Myriad Genetics Inc Q3 FY2024 Earnings Call

And I would like to turn the call over to Matt Scalo. Please go ahead.

Thank you, Franz, and good afternoon, and welcome to the Myriad Genetics third quarter 2024 earnings call. During the call, we will review financial results released today. And afterwards, we will host a question-and-answer session. Our quarterly earnings release was issued this afternoon on Form 8-K and can be found on our website at investor.myriad.com. I'm Matt Scalo, Senior Vice President of Investor Relations. And on the call with me today are Paul Diaz, our President and Chief Executive Officer; Scott Leffler, our Chief Financial Officer; Sam Raha, our Chief Operating Officer; and Mark Verratti, our Chief Commercial Officer. This call can be heard live via webcast at investor.myriad.com, and a recording will be archived in the Investors section of our website along with the slide presentation. Please note that some of the information presented today contains projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from those expectations for a variety of reasons. We refer you to the documents the company files from time to time with the SEC, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and 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. I will now turn the call over to Paul.

Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss the highlights from our strong third quarter performance and provide an update on the progress we continue to make accelerating profitable revenue growth. We will also address how we are actively engaging with UnitedHealthcare regarding the importance of maintaining access to our GeneSight test for those UnitedHealthcare enrollees struggling with the medication management challenges associated with depression, anxiety, and ADHD. First, I want to thank my Myriad teammates and our provider partners for their continued support and commitment to advancing our mission and vision to make genetic testing and precision medicine more accessible to help people take more control of their health. We continue to deliver on our commitment to shareholders as we achieved an 11% revenue growth in the third quarter compared to last year, reflecting both volume and revenue per test improvements across the portfolio. Our focus on profitable growth continues as we generated approximately $150 million in gross profits, $14 million of adjusted EBITDA, positive adjusted EPS of $0.06, and maintained approximately $149 million in liquidity in the third quarter. At our investor event in October, we laid out the commercial growth strategy supporting our long-term financial targets and provided updates on our product portfolio, including FirstGene, Precise Liquid, and Precise MRD. We encourage investors to view our Investor Day presentation on the Investors section of our website for a deep dive into our product enhancements, new product pipeline, and initiatives to better serve our customers and improve efficiencies. Despite a return to more typical seasonal ordering patterns and heavy storms and flooding in the Southeast that prevented patients and providers from testing, our teams delivered a strong third quarter. With this positive momentum in line and the strong pickup in volumes we have experienced over the last four weeks, we are tightening our 2024 revenue range target around the midpoint of $840 million, and we are increasing our 2024 adjusted EPS target to between $0.12 and $0.14. Last week, UnitedHealthcare updated its medical policy restricting access to multi-gene panel PGx testing. We believe that the existing body of clinical evidence for GeneSight, including peer-reviewed research studies, supports the clinical validity and utility of the GeneSight test. We were surprised by United's policy update because this topic never came up during our contract negotiations at the end of 2023, nor in subsequent meetings just three weeks ago. Additionally, the American Psychiatric Association updated its recommendations on PGx testing earlier this year, which should not change their long-held stance on this type of testing. GeneSight has a strong value proposition, which Mark Verratti will address further on today's call. With approximately three million tests to date, we believe that primary care providers see the value in GeneSight as an important tool that helps reduce the costly and potentially harmful trial and error when working with patients to get them on the right medications for depression, anxiety, and ADHD. We are engaging with United and Optum to try to find a resolution to this policy change and hope for an outcome in the next few months. GeneSight revenue associated with the United Commercial business was approximately $40 million for the 12-month period ending the third quarter of 2024. We want to reinforce that this policy change, if implemented, is effective January 1, 2025, and does not affect United's Medicare Advantage or managed Medicaid business, nor do we have any reason to believe that other payers are likely to adjust their medical policies, especially as biomarker laws in a growing number of states require state-regulated plans to expand coverage of PGx testing pursuant to national and local coverage determinations. And with that, I'll turn the call over to Mark.

Thanks, Paul. I would like to start with the product group. Myriad continues to lead the market with differentiated scientific insights offered by MyRisk Cancer Test. Last 12-month year-over-year revenue growth through Q3 of 11% demonstrates the continued growth of our category and our commercial capabilities during a period of continued dislocation in our sector. Despite a strong end to the third quarter, typical seasonal softness in July and August, as well as our ongoing focus on profitable growth, which inhibits some of the volume growth in Q3. Investors should note that our Hereditary Cancer testing business includes both MyRisk and BRACAnalysis CDx. While we continue to see some strong growth in MyRisk with increased adoption and strong payer coverage, Hereditary Cancer testing growth was partially impacted by slower growth of our BRACAnalysis CDx business in the U.S. and internationally. MyRisk is expected to continue its strong growth as it benefits from expanded guidelines as well as an acceleration of EMR integrations, which play an important role in overall customer experience and revenue cycle management. We are on track to transition several large accounts, including several multi-state health systems, and we continue to expect to achieve double-digit growth in Hereditary Cancer testing volumes with stable average revenue per test in 2025. In the third quarter, our Women’s health team delivered 10% prenatal revenue growth year-over-year and 24% for the trailing 12-month period, excluding SneakPeek. While volume growth in Q3 was softened by typical seasonality, we continue to see growth from both current and new accounts. We believe the market is becoming more rational regarding market pricing for these services and continue to see strong growth opportunities with new customers as we move into year-end. In the third quarter, GeneSight revenues increased 34% year-over-year as we reported volume growth of 10%. GeneSight revenue per test improved both year-over-year and quarter-over-quarter in the third quarter, reflecting a combination of strong provider demand, commercial pull-through, and improving payer coverage driven in part by the growing list of states that have enacted biomarker laws and positive contributions from prior periods. The critical need in mental health treatment is demonstrated by the fact that 96% of counties in the United States have an unmet need for specialty mental health care. This leaves the burden on primary care who provide over 70% of antidepressants. Far too often, this results in trial and error to find the right medication. GeneSight is an easy-to-use tool backed by strong clinical evidence, including the largest randomized controlled trial in this space conducted by the VA. In that trial published in JAMA, both primary endpoints were met, including the GeneSight Group achieving greater remission rates over the 24-week period. The clinical utility and ease of use of GeneSight has driven overall satisfaction to over 93% among its current providers. We continue to see positive momentum with our Precise Tumor test, which we acquired in early 2024 and launched from our Salt Lake City facility this quarter. We are also excited to have launched Foresight Universal Plus in June and await ACOG guideline updates that could potentially expand this market opportunity. At our investor event in October, we spoke about precise liquid and MRD, as these new products will provide tremendous value for our providers and support our long-term growth ambitions. Now I will turn the call over to our Chief Operating Officer, Sam Raha.

Thanks, Mark. As Paul mentioned, we hosted investors in New York this past October to provide a deep dive into our growth strategy and the enterprise initiatives that support our longer-term goals. Therefore, on this call, I'll keep my comments brief. Let me start on Slide 13 with an update on our Labs of the Future program. The overall objective of our Labs of the Future program is to drive innovation and operational excellence at scale to continue delivering high-quality testing results that meet regulatory requirements while shortening turnaround times and reducing our cost per test. The work we're doing on this program supports our ongoing focus to improve the overall patient and provider experience and also supports continued strong gross margins. Over the last three years, we've invested over $75 million in state-of-the-art labs, standard-based technologies, and digital capabilities. In 2023, we completed the construction of our new lab facilities, both in Salt Lake City and South San Francisco. This year, in 2024, we made important progress at both sites, including with permitting, lab moves, lab validation, and operational scale-up. In Salt Lake City, we continue to ramp up the volume of samples processed for both Prolaris as well as Precise MRD for clinical validation research projects. Precise Tumor, which is our therapy selection test that we acquired from Intermountain Precision Genomics, I’m pleased to report that we have completed validation and started processing samples in Salt Lake City as of last week. We continue to see monthly volume growth and expect this trend to continue accelerating as we head into 2025. In South San Francisco, we have completed validation and are ramping up sample volume for both Prequel, NIPS test, and Foresight, our expanded carrier screening test in our new lab. Based on our continued progress, we're on track with our plan to complete the South San Francisco move in early 2025 and the Salt Lake City move by the end of 2025. Digital capabilities continue to be a key focus area of investment across our enterprise to both improve customer experience and increase internal efficiency and productivity. Our efforts with EMR systems are making a difference in the way we're engaging with our customers and will be an important driver of future volume growth. It's clear that providers are seeking to integrate genomic and genetic information into the care of their patients, and to provide ease of use, this increasingly requires our products to be natively ordered and resulted in EMR systems. Over the past two years, we've doubled our investment in EMR programs, including in engineering, integration, and commercial pull-through and have seen an almost 10x increase in the pace of newly integrated clinical sites. In fact, we're tracking to integrate about 4,000 new provider sites this year. We have system integrations across more than 15 different vendors, including strategic partnerships with EMR providers, including Athena, Epic, Flatiron for oncology, and Lumea for urology. As we look at the first half of 2025, we expect to add iKnowMed and Ellkay EMR systems to enable for the first time healthcare providers and systems to be able to order the continuum of our oncology products from testing to somatic. As we shared during our recent Investor Day, we see a meaningful opportunity for Myriad to serve community oncologists and health care systems who trust Myriad's gold standard hereditary cancer and HRD tests with Precise Tumor now and Precise MRD, a differentiated, highly sensitive MRD assay in the future. We continue to strengthen our freedom to operate and ability to deliver tumor-informed high-definition MRD assays with the issuance of the third foundational method patent from the USPTO, a personalized method for detecting circulating tumor DNA. In addition, our agreement with Personalis to cross-license patent estates covering tumor-informed approaches to MRD fortifies our IP position. We plan to launch our first MRD commercial offering for breast cancer in the first half of 2026. Last month, we announced five ongoing research collaborations studying the use of MRD testing in breast cancer using Myriad's Precise MRD test. This includes a study to determine whether circulating tumor DNA levels may predict the magnitude of response to pembrolizumab and hormonal therapy in patients with HR-positive inflammatory breast cancer who did not achieve pathological complete response at the time of surgery. This is being led by Dr. Bora Lim, University of Texas MD Anderson Cancer Center. Another study is to evaluate whether ctDNA levels correlate with notable involvement in patients who have newly diagnosed HR-positive breast cancer and if so, how that correspondence may be used to aid in surgical decision-making led by Dr. Anna Weiss at the University of Rochester Medical Center, as well as a multicenter prospective study to evaluate the maintenance of complete response to trastuzumab deruxtecan in HER2-positive advanced or metastatic breast cancer patients and whether ctDNA can be used to optimally guide therapy, being led by Dr. Yoshi Naito of National Cancer Center Hospital East in Japan. Across our studies, we have more than 4,000 patients receiving the Precise MRD test. With each patient having multiple draws, this will result in more than 30,000 time points, which will be an important part of the clinical evidence for our MRD test. We look forward to sharing data from our ongoing studies in the first half of 2025 and submitting data to MolDx in the second half of 2025 for reimbursement. We're also engaging biopharma companies that are currently running their MRD samples in our new Salt Lake City lab, where we bring together the power of high-performance MRD assay with our efficient lab workflows and cutting-edge infrastructure. We're excited about the sizable opportunity for Myriad to serve this market with our MRD assay as part of our precise oncology solution portfolio, enabling thousands of providers and health care systems that count on us to serve their patients through the continuum of cancer care. I look forward to updating you on our progress. Moving on to our key performance indicators on the next slide. We continue to see a high level of teammate engagement across the company. The work we've been doing over the last couple of years to increase internal efficiency and productivity is paying off. Compared to 2021, we're seeing a 75% increase in revenue per commission sales rep and a 70% increase in the number of cases processed for customer service rep. Our ongoing focus on revenue cycle management is also continuing to pay off as evidenced by a 5% increase in revenue per test. We continue providing industry-leading test turnaround times to support providers making treatment decisions. Our turnaround times, along with the focus we're putting into improving customer experience and supporting our strong Net Promoter Score of 72. With that, let me turn the call over to our Chief Financial Officer, Scott Leffler.

Thanks, Sam. I'll start on Slide 18. As you've already heard from Paul and Mark, we're pleased with our continued progress in Q3, highlighted by our 11% revenue growth, increasing our adjusted EBITDA to $14.1 million and adjusted EPS improvement to $0.06 per share. While Hereditary Cancer testing revenue grew by only 5%, we were encouraged by 11% growth in MyRisk for the affected population, which is the area most likely to benefit from disruptions in the competitive landscape. We did benefit from a favorable change of estimates from prior periods in Q3 of '24, primarily impacting GeneSight. As a reminder, we disclosed a meaningful benefit in Q3 of last year from change of estimates as well. This year's change of estimate benefit was similar to last year's benefit on a consolidated total company basis, making it easier to compare consolidated year-over-year revenue. On a year-to-date basis, revenues across our three major product categories were even more impressive with growth ranging from 13% for hereditary cancer testing up to 26% for GeneSight. As a reminder, we went into some detail at our recent investor event regarding some of the key drivers for sustainable progress in average revenue per test, including various investments and initiatives by both our revenue cycle and payer markets team. In Q3, we saw stability in underlying rates across the portfolio, which represents another proof point for the great work being done by our revenue cycle and payer markets team along with others throughout the company. On the next slide, I'll highlight some of the wins from these efforts. We continue to see positive traction from these ongoing investments in revenue cycle workflow and from our ongoing payer engagement activities. These include, among other things, working with health plans to encourage their implementation of medical policies that conform to state biomarker legislation. As discussed on prior earnings calls, there's a growing list of states that have passed biomarker legislation that lends itself to ensuring access to precision medicine and advanced diagnostics. We recently received expanded commercial and managed Medicaid coverage for GeneSight with Bluefield of California and Peach State Health Plan under the Centene umbrella, and there are several other payers with which we have had positive discussions regarding GeneSight coverage. In total, our team won 10 new product coverage or medical policy expansions from payers and executed seven contracts with new payers as we seek to bridge gaps in coverage across our no-pay universe during the third quarter. Those Q3 results bring us to 18 new contracts and 29 new coverage wins on a year-to-date basis. As I've said in the past, no one of these wins will generally meaningfully move the revenue needle, but we certainly expect the accumulation of many small and medium-sized wins over time to contribute to the maturing and more stable rate environment for our products. We closed the sale of our European EndoPredict business during the third quarter. There was a one-time non-cash charge as well as minimal cash restructuring costs associated with the transaction. But it's important to note that the transaction removes about $11 million of annual run-rate revenue. Importantly, it will be accretive by more than $4 million per year to our go-forward adjusted operating income by streamlining our cost structure. We had about two months of this impact in our Q3 results. Despite the impact of the transaction, we nonetheless delivered a solid 11% revenue growth on a consolidated basis and maintained healthy margins above 70%. OpEx remained modest, contributing to a solid bottom-line performance with $0.06 of adjusted EPS. Our 11% revenue growth in Q3 also translated into 11% year-over-year growth in gross profit dollars. On a year-to-date basis, we've generated 14% growth in gross profit dollars. Our adjusted EBITDA for the quarter was $14 million and is now $48 million on a trailing 12-month basis as of Q3. The combination of our generous gross profit base and increasing levels of adjusted EBITDA demonstrate the profit and cash generating potential of the business, especially as we generate more operating leverage over our operating expenses. We also finished Q3 in a strong liquidity position with $149 million of total liquidity from a combination of cash and cash equivalents and availability under our revolver. We saw sequential increases in cash and cash equivalent balances from Q2 to Q3 and expect to be free cash flow positive in Q4 as well. Finally, before handing it back to Paul, I wanted to update our guidance for the full year 2024. As a reminder, we began the year with a revenue guidance range of $820 million to $840 million. On our last earnings call, we updated that range to $835 million to $845 million. In light of our Q3 performance and continued execution, we are narrowing our full-year revenue range to $837 million to $843 million. Our updated gross margin expectation is 69.8% to 70.3% and our OpEx is now expected to be $565 million to $570 million. The net impact of these updates is a more favorable bottom-line performance with adjusted EBITDA of $34 million to $39 million and an increase in adjusted EPS of $0.12 to $0.14. We have been pleased to have delivered solid performance proof points throughout the year and are also proud of these expected full-year results. Now let me turn the call back to Paul.

Thanks, Scott. We continue to build on the pillars of long-term growth and profitability that delivered our strong results in the third quarter. The momentum we continue to see across the enterprise supports our decision to update our 2024 financial guidance. While the GeneSight medical policy change by UnitedHealthcare is disappointing, we remain encouraged about our future. As I mentioned earlier, revenue related to patients under UnitedHealthcare's commercial policies represent about $40 million in the most recent 12-month period. If the policy change goes into effect in January, we would expect a loss of about $40 million in revenue that would translate to approximately $30 million of lost gross profits. Our preliminary view is that we can mitigate at least $10 million of that bottom-line impact. In addition, we continue to believe that we can grow our remaining business at a double-digit pace even after adjusting our budget for the projected loss of the UnitedHealthcare commercial revenue. Our clinically differentiated products supported by technology deliver value in real-world clinical settings and enable early detection and better treatment decisions for providers and their patients. Our modernized labs and commercial engines are examples of where investments in automation and advanced technology are yielding improved workflows, faster turnaround times, and reduced operating costs. All of this is reinforcing our position as a trusted and reliable lab with specialized expertise committed to quality and service excellence. We continue to energize the enterprise around our shared mission and vision to make genetic testing and precision medicine more accessible, helping people take more control of their health and enabling providers to better treat and prevent disease. I'll now pass the call back over to Matt for Q&A.

Thanks, Paul. And as a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP to non-GAAP financial results can be found in our earnings release and under the Investor Relations section of our website. Now we're ready to begin the Q&A session. To ensure broad participation, we're asking participants to please ask only one question and one follow-up. Franz, we are now ready for the Q&A portion of the call.

Doug Schenkel: So I'm going to, probably no surprise start on GeneSight and I want to start with a couple of math questions, and then I want to kind of get into a philosophical question for you, Paul. So United accounts for, I think, roughly a quarter of GeneSight revenue, presumably volume is about 15% to 20% and as we think about updating our models for next year, assuming this holds, I believe GeneSight gross margin is 75% to 80%. So I just want to make sure those are right from a math standpoint, and well, why don't I pause there and then I'll come back with a follow-up question.

Yes, Doug, I want to clarify the figures. Of the $840 million in revenue we expect this year, about $40 million comes from United Commercial, and we anticipate achieving double-digit growth from that base. We are still targeting a 12% growth rate for the next year and beyond, which we have identified as our long-term growth rate. We are just a few days into our evaluation and importantly, we are engaging with United to discuss additional data that we believe they did not consider, and some interpretations of the information. We're eager to keep that dialogue going. We have a strong working relationship with United, and this situation was unexpected for us. It doesn't align with the usual process of policy development, which typically involves a study indicating that a test is problematic. We're uncertain why this policy change occurred, but we look forward to continued discussions, especially in highlighting the unique aspects of GeneSight in comparison to other polygenic tests. To summarize, you can focus on the math I provided, and I wanted to share that the gross profits are around $30 million, and we have already started identifying at least $10 million in mitigation efforts, based on our very initial assessment. I hope this information helps you with your modeling and provides a foundation for your analysis of 2025.

No, that's very helpful, and it's quite impressive that you've accomplished this in four days. We'll see what happens next week. Regarding the philosophical question, I understand the unmet need related to GeneSight. However, looking back at the time of the Assurex deal, which predates your tenure, this has been a controversial focus for the company, especially in the eyes of Wall Street and to some extent in the clinical community. The motivation behind the deal was questionable from the start; the way your predecessors handled the data wasn't clear. I mention this because over your three-plus years at the company, you've done an admirable job of avoiding these issues. You've stopped the lawsuits, maintained transparency, and built cooperative relationships. In short, you've worked hard to enhance the positives at Myriad while minimizing the drama and increasing predictability. Setting aside the clinical need for a moment and perhaps being the demanding Wall Street analyst, it's important to note that GeneSight still represents the last source of tension for Myriad in the eyes of investors, and somewhat in the clinical community as well. What criteria do you use to decide if any asset, particularly keeping GeneSight in mind, should be part of Myriad 2.0 and included in your business? Thank you.

Thank you, Doug. First, I want to highlight that this has been a significant team effort over the past 4.5 years, involving our Board of Directors. We have consistently achieved double-digit growth and profitable growth for the last five to six quarters, and we are dedicated to maintaining that momentum. I appreciate your supportive comments. We have eliminated nonstrategic assets and recently completed some international restructuring, which created some challenges in Q3, but we still achieved 11% growth and a positive surprise on our EPS. There are millions of patients, including many personal stories I can discuss later, whose lives have been transformed by the GeneSight test. It’s incredibly difficult to witness a loved one, like a teenage daughter, struggle with depression and anxiety while going through the trial and error of multiple medications, dealing with side effects and reduced productivity. We look forward to sharing more data on the clinical utility with United and discussing the work with Optum to comprehend the recent policy changes. I assure you that our GeneSight team is committed to the 500,000 patients this year who will benefit from quicker access to the appropriate medication, and we will not abandon them.

And your next question comes from Tejas Savant from Morgan Stanley.

Hi, this is Madison on for Tejas. Thanks for taking the questions. I just wanted to start off, I guess, in light of the body of evidence for use of multi-gene panels and mental health disorders being relatively less mature than, say, for like oncology. Do you think that there is a risk that payers who are facing growing headwinds on the cost structure will view the field as kind of like low-hanging fruit to deny claims or raise the bar for prior auth?

We recognize that it's now the payers' turn in the cycle, and they are under significant pressure on their profit margins. This situation creates downstream effects, and there is considerable bipartisan scrutiny on prior authorizations and various practices within that space. We have put in a lot of effort with United and others to maintain transparency and address coding changes, and we plan to keep this up as it relates to the integrity of our revenues and business model. There is certainly pressure throughout the health care ecosystem. However, we have been disciplined in managing our costs, which is crucial for enhancing our value proposition. Data concerning GeneSight indicates it improves the medical loss ratio. The associated costs of treating patients for mental health issues such as depression, anxiety, and ADHD—whether with elderly patients, working adults, or teenagers—can be substantial. We will continue to build evidence in this area. Given my experience in evaluating total care costs and payer medical loss ratios, I believe it would be short-sighted for anyone not to utilize the GeneSight tool to expedite getting patients on the right medications and enhance their overall treatment.

Got it. Okay. That makes sense. And then maybe one other one. I know you've kind of touched on this before, but just wondering if you've had any inbounds from other payers following the United decision and then more specifically, what had your revised long-term target assumed by way of improvement in the GeneSight no-pay rate over the next couple of years?

We haven't had any inbound communications. As Scott mentioned, and as I've noted over the past couple of years, we believe that reducing our no-pay rate involves a lot of groundwork and the accumulation of small victories. Most of these improvements have occurred in the last few quarters, so their effects are not fully visible yet. Many of the biomarker regulations just came into effect in July, while others will be implemented in January. It typically takes months, if not a year, for these changes to be integrated into medical policies and contracts. As we've stated previously, this process is slow. The biomarker regulations are not connected to United's medical policy; rather, they relate to national coverage determinations and local coverage determinations. Therefore, we do not anticipate this affecting our ability to keep reducing the no-pay rate for GeneSight or to continue growing GeneSight. We hope to drive policy changes with United in the future. Regarding our long-term growth, I've addressed that previously. We will keep reviewing our growth strategy, and we are optimistic about our capacity to expand our revenue base and achieve double-digit growth while maintaining profitability. We are seeing productivity improvements from our lab of the future and leverage in our profit and loss statement, which was evident in this quarter's results.

And your next question comes from Puneet Souda from Leerink Partners.

Paul, so just wanted to clarify on GeneSight. Could you please confirm the Medicare rate there? And as you pointed out, that would become the larger portion of the mix and as a result, only about half of the impact on the bottom line. So I just wanted to confirm that. And then on the payer side, why would we not expect to continue to see more pressure from the payers because they themselves are experiencing pressure in other areas? So why wouldn't we expect that on other parts of the portfolio or any conversations that you've had on that end?

Yes. Let me address your question, Puneet. As I mentioned earlier, the health care system will experience ongoing challenges. Our sector is somewhat unique since adoption rates remain low, and we face significant non-payment issues in our portfolio, particularly in prenatal and hereditary cancer testing, where we've made progress. Many payers only provide coverage for certain aspects of hereditary cancer. There remains considerable potential to improve our average selling price despite global pressures, and we have not encountered any contract or pricing issues in our discussions with payers so far this year. Our Medicare rate is $13.56 for GeneSight. While this situation is disappointing and we are addressing it, we do not believe it will significantly affect our average selling price opportunities over the next few years. We anticipate three to five more years of potential to enhance medical policy, improve revenue cycles, and reduce non-payment across our portfolio.

Got it. That's helpful. And then let me switch away from GeneSight. There was an acquisition in the space on the hereditary side, just wondering how you are thinking about the competitive landscape. You're obviously taking some share with the disruption in the marketplace. Now with this acquisition, just wondering how you're thinking about Myriad's position and potentially maybe even ability to take share?

Yes. Thank you. I'll start and then turn it over to Mark. I think you probably all have heard enough from me already. But the recent changes in the marketplace in BT, Semaphore, and now the transaction of Ambry all create opportunities for us to gain share as a respected and, quite frankly, the leading provider of hereditary cancer tests. This is both for affected patients in oncology and particularly for unaffected patients principally in our women’s health channel. So as I've said throughout the year, these changes take time even with respect to the most recent change in LabCorp, the policy changes are just taking us into effect now the integration is just going to happen here in January, as I understand from some of our field people. So I think 2025 is going to be a great year for us to win share, particularly as we land these large accounts, continue to advance our EMR integrations, and continue to expand our MyRisk panel that we've talked about at the Investor Day. Mark?

Yes. The only thing I would add to that, just to echo Paul's comments, on the unaffected side are our Women’s health channel, Myriad is by far the market leader and we don't see much competition there. I think on the unaffected side, clearly, MyRisk is considered the gold standard test. And any time we've seen this dislocation that opens up different providers and health systems to now have to make a choice, because they have to remove a product, it opens up a choice for Myriad to get into that account. Additionally, it takes a long time for these integrations as we've sort of talked about, right? We would expect those to be a lot quicker, but unfortunately, when you're trying to integrate a test like a hereditary cancer test, it does take a long time. So that move from one competitor to another doesn't happen overnight, but it really does open up a lot of opportunities for Myriad to be back in there, selling the best-in-class test. So similar to what we've seen with previous dislocation, we're going to take this opportunity to really focus and to get back in there and win share.

There's a war room already stood up on this. I promise you.

And your next question comes from Prashant Kota from Goldman Sachs. Please go ahead.

Hey, guys, this is Prashant on for Matt. Congrats on the quarter. Sad to hear about the GeneSight development, but I was wondering how you're thinking about the timeline of further dilution of pay rate from the addition of new products. For example, would you ever consider staggering the launch of certain products to avoid dilution of the no pay rate all at once, which could potentially affect margins? And then I have another question on MRT, but wanted that first.

That's a great question. I recently discussed this topic at a panel with Doug, who was on the line earlier. The industry's key opportunity is to bridge the gap between scientific advancements in our labs and medical policy. However, there are guidelines we need to address, whether it's related to prenatal tests or oncology products. We need to close those gaps. As part of our product management strategy, we are being very intentional about how we go to market with products like FirstGene. Our conversations with United regarding MRD are aligned with this topic, and we plan to continue that dialogue. As we introduce new products, we acknowledge that some will have no reimbursement and some may lead to margin declines. Nonetheless, we have various strategies to maintain our margins. Ultimately, our goal is to bridge the gap between product launches and payments. You will see this with FirstGene and Precise Liquid, and we have been transparent about these issues. The strength of Myriad Genetics lies in the diversity of our portfolio and the various levers we can pull to achieve profitable growth. Sam, do you have anything to add?

I think you said that very well, Paul.

Yes, that's clear. Just to consider another angle, if the revenue contribution from MRD takes longer than anticipated, do you still feel confident in achieving your long-term guidance of over 12% for top-line growth?

Yes. We have said consistently, I'll underscore this, that our long-term growth target is based on our core portfolio of products, including the enhancements we're making to those products across the portfolio. We don't expect contributions for FirstGene to get us there. We don't expect contributions from Precise Tumor, Precise Liquid to get us there, and we certainly don't expect MRD. Those products, we hope and expect, as we think about 2026 and 2027 start pointing us to growth in the mid-teens. And again, with many different levers to maintain our 70% gross margins.

And your next question comes from Subu Nambi from Guggenheim Partners. Please go ahead.

Clearly, the UnitedHealth decision was a surprise. One of the things that made it all the more surprising is that as United’s affiliate, OptumHealth was a key group that generated health economic data supporting GeneSight use. Does this relationship actually help you as you engage with United on this or does this make the decision all the more challenging given how close United should be to how this data was generated?

I believe United is a large and complex organization that has seen considerable success as one of the leading healthcare companies in America. However, I am uncertain whether they fully considered the health economic data. I can assure you that we will be sharing this data in our upcoming meetings with them. As we have mentioned before, it is undeniable that GeneSight has contributed to some of the savings, as evidenced by the Phase 1 study. We will review this data along with a recent GeneSight-specific meta-analysis. Additionally, we plan to discuss how GeneSight differs from other pharmacogenomics tests available in the market, particularly regarding clinical utility and validity. While we can't specify the exact details since we have read the policy just as you have, there is more to discuss, and we are eager for those conversations to take place. What has been disappointing is that the perspectives of other stakeholders may not have been considered. Furthermore, there wasn't a significant study released that could justify this policy change, which leaves us puzzled. We will have more information in the coming weeks after we meet with them.

And just to address the elephant in the room, what gives you the confidence that other payers won't pull their coverage for GeneSight, especially payers are always looking for an excuse not to pay for that, especially diagnostic? So just anything, any sign, I know you said about the personal stories and the data that's out there, but you were all out there even when United took that decision. So just trying to see how are you planning to mitigate that.

We are not making any guarantees. What we are stating is that the other coverage decisions were not influenced by United's policy, but rather by local coverage decisions. As we have mentioned before, we continually strive to build clinical evidence across our products. Although the company fell short in some areas of research and clinical studies, significant progress has been made over the past three years, which has been presented at various conferences to enhance the clinical evidence supporting our test. This is an ongoing responsibility and commitment for us. However, we have no reason to think that there will be changes in the coverage decisions or policies of other payers. While it is possible for payers to reconsider this, such actions would not align with the way medical policies have been historically structured, and it would represent a significant shift from their contractual obligations. As of now, this is the best information we can provide.

Okay. And your next question comes from Sung Ji Nam from Scotiabank. Please go ahead.

Paul, I may have misunderstood your comments earlier, but do you have a sense of what additional data they're looking for at this point or if they provided any kind of specific end points or metrics or size of patient cohorts they're looking for? Just trying to better understand kind of what's missing from their perspective?

We're unclear about what exactly is missing at this point. However, we maintain a good working relationship with the team at United, and we are puzzled about how a policy change was made without any studies being released that highlighted the negative aspects of these tests from various societies and other sources. We look forward to discussing with United to understand the reasons behind this policy change, as we do not see a clear trigger for it, though I cannot speak on their behalf. We anticipate that conversation and hope to present additional data that was not included in the policy statement, which we believe should have been considered. This is a key point for us. We believe that stakeholder input is crucial here, and we feel the policy change did not adequately seek input from providers and patient advocate groups regarding GeneSight and other tests. We will have more information to share after our discussions with United, but I don't want to bias those talks; I want to approach them with an open mind, and hopefully, they will reciprocate by being open to the data we wish to share and the additional input from other stakeholders.

Got you. I'm curious about the best-case scenario regarding the additional data. Do you think this could be resolved within the next year, or will we have to wait until the next decision cycle for United? Also, has the United Health portion of your GeneSight business been growing at the same rate as the rest of the business, or has it been growing faster in recent years?

Sure, Mark, do you want to take the last one and then I'll take the first one?

Yes. So the latter part, yes, sure, correct. The United business has been growing at a very similar rate as the rest of our business, actually maybe a little bit more just because of the focus that we've had on profitable volumes versus the no pay reductions that we've talked about earlier.

With respect to our hope that United might modify this most recent policy, we can't speak to the timeframes around that. But we do think that there is enough here for them to revisit the policy potentially to spend it while they evaluate more data and more stakeholder input. So the best-case scenario here is that they put a pause button on the January 1 effective date, and take another year to evaluate the data and stakeholder input. And I think we've given you the worst-case. We believe we can mitigate a lot of this, not all of it. We're certainly going to come to work every day beginning January 1 to address this policy and grow through it. But I think we wanted to give you sort of a pro forma view of what we think is the worst case and how we approach it. And despite this, we're going to grow next year. And so I think that's the part that I would underscore for investors about our ability to continue what we've done in the last four years, which is disciplined, transparent execution and delivering on the commitments that we make to you all. So, unfortunately, we've had to reset that pro forma base, and we'll go from there.

Okay. And before we proceed to the next question, again, just a friendly reminder, we will just be having one question and one follow-up per participant only. And your next question comes from Rachel Vatnsdal from JPMorgan. Please go ahead.

So I wanted to dig in a little bit more on GeneSight again. Specifically, just on the actual market size for pharmacogenomics, so at your Analyst Day a few weeks ago, you talked about how the market size is $2 billion. You said that was based on the most updated data that you had at the time. As we look at the year before, you guys had really pointed us towards that $5 billion actual market. I know you talked about how some of the underlying data are just working with what the best you had at the time. But can you break down for us what really changed in that underlying market data? And then I appreciate that you're working with United to try to reverse the decision. But as it stands today, does that give you a further change in terms of your current view of the $2 billion TAM that you provided a few weeks ago?

I'm sorry, we will arrange a meeting with you and our market expert. Matt, I assure you they will review the TAM data we have with you. As we mentioned during our Investor Day, it's the most reliable information we possess. More importantly, there is significant interest in pharmacogenomic testing. The demand for medications in America is significant across various indications, and we are currently leading in PGx testing. We receive frequent inquiries from physicians regarding the need for better guidance on medication administration. From my previous experience, many hospital readmissions resulted from improper medication administration, especially among seniors. This ties back to Doug's initial question. In the long run, we believe this is crucial for American Healthcare and for Myriad Genetics, presenting a long-term opportunity to explore other indications, strengthen our evidence base, and collaborate with stakeholders to enhance medication administration practices. The rising costs of specialty drugs across payers' medical loss ratios is a significant concern. Whether the TAM is $3 billion or $5 billion, we will follow up on that. The key takeaway is the necessity to integrate more scientific approaches to medication administration, and we are dedicated to this cause. We see a real long-term opportunity for us and our patients at Myriad Genetics in this area.

Fair enough. Maybe just then shifting over to the women’s health side. So you've talked about how there's some dislocation in the market given current competitive dynamics there. So can you just give us an update where we are in terms of Invitae exiting the market there? How much more greenfield opportunity is for you to kind of compete on some of that share? And any shift expectations you expect going forward?

Yes. I don't know if I could put a number on it, but I would still say that there is still a lot of disruption, right? I think when you think about, as I mentioned earlier, accounts are still making choices. In some cases, accounts made choices because they were forced to move quickly. And so they may have chosen another lab, and now they're evaluating that lab and they're not happy with that particular service. And so we are still continuing, as I commented, on winning new accounts, and in many cases, in the women’s health space, it is about stealing share. It is about providers making choices. And so I still think there's a lot of green space for us to win back and retain share as well as other competitors that are in the space because as we continue to improve our products, as we continue to improve our ease of use, customers do believe that Myriad has had some of the best-in-class tests. In some cases, it was because of ease of use. And now that we're doing EMR integrations and we're doing other investments, we are in a very strong position to continue to win back share from other competitors.

Yes, I'm excited about the opportunity in prenatal testing with Prequel, specifically our NIPS test set to launch at 8 weeks of gestation. This is significant, especially in light of current reproductive rights issues in America, as providing results at 8 weeks with lower failure rates compared to our competitors’ 9 or 10 weeks is an advantage. This offers our customers a unique experience, and Prequel's accuracy with Amplify, along with our reduced failure rates for initial blood draws, creates a strong opportunity. The shift to average risk has benefited the entire prenatal testing market, and that's before we consider additional services like carrier screening and the potential expansion of ACOG guidelines, as well as our upcoming launch of Foresight Universal Plus. In the prenatal sector, we face a limited number of providers, which allows us to capture market share and join in the expansion of guidelines and uptake, particularly in underserved communities. A key advantage, as Mark mentioned, is integrating MyRisk with risk scores and our newly launched breast cancer risk assessment program into this market. We are particularly enthusiastic about expanding our MyRisk test with risk scores, which is unique to us, into the women’s health channel, especially in light of the issues surrounding breast density and FDA guideline expansions. We see many opportunities in this area.

And your next question comes from Brandon Couillard from Wells Fargo. Please go ahead.

I have a couple of questions for (indiscernible) firm impact you alluded to volumes coming back pretty strong in the last few weeks. I just wanted to make sure there's no hurricane effect. And is the prior period revenue benefit in the third quarter? Is that $7 million? I think that's about what it was last year?

Brad, I'm sorry, I might need to ask you to repeat the first part of your question. But yes, so I mentioned in my prepared comments that our prior period impact benefit was similar to last year. Last year, it was around $7 million. This year, it was a little over $8 million. If you can repeat the first part of your question.

Yes, I was asking is just the implied fourth quarter guide embeds any headwind from the hurricane disruption. I think Paul talked about volumes coming back strong in the last few weeks, but I wanted to make sure that's the case?

Yes, we are pleased to see a normalization in volumes, and the Q4 guide does not expect any specific weather-related challenges.

Okay. Last question. It looks like there are site integrations planned for the fourth quarter. Can you remind us how quickly you start to see pull through when those new sites go live and whether we should consider the first quarter might have less of a decline and reduced seasonality due to those integrations?

Yes. I think the way I would view the integration is similar to Scott's remarks about some of our payer contract successes. We have multiple integrations in progress, and Scott mentioned that we are connecting over 4,000 different sites. Some of these sites show immediate adoption due to the individual connections, while for larger health systems, I believe this trend will continue into the fourth quarter, the first quarter of next year, and throughout all of 2025.

And your next question comes from Tycho Peterson from Jefferies. Please go ahead.

I'm not going to ask you about United. I'm curious about just some nuances around guidance. You lowered gross margin guidance 20 bps. You took the top end of the range down. Maybe just touch on that.

Yes, there's no change in the underlying fundamentals of the business. It's just there is some variability from product to product in terms of the gross margin profile, and that's just updating the blended average. But overall, the underlying gross margin profile remains just as healthy as before at the individual product level. EPS went up, Tycho. I mean we are dropping through the growth.

Paul, I want to stress...

Yes, EPS went up, Tycho. I mean we are dropping through the growth. I believe the Tempus situation is distinct, similarly to how LabCorp is also different. Each case is unique. The Tempus team performs well; it’s just a matter of timing regarding the changes they undergo, especially with the upcoming policy shifts in January and the integration with Ambry. It’s essential to align products, sales teams, and revenue cycle contracting, which is a complex process that takes time. From my experience, during an integration, most customers don't prioritize this; it's usually quite low on their list of concerns. However, if they notice changes, particularly if their frontline staff starts experiencing shifts in service quality and turnaround times, they may begin comparing product quality. This situation allows our sales team to highlight how our products and experiences stand out. While I can't specify particular instances, the feedback we receive from genetic counselors and others indicates that we are becoming recognized as a more reliable and stable provider, unlike some of the turmoil seen in the industry.

And your next question comes from Dan Brennan from TD Cowen.

This is Kyle on for Dan. I'll just ask one here at non-Genesight related. Moving over to Hereditary Cancer, you talked about this category, I guess, as a whole growing volume sort of low-double-digit and stable pricing in the future. I think if we look at year-to-date, year-over-year and last 12 months on volume, volume sort of grown half this rate, call it, 6%, both year-to-date, year-over-year and last 12 months. Given these volume trends, how confident you that Hereditary Cancer can accelerate and grow at the corporate average next year? And I guess, what are the drivers?

Yes, I think I'll take that. I think what we try to do is sort of split out because when we think about what's baked into our Hereditary Cancer number, as we've mentioned, there is MyRisk on the affected and on the unaffected side. There's also the BRAC CDx component. And so I think what we've seen pulling down the overall average that you just talked about is some of that BRAC CDx business, not only domestically but also internationally, that is going to continue to be a lesser drag on the overall MyRisk growth that I think we're talking about. So we feel confident, and that's why we stated that we see the double-digit growth going into next year of total Hereditary because of the MyRisk adoption that we see. I think on the unaffected side, Paul referenced the breast cancer risk assessment that is a huge underpenetrated market, and we have a highly differentiated product there, and we're seeing growth there and we're integrating more risk assessment program, especially coming out of the October breast cancer risk awareness month. On the affected side, as we've mentioned, we are seeing double-digit growth there now. Now we have the Ambry dislocation. So there's just a lot of headroom for us here and there's been guidelines change, by the way, that have also recommended that any effective cancer patients should get a hereditary cancer test. So all of those things added, Paul?

Kyle, I want to emphasize one point. There's been significant change, especially in our organizational structure and go-to-market approach. We've intentionally sacrificed some volume for net revenue, which has led us to be more strategic with our sales force. We are transitioning from offering a hereditary cancer test at $249 to promoting the clinically differentiated MyRisk test with RiskScore, but this requires navigating payer processes and prior authorizations. This year, we've shifted our entire sales team to a revenue-based model. As a result, while we have cautiously given up a few percentage points of volume, we are compensating for that with an increase in average selling price. I believe this is the direction our industry needs to take. As we've mentioned throughout the year, we did not anticipate a rise in market share for hereditary cancer testing to begin until Q4, with acceleration expected next year. LabCorp and their team are doing well, but they are just starting to implement some practices and policies that I understand will take effect in January. Therefore, it seems that the shifts in share for hereditary testing are likely to become a significant issue in 2025. The large accounts are only now being onboarded in Q4. Overall, our aim is to enhance the average selling price for hereditary testing while addressing the considerable percentage of cases with lower or no payer coverage, which is around 36% for hereditary tests. This focus on addressing these issues is why we've seen improvements in our bottom line. We are dedicated to achieving profitable growth.

All right. And your next question comes from Michael Ryskin from Bank of America. Please go ahead.

This is John Kim on for Michael. I'll also skip ahead of GeneSight.

We can talk about GeneSight. No need to apologize. It's okay.

You guys have talked extensively about it and yes, I understand the uncertainty about that you guys are doing everything you can, and it's great to hear that, you know.

Thank you.

You mentioned the 2% reduction in no pay rate from your RCM effort. Can you provide an update on the progress made and the remaining opportunities? Additionally, could you estimate what we might expect to see in 2025?

We are not currently in a position to project or commit to an improvement in 2025. Just for clarification, during our investor event, we mentioned an improvement this year with the no-pay rate decreasing from 46% to 44%. The strength of our average revenue per test in our Q3 results demonstrates that this forward progress continues into Q3. We expect this trend to carry on into Q4 as well. At the investor event, I received a question about a reasonable annual target for the benefits from ongoing no-pay improvement. While I’m not making any commitments for 2025 specifically, we discussed the possibility of achieving at least the 2% improvement that we've seen so far this year and typically in a normal year. In a strong year, we might even aim for a potential 4% improvement.

And your next question comes from Mason Carrico from Stephens.

Hi, this is Nathan on for Mason. Thanks for taking the question today. I'm going to circle back to GeneSight here, but more from a strategic standpoint. I was hoping you'd be able to sort of lie out? There's obviously a profitability gap that you pointed to as a result of this decision here. So just kind of curious if you could give any color on sort of where the resources are going to be coming from to really address this decision with you and the additional interactions, touch points that you're going to have with the provider. And then just as a quick follow-up there. As you think about investing sort of across your business, and you remain very committed to GeneSight, of course, and as well as your future offerings. So just kind of curious if you could help us think about investing across those different growth initiatives moving forward?

That's a valuable question. Regarding our mitigation strategy, it's still early, and your underlying question is correct; strategy involves choices and decisions about where we invest. At our Investor Day, we emphasized that by rationalizing our portfolio, we can focus on investing in clinical evidence for all our products. This shows our commitment to explore all our offerings and help them reach their full potential, including GeneSight. We recognize the need to continue investing in building clinical evidence to support GeneSight coverage and adoption. There are opportunities in women's health that fall outside our 12% growth target, and we've already invested in Foresight Universal Plus. We have also invested in Prequel to transition to 8 weeks gestation and enhance Amplify to be the most accurate test while conducting further studies. Our Investor Day presentation showcased many studies that Katie, the team, and Dale have pursued, and more studies are underway. This progress is significant compared to four years ago when our coverage was lacking. Oncology represents the largest growth opportunity for our company, with Dr. Danekar's work in medical affairs, and we see potential in pairing MyRisk with Precise Tumor and future Liquid options, as well as a sensitive MRD assay that could be crucial for deescalating care. However, as our colleagues at United highlighted recently, there is substantial work ahead to establish the clinical utility of MRD, giving us a long runway. For long-term investors in Myriad Genetics, we have various avenues for growth, and we are focused on building the company for the next decade rather than just the next few quarters. Whether through ASP opportunities that Scott mentioned or our ongoing portfolio investments, these factors provide us multiple pathways to support the great work that Sam and the team are doing for the future. This year has centered around several lab moves and validations, so we truly believe our best days lie ahead, and we will continue to invest capital wisely where it will yield the greatest benefits for our patients and investors.

There are no further questions at this time. I would like to turn the call back over to Matt Scalo for the closing remarks.

Okay. Thanks, Franz, and thanks, everyone, for your participation. 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 evening, and have a good night.

Thanks, everybody.