybe I'm wondering, if you can just share some thoughts on opportunities that you see having looked at things here from a fresh perspective and sort of looking in.

I mean, you mentioned focus is an important aspect here and you mentioned growth as well, could you just help us understand looking at the sort of the broader portfolio – broader diagnostic space.

Are there anything – is there anything that gets you more excited versus others?.

Yeah. Again, look, I think the company has just great tradition; great reputation and most of my observations are outside looking in.

But pretty thorough in terms of my diligence and my preliminary discussions with the management team reinforced my view that we have the opportunity to execute a lot better, whether it's in our customer service and on our ease-of-use and solving to both physicians and in a more consumer-centric way.

We've got more opportunities to partner with payers and change some of the historical dynamics around that and sort of pricing strategies. And we've begun to talk about the digital marketing and telemedicine, and really re-energizing how we approach the marketplace from a sales and marketing standpoint.

So I think there's a lot of opportunity there and the management team and I are excited to take a fresh look top to bottom of the organization of where we can perform better, and how we can manage costs better.

And reprioritize both OpEx and capital to new growth opportunities, and one of my favorite people said strategy is about choices so that's where the focus will come in as we go through that examination figuring out which of those products and which of those markets we think we really can lead in and doubling down on those efforts..

That's great. Thanks for that. Bryan, if I could just get a bit of clarification on COVID testing.

Could you maybe just – I appreciate you could get to 3,000 samples here per day, but could you elaborate pricing on that? I'm wondering if you are accessioning these samples yourselves or you're getting these samples from another reference lab and actually running them or turning the results?.

Yeah. Thanks, Puneet. As we said earlier, we hope to get to about a 3,000 capacity because there's obviously significant demand in the market and you've read some of the struggles for some folks in the market in terms of keeping up with demand for the testing which we think will continue to grow.

Relative to where we are today in the sample flow that we have, obviously, we don't have the type of logistics network built out for sample collection that many of the large reference labs and some others would have.

So at this point samples are coming in from other – via reference lab for other laboratories and are also marketing it to other providers that would send us samples and we would bill client bill effectively. And so that's the way the process is working at this point.

Did that answer your question?.

Yeah.

And I just wanted to make sure that you are able to extract that complete price, if it's a $100 test rather than have it being a portion of that?.

Yeah. It would come into a laboratory. They would have accession it and send it to us for testing. We would return the result to them. They would do the billing et cetera. So in that scenario you would not get the full billed price, you would get some smaller amount that you had negotiated just for the process of running the test..

Got it. Okay. All right. Thank you..

You're welcome..

The next question is from the line of Derik de Bruin with Bank of America. Please go ahead..

Hi. Good afternoon. Paul, welcome. A couple of questions.

So the first one is the MolDX pricing coming down, how does that impact your potential for any of your commercial agreements? How does this tie to – does this potentially impact what you're going to get paid from United or your other commercial contracts you're negotiating?.

Yeah. So thanks, Derik. I guess, what I would say is it doesn't impact other commercial agreements. Obviously we just re-signed the United agreement back in January. There's no impact to that contract and we don't have broad payer coverage outside of that. So I would say at this point there's not really a lot to talk about there..

Got it. And also on United, are you seeing increases in pre-authorizations for GeneSight.

I'm just sort of wondering is – have those ticked up, just you haven't sort of talked about sort of what some of the – how the uptick has been, sort of what the pre-authorization process has been?.

Sure. Thanks, Derik. I would say in general for all genetic testing in our space, as you know, the use of prior authorization is key for payers and it's a process we have to follow for most all of our products, and so there's really no change from what we've had to deal with historically there.

We have – as you know any time you go through something for a period of time you adapt and you improve and your yields get better. And so I would characterize it as we continue to look for areas of opportunity to improve. But there's no change or additional prior authorizations that have been put in place..

And Derik, I would just highlight, we've been making progress on our prior authorization program in terms of getting physicians trained. We did mention outside of the settlements of payer claims that we saw positive net cash flows for GeneSight in the quarter. And so I think that's an important data point..

Great. Thank you..

Thanks, Derik..

The next question is from the line of Brandon Couillard from Jefferies. Please go ahead..

Hey, Thanks. Good afternoon.

Bryan, just curious if you could speak to the added cost of the at home collection kit for GeneSight and if the unit economics are materially different using that sample collection approach?.

Yeah. Thank you for the question. It's relatively straightforward. It's just a cheek swab and it doesn't impact the cost of the test significantly. I wouldn't consider it to be material..

Brandon, from a kit fulfilment standpoint we still send a kit to the physician's office as well. So it's just a different format of that kit, so the cost isn't – difference is negligible..

Got you.

And as far as the GeneSight sales force expansion, will you remind us how many reps you have today and do you ultimately envision needing a partner to scale into that GP market, and how do you think about future growth of that sales force beyond the initial 65 reps?.

Yeah, thanks. I think the number was 165..

The psychiatry sales team is about 160 reps, 165 reps, Brandon..

Yeah. So I think in terms of how we think about that going forward obviously, I think one thing that's important, we talked about a mix of outside and inside sales people. We talked about our digital initiatives and our direct-to-consumer initiatives.

So I think that one of the things that you'll see and as we start to evolve our thinking some on the sales side is just how we interact with the consumer and our physician customers. So I think over time we'll just continue to evaluate our sales force and how we're positioned in the market and how we go to market..

Thanks..

The next question is from the line of Jack Meehan from Nephron Research. Please go ahead..

Thank you and Paul, congratulations on your role. I'm looking forward to working with you again here..

Yeah. Thank you..

Wanted to go back to GeneSight. So previously your pricing was around $2,200 per test.

What do you expect your average collection per patient will be under the new policy?.

Yeah, Jack, we're not providing that level of detail. The price is actually a little bit different than what you stated there for the actual Medicare rate as well. And so we're not getting into the detail around pricing and how we're coding for the test..

Okay. The language in the LCD documents suggests that there's going to be additional documentation required for physicians to justify the genes that they're ordering and you've heard of some feedback that that could cause some challenges in order to order the test.

I was curious what you're doing with the sales team around that to make sure that doesn't become a burden.

And what's your plan, are you going to stack multiple codes for each test, for each of the genes that are required?.

Yeah. Thanks, Jack, for the question and welcome back. Glad to have you back covering Myriad..

Yeah. Thank you..

Yeah. The – what I would say with respect to the sales team and – excuse me, with respect to how we're billing for the product is we have agreed with Medicare on the price and so I think at this point just to follow-up on your last question.

We've been given clear instruction in terms of how we'll bill, so with respect to stacking codes are billing for a single test et cetera. We have clear direction and pricing for Medicare, so really no change there.

I think that relative to the other point, there is any time you see a change in the requirements for the physician, there does tend to be disruption and training that – some training that has to happen to educate physicians on exactly how they should be complying with the requirements and following the requirements of the LCD.

So that's pretty normal, but it's also something that I think the team has become pretty adept at navigating that process. And so, it's not surprising that you would have heard about some disruption as this is relatively new, it was on August 3 effective date, but it would be something that I would expect the team would be able to work through..

And Jack from a pre-authorization standpoint, it's really the requirements have just changed, right. Previously, we had to really show that the patient had failed medication previously and that they had treatment-resistant depression, and provide documentation around that.

That the new documentation requirements are more around showing that the physicians considering medications that and follow multiple gene drug interaction pathways. And so we're just providing really a different level, or a different type of documentations..

Got it. If I can squeeze in one follow-up. You mentioned a combination of these factors, should be neutral to positive. Just to make sure we're thinking about it right. What's the baseline you're using, is that relative to the $74 million of revenue in 2020.

Or are you referring more to the relative size of the market with PCPs versus the price decline and that combination.

Just what were you referring to with neutral to positive?.

Yeah. I think when we said neutral to positive, we were talking about that with respect to how the market will look going forward. That's a combination of the updated pricing from MolDX along with the expansion of the LCD in the primary care segment.

As we mentioned on the call earlier, there's a population of tests there that we've run historically and gotten zeros for that will now be covered. So there's a number of things that sort of go into that. But our expectation is that the net of all that is neutral to slightly positive on the overall GeneSight ASP..

Thanks, Bryan..

Thanks, Jack..

There is no other questions at this time, I'll turn it back for any closing remarks..

And 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..

That will conclude the conference call for today. We thank you for your participation. You can now disconnect your lines..