Q4 2020 Myriad Genetics Inc Earnings Call
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Thank you for your patience the conference will begin shortly once again. Thank you for your patience and please continue to standby.
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Greetings and welcome to the myriad genetics fourth quarter 2020 financial earnings call. During the presentation. All participants will be in listen only mode. Afterwards, we'll conduct a question and answer session and at that time. If you have a question you can press the one followed by the four new telephone.
If any time to the conference you need or each operator, you can press star zero and as a reminder, this conference is being recorded Thursday August 13th 2020, I'd like to turn it to Scott Gleason VP Investor Relations. Please go ahead.
Thanks, Keith Good afternoon, welcome to the myriad genetics fourth quarter 2020 earnings call during the call or review the financial results were released say after which we'll host a question answer session. If you have not had a chance to review our quarterly earnings release. It can be found on our website at myriad dot com.
And Scott Gleason, the senior Vice President Investor Relations and corporate strategy.
And on the call with me today will be Paul Diaz, our newly announced President Chief Executive Officer, and Bryan Riggsbee, Our Chief Financial Officer.
This call can be heard live via webcast and myriad dot com and recording will be archived any investor section of our website.
In addition, there's a slide presentation pertains todays call.
On the Investor section of our website, which we filed following the call on form 8-K.
Please note that somebody information presented today may contain projections for other forward looking statements regarding future events and 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.
At the time with the Securities Exchange Commission.
Typically the committed annual report on form 10-K, its quarterly reports on form 10-Q in its current reports on form 8-K.
These documents identify important risk factors that could cause actual results to differ materially from those container projections or forward looking statements with that I'm. Please turn the color Brian.
Thanks Scott.
This quarter myriad faced a significant challenge from the global pandemic and its impact on elective testing volume.
These times have been challenging, but I'm extremely proud of our team at myriad to where the very best in the industry.
They have done an incredible job of rising to the challenge and ensuring that we are able to continue to serve patients and providers that depend on us.
As the quarter progressed, we saw a significant recovery with volume increasing on averaged 275% of pre pandemic levels by the end of the quarter.
Importantly, the biggest recovery was with our core hereditary cancer franchise.
Much of our progress was due to new improvements in telemedicine and direct to patient sample collection kit shipments.
We will look to continue to build upon these capabilities in the coming quarters.
Importantly, despite the challenges we faced in fiscal year 2020, we generated positive operating cash flow and our cash balance has improved from the fiscal third quarter to the fiscal fourth quarter.
This is due to the aggressive cost management initiatives taken by the company to mitigate cash burn at the end of the fiscal third quarter.
We were excited to receive a new gene site LCD covering all healthcare providers licensed and qualified to diagnose the condition and prescribe relevant medications either independently or in an arrangement.
And we have since receiving new gene type pricing.
The net impact of these changes is expected to be neutral to slightly positive to our genes site average selling price and supports our primary care expansion for gene site in fiscal year, 2021, which I will discuss in more detail later in the call.
Most importantly, I'm pleased to have Paul Diaz join us as our new CEO.
Paul was previously the CEO of Kindred healthcare and has brought experiences in healthcare services across many segment.
He dramatically expanded the revenue base of kindred healthcare during his tenure as CEO and turned the company into a fortune 500 company prior to its acquisition.
Myriad is extremely fortunate to have a leader of his caliber and experience and I look forward to working with him. This year on reinvigorating the business strategy executing on pending catalyst and positioning the company to exit the year with increased momentum.
With that I'll turn the call over to Paul.
Thank you Brian for that kind introduction, let me begin by first thanking our chair Luis and steel and new brine served admirably as our interim CEO for your leadership and support through this management transition.
More importantly for guiding myriad through a period of unprecedented change and challenge.
I'd also like to thank the entire myriad team.
Our physicians and payer partners for their extraordinary efforts to continue to serve our patients through the covert 19 crisis.
I've been fire. These many months by the dedication of health care professionals across the us and the myriad genetics team specifically for the difference they continue to making our patients' lives.
And the opportunity we have to make an even bigger impact going forward.
I'm excited to join the talented management team and board of directors and there is an organization dedicated to helping patients and physicians identify the risk of developing disease accurately diagnose disease.
Assessing disease progression and aiding in therapy selection.
Myriad has a rich history reputation and powerful genetic tools, along with unique data base clinical and biological information.
It can empower patients as consumers and stewards of their own health and wellness.
Working with physicians and payers. This information can guide treatment decisions improved clinical outcomes and lower healthcare costs.
Our company has a tremendous opportunity to transform its business.
And strategically physician itself for sustained profitable growth.
We will look to leverage the company's culture and capabilities of innovation.
Revitalize our approach to the commercial effectiveness of our products.
And improve our digital sales and marketing capabilities with the customers in mind.
Finally, there are significant opportunities improved myriad financial position and invest in innovation and R&D to accelerate the launch of new products.
Thank you for the opportunity to speak with you today and I look forward to reporting back to you on our progress and plans for future growth.
Please turn it back over to Scott for the financial results.
Thanks, Paul I'm pleased to provide more information on our financial trends outlook for fiscal year 2021, starting with our hereditary cancer business hereditary cancer revenue in a quarter was 39.9 million compared to 119 million in the fiscal fourth quarter of last year.
Looking at the components of revenue change test volumes declined 58% and pricing declined by 20% a year over year basis volume declined in the quarter were largely attributable to the global pandemic.
We ended the fourth quarter with test volume levels at 72% of free Cobot 19 baseline. The pre 2019 baseline from early March and have held relatively steady at these levels through July.
From a pricing perspective, we saw year over year pricing declines to decrease from 28% in the fiscal third quarter to 19%. This quarter. We expect another significant reduction in the year over year pricing headwind in the first two quarters of fiscal year 2021, as we annualize the CPT code transition impacts.
With the impact of our new long term contracts as a reminder, this fiscal year, there will not be a negative impact on hereditary cancer pricing from panna digit provisions in the cares Act.
Moving on to gene side revenue in the quarter with 8.5 million versus 29.8 million in the fiscal fourth quarter of last year.
Looking at the components of growth test volumes declined by 69% year over year and pricing declined by 7% year over year.
From a volume perspective, we saw a significant impact from a global pandemic. However, this fourth quarter, we annualize the impact associated with the discontinuation of our gene site, HD and analgesic tests, which will lead to more favorable comparisons in coming quarters.
Insight volume increased to approximately 50% of our peak of a 19 run rate by the end of June.
In the quarter, we had adjustments of 6.3 million related settlements of pair claims dating back as far as 2012.
Identification of these settlements was predominately found by our internal review process. These adjustments negatively impacted rytary cancer and gene side revenue in average selling prices in the quarter.
These settlements were partially offset by improved cash collections, leading to a net 5.2 million in out of period adjustments for the quarter.
Prenatal revenue on a quarter was 16.6 million compared to 25 million in the fiscal fourth quarter last year.
Test volumes in the quarter declined 11% year over year and by the end of the quarter of upload close to our pre Cove at 19 run rates.
From a pricing perspective average selling prices declined 26% year over year.
As with hereditary cancer business, we expect prenatal pricing headwinds to begin to mitigate as we transition through the first half fiscal year 2021, especially as we hope to see the positive impact of some of our new revenue improvement programs, we have implemented specifically for the for the prenatal market.
Vector revenue in the third quarter was $7.2 million versus 12.2 million in the same quarter last year.
Vectra volumes declined 42% year over year, and pride and pricing improved 2% year over year.
Vector volumes in the quarter increased approximately 85% of their FICO of at 19 run rate by the end of the quarter.
Prolaris revenue in the third quarter was 4.5 million compared to 6.3 million in the fourth quarter last year Polaris test volumes declined by 32% year over year due to the pandemic and pricing increased by 5%.
Lastly, revenue associated with our pharmaceutical and clinical service business was $9.9 million versus 18.5 million in the fiscal fourth quarter of 29 team.
The sale of the German clinics led to 6.2 million of the year over year decline in revenue.
The cobot 19 pandemic did negatively impact clinical trial activity, leading to lower revenue from our pharmaceutical partners. However married RPM was involved in a number of covert 19 related clinical trials, which often helped offset some of the segment.
I would now like to discuss our financial metrics for the quarter adjusted gross margins were 60.9% compared to 76.8% in third quarter of last year. Adjusted gross margins were debts detrimentally impacted by lower fixed cost absorption due to lower test volumes associated with the code 19 pandemic and by year over year pricing headwinds.
Adjusted Research and development expense was 16.1 million compared to 19.3 million last year adjusted SC and expense. This quarter was 83 million compared to 112.7 million in the fiscal fourth quarter of last year.
Total adjusted operating expenses, including cost of goods sold for $135.5 million in the fiscal fourth quarter and declined by approximately 41 million.
On a sequential basis, and 47 million on a year over year basis.
We expect a decline in expense was offset by a quicker than anticipated volume recovery in the business and due to higher than anticipated legal expenses in the quarter.
Adjusted earnings per share loss of 31 cents for the fourth quarter earnings were positively impacted by approximately 14.6 million and onetime cares act stimulus payments from the U.S. government, which reported a net other income line in the income statement.
We ended the quarter with 224 million outstanding on our credit facility and 255 million in cash and cash equivalents, our cash position benefited from 29.7 million in accelerated payments from Medicare, which will serve as prepayment for future plans.
Due to uncertainty associated with the current virus pandemic, we're not providing annual or quarterly guidance at this time for fiscal year 2021.
However, we would like to provide you with some commentary related to our current business trends.
We're currently seeing test volumes on average at approximately 75% of normal and expect that to continue for the remainder of the quarter.
This trend has been consistent throughout late June and July.
The mix of slightly unfavorable to historical trends with lower price prenatal products performing better than the average.
From an expense perspective, we're expecting our cost of goods sold to increase this quarter, but for gross margins to improve meaningfully into the high sixtys given better fixed cost absorption on higher test volume.
We also anticipate a $20 million sequential increase in operating expenses as we have Richard re initiate direct selling and marketing activities anticipate higher commission expenses and are planning and bring back some furloughed employees consistent with increased volume.
We are currently in discussions with laboratories employer groups and healthcare service providers to provide cobot 19 testing services as we noted on our last quarterly call. We are launching working to launch Cobot 19 testing, our Salt Lake City Laboratory launch curve at 19 testing and began receiving samples in late July and our Mason, Ohio and South.
San Francisco, California Labs will be up and running in August we plan to exit August with capacity run approximately 3000 test per day, our goal as it with this launches to help with a pandemic response and as do our part to provide testing capacity to support the national testing effort.
We are currently we're currently receiving about 250 samples per day and will provide an update after the fiscal first quarter.
Additionally, we recently agreed on new pricing for our gene side test with multiplex, we're not providing detailed on pricing and by coupled with the expansion coverage. We believe the net impact will be neutral to slightly positive to RG insight average selling prices.
In the fiscal first quarter, we're leading the hiring process of 65, new sales reps with a mix of direct an inside sales personnel. In addition, we're updating our systems and processes to comply with the requirements of the LCD.
Given will be early in the launch of the expanded sales team and the implementation of a new LCD, we do not expect to save significant impact on one side revenue from the Salesforce expansion in the quarter, but believe this impact will increase throughout fiscal year 2021.
In terms of Prolaris, we are waiting Medicare action on our reconsideration requests for coverage for non favorable intermediate and high risk patients.
Looking at our prenatal business, we're not assuming any positive impact from new guidelines for average risk testing or expanded carrier screening guidelines. We continue to work with both ACOG and a CMG on guidelines were support standard of care testing within the industry.
For the full year, we're currently assuming a gradual recovery in the business as we transition transition through fiscal year 2021, and while results will vary by test we hope by the end of the fiscal year. We'll have turned returned on average to relatively normal normalized testing environment.
While we are clearly seen a dramatic impact on our business due to the global endemic ultimately this will be a transient event. We can you believe Mary is well positioned to achieve scale within the personalized medicine industry and a number of patent pending business catalysts could further improve our profitability profile with that I'll turn the call back over to Brian discuss some of the key business highlights in the quarter.
Thanks Scott.
Now I would like to discuss some of the key business highlights in the quarter, beginning with our progress on gene site.
This quarter Medicare issued a final LCD covering pharmacogenomic testing, which became effective on August threerd.
There have been some misunderstandings around this LCD and I would like to highlight a few clarifying point.
First gene site is covered under the LCD as a multi gene panel and was one of the listed test in the coverage articles, which were recently issued.
Medicare is not requiring us to make any changes to the test in order to receive coverage.
As Scott mentioned, we received a new price for gene site for mode that we believe that the change in pricing along with the expansion of the market available for reimbursement will be neutral to slightly positive to our overall gene site average selling price.
Importantly, the new LCD expands coverage with the number of patients who will now be eligible for testing by allowing all licensed healthcare providers licensing qualified to diagnose the condition and prescribed relevant medications either independently or in an arrangement to order the test.
This enables expansion into the primary care setting where approximately 60% of anti depressant prescriptions are written in the United States.
Additionally, the new LCD does not require a prior medication failure.
Overall, why we while we are not aligned with some of the language in the LCD around competent oil testing where gene site is the only pharmacogenomic test that has demonstrated the ability to improve outcomes in a large prospective study the LCD provides us with a broader market opportunity for the product.
Based upon this LCD and coverage from United Healthcare. We are currently implementing our plan to expand gene site into the primary care setting.
We plan to complete the hiring of an additional 65 sales reps this quarter consisting of a mix of both direct and inside sales personnel.
We will strategically position these reps in markets with the greatest opportunity.
We also recently initiated a consumer advertising pilot focusing on social media in three key market in the United States.
Based upon the success of this campaign, we could implement further consumer marketing programs on a broader basis later in the fiscal year.
Dependent on the investments generating positive return on invested capital in the short term.
In early July we launched a new version of the test collection kit for gene site, specifically designed for home sample collection.
With the increasing prevalence of telemedicine broadly and in the field of psychiatry. This test kit as an important enabler for physicians, who will not be physically present with the patient during their visit.
Once the test is ordered by the physician the patient kit is designed to be easy to use with a clear process and step by step instruction.
The kit utilizes a buckle or cheek swab, the patient can use to collect DNA from the inside of their chief.
After collecting the sample the patient puts the swap into a confidential prepaid and pre addressed shipping envelope to return it to our laboratory, where it is paired with the healthcare providers order for processing.
So far we have seen high compliance with test gets shipped directly to the patient for the sample collection step.
Moving forward, we increasingly see an important role for tele medicine in psychiatry post the pandemic and we're currently working on strategies to capitalize on this trend.
This quarter, we also published a new study and psychiatric research demonstrating that gene site is superior to single gene testing at predicting blood drug levels.
The study evaluated 191 patients from the guided study who were taking either fatality DRAM or cut tablet program, which are routine first line treatment for major depressive disorder.
Current clinical Pharmacogenetics implementation consortium guidelines only make recommendations for citalopram based upon cytochrome P for 52, Cnineteen metabolize or status.
However, scientific evidence supports the role of additional jeans cytochrome P. For 50 to 86 and cited for NP 453, a four insight into tablet brand metabolism.
In the study using the competent toriola approach used by the gene sites like a terrific test identified more patients with decrease metabolism and common into Oreo Pharmacogenomic testing explained more variance in metallic pram blood levels when compared to single gene testing with almost twice the predictive power.
Moving onto our hereditary cancer business I'm pleased to announce that this quarter, we published two new important studies on our risk score tests. The first study with the validation of the Polyjet at risk score component of the test, which evaluates key single nucleotide polymorphisms in a variety of genes known to be associate.
Good with higher breast cancer risk.
The validation found that the odds ratio for developing breast cancer was 1.47 per unit standard deviation in the risk score translating to women in the top 1% of patients, having a threefold higher risk of breast cancer than an average risk patient.
The second risks or study was published in the journal of the American Medical Association network open and demonstrates the ability of myriads polyjet at risk score to improve breast cancer risk stratification in women diagnosed with pathogenic mutations in common breast cancer gene.
The study evaluated over 150000 patients and approximately 10000 patients who are carriers of pathogenic mutations in common breast cancer gene.
The study demonstrated that patients with high penetrant jeans, such as BRC, a one and BRC a two did not want changes to clinical management, however, breast cancer risks in patients with moderate penetrant jeans, such as check to ATM and Pat will be too could vary significantly warranting different clinical.
Management consideration.
For example patients with how be two mutation historically have been assessed to have an opportunity and approximately 50% lifetime risk for breast cancer.
However, after incorporating the data from the risk score test patients risk varied between 26% to 79%.
Myriad plans to launch the risks modification for check to this fall followed by additional gene.
Period has the only clinically validated risk modification tool and we believe this will further differentiate our market leading hereditary cancer test.
This quarter, we launched a new AI chat by name gene to support our hereditary cancer business, the chat bots and provide certain information to patients answering over 500000 questions and interfaces with our leading hereditary cancer quit.
Jean will enter actively engage individuals' online providing them with education about hereditary cancer prior to taking in online assessment to turn to determine if they may be a candidate for genetic testing.
For those who complete the preliminary assessment and meet criteria for further evaluation gene will automate a pre test process that sends and educational link that displays interactive multimedia content and gives the option to start a live conversation with a patient educator, who is a certified genetic counseling.
Gene can also assist in finding a healthcare provider we plan on launching the gene chat bought for our foresight and Prequaled prenatal test and for companion diagnostic testing in oncology later this calendar year and further integrating this technology into the patient work flow to reduce cost and increased test volume.
This quarter, we achieved a major milestone with FDA approval of microwave cdx as a companion diagnostic in first line maintenance therapy in ovarian cancer with elaborate.
We expect subsequent approvals in both Europe, and Japan during fiscal year 2021.
We are working with our pharmaceutical partners and local governments to make microwave cdx testing available to European patients.
And our prenatal business, we recently launched our proprietary amplify technology.
Which further increases the already market, leading accuracy of our Prequaled noninvasive prenatal screening test.
The proprietary amplify process works by preferentially sequencing be shorter cell free DNA fragments, which are predominantly associated with the fetus image in the maternal blood.
This amplifies the fetal fraction the percentage of DNA associated with the feed it in the maternal blood an average of 2.3 times and even greater amount in maternal blood samples with a problematic fetal fraction below 4% the cut off for many laboratories.
In the analytical validation of over 1000 pregnant women using the amplify technology no woman had a fetal fraction below 4%.
Our prequel test already had the lowest no call rate at one in 1000 samples and has validated to be accurate in high BMI women, which comprise 50% of pregnancies in the United States. We believe the amplified technology will further differentiate our noninvasive prenatal screening offering in the marketplace.
We also recently published a study in genetics in medicine, comprising over 93000 patients, which showed the challenges associated with ethnicity based guidelines for carrier screening used by both the American College of medical genetics, and the American College of Gynecology.
In clinical practice physicians struggled to implement ethnicity based guidelines for patients of mix descent, and approximately 40% of individuals do not know the ethnicity of both their paternal and maternal grandparents.
Following ethnicity based guidelines from eight Qoq and a CMG would have resulted in 77% of carriers of severe genetic disease being missed in the study.
We also recently received favorable medical policies from four major payers, including a top five payer in the United States for Prolaris in aggregate. These payers added approximately 26 million covered lives for Prolaris.
In addition, we received Medicare coverage for all prostate cancer patients for Bracanalysis Cdx and we're the only Germline test approved for this indication.
Finally with vector in July we also launched a new radiographic progression risk tool on the Vectra test for port.
We believe this new tool will provide an added value to physicians with the vector test.
We plan to launch the cardiovascular disease risk tool later this year at the American College of Rheumatology annual meeting.
I would like to finished by saying it has been a great honored to serve as interim president and CEO of myriad and I've been inspired by the dedication of our team to work through the challenges we faced in the second half of fiscal year 2020, I'm excited about what the future may bring for the company and look forward to working with Paul to return the company to long term.
Im growth and share and drive shareholder value consistent with our scale and positioning within the industry with that I am pleased to turn the call over to Scott for QNX.
Thanks, Brian as a reminder, during today's call we use certain non-GAAP financial measures a reconciliation of the GAAP financial results of 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 our kunaev session in order to ensure a broad participation in today's kinase session.
We're asking participants to please ask only one question and one follow up operator, we're now ready for the given a portion of the call.
If you'd like to register question you compress the one followed by the forward your telephone and you'll hear us retail prompt technology request. If your questions gift answer to your future. All you can press, one three and again Thats 140 queue up.
And the first questions from the line of Sun genome from BTG. Please go ahead.
Hi, Thanks for taking my question and welcome aboard Paul.
So my first question is on your telemedicine direct.
Wilson gambling strategy, it's kind of curious where you are robot in terms of what percentage of your.
Our.
Thank you bye.
What your capability.
The infrastructure.
Infrastructure Cumulus.
From where you are more Paul.
Yes, I'd add on I don't know off the top my head what the actual percentage of patients, but it actually got relatively high this quarter in terms of the patients that were taking advantage of kind of the telemedicine approach and not going and actually receive a test kit from the physician.
I've been working I think when we think from a strategy standpoint, and where medicines going.
Theres, that's obviously going to play an increasingly important role in the future. When you look at areas like psychiatry, where telemedicine lends itself exceptionally well to patient care Theres big opportunities for telemedicine and so we're currently we're looking at a number of strategies probably too early to talk about some of those but we definitely are evaluating a number of things in that.
Area.
And sung Ji I would just add I.
I think Scott point, when we first started.
Obviously gene site was was one of the first that we deployed and we were I believe we had said we were around 60% at the time that number's trail off to some extent as physicians have returned to the office, but an answer to your final question. There is certainly something that is scalable and we would be looking to scale that broadly going forward.
Great. Thank you formats, and then my follow up.
We'd love to hear any update on the private payers by 14 side, you're make little progress there or has the pandemic mobile more challenging.
Gross profit for.
Sure. Thanks for the question, Yes, I think that the plant pandemic has made a lot of things more challenging everyone is focused at this point I think really across the healthcare system on doing what's necessary for patients in order to to expand cobot testing into it and to get.
Patients into the physician office and get them the treatment that they need we're certainly continuing to engage with payers.
But not only payers, we've talked about PBM partnerships and other collaborations as well to look for ways that weakened further deployed gene site and get patients that are experiencing major depression, which is terrible to get them well. So nothing to report at this time, but but certainly I think the team as well engaged in and.
Yes, we certainly made progress through the year.
Great. Thanks.
Okay.
The next questions from the line Doug Schenkel from Cowen. Please go ahead.
Yeah.
Hi, guys good afternoon.
The.
With a.
Welcome Paul and.
I wanted to maybe too early to ask this question, but I wanted to get your take on.
This whether the combination or Youre addition to the team and what we've seen at the start of kind of.
Go over our evolution that the board level.
If youre additional and that trend in combination is likely to lead to some change in incentive structure and target metrics for the company.
Maybe it's too early to answer that question, but would love to hear.
There are changes that we've made in that sense.
Yes. Thank you.
Look it's a little too early to get into specifics, but I would say that the board and I and the time I've sat with the management team. Thus far are committed to really a bottom up.
Total review of our businesses our products.
And that would include looking at new Capesize.
And just following up the discussion on telemedicine and digital marketing opportunities I think there's a tremendous opportunity there to reach more consumers reach more physicians and we need to be build metrics around those new initiatives as well so.
I think in the month to come we'll complete our strategic review and I'm sure that out of that strategic review will Tom New performance indicators that there will be talking with you about.
As Brian said telematics is a good example.
These are opportunity for us to partner with people on the Tele medicine business and.
And what are the things I know that the new board members and I are excited about the entire boards excited about are having more of a partnership orientation to the broader of healthcare ecosystem something I've done a lot in my career and I'm excited to.
Move the team in that direction.
Okay Super helpful. Thank you for that Paul and I guess.
I'll I'll admit it completely unrelated follow up.
We're thinking about the council business thinking about reproductive.
It was a little bit of fall for fishing here, but the reality is is when we look at at least some of the public competitors out there.
You overlap with it does seem like you're continuing to.
Lose a little bit of shore.
The yield relative to our original target that certainly hasn't gone as planned thus far.
It's about some exciting new data and product characteristics.
That you think.
Bill.
Change that position I, just want to make sure that right you think what you've discussed on the call today in terms of.
The attributes of your reproductive products are going to Vietnam in combination with your existing commercial team, we're kind of turn things around or council.
Yes, Doug ill take that question, yes, certainly I think that.
We've experienced some challenges with the with the reproductive business.
Over time as we've as we brought that business into the fold of our women's health.
Infrastructure and we've invested in new tools ease of use and in some of the studies and the and there were readouts on those that we've talked about here today I believe the net of all that is that we believe going forward in that business as part of the women's health offering.
And believe that the team is perfectly capable of of playing in winning in that space.
Because we have great products, and we have great science behind it.
Okay Thats great. Thank you guys appreciate it.
Okay.
The next questions from wine Tyco Peterson with JP Morgan. Please go ahead.
Hey, thanks.
On June say volumes are covered 50% of compound Bonnet Creek pandemic levels everything else was 75. So why is volume recovery lagging and then can you just help us think you're the map a little bit more on why we said on pricing with multi ex that being a neutral as you kind of pushing the PCP channels is just that better line of sight on.
Higher pipe Apparels why would it be Nicole thanks.
Yes, Thanks, Tyco and I think the actual recovery for gene site was more in the 57% range I think that was misstated it was 57% so.
Still its lag where we've seen some of the others I think I think part of that is just we've historically focused on the psychiatry channel.
And so I think that it's just more channel driven than anything the nature of that interaction.
Just does not allow for as much and potentially as much in person person to person contact.
So I think thats, probably why you've seen some lagging there also theres a somewhat a lot I mean, it's not as there's somewhat of an elective nature to that in terms of having that interaction.
With respect to the gene site pricing.
Thank the reason why we made the commentary that we believe it will be neutral to slightly positive on balances is really driven by a couple of things first of all we run a significant number of test today are not insignificant number of test today for Medicare beneficiaries in the primary care channel that are not paid for and when you couple the expansion of the market.
Covered by Medicare along with a.
Price change that that is.
As is not so significant as to bring the overall numbered average down thats, how we get to a place where we believe it will be neutral to slightly positive.
Tyco, so not a larger number of Medicare patients will get paid for now and so we have a higher percentage of claims paid at a slightly lower price.
Got it.
And then a follow up.
Going back to Paul and the announcement and I'm just curious Paul your background at Kindred.
And the diagnostic space. So how do you think that kind of translates over into the diagnostic world and it would be helpful. Could you just your from your little bit more about where you see opportunity you mentioned telemedicine you mentioned more partnerships I'm just curious as you think about the business today, you see opportunity for more on the day portfolio reshaping how do you think about your first.
Job or so thanks.
Yes. Thank you.
Well first.
I think there's a tremendous opportunity for growth here and I was attracted to that growth opportunity through both discovery and innovation, but specifically.
I think myriad is an incredible platform to create a market leader in precision medicine.
My experience in and building adjacent businesses and cross selling and doing M&A, which you referred to as well.
Pretty very.
I would say that my private private equity experience, coupled with two public companies where.
Bought spun off merged successfully.
Through a hospital acquired Gentiva.
I would give you a sense of of sort of.
My historic ambitions for growth and expansion and again I think that platform here lends itself to that growth opportunity.
The the other thing I would just say from a personal investment thesis the the the underlying market.
For what myriad does and the great reputation for the products is large and growing.
That is a trusted partner as I did my due diligence and I'd like the economics of the business model and that I believe there are multiple levers for growth and margin expansion so pretty excited the here.
My experience.
Kindred and in multiple other segments.
I think gives me a pretty good background at a while a wide field of vision to help this team think more aggressively about where we can succeed but also to be more focused.
And I think Thats one of the things were going to examine through this strategic review to make sure that we're focused on those areas that we can win and be a leader in.
Great. Thank you very much.
Thank you.
The next questions from wine, Steve Hunger with Needham. Please go ahead.
Hi.
Just one quick question on.
I realize the volumes maybe difficult to.
Forecast over the next couple of quarters, but I wanted to understand clearly.
Your pricing.
Hi, good pricing negative impacts are for hereditary cancer in prenatal I'd say over the next two quarters.
Yes, I think that obviously, we didn't we weren't in a position to provide guidance either for the upcoming quarters or for the year I think what I would point you to is the is the qualitative.
Assessment that we provided relative to both of those products in that as we come to the back half of the calendar year and into next the first part of next calendar year, we'll lap some of the comps that we net the comps that really made for negative comparisons in previous quarter quarters, namely the hereditary cancer code switch.
And then the changes that we made in the prenatal billing area. So I think that those would be the biggest drivers of hereditary cancer pricing change as we look to the to the back half of the year calendar year and then also the other factor that's out there as the payment delay that was part of the cares Act those would be the things I think would be relevant as you as you think about.
Rhetoric answer it and prenatal pricing.
Okay, and then I.
I noticed that you have roughly 33 million deferred revenue on the balance sheet. This quarter, you discuss what's that related to and.
The carriers that.
Did you receive grant money.
From the care Zack.
Yes, we had said on the during the prepared remarks that we had received advance payments from Medicare as part of the cares Act. So thats what that that's what that.
Dollar figure relates to.
It was prepayment on future claims Steve.
Got it okay.
Thanks I appreciate thanks.
Sure.
The next questions from the line Puneet Souda from SVP Leerink. Please go ahead.
Thanks.
Paul first of all grid be onboard welcome.
Two into into the seed.
I appreciate your pods and industry and diagnostics oral and I know, it's totally early in these times.
But may be wondering if you can.
Just a share some thoughts on opportunities that you see having looked at.
Things here from a fresh perspective, and sort of looking in I mean, you mentioned focus is an important aspect here.
And you mentioned growth as well.
Could you just help us understand looking at the sort of the broader portfolio broader diagnostic space are there any bank is there anything that.
Gets you more excited versus others.
Yes, again look I think the company has.
Just great tradition, great reputation and most of bye.
Observations are outside looking in but.
Pretty thorough in terms of light diligence and my preliminary discussions with the management team reinforce my view that we have the opportunity to execute a lot better whether it's in our customer service and on our ease of use and solving to both physicians and the more consumer centric.
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We've got more opportunity to partner with payers.
And change some of the diet historical dynamics around that and sort of pricing strategies and we've begun to talk about digital marketing and tele medicine, and really re energizing, how we approach the marketplace from a from a sales and marketing standpoint, So I think theres a lot of opportunity there.
And the management team and I are excited to take a fresh look.
Top to bottom of the organization of where we can perform better at how we can manage costs better.
And.
Reprioritize, both opex and capital to new growth opportunities and.
Well my favorite People's strategies about choices, so thats, where the focus will come in as we go through that examination figuring out.
Which of those products and which of those markets. We think we will really can can lead in and and definitely down of those efforts.
That's great. Thanks, Thanks for that.
Brian if I could just.
Yet.
A bit of clarification cobot testing.
Could you maybe just I appreciate you could get to 3000 samples here per day, but could you elaborate pricing on that and wondering if you are accessing these samples yourselves are you getting these samples from another reference lab and actually running better turning the results.
Yes, Thanks Bonnie.
Right as we said earlier, we had we hope to get to about 3000 capacity because there's obviously significant demand in the market and you've read some of the struggles per cent for some folks in the market in terms of keeping up with with demand for the testing, which we think we'll we'll we'll continue to grow.
The relative to where we are today in the sample flow that we have obviously, we don't have a the type of logistics network build out for sample collection that many of the large reference labs and some others would have so at this point samples are coming in from from other restaurant. We are a reference lab for other laboratories and are also marketing it too.
Two other other.
Providers that would send a samples.
And we would build client bill effectively and so.
That's the way the processes work as work is working at this point does that answer your question.
Yes, Im just wanted to make sure that you are able to.
Extract the complete prices that's 100 dollar test.
Rather than.
Again that we appointed hung onto it would come into a it would come into a laboratory.
I would have session at Incented to us for testing, we would return the result to them. They would do the billing et cetera. So in that scenario you would not get the full build price you would get.
Some smaller amount that you had negotiated just for the process of running the test.
Got it okay alright, thank you.
Youre welcome.
The next questions from line of Derik de Bruin with Bank of America. Please go ahead.
Hi, good afternoon.
Paul Welcome.
A couple of questions. So the first one is.
The mall Dx pricing coming down.
How do you how does that impact your.
Potential from your commercial agreements.
How does is tied to your business and potentially impact due to get patron United or you are there any other.
Commercial contracts are negotiating.
Yes, so thanks, thanks Derek.
I guess, what I would say is it doesn't impact other commercial agreements. Obviously, we just re signed the United agreement back in January Theres, no impact to that contract and we don't have broad cup payer coverage at outside of that so I would say at this point Theres theres not really let's talk about there.
Got it and also on the United are you seeing increases in Preauthorizations Virgin site.
Just sort of wondering is.
Those ticked up just sort of talked about some of the.
How the uptick how the uptake has been through what the Preauthorization process.
Sure. Thanks Derek.
I would say in general for all genetic testing and in our space as you know the the use of prior authorization is the is the key is key for payers in it and at the process we have to.
Follow for for most all of our products and so.
There's really no change from what we've had to deal with historically there we have.
As you know anytime you go through something for a period of time, you adapt and you improve and your yield gets better and so I was I would characterize that as.
We continue to look for areas of opportunity to improve.
But theres no change or additional pre prior authorizations that have been and then put in place.
And Eric I would highlight we've been making progress on the United Prior authorization program in terms of getting physicians trained we did mention outside of the settlements a pair claims that we saw positive net cash flows for for gene site in the quarter. So I think thats an important.
Great.
Thank you.
Thanks Derek.
The next questions from line running Cuiaba from Jefferies. Please go ahead.
Hi, Thanks, good afternoon.
Brian just curious if you can speak to the added cost of the at home collection at Virgin site.
Yes.
Unit economics are materially different using that sample collection approach.
Yes. Thank you for the question, it's relatively straightforward, it's just a cheek swab and it doesnt at impact the cost of the test significantly I wouldnt consider to be material.
Branded from a kit fulfillment standpoint, we still Seneca to the physician's office as well such as different format of that gets to the cost of differences negligible.
Got you and it's hard to jeopardize salesforce expansion, because we reminded how many reps we have today.
And you ultimately envision meeting a partner to scale into that GP market and.
How do you think about future growth of that Salesforce beyond the initial 65 reps.
Yes. Thanks, I think is the numbers 165, yeah. The psychiatry sales team is about 160 165 ramp reps Brendan.
I think I think in terms of how we think about that going forward obviously.
Think when things it's important we talked about a mix of act of outside and inside salespeople, we talked about our digital initiatives in our direct to consumer initiatives. So I think at one of the things that you will see and as we start to evolve our thinking some on the sales side is just how we interact with the consumer and our cause our physician cost.
Summer So I think over time, yet, we'll just continue to app to evaluate.
Our salesforce and how we're positioned in the market how is how we go to market.
Thanks.
The next questions from line of Jack when from Nephron Research. Please go ahead.
Thank you and Paul Congratulations on the new role I'm looking forward to working with you again here.
Yes. Thank you.
Wanted to go back to gene site. So previously your pricing was around $2200 per test.
What do you expect your average collection per patient will be under the new policy.
Yeah, Jack we're not providing that level of detail.
The price actually was a little different than what you stated there for the actual Medicare rate as well and so but we did I get into the double the detail around pricing in our coating for the time.
Okay.
The language in the LCD document suggests that there's going to be additional documentation required for physicians to justify the genes that they're ordering and you've heard us some feedback that that could cause some.
Challenges in order to.
Ordered the test just curious what you're doing with the sales team.
And that to make sure that doesn't become a burden.
And what's your plan or you're going to stack multiple codes for each test breached the genes that are required.
Yes, Thanks, Jack for the question and welcome back.
Glad to have you back out of rank unifying area, yes, the what I would say with respect to the sales team and.
Excuse me with respect to how were our billing for the for the product as.
We have we have.
Agreed with Medicare on the price and so I think at this point just a follow up on your last question.
We've been given clear instruction in terms of how we'll bill so with respect to stacking codes are billing for a single test et cetera.
We have clear direction and pricing from Medicare say really no change there I think fit relative to the other point. There is anytime you see a change in the requirements for the physician there does tend to be disruption and training that you had some training that has to happen to add new.
Ones on exactly how they should be.
How they should be complying with the requirements and following the requirement that the LCD, so thats pretty normal, but it's also something that I think the team has become pretty adept at navigating that process and so if it's not surprising that you would have heard about some disruption as this is relatively new its was in August threerd effective date.
But it would be something that I would expect the team would be able to two to work through.
Injection or Preauthorization standpoint, it's really the requirements of just changed bread previous previously we had really show that the patient had failed medication previously and that they had treatment resistant depression and provide documentation around that the new documentation requirements are more around showing that the physicians considering medications that.
That.
Follow multiple gene drug interaction pathways, and so we're just providing really a different level or different type of documentation.
Got it thanks for squeezing one follow up you mentioned the combination of these factors should be neutral to positive just to make sure. We're thinking about Iran. What's the baseline you're using is that relative to the $74 million revenue in 2020 are you, referring more to the relative the size of the market.
Pcps.
Versus the price decline and that combination Im just what were you referring to with neutral to positive.
Yes, I think what when we said neutral to positive. We were we were talking about that with respect to how the market will look going forward. That's a combination of the updated pricing from mold that along with the expansion of the LCD and the primary care segment as we mentioned on the call earlier, there's a population of test there that we.
Brian historically and gotten zeroes for that will now be covered so theres and theres a number of things that sort of go into that but our expectation is that the net of all that is.
Is neutral to slightly positive on the overall gene site ASP.
Thanks, Brian.
Thanks Jack.
Thanks.
There's no other questions at this time I'll turn it back for any closing remarks.
Thanks.
This concludes earnings call a replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.
That will conclude the conference call for today. Thank you for your participation you may now disconnect your lines.
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