Myriad Genetics - Q1 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to Myriad Genetics' first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Matt Scalo. Please go ahead.

Matt Scalo (SVP of Investor Relations)

Thanks, Latif. Good afternoon, and welcome to the Myriad Genetics' first quarter 2024 earnings call. During the call, we will review the financial results to be 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 Investor section of our website along with this slide presentation.

Please note that some of the information presented today contains projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from 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. I will now turn the call over to Paul.

Paul Diaz (President and CEO)

Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss highlights from our strong first quarter performance, and provide an update on the progress we continue to make accelerating profitable revenue growth. 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 and helping people take more control of their health.

We'll now turn to slide four to talk about our highlights of the quarter. We continue to deliver on our commitment to shareholders as we achieve double-digit revenue growth in the first quarter compared to last year, reflecting both volume growth and ASP improvements across the portfolio.

Our focus on profitable growth continues into 2024 as we reported positive adjusted EBITDA and were close to break-even on an adjusted EPS basis in the first quarter. We are excited about the ongoing execution of our near-term strategic priorities that are driving growth and efficiency across the enterprise.

We are seeing early wins in both oncology and women's health related to recent market dislocation as we continue to reinforce our oncology offering with Precise Tumor and soon Liquid, currently being integrated into our new labs. This morning, we announced a reorganization of our international operations that I will provide more detail on as well as the progress standing up our new labs in the future. We continue to accelerate investments in clinical validation studies and EMR integrations.

A large part of our transformation journey has been addressing our clinical validation data deficit, and in 2024, we will see Myriad go to ASCO and ACOG with more publications, abstracts, and posters than we've seen in a long time. Mark and Sam will speak towards these and other strategic priorities on the call, as well as important updates on upcoming product launches and data releases. Next slide, please.

Our strategic areas of focus are directly aligned with our customer expectations and the pillars we believe will drive long-term growth, innovation, and profitability for shareholders. Every provider survey we do and every customer interaction I have always point back to five things that providers and patients expect from us. Our customers want tests that have strong clinical utility and validity, as well as a lab partner with the most comprehensive testing menu that meets their needs.

Our customers care about fast turnaround time and tests that do not place unnecessary burdens on their staff. They also want tests that are affordable for their patients. Our four strategic pillars address these customer needs, which I will discuss on the next slide. Top-tier science and innovation are at the foundation of Myriad Genetics, so we deliver products that are clinically validated and used in real-world clinical settings.

We've invested heavily in technology-enabled lab operations, automated, scalable, and cost-effective labs that are compliant with FDA quality management system requirements. Our team continues to make it easier to do business with Myriad from testing request forms through results delivery, supported by our ongoing investment in EMR integrations, our new universal order management activities, and our patient-provider portals.

Combining these pillars with expertise across regulatory, compliance, and revenue cycle management, we find ourselves in a position to serve our customers at scale and profitably. Next slide, please. Today, we announced a reorganization of our European operations to better align company resources to our domestic opportunities while continuing to serve key biopharma partners and patients outside the United States.

As part of the reorganization, Myriad has signed a definitive agreement to sell our EndoPredict business to Eurobio Scientific. We will license the right to continue to produce and sell EndoPredict as an LDT in the United States as part of Precise Oncology Solutions. Myriad will also license Eurobio the right to sell Prolaris in vitro diagnostic kits outside the U.S. The strategic rationale for this move is part of our continued effort to accelerate profitable growth while supporting our biopharma partners more efficiently.

This also allows us to better position Myriad to grow into other global businesses more effectively through strategic partnerships, including licensing and distribution agreements. I would also call out that this does not affect Japan, which has been and remains an important market for Myriad Genetics. This transaction is expected to close in the second or third quarter of this year.

Last quarter, we announced the acquisition of Precise Tumor and Liquid from Intermountain Precision Genomics. Sam will provide an update on the integration and the associated labs to our new Salt Lake facility, which is making steady progress. Together, these transactions represent very capital-efficient ways to optimize and enhance our oncology portfolio. These transactions are expected to be accretive to earnings and cash flow in 2025. I will close with comments on the FDA's final rule regarding regulation of lab-developed tests.

While we share many of the concerns raised by the industry regarding the use of the medical device framework for this industry oversight, we do view the final rule as generally positive for Myriad as all of our clinical tests meet CAP, CLIA and New York state requirements.

We have a strong quality assurance and regulatory fairness team, as well as a long history of compliance with FDA quality standards. We plan to be proactive in working with the FDA to ensure that our products continue to meet the new regulatory requirements. Sam will cover this in more detail later on the call. Now I will turn it over to Mark.

Mark Verratti (Chief Commercial Officer)

Thanks, Paul. I will begin on slide nine to talk about our commercial teams. We continue to invest in tools and analytics that enable our commercial teams to better segment their territories and identify clinicians that could benefit from Myriad's testing portfolio. We have seen positive results from the use of these analytic tools as our commercial teams continue to drive new and sustainable revenue growth. In the second half of 2023, we realigned our commercial salesforce incentives from volume-based targets to revenue-based targets.

Overall, this shift better aligns our commercial team's goals with the company's focus on reducing no-codes. We believe that the 12% revenue growth and positive ASP trend in the first quarter in part reflect our investment in these analytical tools and the realignment of our commercial team incentives and our ongoing focus on revenue cycle management, which Scott will talk about in more detail.

Most importantly, these efforts position us well for continued positive momentum throughout 2024. Next slide. Myriad continues to lead with differentiated insights offered by our MyRisk, RiskScore Hereditary Cancer Tests. In the first quarter, hereditary cancer testing revenue grew 16% compared to last year, with volumes up 9% year-over-year. We believe this consistent growth reflects a combination of our reputation as a leader in this area, the commercial team doing a better job driving home our differentiated messaging, improving relationships with genetic counselors, along with early competitive dislocation.

Looking forward, we are excited about the omnichannel opportunity to drive MyRisk growth across all of our businesses, and we continue to accelerate our investment in clinical validation studies and EMR integration to address recent market dislocation with the most clinically differentiated hereditary cancer test on the market. Next slide.

As mentioned, no part of our portfolio has more upside potential than our hereditary cancer testing revenue. Just for the unaffected population, there are an estimated 50 million women in the United States that meet guidelines for hereditary cancer testing. We are making good use of the analytical tools, as mentioned previously, to better identify and serve those patients. Additionally, through partnerships with Lifepoint Hospitals and SimonMed, we are expanding our reach even further.

In the first quarter of this year, our women's health team grew hereditary cancer testing revenue by 12% compared to last year, while our oncology team grew hereditary cancer testing revenue by 20% over the same period. Our ability to serve more patients in both the unaffected and affected markets reflects these consistent results, and there is so much more upside for us to realize. Next slide.

Here at Myriad, we focus on ways to expand access to genetic testing. MyRisk with RiskScore is one of the best examples of how we are doing just that. RiskScore is the component of MyRisk that expands its benefits for people of all ancestries and is the only polygenic risk score in breast cancer validated for women of any demographic.

Not only is this a major differentiator for MyRisk, but RiskScore is an example of our commitment to expanding access to genetic testing and increasing equity for care for all people. Next slide. MyRisk has been in the news a lot recently as more people become aware of the importance of genetic testing in the preventative care market.

In today's patient-centric healthcare ecosystem, many patients want to drive their own healthcare journey, which is why we have invested in resources like MyGeneHistory for patients to determine their breast cancer risk online for free, and why we continue to provide free genetic counseling to anyone who takes a MyRisk test. Myriad is not just a lab partner.

We are also a women's health advocate whose objective is to provide insights that help people take control of their health and increase access to genetic testing. I will now turn to slide 14 and talk about our prenatal business. In the first quarter, our prenatal revenue increased 22%, and volumes increased 9% compared to last year, reflecting market share gains and ongoing initiatives to improve ASPs.

Our commitment to support providers negatively affected by the market dislocation continues to drive volume for this business, while our disciplined approach in adding quality accounts to the franchise has resulted in strong ASPs for both Prequel and Foresight. We see even more upside for this business as we await ACOG guideline expansion this year.

We believe the expanded guidelines will improve patient health and expand the market opportunity for carrier screening, as clinicians are already ordering larger panels from us. Once ACOG moves, we believe the rest of the market and payers will adapt as well, which will likely result in ASP improvements considering the large number of expanded panels that we currently run that are often not reimbursed. We look forward to ACOG guideline updates and the launch of Foresight Universal Plus later this year. Next slide.

In the first quarter, GeneSight revenue increased 21% year-over-year as we reported approximately 124,000 tests in Q1. ASPs improved both year-over-year and quarter-over-quarter in the first quarter, reflecting improved revenue cycle management activities. I want to end on slide 16 and share what is in the pipeline for our products. I would remind investors of our upcoming launch, Foresight Universal Plus expanded carrier screening test, in the context of anticipated ACOG expanded guidelines.

This new test will feature an expanded panel as well as more efficient and cost-effective workflows. These guideline expansions would also support our multiple prenatal screening tests, FirstGene, which we hope to launch later this year. We continue to adapt to our oncology offering with the addition of Precise Tumor and Precise Liquid from our recent acquisition.

Sam will speak toward the progress we are making integrating both these tests into our new labs. We are making tremendous strides in the development of Precise MRD. Last quarter, we announced a research collaboration with the National Cancer Center Hospital East in Japan to use our highly sensitive Precise MRD test.

We look forward to speaking more on MRD at ASCO this year, as well as Myriad's other areas of research included in the seven abstracts accepted by ASCO across HRD, polygenic risk scores, germline registry studies, and our tumor-informed approach to whole genome sequencing. Now I will turn the call over to our Chief Operating Officer, Sam Raha.

Sam Raha (COO)

Thanks, Mark. Let me start on slide 18 and provide an update of our Labs in the Future program. A quick reminder that the overall objective of this program is to drive innovation and operational excellence to continue delivering high-quality testing results at scale that meet regulatory requirements while shortening turnaround time in support of our ongoing focus to improve patient-provider experience, all of which continue to differentiate us from other labs.

As you may recall, we completed construction of our new lab facilities in South San Francisco and Salt Lake City in 2023. Highlights from Q1 of this year include completing and passing critical inspections in New York State and Salt Lake City by the state of California and CLIA in South San Francisco.

We also completed the validation of Prequel, our NIPS assay in South San Francisco, and completed the first phase of bringing up Precise MRD assay workflow in Salt Lake City. Our plan for South San Francisco remains to complete the move-in, workflow validation, and full-scale prenatal lab operations by the end of 2024.

For our new Salt Lake City lab, we remain focused on completing the move-in process as well as the validation of sample processing for most of our oncology assays by the end of 2024 and running those assays at scale by the end of Q3 in 2025. We are also in the process of integrating the recently acquired Precise Tumor and Precise Liquid tests into our new Salt Lake City facility. Let me talk more about that now on this next slide.

You may recall that we completed the acquisition of select assets from Intermountain Precision Genomics last quarter, including lab instrumentation, workflows, Precise Tumor, and Precise Liquid assays, which together, these two are genomic profiling tests for therapy selection that are part of our overall Precise Oncology Solutions portfolio. Our immediate focus has been on retaining employees associated with the acquisition as well as testing continuity with providers as we move these operations to our new Salt Lake City facility.

I'm happy to share that we have seen great engagement from our new team members and that turnaround time has already been reduced under our direct oversight. We've advanced our lab transition planning and started moving some instrumentation to Salt Lake City within the quarter. We expect to start processing Precise Tumor samples in Salt Lake City in Q3 of this year as we also advance our work on Precise Liquid.

By the end of 2024, we expect to have completed the lab move entirely and to fully be operational for sample processing reporting in Salt Lake City. Next slide, please. Building on what Paul shared, last week, the FDA released its final rule regarding the oversight of lab-developed tests, or LDTs. Adding to Paul's comments earlier, our current view is that this finalized version of the rule is more favorable than the preliminary guidance.

We believe that Myriad is in a good position to work within the new framework. First of all, the rule provides a continued path for LDTs approved by New York State Department of Health to serve the market without requiring immediate additional analytical or clinical validation through the FDA. Again, all of our on-market tests meet CAP, CLIA, New York State requirements.

Second, we have a strong quality assurance regulatory affairs organization with over a decade of meaningful experience collaborating with the FDA on regulatory submissions, including 2 FDA-approved tests, MyChoice CDx and the BRACAnalysis CDx. We've also built and maintained a robust quality management system, which is the foundational element of all the patient samples that we process and report on.

While we are optimistic about the FDA's new rule, we are also aware that the FDA intends to review labeling associated with LDTs and could review the sufficiency of analytical and clinical validation data for LDTs that are approved by New York State. Finally, I have personal experience running a business that is regulated by the FDA.

Since joining Myriad, I've been working closely with our teams to prepare and plan for increased FDA oversight and how we can use the LDT rule as a competitive differentiator for Myriad. Turning to the next slide, I'd like to end with an update on select operational highlights from the first quarter. We are proud to have a high level of organizational engagement across the company, reflected in a single-digit employee turnover level. In terms of market penetration, healthcare providers are among our most important constituents.

Their satisfaction with Myriad Genetics led to NPS or Net Promoter Score of 74 in the first quarter, up from 70 for the full year of 2023, a figure that has continued to improve over the past few years. This is a testament to the focus and investments we continue to make in the patient-provider experience.

In terms of efficiency and productivity, this quarter, we increased commercial productivity by 11.5% compared to the last quarter as a result of the continued execution of our commercial transformation that Mark and his team are leading, including improved sales planning and process optimization. With that, let me turn it over to Scott Leffler, our CFO. Scott.

Scott Leffler (CFO)

Thanks, Sam. I'll start on slide 23. We delivered a strong overall performance in Q1, led by 12% revenue growth year-over-year. This growth was primarily driven by hereditary cancer testing, prenatal testing, and pharmacogenomics and speaks to internal initiatives such as an improving customer experience and continued execution by our commercial team.

Mark provided commentary as to how the commercial team, with enhanced analytical tools, are addressing healthcare provider needs and more effectively generating revenue growth. We believe these activities, in addition to ongoing progress in revenue cycle management, were important drivers of our Q1 ASP improvement of 2% over the year-ago period. Historically, ASPs in the first quarter tend to be soft due to resetting of deductibles and other adjustments at the beginning of each year.

So the fact that we are starting off 2024 with such a strong ASP performance bodes well for the rest of the year. Next slide. On slide 24, we revisit some of the revenue cycle initiatives discussed at our September 2023 investor event. We have made progress on multiple fronts, including ramping up EMR integrations, improving prior auth outcomes, automating our billing process, and expanding payer coverage. Myriad has seen a number of payers recently expand coverage of average risk populations that could benefit from our tests.

First-quarter revenue reflects approximately $3 million from a single payer who expanded coverage of these average risk patients, as well as other immaterial favorability from out-of-period adjustments. We are pleased with this continued progress against our long-term goal to reduce our no-pay rate, complementing the volume-generating potential of the business. Moving to slide 25, I want to highlight our financial performance by quarter.

First quarter, adjusted gross margin of 68.5% improved 80 basis points compared to last year, overcoming headwinds associated with the IPG lab and Precise Tumor and Liquid assets, which were acquired in February of this year and are still being integrated. First quarter 2024 adjusted OpEx of $139 million, increased sequentially from the fourth quarter of 2023 but decreased by 4% year-over-year. As reflected in our full-year 2024 guidance, we expect our full-year OpEx run rate to be higher than the Q1 amount as we ramp up spending to accommodate growth and strategic investments.

Our strong revenue growth and margins in Q1 show significant improvement in overall profitability, including an adjusted EPS loss of only $0.01 versus a loss of $0.21 in the first quarter of 2023, as well as $4 million of positive adjusted EBITDA compared to a loss of $19 million in the prior year period. Regarding financial flexibility on slide 26, we finished Q1 in a solid position with approximately $104 million in cash, cash equivalents, and marketable investment securities and have $41 million of availability under our credit facility.

The first quarter is typically a high cash-burn quarter due to seasonal factors. However, we saw a meaningful year-over-year improvement in adjusted operating cash flow with an outflow of only approximately $9 million in the first quarter of 2024 versus an outflow of $25 million in the first quarter of 2023.

Importantly, adjusted operating cash flow is expected to be positive for the remainder of 2024. On slide 27, we reiterate our full-year 2024 financial guidance with a revenue between $820 million-$840 million, representing annual growth between 9%-11%. Our strong Q1 performance positions us well to meet or exceed our revenue guidance range.

But I would also note that there are areas where we will increase spend to accelerate actionable commercial opportunities in a changing competitive landscape to further drive the top line, as Mark mentioned. An example of that accelerated spend would be our EMR integration efforts, where new customer wins are often dependent upon our ability to meet the IT requirements of prospective customers. Overall, we are optimistic regarding the business trends and the company's ability to grow at or above industry growth rates.

We remain comfortable with full-year gross margin range of 69.5%-70.5%, with adjusted operating expense growth between 5% and 7% and adjusted EPS between break-even and $0.05. Now, let me turn the call back to Paul.

Paul Diaz (President and CEO)

Thanks, Scott. We continue to build on the pillars of long-term growth and profitability that delivered our strong results in 2023 and the first quarter of this year. 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 engine are examples where investments in automation and advanced technology are yielding improved workflows, faster turnaround times, and reduced operating costs, all of this reinforcing our position as a trusted, differentiated lab with specialized expertise, best-in-class quality, and a strong, scalable commercial engine underpinned by data, research, and technology, with industry-leading margins and business bandwidth.

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 to enable providers to better treat and prevent disease. I'd like to now turn it back over to Matt for your two questions.

Matt Scalo (SVP of Investor Relations)

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

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matt Sykes of Goldman Sachs.

Matt Sykes (Research Analyst and Managing Director)

Hi, good afternoon. Thanks for taking my questions. Congrats on the quarter. Maybe Paul or maybe Mark, just talk a little bit about the runway that you see for future market share gains in both hereditary cancer and prenatal. You made some comments that it sort of adjusted at the beginning. So we'd love to know kind of where you see that runway and how long. And then how sticky are the new relationships that you're building? I'd assume if you get those relationships, it's probably easier to keep them over time post-winning them. I just want to get some color around that. Thanks.

Paul Diaz (President and CEO)

Yeah, Matt. Well, look, first, it's an early phase of this. Particularly for large accounts, these institutions take a while to make changes. I would say what's happened, and Mark will elaborate here, is that we're in the room now, certainly with two or three other competitors, as people are revisiting their choices. And as I said earlier, we really focus on the things that they tell us they care about: ease of use, clinically differentiated products.

And that's where EMR and the other point-of-care things really matter. But you're absolutely right that these relationships, I think, will be stickier. I mean, I come from a large hospital system world, and once these institutions make these changes, without the disruptions that we're seeing now, it's very hard to kind of get in.

Now, that being said, genomic testing is not number 1, 2, 3, or 10 on the list of a hospital system's priorities. But we're pretty excited. I think that expectations should be, though, that the business we hope to sign in the back half of the year certainly can give us a lot of momentum going into 2025. But you really won't see what I think is a big opportunity fully come through until 2025. But Mark, why don't you make a comment?

Mark Verratti (Chief Commercial Officer)

Yeah, I would agree with that. Thanks for the question, Matt. I think not to speak over Paul here. I think the benefit is we are at the table. Myriad is perceived as best in class. So I think we are at the table. These providers, even though there is dislocation, they've got lots of other priorities. So we think of it as it's going to take a couple of quarters for us to really accelerate. But as Paul mentioned and as I mentioned during my comments, for the MyRisk business with EMR integration and all the investments we are making, that really suits us well for the back half of the year and going into 2025.

Matt Sykes (Research Analyst and Managing Director)

Great. And then maybe just as my follow-up, a related question, perhaps again for you, Mark. Just given the change in incentives for the commercial team to revenue from volume, does that help salespeople target the right customers? I'm sure in this market dislocation, there's a number of customers that might not be economically viable. And this change in incentive, does it focus your salespeople on attracting the right customers? And what has the reception been from your commercial team to this change in incentives?

Mark Verratti (Chief Commercial Officer)

Yeah, Matt, you are spot on, right? I think when we make those changes, it just allows our team to focus their attention. It isn't that we're excluding any particular patient or any particular provider. But from a point of focus, and even to Scott's comments, just all of our efforts around revenue cycle management, making sure that the order, making sure that the provider knows what's in guidelines, making sure the provider has an understanding of what the specific payer coverage is, and making sure that at time of ordering, we're collecting as much information as we can, absolutely allows us to be able to pull through increased ASP.

And that's something that I think in this space, Matt, just really was not. Teams just really didn't have that type of focus. So I would definitely agree with you there. I would say the acceptance from the sales force has been 100% aligned. Obviously, that's how they get paid. That's how they get compensated. But it's also about the way that they spend their time in the field, right, where they're not wasting time focusing in areas that aren't going to benefit the company, and they're certainly not going to benefit them.

Paul Diaz (President and CEO)

And we're perfectly - I mean, I've talked to sales teams about this. They understand now that maybe a point of volume is worth giving up to get three or four points of revenue. And so we are just much better aligned now. And I think you started seeing that inflection and that change in the quarter because they are very much now aligned with the revenue cycle management initiative.

Again, as Mark said and at our different national sales meetings and stuff, we have not gotten pushback because we've really helped them embrace this as part of the change. So I think you'll see that net benefit play out over the course of the year and accelerate into 2025.

Matt Sykes (Research Analyst and Managing Director)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Douglas Schenkel of Wolfe Research. Please go ahead, Douglas.

Douglas Schenkel (Managing Director, Senior Research Analyst, and Head of Life Science and Diagnostic Tools.)

Hey, guys. Thank you. Good afternoon. Thank you for taking my questions. I want to start with a high-level one. Scott and Sam, it's now been a few months since you joined the company. I'm curious where you are in the process of essentially evaluating the firm, evaluating your teams, essentially what's better, what's worse. It just would be interesting to get an update on kind of your early learnings and kind of where you think you are in essentially starting to play offense in your leadership roles at the new firm.

Scott Leffler (CFO)

Sure. I'll start out and then hand it over to Sam. First of all, thanks very much for the question. We could not be more thrilled to be at Myriad, but also with everything that I have seen and learned, both about the company itself and the momentum that it has, but also in terms of the overall broader market opportunity that we see in front of us.

I just feel privileged to have joined the company at what is a very special inflection point where so much great work and so much great investment has already been done. And yeah, I think you can see a lot of the fruits of that effort in our results from Q1, but also to now see the landscape in front of us in terms of the ability to accelerate growth throughout 2024 and going forward.

And so if there is any learning that I have had in the last three months at the company, it is how extraordinary progress that has been made and the momentum also that we have going forward in 2024. Sam.

Sam Raha (COO)

Yeah, thanks, Scott. Thanks for the question, Doug. I concur with what you said, Scott. I'll tell you that I have a vantage point of coming from some other larger companies that you're aware of. I would put our team on par with any of them. It is a focus on, as Paul was mentioning, understanding the patient first, the science, but the operational execution to deliver timely results, quality results. I think all of those things are exactly what is needed for this next phase of our journey.

Also, it's taken time. It's not as obvious. It wasn't to me coming from the outside. Just the level of transformation on so many different fronts that this company has really executed on the last two years. I think there's a lot of return yet to be seen from that.

Of course, now Scott and I joining this great organization, we have an opportunity to help be part of taking us to the next level. So not only do I have no regrets, this is exactly what I wanted to see them. Thrilled to be here.

Paul Diaz (President and CEO)

And Doug, I'd only add that Dr. George Daneker has just been an incredible addition, an oncologist physician who led a large health systems oncology business. I mean, he has had such an impact just over the last couple of months. And Dr. Dallas Reed on our women's health side. So the company build, the team build is happening on many different levels. And these two guys have just been great. They're freeing me up to do lots and lots of other things. And you saw a little bit of that this quarter with some of the strategic stuff. So I couldn't be more pleased with our new partners here.

Douglas Schenkel (Managing Director, Senior Research Analyst, and Head of Life Science and Diagnostic Tools.)

That's fantastic. Thank you for all that detail. And maybe I'll just try to sneak in one more on an unrelated front. Regarding the LDT final rule, I appreciate what you shared in your prepared remarks. For whatever it's worth, my take was this actually kind of turned out to potentially be a pretty big advantage for Myriad. I'm just wondering if you guys, by and large, agree.

And as we look forward, recognizing this is going to take a few years to phase in, does this change anything as you think about how you develop assays, how you go to market, how you think about things competitively? Again, I think this increases barriers to entry for others. And this may even boost your position as a consolidator. So I'd love to get any comments on where you agree or disagree with my initial thoughts on this. Thank you.

Paul Diaz (President and CEO)

Yeah, I'll start. And Doug and Sam can add. I agree, Doug. I mean, I think that this is going to be very difficult for subscale operators. We have been preparing for this, though, for years, quite frankly. When we began to develop our plans to labs in the future, it was not just a real estate play. It was an automation strategy. It was to have the quality management system with full knowledge that this was coming. We feel lucky and that the investments we've made over the last decade in those quality management systems now can be leveraged both in our existing products, modifications to our existing products, and future products. So clearly, we think this is going to be a competitive advantage.

The capital markets taken together with this, I think, is going to put a lot of pressure on folks, whether they're health systems, up-and-coming lab operators, or others. Sam's doing a great job of pulling teams together. He can talk a little bit about every single one of our products is going through product management with respect to these rules. We've been working at that for a while.

Sam Raha (COO)

Yeah, I mean, I concur with everything Paul said. It really answers your question, Doug. Just to build on what Paul was saying, we have been preparing for very diligently going through every single product we have both on market and that we're preparing to launch, some of the things that Mark talked about, with an eye to all those critical elements, right, not only quality management systems, but what are the studies that need to be done, what is the labeling approach.

All doing that while we meet the most important things, five that you've heard Paul and myself talk about over and over again, right? We have to make sure the quality standards are there, but the tests are relevant, quality is there, that the turnaround time is there, and we make the tests accessible. I think this is going to be -

Paul Diaz (President and CEO)

Yeah, and I don't know how folks that are outsourcing their lab operations can get to 70% gross margins and do it consistently and meet these new requirements all at the same time. So I think it'll be quite a challenge for some.

Operator (participant)

Thank you. Stand by for our next question, which comes from the line of Dan Brennan of TD Cowen. Your question, please, Dan.

Dan Brennan (Senior Equity Research Analyst and Managing Director)

Great. Thank you. Thank you very much for the question here. Congrats on a strong quarter, guys. Maybe first one, obviously, you had a really solid start to the year. You maintained the full-year guide. You talked about, I think, just prudence. But could you speak to didn't sound like there were I think you called out $3 million, maybe, in prior-period benefits. So most of the beat was all organic. So is there anything that would prevent you from seeing this strength continue? Just wondering why not kind of raise the guide now?

Paul Diaz (President and CEO)

We agree, Dan. We're just putting one foot in front of the other here. It's a really strong start to the year, particularly on the ASP side that we see runs through the year. And we certainly can build on that, hopefully see guidance as we go through the rest of the year. But just didn't seem prudent to get ahead of ourselves at this point.

Dan Brennan (Senior Equity Research Analyst and Managing Director)

Got it. Thanks, Paul. And maybe on the hereditary cancer side, the oncology side really beat our forecast. Women's health was strong, but more in line. Just could you elaborate a bit more on kind of how much the benefit was from the share gains that you're seeing from the dislocation versus some of the ongoing initiatives that you have? And presumably, there's still a lot more share gains ahead given the size of that business that went bankrupt. So just a little more color on kind of what you saw this quarter teasing it out and kind of what's assumed in the guidance going forward.

Mark Verratti (Chief Commercial Officer)

Yeah, Dan, this is Mark. I think we called it out that in Q1, most of it was just our ongoing blocking and tackling. I think we're always winning share back and forth. We would expect, as we mentioned earlier, that any incremental gains would happen in the back half of the year.

Dan Brennan (Senior Equity Research Analyst and Managing Director)

Got it. Okay. Great, guys. I'll get back on the queue.

Paul Diaz (President and CEO)

Well, thank you.

Operator (participant)

Thank you. Our next question comes from the line, Puneet Souda of Leerink Partners. Please go ahead, Puneet.

Puneet Souda (Senior Research Analyst)

Yeah, hi, guys. Thanks for taking my questions. I just want to clarify the European EndoPredict business, if there was anything for that in the guide. And just wondering, I know you have reiterated the guide, but just wanted to clarify that point. And then I have follow-up.

Paul Diaz (President and CEO)

Yeah. No, I would say that both of the strategic transactions sort of are incorporating within the guide. And so again, being able to reposition the portfolio with the additions of Precise Tumor and Precise Liquid, reorganize our European operations, and become much more efficient in the way we were serving that market pretty expensively.

And to put a little more cash back on the balance sheet, these are both very capital-efficient transactions. And whether it's on the revenue or the profitability side, within our guidance for 2024 and accretive to earnings and cash flow in 2025. So we are really excited in this market that we are picking and choosing our opportunities. And we think there'll be more in terms of bolt-ons and strategic acquisitions going forward.

But this is the kind of stuff that we want to keep doing, saying string of pearls or different philosophies around those kind of things.

Puneet Souda (Senior Research Analyst)

Got it. Okay. And then just following up on that, I mean, when you look at the portfolio optimizations sort of that you have done, the focus on Precise Liquid and expansion into therapy management and also MRD, sort of, Paul, just walk us through how you think about further either trimming of the portfolio or, as you'd said, potential expansion, other strategic options that you might pursue given sort of where the state of the market is right now in diagnostics?

Paul Diaz (President and CEO)

Yeah. When I push George and physicians and we're certainly going to ask over these questions further like what are the key precision medicine tools you need to treat a cancer patient, breast cancer patient, etc.? Hereditary cancer always comes up first, somatic second, Liquid third, and MRD, interesting new novel technology fourth. So we're just very excited over the next couple of years. We're going to have a place where you can get those primary key tools to treat and monitor the progression of patients in one place in an EMR with consolidated reports.

And I think that is going to be a big differentiator from others. We're trying to string together this. And all of a sudden, hereditary cancer seems to be interesting. What I got here, everybody thought it was a dead bounce kind of thing. So we kind of like the portfolio position.

That being said, Puneet, we are investing in innovation. We're investing in building more studies, as we referred to on the call. That's a place where we haven't played catch-up. We're going to ASCO and ACOG with more studies and more readouts than we've had in years. We'll certainly be watching the marketplace for great science and innovation that fits within our portfolio. But we're going to stay pretty disciplined on the indications that we're focusing on and the channels where we think we have leverage.

Puneet Souda (Senior Research Analyst)

Got it. Super helpful, guys. Thank you.

Paul Diaz (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Andrew Cooper of Raymond James.

Paul Diaz (President and CEO)

Hey, Andrew.

Andrew Cooper (Director of Equity Research)

Hey, everyone. Thanks for the question. Maybe just first, kind of sticking with the OUS transaction, I mean, maybe just give us a little bit more of the thinking on sort of circling the wagons for the U.S. opportunity. What our takeaways from that should be? Is it, "Hey, we're just really excited about the opportunity here and don't need to worry about the European efforts in the same way we have before"? Or what should our takeaway really be on that decision?

Paul Diaz (President and CEO)

Yeah, I would say that the thesis is generally that complexity is the killer of growth and accountability. And operating in Europe is both complicated and expensive. Every single country has its own requirements. We were going to be forced to set up satellite labs everywhere to go through their regulatory IVDR process. And the juice just wasn't worth the squeeze. For the Eurobio folks, that's where they live. That's where they do business. They're great at kits. And so for us to continue to serve through distribution arrangements and our LDT operations in Salt Lake, to continue to expand in Japan, where we have a growing and very profitable business. And yes, resources, we have to be very efficient.

So investing in studies, investing in EMR has higher returns on bringing in this new business, this new opportunity we see in terms of consolidating the market, where Europe is a much longer-term and a more complicated process. So that was really what went into the strategic decision-making.

Andrew Cooper (Director of Equity Research)

Okay. That's helpful. Then maybe just shifting to the P&L a little bit, would love a little bit of flavor. I know you shared a little bit, but on some of the ASP dynamic, maybe across some of the different areas of the portfolio. Then also, just if we think about the ramp in OpEx through the year, can you give us a breakout of how much of that we should think about as true kind of new product growth that you're trying to drive and new efforts versus sort of maintaining the growing base that you have?

Paul Diaz (President and CEO)

I'll take the second one when Scott takes the first one. We're continuing to try to get productivity gains across all OpEx, whether it's commercial, me, everybody in the support center, and trying to repatriate dollars to R&D, to clinical studies, and to IT where we know we have very quick returns on investment. So we expect to stay within that 5%-7% growth. I just remind everybody, over the last couple of years, we've done exactly what we said we were going to do. And we've done that again this quarter. And you're really starting to see the leverage of this operating model this quarter. And so we maintain that we can manage within that 5%-7%.

But within that, we may push the 7% growth in OpEx, but a higher percentage of that, call it 10%-15% growth in the R&D and tech spend, while the other areas, it's really wages and benefit costs that are in the 4%-5% range all of it. So that's how I would think about that. No big investments beyond that 5%-7% range in our OpEx. You'll see some ramp up over the course of the year. Just a great job by the team starting this year in terms of actually beating budget the first quarter. So you will see a little bit ramp each quarter as we invest in getting ahead of the launches and the studies that we're ramping up.

Mark Verratti (Chief Commercial Officer)

Yeah. So I'll take what was your first question on ASP. I'll just remind you that on the last earnings call, we did talk a little bit about the fact that looking back on 2023, our overall ASP performance for 2023 actually was a little bit worse than we would typically expect. So coming into the year, we already saw that there was an opportunity to really perform even better than we would typically hope for, just given the ability to recover some of what was lost last year, along with incremental organic improvement from the various initiatives that we've talked about. Really, I would say that it's just been an extraordinary success so far this year. More or less across the board at the individual product level, you see outside the ASP gains.

When you look at the blended performance, where I think we call that a 2% contribution from ASPs, in some ways, that high is how significant the ASP improvement has been at the individual product level because you have a little bit of product mix that is impacting that blended number. But really, what we're seeing almost across the board is much greater than that 2% improvement in ASP. That's something that we believe certainly is sustainable. Based on the number of initiatives that we continue to have in play, something that we can build on going forward.

Andrew Cooper (Director of Equity Research)

Great. I appreciate the time. I'll hop back in the queue.

Paul Diaz (President and CEO)

Thanks, Andrew.

Operator (participant)

Thank you. Our next question comes from the line of Rachel Vatnsdal JPMorgan.

Paul Diaz (President and CEO)

Hi, Rachel.

Rachel Vatnsdal (Executive Director of Equity Research)

Hi. Good afternoon. Hi, you guys. Thanks so much for taking the questions. First, I just wanted to dig into seasonality and 2Q expectations. Last quarter, you provided guidance for 1Q on top and bottom. I was wondering if you could do something along those lines for 2Q as well. First up, how comfortable are you with a street at around $200 million of revenues and roughly $0.01 loss per share? Then given some of the moving pieces that you highlighted today, ranging from LDT to some of the product launches and competitive dynamics, how are you thinking about the various segments performing in 2Q?

Paul Diaz (President and CEO)

So yeah, that was a lot and fast. So first, we did not give Q1 guidance. And we're not giving Q2 guidance. I think directionally, the street's a pretty good place in terms of where estimates are for Q2. Obviously, building on our Q1 success, there's nothing that we're seeing in the estimates for Q2 that trouble us. I would encourage folks not to get ahead of us here.

Again, just there's a lot of moving parts with Labs of the Future and everything else going on. But on individual products, it continues to be a story of continuing to grow. Q2 is typically a stronger quarter for us in terms of volume. And as Scott just said, the ASP tailwinds that we have should continue in the year.

So that does bode well for a strong year, even without big market share gains, as Mark said, which will probably happen later this year. And quite frankly, create real strong momentum going into 2025.

Rachel Vatnsdal (Executive Director of Equity Research)

Great. And then just on my follow-up around ACOG, you mentioned that ACOG guideline expansion would be upside later this year if we were to see it. So I guess, what's your latest assumption on when we could see an update from ACOG? Appreciate it. It's not embedded into guidance at this point. And then I just wanted to talk for a minute about market share regarding 22q. One of your peers out there has more of an opt-out strategy when it comes to 22q testing.

I know you guys have focused more on the profitability side and have more of that opt-in type of strategy. So when ACOG eventually expands their guidelines, should we see that positive guideline inclusion? How do you see that playing out from a market share perspective, given that shift between opt-in and opt-out? Thank you.

Paul Diaz (President and CEO)

Yeah. We just released a study on 22q, which showed the power of Prequel, quite frankly, and differentiated from everything else on the market, quite frankly. And so if 22q is included in ACOG guidelines, we think that will give us just another reason to continue to win share and win share that's profitable. The thing that I just want to keep underscoring for everybody is profitable growth here. That's what we're focused on.

And that's what we delivered this quarter. And that's what we're going to continue to deliver. But you're absolutely right. The expansion of ACOG guidelines, should they happen, we think both will broaden adoption as well as improve ASP. And the launch of Foresight Universal Plus will include those genes that we expect. So we're holding off until we see that. And that kind of just goes to the product management discipline overall.

We want to make sure that we are not launching products that are not in guidelines and that we have a path to payment, which is the thing that I think the industry is finally grappling with. Launch is not just having your studies and going out and selling docs on your product. It is also having an eye towards getting paid and running it through your labs efficiently. So that's the balance we're trying to bring to product management. Expansion of guidelines will be a great tailwind for us going into next year if they are adopted, as we hope, later this summer. We're all kind of on standby there. 22Q would be also just great to have in that context.

Operator (participant)

Thank you. Our next question comes from the line of Subbu Nambi of Guggenheim Securities.

Subbu Nambi (Managing Director)

Hey, guys. Thank you for taking my question. On reproductive health, a couple of larger players have exited the market. You clearly have made progress in capturing share. But how are you gaining share without compromising margins moving forward in the business model of leading the market?

Paul Diaz (President and CEO)

I'm not really sure if I followed. You didn't come through particularly clearly. I think the question was, how are we gaining share profitably? I'm sorry. Could you just restate the question, please? My apologies.

Subbu Nambi (Managing Director)

Yes. Can you guys hear me now?

Paul Diaz (President and CEO)

It's a little better. But yeah, maybe just a little louder. Thank you.

Subbu Nambi (Managing Director)

Okay. On reproductive health, a couple of larger players have exited the market. You are clearly making progress in capturing share. How are you gaining share without compromising margins, given the business model of those that exited the margin market didn't really focus on the margins?

Paul Diaz (President and CEO)

Yeah. So, good question. We absolutely are trying to be there for customers. As Mark said, we see patients. We don't see a payer. But that doesn't mean that we are not focused on making sure that we are bringing on business with good margins, that we can do it effectively. So, I think what you've seen over the last two years is our ability to grow and grow more profitability.

And you saw it the last two quarters. So, it is about profitable growth, maintaining those gross margins near 70%. That'll fluctuate sometimes from quarter to quarter, depending on mix and other factors. But we've stayed in that 68%-70%. And I think we can probably do a little bit better as the year progresses here.

Absolutely committed to not just bringing on business to win business, but to bring on business that is profitable and that generates cash flow. If you look at our cash flow conversion and you look at our 50 days in DSOs, we've got to convert billings into cash. And ultimately, I think that's what disciplined businesses need to do. And we're trying to do here.

Subbu Nambi (Managing Director)

Super helpful. And one last one from me. On MRD, any updates on clinical data? How is the enrollment progressing? And are you still planning commercial launch the back half of next year?

Paul Diaz (President and CEO)

Yeah. So there'll be some additional studies at ASCO. And then we are expecting to get a readout on our MD Anderson study this fall, late summer. And in addition, we will be running samples for pharma in July, I am told. So I think Q3, Q4, we will have a lot more to talk about, about the progress we're making with the studies. But everything is progressing there.

We have another patent. We're expecting to get issued here shortly. So while we wish we were making more progress, we are going to be investing in some additional studies. But so far, my understanding from Dale is that they're running through the labs really well. Sensitivity is high. Our partners are really pleased with what they are seeing in terms of the results. We'll be talking, as Mark said, more about this at ASCO, including with our partners at MD Anderson.

Subbu Nambi (Managing Director)

Perfect. Thank you, guys.

Paul Diaz (President and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Mason Carrico of Stephens Inc.

Paul Diaz (President and CEO)

Hey, mate.

Jacob Johnson (Managing Director and Senior Research Analyst)

Hey. This is Jacob on for Mason. Congrats on a strong start to the year. Lots already been covered, so I'll maybe just keep it to one here. But could you talk a bit about the early traction you're seeing within your oncology portfolio after acquiring Intermountain? I realize launching Precise Liquid and your MRD offering will be big drivers of this opportunity. But have you maybe seen an increase in the number of docs ordering multiple tests within this segment yet?

Paul Diaz (President and CEO)

Yeah. I mean, I think that it's still early days here. I mean, the first thing was to make sure that we integrated it. Sam and the team are doing a great job there. We've seen the slight increase. But the real push will happen later this year once it's fully integrated and going into 2025. It's not really envisioned to be a driver of our guide for this year. But we do see Precise Tumor numbers overall growing, and not just in terms of the Intermountain's deal. Now we control 100% of the P&L. So it's not just sort of the allocated part of P&L. So that is starting to contribute. But I think what you'll see coming out of ASCO is a big push in terms of our oncology team about the pairing of hereditary cancer with Precise Tumor.

That really sets the stage for Liquid next year and MRD. So stay tuned. I think we'll have a lot to say at ASCO about how this portfolio comes together in terms of precision medicine tools for oncologists, particularly for breast cancer patients, but for other indications as well. That's what we'll be highlighting at ASCO. We're pretty excited about the feedback we've gotten from oncologists in terms of that as we reviewed it in our preparations.

Operator (participant)

Thank you. Our next question comes from the line of Michael Ryskin of BofA.

Speaker 14

Good afternoon. This is John on for Mike. Hey, afternoon. I wanted to ask on GeneSight. It's great volume, ASP, and did better than our model, so exceptionally well. Could you provide any update you've had in terms of improving the coverage, like what states and Blue plans are next for you and what's in your guide versus what can be an upside?

Paul Diaz (President and CEO)

As Scott said, it's just blocking and tackling right now. We haven't even really fully leveraged the biomarker pieces yet. We probably don't want to call it individual states, but we are amping up a couple of states in the Attorney General's office and other places. But it's been a number of different wins. And $1 million here, $1 million there. All of a sudden, you're talking about a nice lift in ASP and just gaining more traction on coverage writ large in terms of GeneSight and also improving prior auth requirements. And we've been working with CMS, a Medicare Advantage plan with respect to prior auth requirements along with other industry participants.

And again, as Scott said, it's been an across-the-board effort across all our products in terms of seeking out places where we didn't have coverage, even for MyRisk Hereditary Cancer where we had certain Blue plans that we're not covering. And as Scott said, last year was a really tough year from ASP's perspective. And we're seeing the results of that turnaround now, working through some of those coding changes and other things. And we think, again, that momentum will continue. And we'll build on that throughout the year and going into 2025.

Speaker 14

Gotcha. Understood. And then, on the flip side, if I could ask for the tumor profiling, any thoughts on how the volume and the ASP is going to go there?

Paul Diaz (President and CEO)

Yeah. And tumor profiling was an impact because we had a really big win in Q1 of last year with a couple of biopharma partners. So it was really in the biopharma revenue that skews that performance. MyRisk has been a little down because it changed the average risk. But overall, that negative 17% was driven by the fact that we had a big win in Q1 of last year with two or three big biopharma partners. The biopharma business is very lumpy. So we're not really clear. We always get paid. And it's always really good business. But sometimes it falls in Q1. And sometimes it falls in Q3. And so we still are excited about the prospects of building that business. And that's something Sam and Patrick are really partnering up on.

Speaker 14

Understood. All right. Thank you.

Paul Diaz (President and CEO)

Thank you.

Operator (participant)

Thank you. I would now like to turn the conference back to Paul Diaz for closing remarks. Sir?

Paul Diaz (President and CEO)

Thank you. I think everyone's heard enough from me today. I appreciate you guys spending time on the call today. I just want to thank my teammates for all their hard work. It was actually a difficult operating quarter. We had a few issues in the labs that we had to work through. The team rallied. We're just really pleased at the start of the year.

Appreciate all of you participating in the call today and your support. I hope you are starting to see, as Scott said, just the beginning of the process here of us really starting to grow Myriad Genetics. I think you can expect and should expect more from us as the year progresses. Thank you all.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you.