Q1 2020 Earnings Call
Greetings and thank you for standing by your conference will begin momentarily. We thank you for your patience I see you. Please remain on the line.
Greetings and welcome to the myriad genetics first quarter 2020 financial earnings conference call. During the prior presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if it anytime during the conference you need to reach an operator, Please press star.
As a reminder, this conference is being recorded Monday November 4th 2019.
I'd now like to turn the conference over to Scott Gleason VP of Investor Relations. Please go ahead.
Thanks, Good afternoon, and welcome to nearly genetics fiscal first quarter 2020 earnings call.
During the call will review the financial results were released today.
After which we'll host a question answer session. If you're not had a chance to review our quarterly earnings release that can be found on our website at <unk> Dot com.
Presenting for me today would be market phone, President and Chief Executive Officer, and Bryan Riggsbee, Chief Financial Officer.
Lets call it can be heard live via webcast at myriad dot com.
The recording will be archived many investors section of our website.
In addition, there's a slide presentation pertaining to today's earnings call on the Investor section of our website in which we filed following the call call on form 8-K.
Please note that some of the information presented today may contain projections and 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 are for you the document the company files from time to time with the Securities 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 actual results could differ materially from those container projections or forward looking statements. But then please turn to called remark. Thanks Scott.
I will start today's call by providing some commentary on our revenue shortfall in the first quarter, where we delivered revenue of $186 million, an adjusted EPS of eight cents per share which were significantly below our financial guidance for the quarter.
We're very disappointed in these results.
It is entirely inconsistent with our goal to provide achievable guidance, while working aggressively to deliver on upsides to that guidance.
I want to take this opportunity to provide some specific details on what led to this shortfall.
The revenue Miss was largely largely related to revenue adjustment associated with hereditary cancer testing, which included approximately an $8 million out of period adjustment.
Excluding the out of period adjustment revenue would have been a 197.5 million.
I went back around reimbursement and the diagnostic industry is driven by three C.
Coverage contracting encoding.
This particular issue was not associated with coverage for contract pricing nor was it related to test volume.
The root cause of this shortfall was driven by the deletion of the eight one to one one in a one to one free codes beginning on January 1st 2019.
These two codes are the sequencing and large rearranging codes used for BRC testing, which had been included in our payer contracts since 2012.
300, payer cod contracts account for about 85% of hereditary cancer revenue there are more than a thousand payers that are responsible for the remaining revenue.
These are generally small public payers that on average reimburse approximately for hereditary cancer tests per month.
Some of the payers have contracts with Marriott, but many are too small to justify the administrative cost of implementing a contract.
The company, obviously knew that these codes were going to be deleted and it taken steps to revise contracts with payers representing substantial majority of revenue.
For small contracted payers, we notified them on the upcoming coding changes and our intent to crosswalk, the new code to the historical contract pricing.
Parents were given an opportunity to discuss any concerns with the company, but as is typical the vast majority decline given the relatively minor spend associated with hereditary cancer testing.
For non contracted payers. The assumption was that these payers from crosswalk pricing to the Medicare clinical lab fee schedule for the new code.
These assumptions were consistent with our store both experienced for other coding changes.
In the third fiscal quarter of fiscal 2019, we shifted to the active hereditary cancer codes with revenue accrual rates consistent with these assumptions.
Given the low number of claims and longer processing times associated with the salt small payers. We did not begin adjudicating a significant number of claims until the fourth quarter.
At that time, we noticed that payments were not always consistent with our revenue accrual rate assumption.
In fact in some cases claims were being denied entirely despite the fact that these payers had reimburse claims for many years.
This is not atypical in fact, we saw the same thing occur when the BRC a codes were changed from a cold stacked the a one to one one any one to one three codes.
Historically, we were able to resolve these administrative issues within a few quarters.
To reflect the lower cash collections in the fourth quarter, we took an out of period adjustment of approximately $7 billion and made a reduction in our revenue accrual rates.
Our fiscal 2020 and first quarter guidance provided in August we're based upon those same rate.
However, as we evaluated cash collections at the end of September and through October we noted that our collection rate so once again lower than anticipated.
As a result, we took another out of period adjustment. This time total totaling approximately $11 million and lowered our revenue accrual rate again.
We believe it prudent approach at this point is to assume that we will not be able to correct. These administrative issues and our lowered revenue accrual rates are consistent with our actual cash collection rate.
Having now adjudicate claims for nine months after the coating change cash collection rates from these small payers are predictable.
However, we are aggressively pursuing approaches to increase our collection rate to levels that are appropriate for the services we are providing.
As we execute on these initiatives there may be opportunity for future positive out of period adjustments.
I think it is important to highlight that this is the coding issue and not related to contracting prices for volumes.
The business fundamentals for our hereditary cancer business from a volume perspective have been exceptionally strong and exceeded our expectations for the quarter.
Our hereditary cancer volumes are currently growing at double digit rates in both the oncology Women's Health Division.
Which represents the strongest growth rates, we have seen since fiscal year 2014.
With that I would like to turn the call over to Brian to discuss our financial results for the quarter and our Rubeight fiscal year 2020 guidance and I will finish with a discussion about initiatives to deliver upside to this guy.
Thanks, Mark I.
I would like to start by providing a more in depth overview of our fiscal first quarter financial results.
Penetrate cancer revenue in the quarter was 105 million versus 116 million in the first quarter of last year, excluding the out of period adjustments and reduced revenue accrual rate, we would have seen the hereditary cancer revenue growth of 5%.
On the gene site revenue in the quarter was $22.7 million. The sequential reduction in revenue is slightly higher than expected and was associated with first quarter seasonality and volume reductions due to the discontinuation of our genes site 80, HD analgesic test.
Revenue from prenatal testing was $23.5 million and as anticipated we did see a small decline in volume on a sequential basis due to seasonality.
That grew revenue in the first quarter was $11 million, which was consistent with our expectations given summer seasonality.
Alaris revenue in the first quarter was $6.5 million with double digit sequential volume growth offset by a lower average selling price due to unfavorable mix.
Endopredict revenues in the first quarter were 2.3 million and were relatively flat and consistent with our expectations.
Lastly, revenue associated with our pharmaceutical and clinical services business was $14.3 million and as anticipated was down sequentially based upon the timing of pharmaceutical customer activity.
I would now like to discuss our financial metrics for the quarter adjusted gross margins were 73.3% and declined on a year over year basis.
The out of period revenue adjustments drove 130 basis points of the decline and the remainder was due to lower test average selling prices as well as lower revenue mix of higher margin hereditary cancer and genes that revenue.
Moving onto our operating expenses, we continue to focus on cost control and saw operating expenses declined approximately $3 million sequentially.
Adjusted Research and development expense was 19.1 million compared to 19.2 million last year.
Adjusted SGN a expense this quarter was 110.4 million compared to 99.6 million in the fiscal first quarter of last year.
Adjusted earnings per share were eight cents for the quarter. This quarter, we ended with $225 million outstanding on our credit facility and 194 million in cash and cash equivalent.
Now I'd like to discuss our revised fiscal year 2020 financial guidance for fiscal year 2020, we are now guiding toward revenue of 800 810 million. This guidance accounts for the out of period adjustment of $11 million. The change in revenue accrual rates associated with our hereditary cancer business and lower gene site upside due to new United Healthcare.
Preauthorization requirements.
On an adjusted earnings per share basis, we're guiding to total adjusted earnings per share of a dollar to $1.10, which reflects the lower revenue importantly, we expect our earnings run rate to increase significantly starting in the second quarter.
Now I'd like to discuss the updated assumptions underlying our guidance.
First for hereditary cancer, we continue to expect strong volume has double digit growth trends have persisted into the fiscal second quarter. These will be offset by the lower revenue accrual rates discussed earlier on the call. The net impact will result in a decline in year over year hereditary cancer revenue for the year.
For gene site, we are anticipating an increase in revenue beginning in the fiscal second quarter associated with the United Healthcare coverage decision, which took effect on our October Onest and continued volume growth.
We have not yet factored in any primary care reimbursement from Medicare, we're revising our genes site revenue outlook for the year due to the United Healthcare Preauthorization process that was formalized in September the process will require additional administrative requirements and as a result, we are assuming 30% of test will not meet those administrative or.
Chairman.
While we are aggressively working to reduce this non compliance rate for the purpose of guidance. We have assumed it will remain constant for the entire fiscal year.
With the prenatal business, we continue to anticipate year over year test volume growth to be offset by the pricing reset we experienced in the second half of fiscal year 2019.
We're not including any impact from potential guideline expansions for average risk PS four expanded carrier screening.
For breadth for Vectra, Prolaris and Endopredict, we continue to assume modest growth was stable prices.
Finally, we continue to assume decline in our pharmaceutical and services business in fiscal year 2020, following an exceptionally strong year affinity trial activity for myriad RV OEM customers in fiscal year 2019.
Furthermore, the sale of the clinic, which we expect to close around the end of the calendar year will represent approximately $12 million revenue headwind in the second half of the fiscal year.
For the fiscal second quarter, we're guiding to revenue of 210 to 212 million and adjusted earnings per share of 30 to 32 cents.
We expect to see improvements in revenue associated with the removal of the $11 million out of period adjustment sequential increases in hereditary cancer revenue driven by positive seasonality and higher gene site revenue given the United healthcare coverage decision.
While we are very disappointed with the start of to fiscal year 2020, we're committed to offsetting these challenges with improved hereditary cancer collection, new product volume growth and new product reimbursement as we exit. This year. These initiatives can provide significant upside to our revised guidance with that I would like to turn the call back over to Mark to talk about some of these initiatives.
Thanks, Brian I would like to spend the remainder of the call discussing some of the developments. We believe will provide a positive catalyst for the business as we transition through fiscal year 2020.
First with gene site in early August we have a pivotal event with the addition of genes sites Unitedhealthcares Medical policy, which took effect on October Onest, United Healthcare is the largest private payer in the country and its highly respected. So this coverage policy has been widely viewed reviewed by other payers.
We continue to have productive conversations traditional commercial payers and expect further positive medical policy decisions in the fiscal year.
Gushes with payers are being bolstered with additional publications. The first of which is the new analysis for the guidance study, which was published last week in the journal of clinical psychiatry.
This analysis was based upon the patient population in the guidance study intended to benefit from gene site and includes the 787 patients at baseline we're on medications with predicted gene drug interaction.
Now lets his show that patients who had their treatment guided by Jean sites saw a 70% improvement in remission, a 42% improvement in response and a 23% improvement in symptoms all of which was statistically significant.
Given this data one very significant tech assessment organization has expressed interest in an off cycle review the June site dossier.
In the first quarter, there were two draft LCD from Medicare covering pharmacogenomics testing.
LCD their overlapping and quite complex and we refer you to the multi ex website for more detail.
In summary, the first draft LCD is for combinatorial pharmacogenomics testing, which includes gene site coverage when ordered by a psychiatrist in patients with major depressive disorder.
The second draft LCD applies to single multiple and Comminutes Oreo Pharmacogenomic test, but also includes tests ordered by primary care physicians and patients diagnosed with exciting.
In fact, the second draft LCD is similar to the United Healthcare coverage policy in that regard.
Our expectation is that these draft LCD fees will be modified and finalized in the third fiscal quarter and would become effective in the fourth quarter.
The potential impact from these revisions has not been included in guidance.
We also recently signed a master service agreement with a large pharmacy benefit manager.
This is an innovative new approach and we're not aware of a similar arrangement in the molecular diagnostic industry.
Under the terms of the Master service agreement, we will promote gene site to the Pvms customers, who can elect whether to off into the agreement.
In fact, a fortune 50 employer has already signed the Master service agreement.
Pharmacy benefit managers have been interested in both gene site and vector of based upon the ability of these tests to lower both prescription drug costs and overall health care costs as part of a value added service to their customers.
We are currently engaged in discussions with other pharmacy benefit managers for both products and expect that we could see further positive developments in this channel during the fiscal year.
Based upon the positive momentum we are seeing with both commercial payers in Medicare we're continuing our plans to expand our primary care Salesforce for gene site and the second half of fiscal 2020.
Currently we are anticipating the first wave of this expansion to total approximately 65, new sales territories with additions beginning in the fourth quarter.
Our current current guidance does not include the revenue or earnings impact from this expansion.
Finally, I would note that there had been no material development and our interactions with the FDA on gene site and we have not made any changes to our test offering.
And the last quarter, there were a number of influential stakeholders that weighed in on the importance of providing pharmacogenomics test results with interpretations to physician.
This included physician statements from the association for molecular pathology, The American Clinical Laboratory Association and the letter from key patient advocacy groups, including the National Alliance on mental illness, and the National Council for behavioral health among others.
From a companion diagnostic perspective, we have seen significant progress with both Bracanalysis Cdx in my choice CBS .
Anticipating U.S. approvals with Bracanalysis cdx in both pancreatic and castrate resistant metastatic prostate cancer.
We believe these approvals will create a greater clinical impetus to test patients with these two cancer types, which comprise approximately 90000 incident patients in the United States per year.
We currently anticipate FDA approval from Bracanalysis Cdx for pancreatic cancer before the end of the second quarter and approval for prostate cancer and the second half of fiscal year 2020.
The impact from these approvals have not been factored into our guidance.
In addition, we are expecting data from the Olympia adjuvant breast cancer study could be announced in the second half of fiscal 2020, which could lead to another approval in fiscal year 21.
The incident patient population for this indication is 198000 patients per year. If this indication is approved would essentially expand testing testing indications to all breast cancer patients.
Additionally, with Mychoice Cdx, our proprietary test for assessing genomic instability, we received FDA approval for the test as a companion diagnostic ovarian cancer patients being considered for Niraparib PARP inhibitor therapy in accordance with the approved label.
This is an important milestone after 10 years of development and as a companion diagnostic we can avoid the reimbursement challenges typical for this industry.
We anticipate that the test will be covered by an existing NPD and we will receive a proprietary code with reimbursement initially set at the list price of $4040 per test.
As a result, we would expect to begin generating revenue in the second quarter. Although we have not included any revenue in our guidance.
We also recently filed for approval of Mychoice Cdx in Japan for potential use in ovarian cancer, which comprises approximately 9000 patients per year.
In addition, there were multiple data presentations this year at the European Society of medical oncology annual meeting for PARP inhibitors in first line ovarian cancer.
Two of the three study showed no statistically significant clinical benefit in the Mychoice cdx negative patient population.
We are currently in discussions with our pharmaceutical partners and regulators to ascertain the role of Mychoice Cdx as a companion diagnostic for these drugs on a global basis. We are also working on a study with a pharmaceutical partner using my choice Cdx metastatic breast cancer patient with results expected.
In calendar year 2020 .
With our prenatal business, we have made good progress on our strategy to broaden testing to the entire OVC why end market.
Added over 4000, net new ordering physicians compared to year ago.
We also received acceptance for publication for 58000 patients study showing that pretty well achieve high accuracy with an industry low test failure rate of 0.1% in a general population of pregnant women, including women with a high body mass index.
In fact, the no call rate for Sniffed based Eni PS test can have failure rates up to 24% in obese patients, which led the American college of medical genetics and genomics to recommend against using an IP EPS test in patients with significant obesity.
However, the sequencing based approach used with prequel has demonstrated no call rates of one in 1000.
We believe this data will be a very important differentiator in the market, where no call rates are very frustrating and lead to more invasive procedures.
For vector we plan to launch an expanded test report with data on risk of radiographic progression and cardiovascular risk after the upcoming American College of Rheumatology meeting.
The cardiovascular data show that vectrus significantly outperform traditional risk cardiovascular measures in patients with rheumatoid arthritis.
Our market research shows Rheumatologists see substantial clinical utility in the two additional indications for vector.
Also expected updated American college of Rheumatology, Ben care, and United Rheumatology guidelines this fiscal year.
Moving on to Prolaris. This quarter, we submitted a reconsideration request to Medicare for unfavorable intermediate and high risk patients based upon data demonstrating that Polaris is a better predictor of risk than traditional pathological methodology.
If successful this would expand that reimbursed market by approximately 33000 men per year.
We also published an important clinical utility study requested by payers.
This study was from a low risk registry that evaluated 664 men with low Polaris scores of which 82% selected active surveillance as their initial treatment.
Those selecting active surveillance only 0.4% experience disease progression.
Furthermore, 91.2% of men remained on active surveillance at.
You won and 65.2% then remained on active surveillance at year for showing the durability of the clinical decision for patients.
Finally, I would like to highlight progress with Mike path melanoma, we completed the first phase of the expanded launch in eight salespeople are now promoting the product you approximately 35% of the targeted market.
We also received a DLP status with the initial reimbursement at $1950 per test.
At this reimbursement level, the total addressable market expands to more than half a billion dollars in the U.S.
While we are starting from a small base, we are optimistic to test will contribute to revenue in the second half of the fiscal year. Although this expectation has not been incorporated into guide.
In conclusion between laboratory benefit manager programs and the recent hereditary cancer coding changes, we have faced substantial headwinds that have reduced revenues by almost $100 million per year with a corresponding reduction in earnings.
Nonetheless, we believe that our portfolio provides substantial untapped potential and fully expect our efforts to increase volumes and reimbursement will offset these headwinds and provide significant future growth.
With that I will turn the call over to Scott for the Q and a portion of the call.
Thanks, Mark as a reminder, during today's call we use certain non-GAAP financial measures a reconciliation of the GAAP financial to non-GAAP financial results and reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website.
Now, we're ready to begin the Q and a session in order to ensure a broad participation in todays community session. We're asking business. Please ask only one question and one follow up operator, we're now ready for the Q and a portion of the call.
Thank you, yes, you would like to register a question. Please press the one followed by the four on your telephone keypad right. Now you will hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press one Paul but three one moment. Please for the first question.
First question comes from the line of Tyco Peterson with JP Morgan. Please proceed with your question.
Hey, thanks.
To start with the guidance you know you missed a quarter by 16 million you're lowering by 65 million can you just talk too is the remaining 50 million all lower collection rates in hereditary cancer, because if so obviously that implies greater hereditary declines.
Yes. Thanks Tyco. This is Brian just a couple of comments on the way we look at the quarter, we didn't and provide a breakdown, but there are few things need to think about first is the $11 million out of period as a part of it but we also talked about how we lowered our accrual rate during the quarter that was the that was and how we would have grown hereditary 5% rate if not.
For that set the large that's the predominant share in terms of the overall and then there is the change in our assumption with respect to United and there and that to 30 fact that 30% of the samples wouldn't meet the administrative criteria. So those are the factors that that get you to that number.
Alright, and then for the follow up on gene side I understand.
Theres not really an update with it relates to the FDA, but is there kind of a timeline here that we should be thinking about.
And overall insight was was also light relative to our expectation. So I guess, what kind of gives you confidence in the pickup obviously you had the benefit in the United contract, but.
Yes, Thanks, Tyco really nothing more to add for the FDA obviously.
We noted mid August that we add.
Admitted.
A document to the FDA, but it's been three month since then and as I noted, there's really been no material development sense that and we continue with the report that we have so.
There is no timeline or or anything that we could.
Supply.
Other than to note that the initial discussion was back in August mid August .
For gene site for the quarter, we noted that it was slightly below our expectations for the quarter and that was related to the volume reduction.
That we noted for the HD in the analgesic.
Moving those taking those products off the market, we had anticipated sequential reduction due to that and seasonality we saw slightly higher volume declines in the first quarter than we had initially expected.
The uptick from here is obviously going to be related to the fact that we continue see volumes growing.
From that Rebase level.
And we also obviously you have United healthcare with higher reimbursement so.
Those two should contribute to.
Gene site growth throughout the rest of year.
And the next question comes from the line of Puneet Souda with as VP Leerink. Please proceed with your question.
Yes, Hi, Mark Thanks for the question. So first of all my my question is around 300 or contracts that you said account for 85% of revenue.
Those getting included here in the lower guide and.
Or on the the thousand or so.
You mentioned that are smaller payers and sort of what gives you the confidence that.
Contracts that are coming up for renewal one seek a lower pricing for her tree given these changes.
Yes, Thanks, Tony.
300 contracts, obviously, that's the vast majority of revenue and we obviously have a very good handle on what's in those contracts and those contract prices and that was all taken into consideration when we provide the guide for this year just to reflect on that if you'll remember we had noted for the year that we did expect a.
A low single digit.
Price reduction in fiscal year 20, due to those contracts, but that would be offset by.
No single digit growth rates. So that was the assumption, we had going into that and that reflects obviously the good visibility we have on those contract prices.
I will note of course that our volume was actually tracking significantly above that guide in that we had double digit volume growth for the quarter.
In fact, we have not seen this strong of hereditary cancer perspective from a volume standpoint sense to almost five years ago. So that was actually outpacing what we had for the guide. So those those are the things we knew obviously the part that impacted this was the thousand plus fair.
Small payers average for hereditary cancer test a month, so they're they're very small volume.
In those cases, we didnt have that same type of visibility because as as I mentioned, we had just informed and that we cross walk over to the new one, but we had sat down and negotiated with those payers in a number those are even non contracted payers that we don't have so we didnt have nearly.
That the visibility in that subset of payers.
Thats, where this the issue surfaces, we have made assumptions about how we thought that pricing would evolve and obviously that assumption.
Turned out to be incorrect.
Okay and then the.
Benefit managers have had a significant impact this year could you give us a view into any other tests.
Potentially could be impacted here beyond.
Insight and I hear your comments on the unique.
Opportunity you have with the large.
Master agreement that you are establishing but.
Maybe you can you provide me.
What that means and if it could result in.
Any benefit in the near term thank you.
Yes, thanks funny, so we'll side that up in the lab benefit managers and then we can talk about.
Pharmacy benefit managers.
From a lab benefit manager perspective, the impact we saw last year was with both gene site and fore sight.
As we noted we had seen a step down in both of those through the year and but since that time, we've seen pricing for both of those stabilized on a sequential basis. So we see the lab benefit manager has already rebase, the pricing on that and and.
We don't see additional impacts from that as we go forward.
From a pharmacy benefit manager perspective, obviously, that's a new development that we've been working on as we've looked at alternative.
Payer options for coverage and we are excited about this first foray into pharmacy benefit managers.
This particular case this was for gene site, a master service agreement, we already have a fortune 50 company that signed on and we'll of course be talking to a number of all their customers for this large pharmacy benefit manager.
As we move forward. In addition, we're also talking to pharmacy benefit managers about factor backdrop offers some really unique value propositions. As you know one of the highest cost for pharmacy benefit manager is the entire a biologic category in fact, it can be in the top too.
For all of our payers and so tools that can help them.
For that rapidly growing very expensive category are ones that they are actually quite interested in so we continue.
Some positive discussions with factor as well as gene site with pharmacy benefit managers.
And the next question comes from the line of Bill Quirk with Piper Jaffray. Please proceed with your question.
Great. Thank you couple of questions thing on hereditary cancer for a moment, Brian I appreciate that the business would have been up about 5%. If you didn't have to make any of the revenue adjustment on it can you give us kind of what that number would have been at the prevailing rate in other words, eliminating kind of catch ups that you had from previous quarters.
What would have hereditary cancer, Ben your new current accrual rate.
Yes, Thanks Bill for the question.
I don't think we I mean, I think our commentary around where the where the hereditary business would have been well is that it would've been up 5% year over year ex the impact of the out of period adjustments and the change in our core rates I think that would be the comment only commentary I would add on that.
I don't think we gave it kind of stepping I guess firms.
Okay, maybe I'll take I'll take it offline then.
Okay and then.
Can you go into a little detail about what helped drive the double digit growth in hereditary as Mark pointed out that is certainly the strongest kind of organic volume number that you've had in several years.
Yes, Thanks Gil.
I really I think one of the things that we've been very pleased with his Nicole Lambert and she's the president of our oncology team and we've really been able to see the oncology team make some very significant stride in particular segments of the oncology market.
So I think that's caused.
Some of the inflection we've seen I think the other thing on women's health side. If you remember one of the reason that we had done the acquisition prenatal is that we thought being able to offer a complete portfolio of high value added genetics to the LPG why end market has some intrinsic value as a one.
Stop shop, I think we're seeing the benefit of being able to provide that more comprehensive solution.
With that really outstanding application that was developed by the council team called that maybe what's now called the Mary complete applications. So I think that one stop shopping with that application has allowed us to continue to demonstrate some real strength.
In the preventive care the LPG why end segment and the last thing I would point to is there remains very significant interest in risk score as a differentiator between myriad and others in the preventive care space by the fact that every patient can get.
And understanding of her risks for breast cancer as opposed to just the less than 10%. They get a positive mutation resolved I think that continues to be seen as a significant value mirroring the only one with a highly validated test in that regard and so we can.
Good to see significant interest from the LPG when side, so I think those combinations.
Unfortunately of course masked by the revenue accrual rate adjustments, but and the absence of that actually very pleased with what we're seeing in the hereditary business I would note on a go forward basis, I gave a litany of potential upsides.
That are going to happen this year at Bracanalysis cdx approvals for prostate in pancreatic cancer Thats, a very significant development.
We're also talking about other companion diagnostic opportunities in APJ event breast cancer.
Thats big because as we mentioned if that was to come to pass in virtually all breast cancer patients are indicated for hereditary cancer testing.
We also anticipating expanded NCCN guidelines.
For a broader number of breast cancer patients and potentially the addition of how be too as a gene that potentially promoted to the same level of importance of BRC wanting to so I think there's a whole series of things that are very highly probable to occur this fiscal year.
That obviously not included in that current double digit year over year growth.
That gives us encouraging signs that there are still going to be very nice volume growth opportunities in the hereditary cancer market.
As we look out to the rest of the fiscal year in ending fiscal year 21.
And the next question comes from the line of Derik de Bruin with Bank of America. Please proceed with your question.
Hi, good afternoon.
Okay.
Mark.
Im just struck back.
You want to go back in monkeys your.
Your last analyst day in 2015 history, but.
Your your worst case revenues to remodel we at that time, which Didnt include Council, which Didnt include seems like were about $1.35 billion.
Hi, David would you be assessment for about $680 million in terms of your 2020 numbers the.
Big Delta from where you thought we're going to be in terms of where youre right now and that's fairly conservative assumptions back then.
I am just struck.
Good question going quite.
More of the.
Visibility into some of these lines going forward it seems like everything seems to be falling short and.
It's.
How are you gain confidence these things.
I wanted just happened over the last five years.
Thanks, Derek you were little hard to here I think I caught all that.
Thank you are referencing our 2015 analyst day, so yes.
Certainly five years is a long time to reflect on what's happened I think if you go back to.
Some of the assumption that we made that time I think theres, probably a couple things where that were in consistent with those assumptions first thing I would argue is that the hereditary cancer business held up.
Much better than many analysts had anticipated so I think we deserve some credit for on for really seeing hereditary cancer business. Our volume. Despite all the competition has actually grown since that time frame, we've obviously seen compression in prices, which we anticipate.
Got it at that point.
And certainly probably a little higher than we thought I don't think we anticipated that there might be a competitor in this space that would be willing to price significantly below cost that and.
Losses of over half a billion. So I would argue we probably didnt anticipate that type of business model.
But I think absent that I would argue that hereditary market, probably held up better than some more than projected.
If you look at the industry writ large, including our assumptions really the biggest gap is.
The lack of reimbursement.
I think reimbursement has proven to be much more difficult than we would have expected when we put some of those.
Those thoughts out as far as how the markets would evolve I think there's a number of reasons why you've heard us on many conference calls over the last five years talk about some of the obstacles facing and in fact in the last 18 months, you've seen us pivot to try to use some unique and different approaches.
To gain reimbursement and the pharmacy benefit manager progress I mentioned already today is an example of how we think we're going to have to try to go at reimbursement in a very different approach than what we might have historically, so I think thats, probably one of the areas that the biggest difference I think the other.
If you had looked at what we thought would play out would be a much bigger companion diagnostic opportunity, particularly with my choice Cdx.
As you well know the initial data they came out on the clinical study was equivocal and ultimately the FDA chose to approve.
Varying cancer.
All comers as opposed to the use of my choice Cdx as a companion diagnostic that's a big difference between what we anticipated when we had the plan put together that might tree cdx would actually become a bigger part of the portfolio now fast forward.
And stat of getting approval.
As we expected with the initial indication we of course, just got approval now.
With a number of indications that are coming first line ovarian cancer.
Has the possibility of a companion diagnostic indication metastatic breast cancer, we should get a read out here relatively soon so I think my choice has been significantly delayed, but we're starting to see signs that it actually can become.
A part of the portfolio. So I think our biggest challenge still remains how do we drive reimbursement and much faster much deeper in the industry as a whole and myriad in particular.
I don't think we solve that question yet.
But I think we're so we're still coming at this with some other ways that we think actually provides an alternative approach to that but reflecting on the last five years I think thats been the biggest challenge.
Thank you.
And the next question comes from the line of Doug Schenkel with Cowen and company. Please proceed with your question.
Doug are you on the line.
Hi, there this is Adam wish outs on for Doug sorry of them. You can you provide any more color on the unexpected United Preauthorization requirements and addressing this issue just a matter of educating providers and having to implement new ordering procedures, where do you think it would potentially cause instructional decrease in the percentage of test eligible for yet for reimbursement because of the more.
Firemen.
And does it typically take three quarters to address these type issues as your guidance implies.
Yes, Thanks Adam.
I think that there's a three components to this as we mentioned this is details that we were notified of as we started to approach October 1st details in September .
What I would say is.
It's similar to the types of things that we've had to do with Medicare.
We need to provide documentation of diagnosis documentation of sale medications.
The other thing that's required is that physicians register.
Through the portal ordering portal, so that they can actually play.
Received prior authorization through that ordering portal. So I think it's a combination of all three of those things having to be done successfully.
That causes us to.
Assume 30% are not going to make their way through that through those hurdles.
Now, we've obviously got experience doing this particularly on Medicare and the team will work aggressively, but we think it's prudent to assume that we're going to have that type of failure rate throughout the year, obviously, we like to.
Over achieved on our guidance and so.
Given that as the team makes progress that gives us an opportunity for potentially upside to guidance based on lower failure rates. We just think thats the prudent way to approach. This.
Okay. Thank you and thanks for the second quarter guidance can you provide an update for how we should think about the gains on revenue over the back half. The year. Previously you know you expected to fourth fiscal quarter to be materially above this quarter as one through three you still think that will be the case based on the development today. Thanks.
Yes, Thanks, Adam Yes, just I guess what.
And Terry in the script regarding our expected profile for the remainder of the year, obviously, given where we are we would expect the trend up from the revenue and earnings perspective.
As we move through the back half of the year. So we would expect the back half earnings to be significantly higher than than the front half.
The only other thing I might add obviously not guidance, but as you look at the potential upside drivers slide the last slide in the presentation. It lays out a number of things that are anticipated to happen.
In this fiscal year and so as you think about fourth quarter things like expanded Medicare coverage for primary care for example, or anxiety, that's not in our fourth quarter guidance.
But given the timing that we reflected on this call what we would anticipate the LCD.
Being effective in the fourth quarter, you potentially could see upsized on that Mypath melanoma, we expect revenue to kick in by then my choice Cdx, we expect revenue to kick in by then.
The changes and NCCN guidelines for hereditary cancer.
They have the opportunity to.
To be affected by than pancreatic cancer approval for Bracanalysis Cdx. So there are number of the initiatives that are listed on that.
That potentially could become effective for the fourth quarter. So as we start to think about the financial momentum as we transition into next year, although those numbers are not in guidance.
Those are some of the things that we're anticipating as we reflect on what that fourth quarter could look like and how that could ultimately affect some of our guidance for fiscal 2001, I just think thats sheets important because all of the things on there are very high probabilities.
And therefore.
There are opportunities the caused some inflections through the year.
And the next question comes from the line of Jack Meehan with Barclays. Please proceed with your question.
Thank you good afternoon. So I had a few follow up questions on hereditary cancer testing.
First on October 17, mold Dx had a new test panel alert, which define multi gene orders regardless of testing methodology. So I was wondering if that applied to my risk.
Maybe why are you confident you're going to be able to continue growing 81162 versus eight one fourthree too and I. Appreciate all the coding details you've already given but I'm. Just curious is there do you see any risk that eight one onesix two could also be deleted and you'd have to migrate over to eight one for through too.
Yes, Thanks Jack.
I think actually when you look at the articles that.
In fact comfort conversation has actually been superseded by the NPV update that.
Heard last week, I know Youre aware that I think thats, probably the bigger question right now in hereditary cancer space and for those who aren't as familiar.
There was an MTD that was issued some time ago, which was initially interpreted by the industry to be force matic.
Testing and not Germline.
CMS noted that they now apply that to Germline testing and in fact made some clarification is on that last week as well what's important about that is what this node says that if you are using next generation sequencing technology for breast and ovarian.
Cancer, hereditary breast and ovarian cancer testing.
That in order to Bill Medicare you need to have FDA approval and Thats whats being proposed in the current draft that is now open for public comment.
Now as a reminder.
Myriad actually has sanger sequencing technology.
And it is an FDA approved and in fact, the only Germline test that is an FDA approved as myriad Sanger sequencing technology, which falls outside the confines of that and CE and so I think Thats really question right. Now is how is that NCD going to ultimately resolve.
And for myriad of course, we still have a testing option, which is sanger sequencing.
With with our FDIC approved tests, so I think the articles because they are only really applicable if you're using next generation sequencing because it's the only cost effective way to do multi gene testing.
I think thats really going to get superseded by whatever resolution ultimately occurs with that and CD.
And as far as the code is concerned I think it's important that there will always be bracanalysis only testing.
That's what 106 two is so it's not like those codes were phased out the a one to one one into one three codes, which.
Were developed over time, because largely arrangements seem even exist for brck until later on in the game those didnt get eliminated or those didn't get superseded by all multi gene panels. It's just a new BRC a one onesix too there will always be a need for BRC eight.
Testing code.
In fact, as I mentioned, the only FDA approved test is a BRC a wanting to test and for all the companion diagnostic indications I mentioned earlier on the call you're going to need to have an option to be able to co. Just BRC a testing for those companion diagnostics. So I don't see a future without 81162.
Two.
I think thats going to be required for the FDA approved tests and Theres certainly our applications, where doctors will only want to order BRC a testing. The other reason that's important is if you actually look at NCCN guidelines today. The only genes that are recommended for hereditary breast and ovarian cancer, our BRC, a one and two.
And so as NCCN maintains that stature, you're going to need to have an ability to run and code for a test that is consistent with those NCCN guideline.
Great and as a follow up on June say.
First which of the to Medicare policies do you think applies to you I assumed it was the common atrial one since that was the when you commented on.
The open meeting and then just for Brian what is your new guidance call for in terms of revenue for gene site for the year.
Yes, Jack I think as we mentioned.
Obviously, there is some overlap between these LCD, both LCD mentioned combinatorial.
The first one is is.
Very similar to the current gene site LCD and that is combinatorial only there's one other test included but the second LCD that includes primary care physicians and expand to other indications like anxiety also includes coveted toribio pharmacogenomics. So has written today.
Combinatorial tests are covered by both lcds, hence some of the overlap.
We'll have to see how this resolves itself as.
As we go through the comment period I will note one at a curiosities in this is that if you look at the second LCD, which is covers primary care and competent Tory all on the reference noted in that LCD to justify the expansion into primary care is the fact.
There was a clinical study done that demonstrated that primary care physicians can actually have as good or better outcomes associated with pharmacogenomics testing as psychiatry risks.
It doesn't include the footnote for that study, which in of itself is unusual and I'm sure that will get corrected, but you'll recall the study that actually produce that result is the impact study that was done with GE site.
So the fact that that study is not referenced in the first LCD, which explicitly covers the test that generated the data is quite unusual and and so I think thats something again, you've got an opportunity potentially see.
And modified as as we move into the future.
From the standpoint of I know you'd ask Brian I think from simplistic guidance, we didn't specifically, we don't provide product specific commentary on gene site.
I think.
Finally, we're going to see sequential growth as I mentioned from both a volume and a United healthcare reimbursement perspective, and so that's why we are anticipating continued seen site growth throughout fiscal year.
And that does conclude todays.
QNX session I will now turn the conference back to Mr. Gleason.
Thanks, Chris that's a good concludes earnings call a replay will be available via webcast on our website for one week. Thank you again for joining this afternoon.
And that concludes today's conference. We thank you for your participation and ask you. Please disconnect your line.