Greetings and welcome to the Myriad Genetics First Quarter 2021 Financial Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] And as a remainder, this call is being recorded today, Monday, November 9, 2020. I would now like to turn the conference over to Scott Gleason, VP, Investor Relations. Please go ahead.

Thank you. Good afternoon. Welcome to the Myriad Genetics September quarter 2020 earnings call. During the call, we will review the financial results that we have released today, after which we will host a question-and-answer session. If you’ve not had a chance to review our quarterly earnings release, it can be found on our website at myriad.com. I’m Scott Gleason, the Senior Vice President of Investor Relations and Corporate Strategy, and on the call with me today will be Paul Diaz, our President and Chief Executive Officer; and Bryan Riggsbee, our Chief Financial Officer. This call can be heard live via webcast at myriad.com, and a recording will be archived in the Investors section of our website. In addition, there’s a slide presentation pertaining to today’s earnings call on the Investors section of our website, and which will be filed – has been filed on Form 8-K. Please note that some of the information presented today may contain 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. With that, I’m pleased to turn the call over to Paul.

Thanks, Scott. I’m excited to be here with all of you today to talk about Myriad Genetics and our transformation journey, our point of departure and path forward. The company just delivered a strong quarter and I’m proud of the execution of the team. We are already making early progress on our strategic transformation and growth plans, and I look forward to sharing some of those highlights with you today. I want to thank Bryan, Nicole, Mark and the entire management team for their hard work and dedication as we manage through another difficult quarter of COVID-19 and related operational challenges. I also want to acknowledge their support over the last 13 weeks to help me get up to speed. I came to Myriad Genetics because I believe in our mission to improve and transform lives by unlocking the power of genetics, and empowering patients with the information they need to control their own health and wellness. At the same time, we continue to provide healthcare professionals with clinical grade genetic insights to better diagnose, treat and prevent disease. Our mission is more relevant than ever, particularly as we address the need to increase access to healthcare and reduce social economic and racial disparities in healthcare outcomes. To protect and advance that mission, we must adapt to the realities of our market. We must become more customer oriented and less complex, more outward facing and collaborative to better serve the patients and physicians who rely on us. We have started a three-phase transformation process of resetting our operational and financial base, refocusing our business and working hard to grow. Before we go into more detail, I want to take a second to recognize and thank our 2,700 dedicated Myriad teammates across the company; to our lab personnel working onsite to…

Thanks, Paul. I am pleased to provide more information on our quarterly results and our financial outlook. This quarter, we reported total revenues of $145.2 million, which increased 56% sequentially based on recovery and elective procedure trends, and improved execution. We saw total test volumes increased 40% sequentially. We ended the quarter with total test volumes reaching 90% of pre-COVID 19 levels compared to 75% at the end of the June quarter. Importantly, we were able to demonstrate the significant leverage in our financial model as we increased revenue and focus on cost reduction. This quarter our adjusted operating income increased by over $30 million to sequentially and we see further leverage in the future as business trends fully normalized and we execute on our transformation plan. I would now like to discuss the revenue for our products, starting with Hereditary Cancer. Hereditary Cancer revenue in the quarter was 80.6 million versus 104.5 million in the September quarter of last year. Looking at the components of growth, total test volumes declined 21% and average selling price declined 3%. We are pleased with the stabilization we have seen in pricing as we continue to focus on our revenue cycle management. From a volume perspective, we ended the quarter with total hereditary cancer volumes reaching approximately 80% of their pre-COVID-19 weekly run rate. In Mental Health, GeneSight revenue in the quarter was $11.9 million versus $22.7 million in the September quarter of last year. Looking at the components of growth, test volumes declined by 28% year-over-year and average selling price declined by 27% year-over-year. From a volume perspective, we saw total GeneSight test orders increased 61% sequentially and we ended the quarter with total GeneSight volume at approximately 75% of pre-COVID-19 levels. Excluding the impact of one-time payer recruitment and the establishment…

Thanks Bryan. Again, we are in the early stages of our transformation journey. As we move forward, we are committed to increasing transparency and accountability. Our management dashboard will focus on the expansion of our mission, the strength of our culture and teammate engagement, patient safety and service excellence, innovation, efficiency, and productivity, and top and bottom line growth. As I wrap up, I want to come back to our 29-year mission to transform and improve lives. It is at the heart of everything we do. I’m energized by it and our people are excited. Our customers want us to win. We’ve got a lot of work in front of us, but we’re off to a solid start, and I look forward to sharing more with you in the coming calls. Thank you for your time and attention today and I’ll turn it back to Scott for your questions.

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

Certainly, and thank you. [Operator Instructions] First question comes from the line of Doug Schenkel with Cowen. Your line is open.

Hey, good afternoon, guys. Appreciate you taking the questions. So maybe just to start on the timeline for the strategic assessment of RBM and the derm businesses. At what point do you think that that’ll reach a conclusion? And then kind of building off of that, are there other strategic changes still being contemplated? Or is the fact that these two were announced today; does that suggest Paul that at this point the portfolio is kind of at the point where you would expect it to be for the foreseeable future?

Thanks. Well, look, as we promised, as we are moving forward with our strategic operating reviews and engaging our board and the management team in evaluating all of our products, all of our business units, and we’ll talk about this in some other contexts. It became pretty clear to us that the RBM unit and myPath were not part of our long-term strategic plan. And so, we are moving forward with strategic alternatives with both of those products. So there shouldn’t be any ambiguity in that. The only ambiguity is the timing to a close and what valuation we’ll be able to achieve. The timelines are intended to suggest as we talked about on the last call, that we will update you as quickly as possible, but we continue those reviews. And we’re 13 weeks into this process. We’ve engaged Bain and Avalere to help us into the deep dive. And over the next few months and certainly hopefully by March, as I referred to earlier, we’ll have a sort of complete sense of kind of our go-forward transformation plan. But along the way, we are finding a number of different ways to execute better and perform better. And some of those I’ve tried to highlight in the presentation and we can kind of come back to.

Okay. No, that’s great, Paul, and thank you for that. Obviously, a lot of progress made in a short period of time. Maybe just for a quick unrelated follow-up. I think Bryan in his prepared remarks indicated that HCT volume was back to 80% of levels from last year. When you analyze volume trends by account, at this point, do you think your share position in existing accounts is stable? And at this point that getting back to 80%, which is a really nice recovery, do you think that that is indicative of really what’s going on in the market, and also assign that at this point your share position is pretty stable?

Well, I think our share position is stable, but I would say there is nothing stable in the operating environment that we are in. We’re quite pleased at the recovery, but as Bryan referred to, we have seen, I think some of our peers have seen things level off and the recent spike in COVID cases and hospitalizations gives me some pause about what the next couple of quarters will look like. Quite frankly, after this quarter, I don’t intend to talk about pre-COVID levels ever again. This is sort of our new baseline and we’re going to grow and build from here. But I think the next two quarters are going to be choppy as a consequence of what’s happening in COVID and the rest of the healthcare system, and as we execute on our new sales models, new commercial strategies and cost reduction plan. So we’re feeling pretty good about directionally how all this will come together, particularly as we started thinking about the second half of next year. But I think the next two quarters are going to likely be unpredictable and we want to be prepared for that.

Okay.

Hey, Doug, I think one thing I would add to that there is that when you talk about what we’re seeing in the physician’s offices is you’re probably – that 80%, it’s sort of an average number. You’re probably seeing a little better performance and recovery on the oncology side, and a little bit below that on the preventive care side, as you see elective visits are still probably not back to the level where you see affected patients. So there’s a bit of a split there, but that’s where we’re at in total.

Brilliant. And I’ll just add one more thing, we’re digging into which of our sales teams are really performing in this environment and which are our folks who are underperforming in this environment and trying to figure out how to do more of the former and less of the latter. And so we think there are opportunities to execute better and drive better performance, but the backdrop is murky. And – but we’re pleased at the opportunities we’re finding and I’m really pleased at how hard everyone’s working and how everyone is embracing change quickly.

Thanks again, guys.

Thanks, Doug.

Our next question comes from Steve Unger with Needham. Your line is open.

Hi, Steve.

Great. Thanks. Hi. Two questions really. Just to touch on the last question as far as cost savings, could you give us a little bit more color on where that’s – where the focus is? And Myriad has been particularly heavy on reps and you talk a lot about more technology driven marketing. And I wanted to understand how that impacts how you’re deploying your sales force.

Yes, thanks, Steve. I’ll start and Paul can chime in. And I think relative to the overall cost review, I would say it’s been holistic in nature as we’ve looked across the business really to try to gain efficiency in any area that we can, certainly given the size of our sales and marketing costs relative to total, that’s been a focus area. And what I would say there is – the focus has really been on, and Paul alluded to it a little bit earlier in terms of focusing on where we have performance and don’t – aren’t seeing performance taking action in those areas and really looking at how can we – how do we think about how this selling infrastructure evolves over time to perhaps be less intensive in some of those areas where we have been historically and more focused around digital and some of the other technology. So that’ll play out over a longer period of time. I would just say that our costs – our cost review has been holistic and really touched every area of the business.

Yes. And look, I would just add, we’ve got a lot of talented salespeople out and – but we’re in a different world today, patients and physicians are engaging in a different way, and we’ve under invested in the tools to enable that. The team has been doing a lot of work here over the last few months. So I kind of tried to highlight that in the presentation a little bit that we’re just trying to eliminate a lot of the friction of a referral if you will and the conversion. And I referenced in the digital engagement, the hereditary cancer quiz to only get a 2.8 conversion on a million people taking the test, that’s an opportunity. And so I think that we want to empower our sales force with the tools to enable them to work more remotely, and the way physicians are working today. And there’s this great opportunity that serves as a direct-to-consumer. We have to build all these capabilities to lean into that market share opportunity. But again, shout out to our tech teams and others, there’s some great work happening and it’s happening quickly and we’re pretty excited about that. And so I do think that as Bryan said, everything’s on the table in terms of costs and everything has to prove itself to have an ROI. And that’s – there isn’t any area of the organization that we aren’t taking a hard look at to make sure that we’re getting the ROI on that OpEx.

And then just to follow-up, as far as the mental health franchise, are you current – are you expecting to continue with the plan to build the sales force there? And do you envision, and I know it’s early in your strategic review, potentially selling other tests other than GeneSight in mental health?

Well, we have a franchise there and an opportunity in mental health, given the market dynamics that we haven’t taken advantage of and executed on. So we’re in the lead position there. And Mark and the team is working hard, we’ve worked through the LCD and other things. But on the first part of your question, yes, we did not – we reduced some of the sales reps there and have replaced some of that sales rep investment in GeneSight with some new digital tools and we’re starting to get traction on that. The next couple of quarters as we move from a sales rep heavy-focused sort of historic model to a more consumer-centric, digitally-enabled model, there are execution issues that we’ll have to manage through there, but so far so good. And again, I think our teams are embracing both the higher level of performance expectation and the need to embrace these new tools.

Got it. Great. Thank you.

Sure.

[Operator Instructions] Next question comes from Tycho Peterson with JPMorgan. Your line is open.

Hi, Tycho.

Hey, good afternoon. I’d like to start with pricing, GeneSight down 27, hereditary down 34, vector down 40. Can you just talk a little bit about where you think we are in the cycle on pricing for each of those? And how we should be thinking about pricing going forward?

Yes, I think just a couple of comments. And first of all, every one of those is different. I think from in terms of hereditary, you saw that down 3% in the quarter, I would say we’ve seen some stabilization there. As we look at the prenatal products, you might recall that I think this was the December quarter last year was the quarter where we really had this significant impact from the billing transition that we would expect a lap that as we go forward. So obviously that’s a big headwind when we look at it year-over-year. So I think each of the products are different and have their own narrative. What I would say is, Paul and I both have a singular focus around our revenue cycle, how we can make improvements in that area and believe that once you get to stable, then there’s a path towards making improvements and with things like zero pays and other and other parts of the rev cycle equation that we have some opportunity to make improvement in that over time.

Yes. And look, Tycho, I would add, again, 13 weeks, and this is a very nuanced issue. I mean, from negotiations with commercial payers to interactions with the government and others, but there are – as Brian just identified, there are a lot of operational issues, sort of self-inflicted issues in terms of rev cycle conversion around no pay. The amount of no pays has been a big surprise to me. And so that really affects ASP. And so we are, again, just a few weeks into really starting to dig in and how we can better execute on that. I think in the next couple of quarters, we’ll be further along in our – in the pricing review and the strategy we’re doing with Avalere consulting and Bain on what our pricing strategy could be. But I think we see and expect to see continued pricing pressure as a macro event over the next few years. But our ability to influence a more stable pricing regime and drive more volume and leverage through our P&L with volume growth, I think is significant. So, early here, so we’re – it’s going to take us a little more time to work through that, but we do see some opportunities here to stabilize pricing, and again, leverage our P&L that you saw this quarter has a lot of leverage in it.

Okay. And then on the near-term, I think if we go back to last quarter, you said you had exited about 75% of pre-COVID volume. And obviously you came in above that at about 90% overall. How much of that was recapture versus new demand? And any color you’d be willing to provide on October and November as we kind of think about cases going back up again?

I think it’s combination. I mean – we saw in GeneSight, like 1,300 new physicians ordering GeneSight. And so again, I think our sales teams have gotten out there aggressively, now that they’ve had more access to physicians offices. I talked about our pivot to more home-based kits and more telehealth, we’re seeing great movement there, but again in the early innings of adopting these new tools and physicians are in the early innings of adopting this. So, I think we’ll have more to say about this in the next several quarters. And as I said earlier, I would expect modest if any improvement from the current level over the next couple of quarters, given what we’re seeing sort of flattening and the COVID headwinds that we’re seeing across the country right now.

Okay. Thank you.

Thank you.

Next question comes from Puneet Souda with SVB Leerink. Your line is open.

Hi, Paul. Thanks for the question. So, appreciate that you’re a few weeks in and looking across a number of end markets and businesses. Maybe just the first one, in terms of where are the sales rep access stands currently, given the COVID timing, given the surgeons here, maybe can you just give us a sense of where – which areas you’re finding sales rep access is a little bit better versus others. I mean, we’re seeing that cancer, especially on the oncology end, the rep access is not as robust and the virtual calls are happening more still. So maybe just give us a sense there. And then I had a follow-up.

Yes, I honestly, I can’t get across all the products. We’d be here 30 minutes kind of trying to give you a sense of all of that, because I think it’s different – and I think it’s different at different geographies as well. So maybe we can try to give you more color of that offline. I’m not sure if I can help you much there. I mean, we’re making progress across all fronts, but it is varied across products and across different physician groups. The more important point I think is that people are continuing to adapt to a new world of telehealth and home-based order kits, and we’re trying to accelerate those trends in terms of our model.

Okay. Yes. And then, um, one question that I have is, again something you, maybe you have employed in past as well in other companies where you have driven change. Maybe could you talk to us about DTC and what’s the role of DTC that you see are direct-to-consumer advertising. So we’re seeing an increase in the DTC spend for GeneSight and just wondering, how you view DTC overall for other products and the spend on that going forward.

So, as Bryan mentioned, we’ve got about $20 million of investment that is in reposition from other places. I mean, essentially we’re – we’ve reduced 40 million of expenses and look, this is hard stuff, there’s people behind some of that and we’re trying to make sure we’re taking care of our teammates and protecting our business. But that is a redeployment of corporate resources. A lot of those reductions, were in flattening the organization and looking at support areas and aligning the support services closer to the business unit and the products. And looking at, you can accumulate a lot of layers over the years. And we’re taking, some of those savings and that $20 million represents some of the things in the slides that I tried to give you some examples of, IT to facilitate the portal, to facilitate order entry to reduce no pays, to be able to collaborate more with telehealth providers and physician groups out there, as well as to this low hanging fruit on the Hereditary Cancer quiz. I mean, I’m just an operator. And I just looked at that and that made my head explode. And so to figure out how we convert, 289,000 qualified leads into better than a 2.8% conversion, seems to me like a great use of resource and time. So we’ve deployed a number of our genetic counselors to that effort, reaching back out to those patients. And, so it’s a lot of blocking and tackling right now, but to go back to your broader question, we are taking a very hard look across our portfolio and we think, I believe there are significant opportunities for us to drive direct-to-consumer in women’s health, oncology and mental health. And that’s part of why we’re really excited about those areas.

And maybe I didn’t clarify that, but direct-to-consumer, I meant that advertising spend is going up on GeneSight, that’s what we were observing. So is it fair to expect that, that is something you were looking at closely as you pointed out and that’s going to moderate.?

I think I just said that. We believe there are – we’re still trying to make sure we make wise investments, but we believe preliminarily we’re working through this. And again, leveraging Bain’s expertise across health care to help us figure out how to do this, but we believe there are significant opportunities for us to move away from a pharmacy sales rep model to more of a direct-to-consumer, direct-to-physician, to influencers based on a digital strategy. And so we’re 13 weeks into really that examination, but I think you should expect more investment in direct-to-consumer across all of our product lines.

Okay. That’s great. I appreciate that. Thank you.

Sure.

Our next question comes from Derik de Bruin with Bank of America, your line is open.

Hi, good afternoon. Couple of questions. Forgive me if I’ve missed this, but are you going to start, including stock-based comp back into your EPS calculation? I mean, the company made a decision a couple of years ago to exclude it and given the fact that company is established and not an emerging growth company, with the company is normally good. I’m just wondering if you’re going to continue to put that back into the numbers since most of your established peers do in the diagnostic space.

That is not something we’ve talked about. I think you saw this quarter, we took a number of different steps to try to create more visibility in the financials, in clarity and took feedback on how our calculation of adjusted EPS, taking a more conservative position on our reserves and other things. So, I mean, we’ll continue to look at everything. But Bryan and I are engaged in a pretty active, I’m not a good accountant, but I used to be one of trying to look at how we can do better here. We’ll take another look at that issue, but that’s not something we’ve contemplated or discussed at this point.

Great. And just one follow-up, I mean, interesting comments on the CDx business and the expansion and growth there in Japan. I’m just wondering, obviously the samples, if I understand this correctly the samples are coming back to the U.S. to be analyzed. I mean, are you thinking of establishing a lab in Japan to sort of deal with this or is there any – are there any issues that prevent that sort of like trade and transporting the million[ph] samples to be a problem?

No. The world is moving. And to the extent, we are looking at all of our international operations to try to do more kit based business out of Salt Lake and, and leverage fulfillment capabilities. That’s where the automation comes in. That’s where the technology investments come in. So we’re not about just putting pins on a map. I mean, it’s just not necessary and given what I’ve seen in logistic businesses and other places. But we are very excited about the progress that we’re seeing in Japan. And we think that there are more growth opportunities in Southeast Asia and we comment on a couple of those it’s early. And again, one of the things we’re going to do a better job here of not getting ahead of ourselves in terms of predictions of what things might mean. We’ll let you know more when it actually comes through the P&L, but we’ve got some good traction in Japan and we think that bodes well for some other opportunities like that in Germany and elsewhere.

Okay. Thank you.

Sure.

And we have time for one last question, which will come from Jack Meehan from Nephron. Your line is open.

Thank you. Good afternoon. So the two businesses, which you’re looking to divest, how much profitability did they generate in the last year and you paid $80 million for RBM back in the day, is that a good bogey for potential sales proceeds?

Jack, we’re not going to comment today on the estimated proceeds from either of those transactions, but we expect that that we’ll get a good valuation for RBM, there’s a lot of interest in the asset and – but it’s pretty mature to get into accretion, dilution, net proceeds, use of proceeds or any of that at this stage. But, we think that it will be a net positive thing for our shareholders and for the company. And most importantly, again dramatically here the complexity in the company has gotten in the way of our ability to execute and drive organic growth. And that’s what we’re really focused on. These assets just aren’t additive, great teams and we just can’t support them in the way they need to be supportive. So we think both assets will actually thrive in a different place and we owe it to the team and we owe it to the shareholders to realize that present value and reinvest those proceeds, where we can win.

Got it. And then when I was looking at the 10-Q, you have some financial covenants to get a breakeven in the December quarter and 25 million in the two quarters ended in March, do you expect to hit those covenants? And if no, what actions do you need to take?

Yes, thanks for the question, Jack. Yes, we haven’t given any guidance relative to the future quarters. And I think what we said in the notes were that, throughout the period given the uncertainties as it relates to COVID we weren’t really making any characterization of what that period looks like. I mean, I think when you look at our balance sheet and where we’re at even from almost a net debt position of almost zero, I think we feel like we’re in a good position, but we haven’t made any comments regarding forward guidance.

Yes. I’ve worked through many restructurings in my lifetime, this is not one. And we’ve had a great dialogue already with our lenders, and worst case scenario we just pay off the line and we switch for new debt. This is just not something we’re losing a lot of sleep over and again, we’ve got a good dialogue with all of the lenders. We’ll work through the covenant issues when we get to that point.

Thanks, Paul.

And that does conclude the Q&A session. Mr. Gleason, I will turn it back to yourself for closing remarks. Thank you.

Thank you for joining us on the call today. And we appreciate your participation.

Thanks everybody.

And all that does conclude the conference call for today. We thank you very much for your participation. As you please disconnect your line.