Q1 2021 Myriad Genetics Inc Earnings Call
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Greetings and welcome to the myriad genetics first quarter 2021 financial earnings call. During the presentation. All participants will be in all the snow only mode. Afterwards, we will conduct a question answer session at.
At that time, if you have a question. Please press the one followed by the four new telephone should you require operator assistance at any time, Please press star zero as.
As a reminder, this call is being recorded today Monday November nine 2020.
I like to turn the conference over to Scott Gleason VP Investor Relations. Please go ahead.
Thank you good afternoon.
Welcome to the myriad genetics September quarter 2020 earnings call. During the call. We will review the financial results that we have released today after which we'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 <unk> Dot com.
I am Scott Gleason, Senior Vice President of Investor Relations and corporate strategy and on the call with me today will be Paul Diaz, Our President and Chief Executive Officer, and Bryan Riggsbee, Our Chief Financial Officer. This.
This call can be heard live via webcast and Marriott Dot com.
A recording will be archived in investor section of our website at.
In addition, there is a slide presentation pertain todays earnings call on the investors section of our website.
We filed has been filed on form 8-K. Please.
Please note that some of the information presented they can may contain projections or other forward looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from these expectations for a variety of reasons refer you to the documents the company files from time to time with the secured.
No change Commission specifically the company's annual report on form 10-K, its quarterly report on form 10-Q, and its current reports on form 8-K.
These documents it out of my important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking <unk> with.
With that I'm pleased to turn the call the phone.
Thanks Scott.
I'm excited to be here with all of you today to talk about myriad genetics and our transformation journey, our point of departure and path forward.
The company just delivered a strong quarter I'm proud of the execution of the team.
We are already making early progress on our strategic transformation and growth plans I look forward to sharing some of those highlights with you today.
I want to thank Brian coal, Mark and the entire management team for their hard work and dedication.
We managed to another difficult quarter COVID-19 related operational challenges.
I also want to acknowledge their support over the last 13 weeks to help me get up to speed.
I came to myriad genetics, because I believe in our mission to improve and transform lives by unlocking the power of genetics and empowering patients for the information they need to control their own health and wellness.
At the same time, we continue to provide health care professionals with clinical grade genetic insights to better diagnose treat and prevent diseases.
Our mission is more relevant than ever.
Particularly as we address the need to increase access to health care and reduce social economic and racial disparities in health care outcomes.
To protect in advance that mission, we must adapt to the realities of our market.
We must become more customer oriented and less complex more.
Outward facing and collaborative to better serve the patients and physicians who rely on us.
We have started a three phased transformation process of resetting our operational and financial base.
Refocusing our business.
And working hard to grow.
Before we move to go into more detail I want to take a second to recognize and thank our 2700 dedicated.
<unk> Marissa teammates across the company.
Two our lab personnel working on site to deliver timely test result.
To our people in the field and across our businesses, we're teaming up to find innovative ways to serve our customers and keep our operations running smoothly during these challenging times.
Incredibly thankful for all of your efforts.
As we look across health care, we see significant growth opportunities patient populations with pressing needs and strong demand for innovation solutions and services in women's health oncology and mental health.
Health care spending in these areas is significant and there are efficiencies to be gained through new partnerships and collaborations and leveraging technology.
And we see that patients providers payers and health systems are looking to apply the power precision medicine to better achieve better outcomes at a lower cost.
After several months with myriad genetics leadership team I'm confident that we can position to expand our leadership in genetics.
Ocular diagnostics in precision medicine.
We have a large and growing U.S. market opportunity.
Personalized genetic data.
Virtual pets consumer trends are converging to change traditional models of care.
The economics of molecular diagnostic support sustainable long term growth and profitability.
We have many opportunities to elevate our products to their full potential.
Mary performs about a million tests a year today, we have the opportunity to grow this number meaningfully by improving our commercial capabilities increase.
And creating a better customer experience.
So we can bring the health benefits our products to more people than ever before.
We have a respective portfolio an internationally recognized scientific know how.
But we do need to reduce complexity and cost and be more focused on execution and operational excellence.
We're now the start of a three phased transformation journey they.
Phase one is underway as we reset our base continue the cobot recovery priority.
Prioritize product innovation.
Bring operating expenses in line with revenue deploying new commercial models and reduce complexity and costs.
In phase two after completing our strategic operating reviews and launching our transformation plan.
We will refocus the organization around key growth initiatives and enhance our reimbursement and revenue cycle capabilities to improve our financial performance and increase shareholder value.
In phase three with a stronger foundation of financial commercial operational and technological capabilities, we will work to accelerate growth as it.
As we invest in new innovation research and build commercial tools to support new products and begin to consider M&A.
As part of our transformation plan. This afternoon, we announced that we are exploring strategic alternatives for the myriad RPM business unit, which conducts contract research services for the pharma.
Logical industry, and our dermatology business unit, which markets the mypath.
Diagnostic test.
Well, we strongly believe in the growth opportunity for these businesses. They are not core to our long term strategy and have minimal synergies with the rest of our portfolio.
And a part of the internal complexity, we're trying to work through.
We've had multiple inbound in indications of interest on both businesses from strategic and financial buyers and we are confident in our ability to divest them evaluations, we believe will be attractive.
I'd now like to discuss the four point roadmap. We are following to guide the execution of our strategy.
It starts with putting patients and customers first in all we do.
In my experience at organizations prioritize the customers and people they serve above all else growth and positive business results.
Totally follow.
Second we will build customer centric technology enabled commercial capabilities that can day our value proposition.
Allow us to play offense in positioning.
Ramp up consumer and digital marketing and support frontline team mates with enhanced virtual sales tools.
Third we will elevate our existing product to their full potential by increasing awareness access and differentiation, we reinforce the clinical utility.
And maximize cross selling and synergies across the portfolio.
Fourth we will focus on creating new avenues for growth organically developed and potentially acquired products through new capabilities, such as direct to consumer models partnerships and look to unlock our extensive data set.
With that background in mind, let me just share a few examples of things we are driving a change.
Using IP to simplify the way, we do business with patience and interact with physicians.
We are enhancing our customer interfaces like a myriad complete suite of services that guides patients, who the genetic process and helps physicians optimize care plans.
At the same time, we are streamlining customer interactions to ensure a more seamless experience.
New product portal for the Myrisk hereditary cancer test facilitate better patient education.
Easier ordering preauthorization and results delivery.
In oncology and women's health, we just launched the ability to provide patients with timely transparent out of pocket cost estimates as well as automated support.
Where to get a blood draw or how to arrange an at home visit.
And Tele health virtual care networks are moving into the mainstream and becoming increasingly important especially in areas like tell of psychiatry.
We signed our first Tele health collaboration this quarter and now 30% of our genes I'd samples ordered by providers have sample kits directly shipped to the patient.
We expect this metric to increase as we expand our direct to patient marketing.
Similarly, Myra sample collection and testing kits are now being sent directly to patients homes or to doctors' offices with a click of a simple online request.
We are expanding patient education with the online my gene history questionnaire that compares personalized family cancer histories with national gas guidelines to determine the patients qualify for testing.
I ate driven tool is integrated with MRF and offers a personalized workflow.
Mental health, we are working to improve the gene site order experience.
And workflow scenarios are now simplified reducing friction between Medicare and non Medicare orders, ensuring compliance with commercial policies.
As a result, we are seeing a 30% reduction in time order across all order types.
Another way, we are driving patient engagement and demand is by strengthening our online presence and digital marketing.
We recently completed a refresh of the myriad corporate website to improve the visitor experience as smooth the path to our product sites and tools like the hereditary cancer quit.
By way of example.
Nearly 1 million patients showed interest in there rather carry cancer cwis last fiscal year, but less than 3% of our patients who take the quake quiz and meet medical criteria end up getting a test.
So there is significant opportunity to drive lead conversion from so low single digit double digit rate.
We have customer relationship management and funnel management initiatives under way to capture this opportunity and help more patients through the testing they need.
Another area, we have identified to optimize revenue is to reduce zero payments on tests across our portfolio.
Many of our test we performed today receive zero reimbursement from commercial payers or patients.
We see ways to reduce this number over time and we've already undertaken several initiatives with our commercial leaders we're focused on this opportunity.
This includes future launches internally developed Preauthorization software.
AI tools for prioritizing claims for appeal.
And introducing ease of use features to product portals to streamline the ordering process.
As we complete our strategic reviews, we are gaining external feedback from our third party consultants as well, including Bain Avalere, whose research initiatives are providing valuable customer insights on our product positioning pricing brand equity service and satisfaction levels. These insights are.
Being leveraged in the development of our new commercial plans.
We are working to develop broad consensus with our board and management team on our path forward.
To reinforce myriads position as a leader in genetics in precision medicine.
I'm confident in our ability to better execute and look forward to sharing more with the investment community in March of next year at our planned investor event.
Now I would like to turn the call over to Brian to discuss our financial results for the quarter.
Thanks, Paul.
Please provide more information on our quarterly results and our financial outlook.
This quarter, we reported total revenue of $145.2 million, which increased 56% sequentially based on a recovery in elective procedure trends and improved execution.
We saw total test volumes increased 40% sequentially. We ended the quarter with total test volumes, reaching 90% of pre COVID-19 levels compared to 75% at the end of the June quarter. Importantly, we were able to demonstrate the significant leverage in our financial model as we increase revenue and focus on cost reduction.
This quarter, our adjusted operating income increased by over $30 million sequentially and we see further leverage in the future as business trends fully normalized and we execute on our transformation plan.
I would now like to discuss the revenue for our products starting with hereditary cancer.
Thank you Terry cancer revenue in the quarter was $80.6 million versus $104.5 million in the September quarter of last year looking at the components of growth total test volumes declined 21% and average selling price declined 3% we are.
We're pleased with the stabilization we've seen pricing as we continue to focus on our revenue cycle management from.
From a volume perspective, we ended the quarter with total hereditary cancer volumes, reaching approximately 80% of their peak over 19 weekly run rate.
In mental health gene site revenue in the quarter was $11.9 million versus $22.7 million in the September quarter of last year.
Looking at the components of growth test volumes declined by 28% year over year and average selling price declined by 27% year over year.
From a volume perspective, we saw total gene flight test orders increased 61% sequentially and we ended the quarter with total gene site volume at approximately 75% of pre Cove in 19 levels.
Excluding the impact of one time pay recruitment and the establishment of a payer reserve gene side average selling price was flat on a sequential basis as anticipated following the implementation of the new Medicare LCD, which took effect on August threerd.
In women's health prenatal screening revenue in the quarter was $16.5 million compared to $23.5 million in the same period last year.
Test volumes in the quarter increased 7% year over year from a pricing perspective average selling prices declined 34% year over year. We believe several factors are position to begin improving prenatal pricing as we move into calendar year, 2021, which I will discuss in more detail later in the call.
In the area of auto immune in rheumatoid arthritis testing vectrus revenue in the quarter was $9.1 million versus $11 million in the same quarter last year.
Extra volumes declined 3% year over year and pricing declined 14% year over year Vectra.
Vectra volumes in the quarter increased to approximately 90% of their pre COVID-19 run rate by the end of the quarter.
In urology Prolaris prostate cancer testing revenue in the quarter was 6.5 million, which was flat year over year.
Polaris test volumes declined by 13% year over year and pricing increased by 13%.
We did see a significant increase in other revenue this quarter predominantly based on approximately $5 million in research revenue and milestone payments for our Mychoice Cdx companion diagnostic product, we're not anticipating this level of revenue to persist in future quarters. So please take this into account for your models I would.
Now I'd like to discuss our financial metrics for the quarter adjusted gross margins were 69.8% and increased 890 basis points sequentially based upon better fixed cost absorption relatively stable pricing and better cost management.
Total adjusted operating expenses in the quarter were $113.4 million compared to $129.5 million in the September quarter of last year, a decline of $16.1 million.
On a sequential basis total expenses increased by 14.4 million under our expectation of approximately $20 million.
We have completed an initial evaluation of our expenses and have identified more than $40 million of annualized cost reduction.
These cost savings will take effect starting in December they will be partially offset by approximately $20 million in strategic investments in customer experience marketing information technology and other initiatives that are critical to our strategy.
Adjusted earnings per share were a loss of 15 cents for the quarter based upon higher revenue and lower than anticipated expenses.
This quarter, we made a decision to change our methodology for calculating adjusted earnings per share, where we fully tax the add back of amortization of intangible assets associated with acquisitions.
This negatively impacted non-GAAP earnings in the quarter by by five cents and we will make this adjustment as we report prior period financials as well.
For reference this change when applied to the fiscal year ended June 2020, the total impact of the change would have been.
Negative 22 cents.
We ended the quarter with $225 million outstanding on our credit facility and $191 million in cash and cash equivalents.
Due to the uncertainty associated with the current environment Koranda virus Pandemics, we're not providing guidance for the December quarter, which will end the six month transition period prior to the start of fiscal year 2021, we have seen a flattening of volume trends relative to September quarter levels. Following the increasing to over 19 cases and this quarter.
Approximately $5 million of Mychoice Cdx revenue tied to research and milestone payments will not be repeatable repeated in the December quarter.
From an expense standpoint, we anticipate total operating expenses to increase modestly on a sequential basis the impact of our $40 million of annualized cost reductions will be phased in over the next nine months and will become more impactful in the first half of next year.
Now I'd like to discuss some of the recent business catalysts, we have seen beginning with our women's health business unit.
This quarter, we saw several key reimbursement wins, which should translate into higher pricing for prenatal test.
The first was the guideline recommendation by the American College of Gynecology, recommending noninvasive prenatal screening for all pregnant women.
This is an important change as over half our frequent test volume was comprised of average risk women and often these samples resulted in zero pace. This is expected to improve average selling prices as payers adopt these guidelines.
This decision coupled with the launch of our proprietary amplified prenatal screening technology, which allows more women to receive highly accurate tests and avoid invasive procedures should have a positive impact on test volume growth.
Additionally, we saw positive medical policy decision on expanding carrier screening from evidence Street, the Blue Cross Blue Shield Tech Technical assessment organization Blue Cross Blue Shield affiliate plans to follow evidence Street comprised approximately 25% of commercial lives.
We have already seen five Blue Cross Blue Shield plans uptake their medical policy to pause to reflect this new decision.
Typically our contract pricing for the expanded carrier screening code is higher than our current rate. So this could favorably impact prenatal average selling prices over time.
Next I would like to discuss our mental health business.
This quarter, we received the final LCD for gene site, which took effect on August 3rd while the overall pricing is lower on a per test basis. The improved coverage led to flat average selling prices relative to the June quarter, excluding payer recruitment and the establishment of the new reserve.
Moving onto our oncology business unit, we have made significant process progress with our companion diagnostic tests.
We have started to receive mychoice cdx samples from Japan, following Reg regulatory approval of mice, we cdx to be used as a companion diagnostic for Olaparib. This fall.
With Bracanalysis Cdx, we also received regulatory approval in Japan in late October for new indications in pancreatic and prostate cancer.
Overall, we are increasingly confident in the ability of our companion diagnostic test to be an important growth driver next calendar year.
I would also highlight that the German federal Joint Committee or GBA recently approved reimbursement reimbursement for Endopredict breast cancer test in Germany with reimbursement expected at the start of next calendar year Jeremy.
Germany has the biggest user base of Endopredict clients and consequently, we believe this will increase endopredict revenue going forward.
Finally, I would like to emphasize recent corporate governance improvements we have made following discussions with shareholders. Following our annual meeting in December two thirds of our board members will be new bringing fresh perspectives and industry experience in areas like managed care, new product development and information technology we.
We have realigned executive compensation to ensure that it matches shareholder interest now now 70% of bonus compensation is directly tied to achieving revenue and operating income objectives for our executive team and 50% of shares our performance based shares tied to earnings per share target and total shareholder return objectives.
We have also realigned our fiscal year to coincide with the calendar year. Consequently, we will have a six month transition period, ending December 31 2020.
Our new fiscal year 2021 begins January one 2021 and runs through the calendar year.
Based on the significant changes made by the board myriad is now positioned as an example of strong corporate governance, reflecting industry best practices and incentive structures that are aligned with the interest of shareholders and other constituents I.
I would now like to turn the call back over to Paul for closing remarks.
Thanks, Brian again, we are in the early stages of our transformation journey.
As we move forward, we are committed to increasing transparency and accountability.
Our management dashboard will focus on the expansion of our mission the strength of our culture and teammate engagement.
Patient safety and service excellence.
Innovation.
Mission C and productivity and top and bottom line growth.
As I wrap up I want to come back to our 29 year mission to transform and improve lives.
It is at the heart of everything we do.
Energized by it and our people are excited our customers want us to win.
We've got a lot of work in front of us, but we're off to a solid start now.
I look forward to sharing more with you in the coming calls.
Thank you for your time and attention today, and I will turn it back to Scott for your questions.
Thanks, Paul as a reminder, during todays call we use certain non-GAAP financial measures a reconciliation of the GAAP financial results to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found on the Investor Relations section of our website now.
Now, we're ready to begin our Q and a session to ensure broad participation in today's Q and a session. We're asking participants to please ask only one question and one follow up operator, we're now ready for the cash portion of the call.
Certainly thank you if you would like to register a question. Please press. The one followed by the four on your telephone you will hear us retail impromptu nobody to request.
Your question has been answered and you would like to withdraw your registration. Please press the one followed by the Sthree.
One moment please for the first question.
First question comes from the line of Doug Schenkel with Cowen Your line is open.
Hey, good afternoon, guys. Appreciate you taking the questions. So maybe just to start on the timeline for the strategic assessment of RMB and the dirt businesses.
At what point do you think that that all reach a conclusion and then kind of building off of that are there other strategic changes still being contemplated or is the fact that these two were announced today does that does that suggest Paul that at this point the portfolio is kind of at the point, where you would expect it to be for the foreseeable future.
Thanks, well look as as we promised as we are moving forward with our strategic operating reviews and engaging our board and the management team.
In evaluating all of our products all of our business unit and we'll talk.
Talk about this in some other context, it became pretty clear to us that the RPM unit.
Mypath were not part of our long term strategic plan. So.
We are we are moving forward with.
Strategic alternatives with both of those products. So there shouldn't be any ambiguity and that the only ambiguity is the timing to a close and what valuation will be able to achieve.
Yes. The timelines are intended to suggest as we talked about on the last call that we will update you as quickly as possible. We continue those reviews.
And.
Were 13 weeks into this process, we've engaged Spain in Avalere data to help us into the deep dive.
And over the next few months and certainly hopefully by March.
Referred to earlier, we'll have a sort of complete sense of kind of our go forward transformation plan, but along the way. We're we're finding a number of different ways to execute better and perform better and some of those I've tried to highlight in the presentation and we can kind of come back to it.
Okay, No thats, great Paul and thanks. Thank you for that obviously a lot of progress made in a short period of time.
Maybe just for a quick unrelated.
Unrelated follow up.
I think Brian.
Brian in his prepared remarks indicated that.
Volume was back to.
80% of levels from last year, when you analyze volume trends by account.
At this point do you think.
Your share position in existing accounts is stable and at this point that getting back to 80%, which is which is really nice recovery do you think that that is indicative of really what's going on in the market and then also a sign that at this point Youre your share position is pretty stable.
Well, our I think our share position is stable, but I would say there is nothing stable on the operating environment that we are in.
We're quite pleased that the recovery, but as Brian referred to we have seen I think some of our peers has seen.
Things level off and the recent spike in KOVA cases, and hospitalizations gives me.
Some pause about what the next couple of quarters will look like quite.
Quite frankly after this quarter I don't intend to talk about creep pre coded levels ever again. This is sort of our new baseline and we're going to grow and build from here, but I think the next two quarters are going to be choppy as a consequence of what's happening.
In Cove, it and the rest of the healthcare system and as we execute on our new sales models, new commercial strategies and cost reduction plan. So.
We're feeling pretty good about directionally, how all this will come together.
Particularly as we start thinking about the second half of next year, but I think the next two quarters are going to likely be.
Unpredictable and we want to be prepared for that.
Hey, Doug I think focusing I would add good hopes are that there is is that we.
When you talk about what we're seeing in the physicians offices is you're probably that 80% is sort of an average number you're probably seeing a little better performance and recovery on the oncology side and a little bit below that on the preventive care side as you see elective visits are still probably not back to the level, where you see affected patient. So there is a bit of a.
Split there, but that's that's where we're at in total the billions and now I'll just add one more thing, but you know we're digging into which.
Which of our sales teams are really performing in this environment and which are our folks are underperforming in this environment and trying to figure out how to do more of the former and less of the latter and so.
Yes, we think there are opportunities to execute better and drive better performance.
But the backdrop is murky and.
But we're pleased that the opportunities were finding and and and I am really pleased at how hard everyone is working and how everyone is embracing change quickly.
Thanks again guys.
Thanks, Doug.
Our next question comes from Steve Bunker with Needham.
Lunch.
Hi, Steve Thanks.
Hi.
Yes.
Two questions really I just want to touch on the last question as far as cost savings.
Could you give us a little bit more color on where where that's.
Where the focuses and myriad is.
Particularly.
Heavy on on reps.
And you talked a lot about more technology, driven marketing and and I wanted to understand how that impacts.
How you're deploying your sales force.
Yes. Thanks, Thanks, Steve I'll start and Paul can chime in I think relative to the the overall cost review I would say its been holistic in nature, you know as we've looked across the business really to try to gain efficiency in any area that we can certainly given the size of our of our.
Sales and marketing costs relative to total thats been a focus area and what I would say the areas.
The focus has really been on been Paul alluded to it a little bit earlier in terms of focusing on where we have performance and don't aren't seeing performance taking action in those areas and really looking at how can we how do we think about how this selling infrastructure evolves over time, you're perhaps be less intensive in some of those.
Areas, where we have been historically and more focused around digital and some of the other technology. So that'll that'll that'll play out over a longer period of time I would just say that our costs.
Our cost review as been holistic and really touched every area of the business yes.
Yes, and look I would just add we've got a lot of talented salespeople out and and but we're in a different world today patients and physicians are engaging in a different way and weve under invested in the tools to enable that the team has been doing a lot of work here over the last few months.
So I kind of tried to highlight that in the presentation a little bit.
We trust trying to eliminate a lot of the friction of a referral if you will and the conversion and I referenced in the digital engagement their hereditary cancer quiz till two only get a 2.8 conversion on a million people taking the test.
That's an opportunity and so.
I think that we want to empower our salesforce with the tools to enable them to work more remotely and the way physicians are working today.
And that there is great opportunity sort of a direct to consumer we have to build all these capabilities to to lean into that market share opportunity, but they get a shout out to our tech teams and others, Yes, theres some great work happening and it's happening quickly and we're pretty excited about that.
And so I do think that as.
As.
Brian said.
Everything's on the table in terms of cost and everything has to prove itself to have an ROI.
And that there isn't any area of the organization that we are taking a hard look at to make sure that we're getting the ROI on that opex.
And then just a follow up as far as the mental health franchise.
Are you currently or are you expecting to continue with plans to build.
The sales force there and do you envision.
And I know it's early in your strategic review potentially selling other tests other than gene site in mental health.
Well we have.
A franchise, there and an opportunity in mental health given the market dynamics that we havent taken advantage of and executed on so we're we're in a lead position there.
And Mark and the team is working hard we work through the LCD and other things, but but on the first part of your question, Yes, we did not.
We reduced some of the sales reps there and have replaced some of that sales rep investment and gene site with some new digital tools and we're starting to get traction on that the next couple of quarters as we move from a sales rep heavy focused sort.
Sort of as Doric model to a more consumer centric digitally enabled model.
There are execution issues that we'll have to manage through there, but so far so good and again I think our teams are embracing both the higher level of performance expectation and the need to embrace these new tools.
Got it great. Thank you.
Sure.
And as a brief reminder to all to register a question is one four on your telephone Keypad next question comes from Taco Peterson with JP Morgan Your line.
Hi Tech.
Hey, good afternoon.
I'd like to start with pricing.
And take down 27, hereditary down 34 vector down 14 can you just talk a little bit about where we are in the cycle on pricing for each of those and how you. How we should think be thinking about pricing going forward.
Yeah, I think it's just a couple of comments and first of all every one of those is different.
Yes, I think from her in terms of hereditary you saw that down 3% in the quarter I would say we've seen some state stabilization there as we look at the prenatal products.
You might recall that I think this was the December quarter last year was the quarter, where we really had a significant impact from the billing transition that we would expect a lap that as we go forward. So obviously thats a big headwind when we look at it year over year. So I think each of the the products are are different and have their own narrative, what I would say is.
Paul and I, both have a singular focus around our revenue cycle, how we can make improvements in that area and believe that you know once you. Once you get to stable then there is a path towards making improvements and with things like zero pays and other and other parts of the Rev cycle equation that we have some.
Opportunity to make to make improvement in that over time.
Yes, and looked at all I would add again 13 weeks and that this is a very nuanced issue I mean from negotiations with commercial payers.
Two interactions with the government and others.
There are all as Brian just identified.
There are a lot of operational issues sort of self.
Flicked did issues in terms of Rev cycle conversion on around no pay that.
The amount of no pace has been a big surprise to me and so.
That really affects ASP and so we are.
Again, just a few weeks into really starting to dig in and how we can better.
Better execute on that I.
I think in the next couple of quarters will will be further along in our in the pricing review and the strategy. We are doing with Avalere consulting and vein on what our pricing strategy could be but.
I think.
We see and expect to see continued pricing pressure as a macro event over the next few years, but our ability to influence a more stable pricing regime and drive more.
Volume and leverage through our PML with with volume growth I think is significant so.
And early here. So we're it's going to take us a little more time to two to work through that but we do see some opportunities here to stabilize pricing and again leveraged at PNM, but that you saw this quarter has a lot of leverage in it.
Okay and then on the.
Near term I think if we go back to last quarter, you said you'd exited about 75% of pre cobot volume and obviously you came in above that 90% overall, how much of that was recapture versus new demand and any color you'd be willing to provide on October and November as we kind of think about cases going back up again.
I think it's a combination I mean I saw we saw in jeans side I'll like 1300, new physicians ordering.
Insight.
And so.
Again, I think I think our sales teams have gotten out there aggressively now that they've had more access to physicians offices I talked about our pivot to more home based kits and more tele health, we're seeing great movement, there, but were again in the early.
Early innings of adopting new these new tools and physicians are in the early innings of adopting this so.
I think we'll have more to say about this in the next several quarters.
And I said as I said earlier I would expect modest if any improvement from the current level over the next couple of quarters, given what we're seeing sort of flattening and the cobot headwinds that we're seeing across the country right now.
Okay. Thank you.
Thanks.
Next question comes from Puneet Souda with Leerink Your line is.
Hi, Paul Thanks.
The question so.
Appreciate that you're a few weeks and.
Looking across a number of end markets and businesses, maybe just the first one in terms of.
Larry where the sales rep accesses stands currently.
Given the covert timing given given the resurgence here maybe can you just give us a sense of where.
Which areas you are finding sales were up access is a little bit better versus others. I mean, we're seeing that cancer odds, especially on the oncology and the rep access is not as robust as it has and the virtual calls are happening more still so maybe just give us a sense there and then I had a follow up.
Yes, honestly I can't.
Cross all the products.
We'd be here 30 minutes kind of trying to give you a sense of all of that.
Because I think it is different and I think it's different in different geographies as well. So maybe we can try to give you more color that offline.
I'm not sure I can help you much there I mean, we're we're making progress and across all fronts that it is varied across products and extend across different physician groups.
The more important point I think is that people are continuing to adopt to a new world of Tele health at home base order kit and we're trying to accelerate those trends in terms of our model.
Okay.
And then.
One question that I have is again, something maybe you have employed in past as well in other companies where.
You have driven change maybe could you talk to us about DTC and whats the role of DTC that you see or direct to consumer advertising. So we're seeing an increase in the DTC spend for jeans side and just wondering.
How you view DTC overall for other products and the spend on that going forward.
So as Brian mentioned, we've got about $20 million of investment.
That is and reposition from other places I mean essentially were.
We're we're we've reduced $40 million of expenses and look this is hard stuff there theres people behind some of that and we're we're we're trying to make sure we're taking care of our teammates and and protecting our business.
But that is a redeployment of.
Corporate resources, a lot of those reductions were in flattening the organization and looking at the support areas.
And aligning the support services closer to the business unit and the products and looking at.
You can accumulate a lot of layers over the years and then so we're taking.
Some of those savings and that $20 million represents some of the things in the slides that I tried to give you. Some examples of high key to facilitate the portal.
To facilitate order entry to reduce no pays.
To be able to collaborate more with tele health providers and physician groups out there.
As well as to you know this low hanging fruit on on the on the hereditary cancer quiz I mean, I'm just an operator I just looked at that and that made my head explode and so you know to to figure out how we convert.
289000 qualified leads.
Into better than a 2.8% conversion seems to me like a great use of resource and time, so weve deployed a number of of.
Of our genetic counselors to that effort.
We can back out to those patients.
And so it's a lot of blocking and tackling right now but to go back to your broader question.
We are taking a very hard look across our portfolio and we think I believe there are significant opportunities for us to drive direct to consumer and women's health oncology and mental health.
And that's part of why we're really excited about those areas.
And maybe I didn't clarify that by direct to consumer I meant that advertising spend is going up on jeans side, that's what we're observing so.
So is it fair to expect that that is something you are looking at closely as you pointed out and.
I think thats. Thanks, Margaret I think I think I, just said that no. We're we believe there are we're still trying to make sure we make wise investments, but we believe preliminarily and we're working through this and again leveraging bains expertise across health care to help us figure out how to do this but we believe there are significant.
In opportunities for us to move away from a pharmacy sales rep model to more of a direct to consumer direct to physician to influencers.
Based on it.
Based on a digital strategy and so were 13 weeks into really that examination, but I think you should expect more investment in direct to consumer across all of our product lines.
Yes, that's great I appreciate it thank you.
Sure.
The next question comes from Derik de Bruin with Bank of America Your line.
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Hi, good afternoon.
Hi couple of questions Hey.
Forgive me if I missed this but.
Are you are you going to start including stock based comp back into your EPS calculation I mean, the company made a decision a couple of years ago to exclude it.
And.
Given the fact that companies established and not an emerging growth company, which can be ignored makes good I'm. Just wondering if you are going to continue to put to put that back into the numbers and thats whats. Your most of your established peers do diagnostics space.
That is not something we've talked about I think you saw this quarter, we took a number of different steps to try to create more visibility on the financials and clarity into feedback on.
On our calculation of adjusted EPS.
Taking a more conservative position on our reserves and other things. So I mean, we'll continue to look at everything.
But Brian and I are engaged in a pretty active I'm.
Im not a good accountant, but I used to be one of trying to look at how we can.
Do better here, we'll take another look at that issue, but thats not something we contemplated.
Or discuss at this point.
Great and just one follow up I mean interesting comments on the Cdx business and the expansion and growth here in Japan.
Just wondering you know obviously the samples if I understand correctly the samples are coming back to the U.S. to be analyzed I mean are you thinking of establishing.
The lab in Japan to sort of deal with this or is there or is there any are there any issues at present that sort of like trade in.
Transport to Milton samples to be a problem, though.
The World is moving.
And to the extent you know.
We are.
Looking at all of our international operations to try to do more kids space business out of Salt Lake and and leverage fulfillment capabilities.
Yes that that's where the automation comes in Thats, where the technology investments come in.
So.
We're not about just putting pins on the map I mean, it's just not necessary and given what I've seen and logistic businesses and other places so.
But I.
We are very excited about the progress that we're seeing.
In Japan, and we think that there are more growth opportunities and in southeast Asia, and we commented a couple of those it's early.
And again, one of the things, we're going to do a better job here of not getting ahead of ourselves in terms of predictions of what things might mean.
We'll we'll let you know more when it actually comes through the CNL, but for.
We've got some good traction in Japan, and we think that bodes well for some other opportunities like that in Germany and elsewhere.
Okay. Thank you.
Sure.
And we have time for one last question, which will come from Jack Meehan with different your line is open.
Thank you good afternoon.
So the two businesses, which are looking to divest how much profitability did they generated in the last year and you paid 80 million for RPM back in the day is that a good bogey for potential sales proceeds.
Jack we're not going to comment today on.
You know the the estimated proceeds from either of those.
Transactions, but you know.
We expect that.
That will get a good valuation for RPM is is there is a lot of interest in the asset.
And but it's premature to get into accretion dilution net proceeds use of proceeds or any of that at this stage.
But you know we think that it will be a net positive thing for our shareholders and for the company and most importantly against the magically here.
The complexity and the company has gotten in the way of our ability to execute and drive organic growth and that's what we're really focused on is these these assets just.
Aren't additive great teams.
And we just can't support them and the way they need to be supportive. So we think both assets will actually thrive in an it in a different place and we owe it to the team and we owe it to the shareholders.
To to realize that present value and reinvest those proceeds where we can with.
Got it.
Then when I was looking at the 10-Q, you have some financial covenants to get.
Even in the December quarter, and 25 million.
And the two quarters ended in March do.
Do you expect to hit those covenants and thus no what actions do you need to take.
Yes. Thanks for the question Jack Yeah, we haven't given any guidance relative to the future quarters and I think what we said in the notes were that.
Yes throughout the period, given the uncertainties as it relates to Cove. It we weren't really making any characterization of what that period looks like I mean, I think when you look at our balance sheet and where we're at even from a almost a net debt position of almost zero I think we feel like we're in a good position, but we didn't we.
That made any.
The comments regarding forward guidance, yes.
Yes, we look.
I've worked through many restructuring in my lifetime. This is not one.
And we've had a great dialogue already with with our lenders.
And.
Worst case scenario, we just pay off the line and then reflex or do debt, where we're just this is not something we're losing a lot of sleep over and again, we've got a good dialog going with a lender. So we'll work through the covenant issues when when we get to that point.
Thanks, Paul.
And that does conclude the Q and a session Mr. Gleason alternative back to sell for closing remarks.
Thank you. Thank you for joining us on the call today and we appreciate your participation. Thanks everybody.
And that does conclude the conference call for today, we thank you very much for your participation that you. Please disconnect your line.
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