Greetings and welcome to the Myriad Genetics Fourth 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] As a reminder, this conference is being recorded Thursday, February 24, 2022. I would now like to turn the conference over to Nathan Smith, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Kevin. Good afternoon and welcome to the Myriad Genetics fourth quarter 2021 earnings call. During the call, we will review the financial results we released today. And afterwards, we will host a question-and-answer session. Our quarterly earnings release was issued this morning on Form 8-K and can be found on our website at investor.myriad.com. I'm Nathan Smith, the Senior Vice President of Investor Relations. And on the call today with me are Paul Diaz, our President and Chief Executive Officer; Bryan Riggsbee, our Chief Financial Officer; and Nicole Lambert, our Chief Operating 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. In addition, following the call, the slide presentation will be available on the Investors section of our website. 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 transition report on Form 10-K, it's quarterly reports on Form 10-Q and it's 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 will now turn the time over to Paul.

Thanks, Nathan. Good afternoon, everyone and thank you for joining us. On today's call, we will discuss our Q4 results, along with highlights of the quarter and updates on our strategic transformation and growth plans. As always, I want to thank all of our teammates for all their hard work and dedication this year. I also want to thank our health care provider partners and their patience for their continued confidence in us. 2021 posed many challenges for everyone but I'm proud of everything we have done to advance our mission and improve the health and well-being of our patients. When we step back and look at the millions of patients we've reached over the years, the importance of our work is clear. We see an opportunity to reach more patients, lower cost, create a seamless user experience and combine data from millions of diagnostic tests with other clinical data sets to help physicians, health systems and payers better manage and care. Despite COVID-19 headwinds and inflationary pressures, we saw solid quarterly operating and financial results during the fourth quarter of 2021. In the quarter, revenues of $160.8 million increased 4% year-over-year and diagnostic test volumes of $237,000 were flat compared to last year. Importantly, excluding the impact of our divested assets, quarterly revenue increased 19% year-over-year and 34% for the year, demonstrating strong growth in our core business. Average revenue per test in the quarter increased 10% year-over-year, a reflection of the investments made in and the execution of our rev cycle plan. Total operating expenses were $158.1 million and adjusted operating expenses decreased $6.2 million sequentially to $115.3 million, as we continue to manage our costs more effectively and prioritize our operating expenses to our strategic initiatives. Our GAAP operating loss in the quarter was $43.1 million with…

Thank you, Paul. I'd like to start with our core business unit performance. There's no question that the mental health crisis in the U.S. has worsened as a result of the pandemic. Trial and error are still prevalent when it comes to determining the most effective medications to treat depression, anxiety, ADHD and other mental illnesses. Our research shows that more than half of those diagnosed with depression have tried four or more medications in their lifetimes in an effort to find the right one. Our GeneSight psychotropic test addresses this mental health crisis by helping physicians better understand how antidepressants and other drugs will affect their patients with just a single cheek swab sample that can be taken at a patient's home. Driven by GeneSight, our Mental Health business reported $29.4 million in revenue for the fourth quarter of 2021, an increase of 63% year-over-year and 22% sequentially from the third quarter of 2021. With roughly 78,000 tests ordered in the quarter, we saw some 2,900 physicians ordering GeneSight for the first time. The total number of ordering physicians for GeneSight increased 7% from last year and 95% of our ordering physicians are now using our online portal. Volumes for GeneSight are growing in new provider segments, including general practice physicians and nurse practitioners. About 30% of our tests are home-based kits. We look forward to exploring new partnerships in neurology to develop early detection and treatment selection options for Alzheimer's patients. GeneSight also recently earned 2-year certification from the High Trust Alliance for safeguarding sensitive information, privacy and information systems. I should also note that the peer-reviewed journal Psychiatry Research highlighted the advantages of GeneSight in it's February 2022 edition. This is now the third study published by Psychiatry Research articulating how GeneSight can help clinicians better understand…

Thank you, Nicole. I would like to start by reviewing our financial highlights. We had another good quarter as we reported total revenue of $160.8 million, up 4% year-over-year and excluding divested assets, increased 19% year-over-year. Our quarterly results were driven by stable test volumes which despite COVID-19 disruptions increased 13% year-over-year, excluding divested assets. Additionally, we saw improving average selling prices across our businesses. The stability in ASP and better-than-expected cash collections on orders from prior periods was driven by our improved execution on revenue cycle management which has been a major component of our transformation and growth plan. In the fourth quarter, we reported an adjusted loss per share of $0.02. We remain on track to return to profitability and deliver consistent growth in 2022. Adjusted gross margin was 71.8% and adjusted operating expenses were $115.3 million. We have experienced increased inflationary pressures, increased labor costs due to staffing constraints and competition for talent as well as increased material costs due to global supply chain disruption. In addition, volumes at the end of the quarter and into January were negatively impacted by the Omicron variant which significantly disrupted physician office access and limited our own sales force which experienced high numbers of positive cases. However, as the number of reported cases both within and outside of Myriad are beginning to decrease, we are seeing volumes return to expected levels. Turning to revenue by product; hereditary cancer revenue in the fourth quarter was $74.8 million versus $78.7 million in the fourth quarter of last year. Our hereditary cancer test volumes increased 2% sequentially and decreased 9% year-over-year. Excluding positive revenue adjustments related to better-than-expected cash collections on tests ordered in prior periods, ASP for hereditary cancer during the quarter increased 3% year-over-year and decreased 3% sequentially. In Women's Health,…

Thanks, Bryan. We are pleased with the progress that we have made this past year in a tough operating environment. Our primary focus now is the launch of our new products and commercial initiatives in Q1 with the goal of accelerating growth in the second half of 2022. As we continue to invest in our business, elevate our products to their full potential and introduce new innovative offerings while pursuing strategic acquisitions and partnerships. Now more than ever, we're exploring new ways to illuminate the path to better health through genetic insights. We look forward to a bright future ahead for Myriad Genetics as we continue to work to better serve our patients and customers and deliver sustained growth and profitability for our shareholders. Now, I'll turn it back to Nathan for Q&A.

As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP financial measures to find 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 are ready to begin the Q&A session. To ensure broad participation we are asking participants to please ask only one question and one follow-up. Operator, we are now ready for the Q&A portion of the call.

[Operator Instructions] First question is from Andrew Cooper with Raymond James. And your line is open.

Hi guys, this is Liam [ph] on for Andrew. I appreciate you taking my question. So with divestitures in the rearview now, the balance sheet has cleaned up significantly. There's capacity on the revolver. How are you viewing the M&A market today, especially with valuations at much lower levels. And has that changed your thinking at all? And looking at liquid biopsy and MRD specifically, is you're just positioned to acquire or partner?

So, great question and it's evolving. I mean, as you know, valuations in the private part of the market always takes longer and sellers' expectations don't come down very quickly. But we are emboldened by the opportunities we have to deploy capital. And I sort of want to reiterate that the 9% to 12% growth rate is funded by the things that we have in sight that we've developed business cases for and it's $30 million to $50 million of CapEx that we budgeted for that. So it does not really draw upon acquisitions to drive that. If we see opportunities, particularly in MRD to accelerate growth and accelerate that entry in that marketplace, that's certainly a sweet spot. Looking for additional Women's Health products to broaden our product channel there is another area that we'd look at. But with respect to liquid and MRD, quite frankly and we just had a meeting on this morning, we have a path of so low path going forward. and a couple of partnership discussions that can absolutely get us there and have products that are competitive. And so I just want to reiterate that dry powder is not necessary for us to achieve the liquid goal or the MRD goal, quite frankly. We have the capabilities in-house with investments embodied in our 5-year plan to do that without -- with modest investments of OpEx and capital.

I appreciate that color. And just as a quick follow-up. You guys briefly mentioned physician office access being constrained in January which is understandable given the case COVID-case dynamics. How are we looking so far in terms of a February rebound? And how do you feel about that access going forward?

Sure. Thanks for the question. We absolutely are seeing that rebound. I think in January, there were a number of cases. We had some of our own reps that had COVID and weren't able to go in the field but also the reps that were able to go in the field many times, doctors' offices weren't open. They would only open for limited hours or certain days a week because they just didn't have the staff to keep the office open. And we're seeing a very different picture in February; things are starting to rebound fairly quickly.

Great. Thanks, again.

[Operator Instructions] Next question is from Jack Meehan with Nephron Research. Please go ahead.

Thank you and good afternoon. I want to start with Bryan just with the guidance here. You talked about some of the headwinds to start the quarter. Can you just tell us within the revenue guidance of $670 million to $700 million you laid out, like what's an appropriate landing spot for the first quarter?

Yes, Jack, we didn't give guidance for the first quarter. We just talked about how we see the profile for the year in terms of the impact in Q1 from COVID and then the PAMA offset sort of being spread over the remainder of the year and then the acceleration of some of the commercial strategies through the back half of the year. So we just gave qualitative guidance relative to the quarterly profile.

Yes. Well, I think it's pretty straightforward, Jack. I mean, we have a hit in the first quarter for COVID and then we have a good guide in terms of PAMA that will be spread out over the course of the year. And as I said, we've got a significant number of initiatives that are rolling out this quarter. To some extent, it's worked out well because our sales force has been locked down. So we've been able to do some sales train. But really look to the back half of the year as you think about your modeling your quarters where you should see an acceleration. And again, I just want to underscore to try to simplify this. If you look at our fourth quarter and you adjust it, what's usually a seasonally strong quarter and adjust it for COVID but net the divestiture, so it's a clean quarter. It's a great way to gain confidence in our guidance for '22 because it's modest growth levers on the revenue side. And we've tried to help investors by giving you each component piece from revenue to gross margins to OpEx to EPS modeling from that fourth quarter. And so again, we're trying to do everything we can to help everyone in their models. And from an operator standpoint, I thought using the Q4 baseline should increase everybody's confidence that our numbers are achievable in our guidance.

Yes. Typically, 4Q, like you mentioned, seasonally strong and then 1Q seasonally weak but you also have this COVID dynamic kind of a play. So I was going to model -- my model now has it flat sequentially? Do you think those things balance out? Or do you think it should be down sequentially in 1Q?

Jack, we're trying to be helpful but that's as much color as we can give you. And I think what we underscore the confidence in the annual number has not diminished at all. And even with the COVID hit, I guess, that's the bottom line.

And I guess speaking of the annual number, what's your forecast for hereditary cancer testing within the overall guidance?

We don't break out guidance. I think we give you folks a lot more details around each of our product lines and our competitors, certainly but we don't give guidance on a product-by-product basis. As Nicole spoke to and I've spoken to over the last couple of quarters, we continue to work on a turnaround in our Women's Health business. And for those unaffected women, they've been particularly resistant and hesitant to go in the office or doing screening. But the initiatives we're rolling out this quarter, we really think we'll see a nice rebound in hereditary cancer volumes in the rest of the year. And our pilots and modeling around that, that we've seen from the pilots of some of these products, some of these initiatives reinforce our view that we can continue to see stabilizing moderate growth in volumes. And as you've seen in the last couple of quarters, very stable ASP.

Okay. Last question. You talked about the cash balance and I think you've accrued $62 million related to the legal liabilities. Just what's the timing you expect to pay that out? And where do you expect the -- maybe to end the year in terms of cash on hand?

Yes, Jack. I mean, I would just say, relative to the timing, it's somewhat dependent on when related to the key TAM, there are certain things that have to happen prior to the payments. So I don't know that I can provide a specific time but I would just say probably it's likely in the first half of the year. And then we didn't give guidance for the full year cash balance. But we've made some adjustments to our EPS sort of over the course of the years in terms of breaking out stock comp and tangible amortization that make it a pretty good proxy for cash and the fact that we're guiding $0.00 to $0.20, I wouldn't expect any sort of significant cash burn in the year.

No. I think that we're going to have most of the powder we talked about to invest in strategic initiatives going into '23 to the extent we don't deploy that capital in the back half of this year and we're more actively starting to look at those kind of opportunities through partnerships and M&A. And as I said, we -- our 5-year plan really calls for us self-financing our growth initiatives and leaving capital for M&A. So we feel like we're in a really good spot in a market where changes are happening that give us some opportunities.

Thank you, guys.

Thanks, Jack.

[Operator Instructions] Next question is from Sung Ji Nam with BTIG. And your line is open.

Hi, thanks for taking the questions. For the FirstGene test that's expected to launch next year, what's the barrier to replicating that for your competitors? Are there proprietary aspects to the technology? Or is the differentiation really the first mover advantage?

No, there's actually one competitor out there that is working on a similar kind of product. I think what's been lost a little bit is the accuracy of and the ability for us to scale the product when you look at the automated lab of the future in South San Francisco and the robots that we have there, plus the AMPLIFY technology and the sequencing that we do there. So -- we just think it's -- like most products, we should always be looking over our shoulder. There's going to be a lot of competition and a lot of innovation. We're striving here to have a differentiated product and a differentiated customer experience with one simple maternal blood draw. And that's where we think we can really hold our own and grow our Women's Health business and expand into other product lines.

Got you. And then, for the improving ASP across all your product lines, obviously, great to see that. Is that -- do you think that's sustainable throughout 2022? Or are there potential other puts and takes that we should take into consideration?

Yes. I would say -- I've said consistently, I think there's an element of some of our out-of-period that has some carryover effect. In other words, it leads to an overall stability and improvement in your ASP. When we look at hereditary cancer as an example, year-over-year, excluding [indiscernible] period, it was positive 3% in the quarter. I think that you're going to continue to see us focus on ways to make sure that we get paid for the testing that we run. And so I think as we see pressure on contracted rates over time, our goal will be to offset that with better collection capability and a better experience for our patients and customers.

Got you. Great. Thank you for taking the questions.

Thank you.

Next question is from Matt Sykes with Goldman Sachs. And your line is open.

Hey guys, this is Dave [ph] on for Matt. Thanks for the questions. Really excited to hear about your ambition to enter MRD and liquid and your internal capabilities there and potential for partnerships. Any thoughts on what indications could be best fit for Myriad to go in for your first product in the space?

Yes. I think we're going to pretty much stay close to home in the areas where we're already good at breast, ovarian, prostate, pancreatic. And similarly, as we think about companion diagnostics expansion, these are areas and channels that we know well, where we have relationships, where everything from the labs to production to reimbursement, we're -- and there's plenty of market opportunity there. So we don't need to capture $5 billion, $1 billion would be fine. So we have what we think are actionable total addressable markets that we're focusing on.

Great. That makes sense. And then on FirstGene, can you tell us more about the value proposition of combining those two tests? And is there any way you could quantify how much you expect that to drive revenue growth?

Sure. So a little bit about the customer experience with FirstGene. I think right now, you have patients that come in for carrier screening, often women are not screened. So they're doing the carrier screen at the same time as they're doing their non-invasive prenatal screen. And if something comes up positive on the mother's carrier screen, we've got to track down the father, they've got to come in through a blood draw. They're going to see when what their results are, are they carriers for the same thing. And then we're trying to decide that we do an invasive procedure to diagnosis. It's a very long time line and it causes a lot of anxiety for families. And so this is an opportunity to combine that, that you go in for one single blood draw at around the same time you would go in for your non-invasive prenatal screen. And we will be able to get all of those answers at once and you're done. You don't have to track down additional patients. You don't have to wait for the results, it's a much cleaner experience for these expected mothers and for these families. In terms of the revenue lift that we would expect from FirstGene, I don't think that we've given any guidance on that.

No. But our base case there and this is net of some patients that would otherwise have chosen Prequel or Foresight is about a 10% to 15% lift once we get to full deployment. I think what is in our business case model roughly. So it's substantial opportunity for us to grow market share. And I think there's upside for there but that's sort of our modest case based on the business, the bottom of business case we developed.

Thanks, guys.

Thank you.

Next question is from Derek De Bruin with Bank of America. Please go ahead.

Hi Derek.

Hey guys, this is [indiscernible] on for Derek. Thanks for the question. So to start on the precise tumor combo test launch, can you talk us through when you expect material sales from the launch how should we think about differentiating factors? It's a pretty competitive environment here.

It is. It is a very competitive environment. And I think what is different about our offering is that it combines all of these tests into one. So for a busy practicing oncologists to have to track down a tumor specimen that they're going to send to us for myChoice for the FDA-approved companion diagnostic. And then also, they want to get a broader panel, so they're sending out to another lab. Then at some point, they want germline. And there really isn't anyone in the market that is able to offer all three, whereas the oncologists can package up the tumor and the blood in one box, send them to one laboratory and get one comprehensive result. The other difficult thing for these physicians is you get a result back from three different laboratories and they may differ. The BRCA test you may get in a tumor versus a germline may differ and how should they be thinking about that, right? It really leaves the physician in a quandary to use their own judgment to figure out how to synchronize these different test results and go forward and treat their patients. This is a different offering and that Myriad does that for that. Myriad is able to put together with our team of scientists, what do all of these things mean together? And I think that we have a clear advantage in something like ovarian cancer where we have an FDA-approved companion diagnostic. And we're really a leader in hereditary cancer testing and have been for many, many years in that indication. So that's the place where we feel like we have a real clear right to win. And we offer a different experience to what any other given competitor might be able to offer.

Yes. And it's early but the pilot exceeded expectations so far. And in a number of the anecdotal things coming out of the pilot people have switched over from some of those competitors that you referenced. Because of the ease of use because all three tests, they want them. Our survey work that we did with Bain before we went down this path was that 80% of oncologists wanted all three tests. But what they also wanted one set of interpretations so they can go treat. And that's the linchpin of what we're trying to do here is bring relevant science in the hands of physicians that is more easily actionable and can be integrated into care plans in a much more seamless way. And this offering goes right to that. And with an 82% attachment rate, we think this really can lift all the boats, particularly going into the back half of the year and help in hereditary cancer and these other products as well.

Great. And then another one on genetic testing for MRD liquid biopsy. Again, it's a pretty competitive environment. What's your asset approach to securing share here? Like what's kind of the key focus for those tests?

Well, it's a big market. It's highly competitive but we've had a 25-year history in oncology and very well-established relationships and brand and reputation. The unified order portal allows people to do business with us a lot easier. And so again, we're conscious of competitive factors. And as we think about the total addressable market that often our competitors talk about, our focus is on what's the actionable market and in the portion of that actionable market, we think we can win more than our fair share. And so we think this can be a real contributor to getting us to the high end of that growth range and beyond.

Great, thank you.

Thank you.

Next question is from Tycho Peterson with JPMorgan. And your line is open.

Hi, this is Rachel on for Tycho. Thanks for taking the questions you guys. So we've talked a lot about oncology here, so maybe I'll ask a few on GeneSight. Your long-term guidance assumes 4% to 5% contribution from Mental Health. So can you just walk us through how you arrived at that number? Is there anything included from expansion into other tests like Alzheimer's or neuro that you mentioned today?

No.

And then how much of that growth includes deeper penetration and GeneSight in primary care channel versus private payer adoption?

Well, there's sort of one and the same but we continue to see just great momentum in GeneSight which has been enabled by the commercial and technological capabilities that Nicole spoke to. 95% of the doctors are ordering online. 30% growing our home-based kits. This is where health care is being provided today. And we are and Eric Santa is working really hard on expanding our telehealth partnerships. So when we talk about consumer engagement which is different than a consumer ordering the test, let me just underscore that. If a consumer comes to our website because their family members struggling with depression or anxiety and they're drawn to what we do. If they don't have a physician, we can link them to a physician who can then order the test. And then at that point, make determinations about what the appropriate drug use. But this is such an important issue in the context of mental health today and the challenges we have in workforce and productivity. I don't know anybody on this call or in this room that hasn't struggle or somebody in their family hasn't struggled in anxiety and depression. And so when we see 2,900 new ordering physicians, that's because people are coming into their office and they're struggling. And they're struggling with trying four or five meds. As we said, we had a new clinical study put out last night that I think further the bodies of evidence. We have a VA study that should come out later this year. Again, that's an important constituency that we think GeneSight could help. So a 20% plus growth rate which is I think how you get to the math to it's component is really what we are seeing and expecting. And I'll tell you, while other parts of the business are slow to bounce back as of yesterday, GeneSight was at 110% of target going into the week. So it is continuing to perform well.

And then a follow-up to that. So on private payer coverage, can you just talk about how the private payer conversations are going for GeneSight? And do you expect any coverage decisions this year? And then as a follow-up to that, can you just talk about how you're leveraging value-based agreements as well for GeneSight?

Yes. We've talked about this in last several calls. I wouldn't expect some big announcement that moves the needle, quite frankly, it's more of a ground game, including Medicaid Managed Care plans, where we have some really good active discussion, as you mentioned, some value-based arrangements. But both on building a broader clinical body of evidence. There's a whole team continuing to work on that. And we've got quite a strategic work going on and expanding more broadly the payer coverage, including in Medicaid and the Medicare Advantage plans. So again, we've got a couple of smaller contracts that we just recently signed and it's something that obviously the group is attended to. But our growth plan is not predicated on some big expansion of coverage. So I just want to underscore that. It's continuing to win the hearts and minds of patients and nurse practitioners that are dealing with the mental health issues.

Great. That's it for me. Thank you.

You're welcome. Thanks.

Nothing further from the phone. I'll turn it back to the presenters.

All right. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.

Thanks, everybody.

And that does conclude our call for today. And we thank everyone for participating and you can now disconnect.