Q3 2022 Myriad Genetics Inc Earnings Call
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Greetings and welcome to the myriad genetics third quarter 2022 financial earnings Conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded today Tuesday November one 2022.
I'd now like to turn the conference over to Matt Scalpel. Please go ahead.
Thanks Grant and good afternoon, and welcome to myriad genetics third quarter 2022 earnings call. During the call. We will review the financial results. We released today and afterwards, we will host a Q&A session. Our quarterly earnings release was issued this morning from eight in form 8-K and can be found on our website.
At Investor got married Dot Com.
<unk> senior Vice President of Investor Relations and on the call with me today is Paul <unk>, Our President and Chief Executive Officer, Bryan Riggsbee, Our Chief Financial Officer, and Nicole Lambert, Our Chief operating officer. This call will be heard via lives.
A webcast at Investor Dot media Dot com and a recording will be archived in the investors section of our website along with the slide presentation.
Please note that some of the information presented today contains 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 the expectations for them.
Variety of reasons, we refer you to the documents the company files from time to time with the SEC specifically the company's annual report on Form 10-K.
Quarterly reports on Form 10-Q, and the current reports on form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward looking statements with that I will turn the call over to Paul.
Thanks, Matt Good afternoon, everyone and thank you for joining us on today's call. We will discuss our Q3 results along with highlights from the quarter and updates on our strategic transformation and growth plan.
Want to start by thanking all of our teammates for their hard work and dedication this quarter to advancing our mission and our vision to make genetic testing and precision medicine more accessible.
To help people take more control of their health and enable providers to better detect treat and prevent disease.
I also want to thank our health care provider partners and their patients for their continued confidence in us.
2022 remains a year of strategic investment as we continue to build the foundation for accelerated growth and advance our mission of improving health and wellbeing for all.
This was a challenging quarter for us as we faced external headwinds, including a stronger U S dollar and failed to advance our commercial strategy as quickly as we'd hoped.
However, we are pleased with our performance in many areas of the business and what is typically our seasonally weakest quarter of the year.
After excluding divested businesses quarterly testing volume grew 12% from the second quarter.
Terry cancer testing volume returned to positive growth in the third quarter up 4% year over year and.
And gene side had yet another strong performance with volumes up 34% year over year in Q3.
Jean side continues to produce strong results with two years of consecutive quarterly volume growth, which we believe speaks to gene sites market durability.
Finally, we saw double digit quarterly volume growth year over year, and Polaris My choice CTX and break analysis CTX.
I'm also pleased to report that the mold X program assigned to my risk hereditary cancer test.
T code 81, and $4 79, and provided favorable test specific pricing for my risk.
$1743 per test.
This action supports longer term pricing stability from my risks that summit question and when combined with improving volume growth this quarter reinforces our positive outlook for our hereditary cancer testing franchise going into Q4 and 2023.
Despite significant cost pressures on wages supply chain and freight charges. We continue to operate with strong gross margins, which year to date are approximately 70% in line with our long term guidance range that we laid out at our Investor day back in 2021.
Each of our products contributes to this figure, giving us confidence across all of our businesses that we have a solid foundation to accelerate growth for all of our current and new test.
Finally in a separate press release was issued this morning announcing our acquisition of Gateway Genomics. An example, how myriad genetics is utilized utilizing a disciplined capital deployment strategy, leveraging our strong balance sheet to support longer term growth.
Let me spend a few minutes highlighting the transaction on the next slide.
Gateway genomics represents an exciting addition to myriad genetics, its leading product St. Pete has already helps 750000 parents learning their babies fetal sex from home as early as six weeks into pregnancy.
And the company's 2022 full year projected revenues are approximately $20 million.
The core gateway business is expected to grow at more than 20% compounded annually over the next three to five years.
Excluding synergies and is expected to be neutral to myriad to earnings and operating cash flows in 2023.
Gateway business is also expected to be accretive to <unk> growth rate earnings and operating cash flows in 2024.
The company's mission strong reputation and overall approach to the market, which is to explore new ways to provide genetic insights to women, who are pregnant or planning a family are well aligned with our vision for our women's health business.
And with over 4 million unique visits to gateways website year to date, we see significant potential synergies across our existing customer basis.
As we look to the future myriad genetics is positioning itself to drive 9% to 12% organic revenue growth with a number of catalysts on the horizon beyond that as we continue to execute on our transfer transformation efforts.
We continue to enhance our core commercial organization with prudent investments in technologies and innovations.
We are excited about first Jean Marie Genetics next generation prenatal offering.
From broader coverage and faster turnaround time to fewer inconclusive results in certain areas. We expect FERC will make a significant impact on the prenatal care of our patients.
First she is complementary to our current prenatal portfolio and targets a market of over 1 million patients in the U S. We are preparing for a second half 2023 commercial launch.
We plan to launch our liquid biopsy technology for tumor profiling in the second half of 2023 as well with this new test offering as part of our suite of precise oncology solutions.
Our provider partners will benefit from an overall ease of use and a better understanding of results.
We continue to invest in new and emerging technologies to ensure that myriad genetics remains on the frontier of innovation.
Lastly, our proprietary <unk> product is on track with a research use only introduction in the second half of 2023, with our pharma and oncology partners.
He will be followed by a commercial launch and we expect to happen in the second half of 2024.
We are excited about a number of differentiating features of our liquid and <unk> technologies and how we can uniquely position them in this fast growing market to win significant market share with that I'd like to turn it over to Nicole Lambert, our chief operating officer to discuss our Q3 operating results and new innovations in more detail Paul.
Thank you Paul.
Like to start with our core business unit performance.
Starting first with our local hotbed for that level.
Mental health mental illness continues to have a lasting effect on patients and their families in the U S. As those suffering failed to receive proper medical treatment or Jean <unk> Psychotropic test to help physicians better understand how antidepressants and other drugs will affect their patients.
Importantly for this patient group the tests can be performed with just a single cheek swab that can be taken into privacy at their own column.
And this quarter gene site, yet another all time quarterly high volume with approximately 97000 tests performed.
<unk> genetics is proud to be part of the solution to this ongoing mental health crisis by providing physicians with the information that they need to treat their patients.
In the third quarter, the mental health business surpassed 2 million patients tested worldwide with the gene site test quarterly volumes increased 34% year over year, and we are celebrating over two years of consecutive quarterly volume growth from gene site.
We believe that the performance of gene site. This quarter demonstrates the effectiveness of our new commercial capabilities digital marketing strategies and patient centric engagement initiatives implemented over this last year, we look forward to bringing these learnings over to our women's health and oncology business unit and continuing to accelerate their growth as well.
Also in the third quarter, the center for Medicaid and Medicare and Medicaid services Preliminarily agreed to crosswalk gene site to P. L. A code 00175 you.
Myriad genetics women's health business unit serves women of all ancestors by assessing the risk of cancer and offers prenatal testing solutions for those who are pregnant or planning a family in the third quarter. The women's health business reported $54 3 million of revenue that's reported quarterly test volumes of roughly one.
<unk> hundred 9000.
In the quarter the women's health team celebrates a return to positive quarterly volume growth for our hereditary cancer test up 4% year over year, and what is typically our seasonally weakest quarter as.
As Paul mentioned, the mold X program recently assigned to my risk hereditary cancer tests, CPT code 81479, and provided favorable test specific pricing and $1743 per test.
Prenatal testing volumes were stable in the third quarter, despite it being a seasonally weak period prenatal volume growth in the third quarter was also negatively impacted due to the state of California's recent rollout of its revised prenatal screening program state of California had held a public hearing on October 26th where more than 200 stakeholders in <unk>.
To clinicians spoke out to preserve provider and patient choice for prenatal screening.
Oh October 28th the court granted a preliminary injunction to stay the exclusivity portion of the California prenatal screening program and we expect to reclaim a portion of our disrupted business in the fourth quarter of this year.
Lastly, we continue to progress towards the launch of first gene are combined noninvasive prenatal screen in carrier screening test, which is expected to be available in the second half of next year.
Our oncology business delivered $69 2 million in revenue in the third quarter reported test volumes were roughly 45000 precise tumor volumes continued to grow and are leading to additional orders of other myriad oncology products like my choice CTX and break analysis CTX as our oncology customers seek to use one laboratory that can.
Interpret all of these test results in the context of each other.
In the quarter My choice C. D X reported its highest quarterly volume level in the U S ever myriad Polaris prostate cancer prognostic tests grew in the in the mid teens compared with the third quarter of 2021 Polaris test is designed to assess prostate cancer aggressiveness, helping patients and urologists make more personalized treatment plans.
We're also excited about our expanded partnership with inner mountain precision genomics to offer precise liquid and liquid biopsy therapy selection tool in 2023 with these new solutions myriad genetics is advancing precision oncology by merging the power of FDA approved companion diagnostics abroad, Nextgen tumor sequencing panel.
And best in class Germline testing services.
Now I'd like to turn the call over to Brian to discuss our Q3 financial results in more detail.
Thanks, Nicole I'd like to start by reviewing our year to date revenue growth for the nine months of 2022 total revenue of approximately $500 million grew 5%. After excluding revenues from divested businesses, we estimate an approximate 2% headwind to year to date revenue growth driven by a 7 million.
Currency translation impact this year, and a $4 million nonrecurring milestone payment from last year.
Year to date performance is important as it minimizes the impact of changes in estimates associated with billing collection experience, which can fluctuate from quarter to quarter total change in estimates year to date represent a positive impact to revenue of $20 million.
Revenue growth in 2022 has been driven by a variety of factors. We continue to enjoy strong demand for gene site generating 40% volume growth year to date hereditary cancer testing volumes have improved and returned to growth this quarter, increasing 4% year over year. In addition, our oncology products are experiencing continued volume growth.
With my choice CTX Fi testing volumes up 40% year to date.
On this slide we represent we presented a waterfall showing the drivers of revenue during the second half of 2022 as shown here revenue is expected to perform consistent with historical seasonal trends with a soft third quarter, followed by a sequential increase in the fourth quarter. The chart shows the normalization of the change in estimate highlights the impact of foreign currency.
Which is a negative headwind in the back half of the year of approximately $7 million.
Next I would like to talk about pricing trends and volume growth in the quarter.
As Paul stated earlier overall volume growth was strong in Q3 up 12% year over year, excluding divested businesses driven by ongoing demand for gene site, where quarterly volumes grew 34% and renewed growth in our hereditary cancer testing businesses for quarterly volumes grew 4% continued.
<unk> continued growth was also experience for Polaris My choice <unk> and Brac CTX.
Underlying pricing of our genetic test products was stable in the quarter, excluding items like currency translation change of estimates and a nonrecurring milestone payment in the year ago period overall, our blended ASP is consistent with our expectations and we are encouraged by increased visibility and pricing for our products with recent announcements such as the positive news.
Regarding <unk> and a favorable test specific price for my risk.
This next slide details our 2022 adjusted operating expense trend to demonstrate our prudent management of company expenses, while investing in core growth initiatives consistent with others. We are dealing with an incredibly difficult operating environment that continues to have a significant effect on wage costs supply costs freight et cetera, we.
Continue to look for opportunities to reduce cost and redeploy operating investments to our growth initiatives. We have raised our adjusted operating expense guidance by $10 million for the remainder of the year to reflect the impact of the inflationary environment as well as incremental investments in research and development technology, and commercial tools pipeline development and sales and <unk>.
Marketing programs in an effort to access market share and support various growth initiatives.
We are updating our fiscal year 2022 financial guidance to account for third quarter business updates. We are now guiding to revenue of $668 million to $672 million in gross margins of 70%. We are increasing our adjusted operating expense guidance by approximately $10 million drove up to reflect inflation and preview.
MS Li mentioned incremental investments.
Inclusive of this increase to adjusted operating expense our updated guidance reflects an approximate 8% year over year increase from fiscal year 2021, total operating expenses, excluding divested businesses.
This increase remains in line with current inflationary trends and demonstrates prudent cost management, even as the company invest in growth and innovation.
We ended the quarter with approximately $258 million in cash cash equivalents and investments as compared to $284 million at the beginning of the quarter.
This decrease of approximately $36 million was driven primarily by capital expenditures tied to our investments in labs of the future and other technology investments operating cash flow was only a negative $2 million in the quarter moving forward. We continue to focus on cost management, while working to return to positive free cash flow generation.
Our cash balance along with having no debt and access to capital markets provides us with a strong capital position as we continue to execute our strategic transformation and growth plan. We believe that we are well positioned to be a high growth profitable free cash flow generating leader in precision medicine, delivering important medical information to healthcare providers to improve.
Patient care I'll now turn it back over to Paul for closing remarks. Thanks.
Thanks, Brian before we move into the Q&A portion of the call I want to summarize five key takeaways in context with our strength and strategic advantages first we are growing volumes consistently every quarter.
Know how to get paid for our tests.
Second pricing for our products is stable and we have increased visibility into pricing moving forward.
Third we continue to have a disciplined approach to cost management, and we expect to maintain our strong 70% gross margins and managing our opex with specific targeted opportunities investments that we've laid out to capture market share.
Fourth we are committed to effective capital deployment in key areas that will improve the customer experience, including new tech enabled tools and capabilities innovation commercial capabilities in our labs in the future.
And finally, our growing catalysts are clear as we continue to elevate our products to their full potential rollout of our new solutions like first gene Mardi in liquid and opportunities Opportunistically look for strategic and accretive tuck in acquisitions like Gateway genomics.
All of this reinforces our position as a trusted differentiated lab with specialized expertise best in class quality.
<unk> scalable commercial engine underpinned by data research and technology with industry, leading margins and business management now I'll turn it back over to Matt for Q&A.
Thanks, Paul and as a reminder, during today's call we use certain non-GAAP financial measures a reconciliation of the GAAP to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website now we are ready to begin the Q&A session to ensure broad participation.
We're asking participants to please ask only one question and one follow up so grant we are now ready for the Q&A portion of the call.
Thank you.
And if you would like to register for a question. Please press. The one followed by the four on your telephone Youll hear a three pronged to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three one moment. Please for the first.
Okay.
And as a reminder to register for a question. Please press the one followed by the four on your tongue.
And the first question comes from the line of Dan Brennan. Please proceed with your question.
Great. Thank you and thanks for taking it Hey, Paul how are you doing.
Maybe just starting off with the new my risk code.
Can you just give us a sense, how we should interpret that in terms of what impact it'll have on pricing going forward.
If you heard it Gary cancer business.
Well I think it's further evidence I'll, let Brian dig into deeper data.
We've had to stability.
And.
For investors and for the company in terms of pricing.
And our strategy around.
Engaging both with Medicare and government payers and commercial payors to bring more transparency and more stability in the pricing. So we see it as a pretty significant step forward.
There have been a fair number of questions about this and some expected a much bigger drop. So we were pleased with the outcome and our team worked really hard.
<unk> recognized the unique characteristics of my risk and Thats part of why we think we're enjoying this twice.
That bodes well for our continued discussions with commercial payers and I think supports our long term.
The guidance of 3% to 5% pricing pressure in this portfolio going forward.
And so.
That's kind of how we see it we see it as a really great step forward in terms of stability in transplant medicine.
Got it so in terms of the 3% to 5% down it's still kind of in this kind of gets you into that ZIP code to feel comfortable with the ZIP code as opposed to giving you any kind of upward.
Kind of upside to that number.
Yes, I don't think this is the quarter to get ahead on anything so I would say it.
Maintains our confidence in that three to five Dan for sure and Dan just to add I mean, the pricing for the my risk coded as.
Slightly below where we were it was priced historically says 5% down range. So it's more of avoiding a more significant price decrease and then sort of additive to where we were before if that makes sense.
No no that makes sense.
Got it and then and then and then maybe just as a follow up for Sanjay.
Just give us a sense of you know the coding update there kind of what how that filter through into the business and the numbers as we look out.
And then as you kind of look forward, maybe just give us an update on kind of what youre seeing in the field now that you've had some time with the VA study just to give us any kind of update on kind of impact of that study in terms of adoption rates and things of that nature.
I'll I'll speak first to the gene site code so that the.
The process is still wrapping up with respect to <unk>.
Final Medicare pricing.
But the rate is there and I believe it's $13 36, and it's consistent with what we've what what's been in the market historic and talked about so I think theres really no no.
Update there we would expect it to be finalized and effective Jan one and it'll be reflected when we give an update after the first of the year.
Yeah, Dan so kind of consistent with our strategy around all our coatings, we think code specific eliminate the confusion around miscellaneous codes are things like code stacking.
I think the industry is sometimes challenged with.
And gives us a much better conversation with commercial payers.
We're having really good discussions.
Leveraging not only the VA study, but others.
And we have some other clinical and health economic studies underway.
And I would again point to the underlying trends and demand for gene side, a strong market evidence of the demand for this product and that is leading to good discussions with various commercial payors.
And we've continued to reduce our no pay and improve our execution under the contracts that we have.
<unk> no pay.
And again just to.
That's our Rev cycle team for all the great work they've done there.
Great. Thanks, Paul Thanks, Brian .
Thanks, Dan and the next question comes from the line of.
Matt <unk> with Goldman Sachs. Please proceed with your.
Hey, Matt.
Hey, guys. Thanks for taking my questions.
Maybe my first question is just kind of.
Talking about more broadly about hereditary cancer you guys have shown continued improvement throughout this year I'm just curious about the competitive landscape and how you see it now I mean, a lot of your peers in that sector and there are some.
Differences in sort of financial and operating.
Situations, there and so as part of some of the recovery that youre seeing or the improvement Youre seeing the result of share gains in any way you can kind of characterize competitive landscape today versus say a year and a half ago.
Yes.
I think I'm disappointed that we haven't seen more gains quite frankly, Matt, but what we're finding and Nicole can add.
We're having kinds of conversations the last few months that we haven't had in at.
At least the two years I've been here with big customers Big academic medical centers.
And a whole wide range of participants in the hereditary cancer market.
I think those will take the next few quarters to run forward and to convert from good conversations to contracts and then from contracts that do system conversions to our EMR and portal, but we're really encouraged by the field based activity.
And certainly the distress in the marketplace that others are facing has enabled us to have new and fresh conversations, but it's also what we've done with my risk in terms of expanding the gene panel.
Expanding the financial access and improving ease of use which continues to be a big focal point so.
We're encouraged by the 4%, but but at the same time, well would've hoped to have seen more progress, but really seeing a lot of activity accelerating here going into Q4.
Think bodes well for next year, So Nicole I don't know if you want to add any color to that.
Yeah, I would agree completely and I think what we're seeing in our market research is a significant improvement in customer perceptions of our reputation and the engagement that they have with us and that's leading some large customers to really take another look at myriad and giving us the opportunity to gain access in places we haven't had for <unk>.
While to have a higher level conversations and we're just seeing across the market that people are taking another look at us and they are having a positive experience.
Got it thanks very much for that and then maybe second one for my follow up just Brian you talked about the increase in the Opex and obviously understandable given somebody.
Inflation in freight logistics et cetera, but youre also continuing to invest in our business as you're making those decisions and balancing the two how are you thinking about sort of the inevitable path to profitability and balancing that opex versus making sure we're investing in growth.
At the same time of taking care of some of the constraints that are in the supply chain and other things I'm just curious about the thought process there with the view towards profitability.
I think I think too.
Two comments, there and then parking can chime in as well, but first.
First and foremost.
To your point around ultimately getting to profitability, we want to position the business and the cost structure in a way that is long term sustainable and really support the business and generates free cash flow sort of on a standalone basis as you would look at it separate and apart from the in the capital and the investments that we're making to really drive.
Our growth acceleration and then secondly at the same time that we're that we're doing that.
We're also every day going through.
Because it is a difficult operating environment as you've noted and looking for ways that even in even in this current circumstance that we can.
Save money in certain places and utilize that money to reallocate more towards things that are going to help to drive growth.
Things that are.
As you would see with a company that's 25 or 30 years a lot of times you can build up some cost in the organization that you really need to take a look at to see if it is really driving the type of benefit that the company needs and so.
I just want to highlight the fact that I'm really proud of the team and the work that they've done in order to be able to one handle the current environment and to be able to focus on the types of long term innovation that Dale talked about at our Investor day, with MLD and liquid et cetera.
I think it just really puts us in a great position not only in terms of innovation, but also in terms of the <unk>.
Cash flow generation at some point in the future.
Yeah, and just tying back to your first question.
We just see a lot of market opportunity.
And then we're making up for deficits of investments that we had not made and so we are aggressively pursuing those.
Because we do see those opportunities and.
And that happens routinely so.
Yeah. We're we're just redeploying as Brian said aggressively to the things and the customers. So for example, we've just signed a pretty big customer.
They required about a half a million dollars of investment in the chat bot and different things for them.
And we said, yes, and so we are making the moves in real time to respond to what customers are looking for.
And going through a pilot with that customer or hoping to talk about it more next year as we move from pilot to operationalize them, but that's a good example of the kinds of real time investments, we're making in response to market opportunities.
Got it thanks for the color I appreciate it.
Thank you.
And the next question comes from the line of Jack Meehan with Nephron Research. Please proceed with your question.
Thank you good afternoon.
On the Gateway acquisition, Paul could you talk about just the background on the deal how long have you known them.
And just talk about the value proposition so youre getting.
Gender information at six weeks and ITT you can get that at nine weeks, just how do you get comfort that the 20% growth they've been putting up there's going to be sustainable moving forward.
Well thank you Jack.
First a big welcome to the to the Gateway team, that's a big part of the opportunity as we see it. This is a team that has really demonstrated over the last three or four years and ability to engage with customers and the way that we have with gene site and we want to populate our women's health business.
More broadly with.
We're quite confident and Jack you've seen my disciplined around M&A on the underlying assumptions on the core growth of Av.
<unk> business.
And.
We'll talk more in the quarters to come about the synergy opportunities across the portfolio.
But we see a pretty significant opportunity to reenergize, our engagement with Obgyns and others. So you think about their <unk> hundred 50 <unk>.
<unk> customers in the channel and the commercial channel complemented with our 7500 and very little overlap there.
And their own data suggests that almost 60% of the people that access a sneak peek test go on to get an Ips testing and look to two.
Gateway for information and education.
So we see it building on the time that the strengths, we've built and gene site.
And accelerating that process in our women's health business to engage with women engaged with Obgyns and others in the channel in a differentiating way and are pretty excited about both the core and what we can do from a synergy perspective.
Great.
And then I also wanted to clarify on the hereditary coating I know in our conversations back in August I was under the assumption you re migrating the 843 to 843 three for hereditary so.
I guess I'm, just curious is that no longer happening.
What portion of your hereditary claims or my risk that are going to move to this new 81479 code.
Paul Yes, I mean the.
Yes, our plan going forward would be to the appropriate code for us to use would be the miscellaneous code as opposed to the 840 <unk> and 43 three.
There is.
Just to clarify the little algorithm or Theres, some bronchi that goes under different codes correct like the Bronco CTX.
Yes.
That's correct.
Maybe offline we can break that down for you further the point I was gonna make Jack just more broadly is the diversification in our hereditary cancer.
Pricing profile as we've grown my choice as we've grown bracket analysis CTX and we've grown our international business. So when I think about the exposure we had on hereditary cancer commercial pricing in Medicare pricing versus where we are today and as I referred to earlier are very deliberate.
Efforts to Derisk that.
That business, so we can grow it.
It has changed pretty drastically both in terms of business mix as well as this improvement and transparency around coding.
So it gives us.
As previously discussed.
The higher level of confidence in the 3% to 5% range that we've talked about in terms of pricing pressure and now it's about growing and gaining market share, which is really where our commercial efforts are focused and where as I have acknowledged we're a quarter or two quarters behind where I had hoped we would be on our <unk>.
Commercial transformation, but mark and Nicole and the team are getting there, it's just taking longer to deploy and operationalize some of the new initiatives.
That's often the case, but we're feeling really good about what we're doing and the ability to gain share in the broader market as we discussed earlier.
Thank you Paul.
Thank you Jack.
And the next question comes from the line of <unk> with Stephens incorporated. Please proceed with your.
Hey, guys.
Maybe just two quick ones from me starting with gene sorry could you provide some detail on the Medicaid opportunity any color around gene side volumes that are coming from these patients now and do you think the Poa code in combination with the Prime studies enough to begin winning coverage of those plants in 2023.
Yeah, Great question, a lot of energy in and around that.
It's a significant amount of our no pay.
<unk> site like 85% to 87% something like that.
<unk>.
And there are at least three really good discussions going on including some discussions around value based contracting with various states.
But the team is advancing and we're also advancing discussions with the VA on the heels of the Prime study.
Whether it's a tremendous amount of interest given the mental health challenges of our veterans.
To help solve that problem more directly as well.
We would certainly hope next year to announce some wins on the Medicaid side, both on the managed Medicaid side and with state programs directly on the heels of the VA study and the transparency around this code.
And most importantly, the mental health crisis. These states are turning their attention to coming out of the pandemic.
Which were actively in discussions with so yeah.
Yes, there's a lot more work to do but there is a lot of opportunity there as we see gene side going forward.
Got it and on per layers could you just talk about what's driving the volume growth there over the past few quarters and what sort of tailwind do you see for that test going forward, maybe from a from a volume as well as incremental coverage standpoint.
Yeah, Nicole why don't you jump in I'm actually going to the pub conference here next week to meet with some big customers, who have been doing more of that as we've mentioned Nicole do you want to speak to our surety team and specifically what's going on.
Sure absolutely. So I think that's a couple of things are going on there, but they are consistent with what we're seeing in other parts of the business and that we're getting better at winning bigger and so we have a number of partnerships in that space with euro pathology groups that allow us to create a very additive.
User centric easy you know sort of easy experience for those customers to order the test.
Just makes it a much more streamline process and I think.
I'll, let you start really seeing the value of the test and so across that.
That call point.
Great access, we're seeing as Paul mentioned access to larger customers, whether that's in large urology group practices large practices or whether that's on the pathology side, we're just getting better better better at winning the bigger customers.
Got it.
The portal will be up early next year, which is an available and.
I'd also mentioned the cross selling opportunity with my risk in that channel as well.
Starting to happen as well.
Got it thank you guys.
Thank you.
Yes.
And your next question comes from the line of Derik de Bruin with Bank of America. Please proceed with your.
Hey, Derek Hey, guys. This is an eastern on for Derek.
So wanted to start off on prenatal a little bit of weakness there sequentially.
Should we kind of view the new run rate for this segment or do you think this is caused by more specific headwinds.
For the quarter.
Yeah, I mean, clearly we're disappointed that we haven't made more progress and prenatal I mean, we have a really differentiated test and prequel in particular, we mentioned.
Some disruption of service and confusion in the marketplace in California that certainly didn't help.
We'll be able to work through that now as the state of California is revisiting its program, but more importantly, as a judge has ruled against the exclusivity part of the program, which just.
Just limited access and choice, which we just thought was bad policy.
Again, we're hoping to join that program and are engaged constructively with the state beyond that.
Yes.
Our Big Challenge, we've had and ease of use has been the portal to be able to sell my risk and our prenatal products, that's going to be another quarter before we roll it out.
We thought we were going to have it up and running here in Q3, it's going to be.
Distributed in Q4, and probably not fully operationalize until Q1.
And again.
Again, the sales enablement processes is a little behind where mark and I and Nicole we'd like it to be.
Melissa is bringing the team together I think people are really excited about.
Gateway and sneak peek.
And what that can do to the business as well going into next year and the teams are meeting as we speak about cross selling opportunities and and so a couple of quarters behind where I would hope we would be.
In prenatal, but really excited about the future there and again, we just need to execute better.
Over the next few quarters to get the growth that we would expect there.
Gotcha that makes sense one more so I know you guys have a lot of new products launching around the same time mid 'twenty. Three later in 'twenty three or are we going to see an increase operating expense for the commercial scaling in the back half of 'twenty three.
Our sales force expansion or anything like that to note.
No you will not.
<unk>.
The work as Brian articulated.
Is too.
Move.
Leveraging convert the rest of our business to the.
To the model that Mark built.
Our mental health business and the one that we see at gateway, which is much more consumer influenced and driven.
Enabled by inside sales and technology and again I think one of the strengths of the company that we will hopefully prove to investors over the next couple of years.
We have a scalable commercial engine.
So we.
We do not expect to be adding to our sales force.
Going into next year or in the launch of these new products in fact.
We're going to continue to improve upon the execution of our of our Salesforce and the use of the tools like Salesforce et cetera, which is part of what Mark and the team are working on.
Got it thank you.
Sure.
And the next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your.
Hey, Thanks, good afternoon.
Paul just starting with the gateway asset I'm curious if there was a COVID-19 benefits over the last couple of years.
The topline consistent 20% growth this year as well and any color you can share with us in terms of the P&L profile works at all.
Operator.
Yes.
Yeah I mean.
The business has been growing well in excess of 20%.
But transactions and integrations can be distracting. So we're we're trying to make sure we get through that and.
Rule number one is don't break what you buy in and this is a really good team.
Really excited Chris Jacob and the team are going to be part of our team.
Excellent executive and is really going to contribute to our strategic thinking and a lot of different ways product development as well as our go to market strategy.
The economics of the business are pretty straightforward it is.
Direct to consumers to go reimbursement risk, which Brian likes.
Healthy margins, 55% gross margins and is scalable.
Opex platform will make some investments there.
Next year as we talked about to really accelerate growth in that business and get the cross channel opportunities.
But we like the characteristics of the deal both the return characteristics in the core and the upside synergies that it provides across our women's health portfolio. So it is just the kind of.
Synergistic accretive.
Bolt ons that we want to continue to look at across our business units.
Okay, and then just one for Brian was there a prior period revenue adjustment in third quarter.
She wanted to believe so Jack I, just want to make sure it was zero.
That's true.
Yes, I think in the in the waterfall chart is probably the best way to kind of look at where we show the revenue estimate change that we had in Q2 of around $12 million positive and it was a negative $5 3 million I believe in the current quarter.
Or thereabouts, so, but I think it's in the slide presentation and in the earnings release, and that's a $12 million swing correct quite frankly <unk>. So that's you know.
But as Brian pointed out $20 million net today and that cash and AR.
The negative $1 8 million of operating cash flow, we feel really good about the sustainability and our ability to self fund.
When we're running the business as efficiently as we are.
Got it thanks.
And the next question comes from the line of Julia Qin with Jay.
J P. Morgan. Please proceed with your.
Hi, good afternoon, thanks for taking our question.
I appreciate all the sales and marketing initiatives and revenue synergy opportunities you highlight at Stroud, calling at your analyst Day I was just wondering if you could give us more color on the timeframe of implementing these opportunities.
So that we can have a sense of when you are able to reach full potential of driving all these revenue synergy opportunity.
Yeah.
Thinking about gateway genomic, specifically or just the broader commercial transformation initiatives.
Including Gateway and foundation, but also you know replicating the new sales and marketing model to oncology in women's health.
Yeah, no. It's a good question and the right question.
I think it's going to take several more quarters implementation and operationalize. These things are always harder the culture change theres a process change.
And and good discussions.
To actually convert a customer make and have them make a change is always harder.
And then one thanks, Nonetheless, I think mark in the call and the team over the next several quarters, we will have many of our initiatives implemented and.
And certainly by the you know I would expect that 80% of the initiatives will be in place by the middle of next year and then we're really executing on new product launches on that going back to the prior question about new product launches. So I think it's the next several quarters will be pretty telling.
About how we can continue to roll our technology solutions out, but have been embraced and implemented in the field and Thats, where quite frankly, we could've done a better job. This year on some of the Rollouts and we will we will get better as we as we.
As we.
We will continue to execute and we'll learn from our mistakes as well as are the things that have gone well.
Great. That's very helpful. And then specifically on the cross selling for our prenatal testing and hereditary cancer.
How much incremental revenue synergy do you expect at run rate and you know what percentage of women. How accounts do you target to achieve this bundled orders are in the run rate.
I think the best way I can answer that question is generally and then maybe the coal can add some more color.
Not sure we're prepared to give you that full breakout I would say that historically many of the customers had been primarily prenatal or primarily a hereditary cancer and not having a portal to enable cross selling has been a big challenge that will begin to address that as we rollout the portal.
In Q4 and fully implemented in Q1, but the goal is and certainly going into next year, we need to be able to chew gum and walk at the same time, we need to be able to sell both products effectively.
In each of the offices, but it's a mixed bag of historical penetration. We've had Nicole I don't know you can probably give some better color than I can around that question.
Yes, absolutely and so with or with all of our women's health customers that guest ordering one or two of our products like always we will talk to them about that a second or third product opportunities that there are there I think there are a lot of ways, where our customer experience sort of gotten our way because of that not full integration.
Of calico versus myriad, where there are still places in the organization, where a customer has to interact with someone in salt Lake City, where they're talking about cancer and interact with our customer service hopefully out in San Francisco when Theyre talking about preload all possible. So we didn't have that school less customer experience.
What we are investing a little part of technology solutions is that even if our backend operations are still located in two different places it all feels seamless to the customer they have one place where they can go to order multiple products. They have one customer service person that can check on the status of test orders they have one clinical clue.
With that Ken talked about colonial has a question or if a patient calls then everybody is cross training and I think that there are this is a place where we can continue to improve right where our clinical teams are all cross trained but sometimes theres still a gap across customer service are sometimes that technology tools.
And so we continue to make those are cross.
Cross selling experiences better for the customer right, where if it still feels like two different company, it's difficult to cross out, whereas when you have a great experience with one very easy to just order a second or third product into stone portal or with the same workflow no more.
I'd like to do that.
And Thats the hope for gateway genomics as well right to gauge with customers much earlier and have them have a more seamless experience.
And again, Kevin and the team.
Working hard we just have to implement better in the field.
Yes.
Great appreciate the color.
Thank you.
Thanks Nicole.
The next question comes from the line of.
Who need Sudan with S. VP Securities. Please proceed.
Yeah, Hi, Paul Thanks for taking the questions. So first one on <unk> just wanted to get any updated thoughts on positioning for that product.
You know recently Mol Dx asked one of your peers to do a comparative study in CRC.
And or submit.
Publications to support that test.
How are you thinking about.
Getting ready to sort of address all that mol Dx or your Mac is going to ask in terms of indication expansion and sort of how are you thinking about.
Patients potentially already getting locked into these assays for the next two to three years.
There are already two commercial test on the market and these tests are recurring every three to four months. So just.
Just wanted to get a sense of sort of how are you thinking about the competitive positioning in this market and an entry into it.
Yes, a great question look I think we're in and the oncologists that we speak to we are very much in the early days of liquid N M D.
And Dale and the team.
Really even since our Investor day have made really great progress on advancing clinical trials and our own internal analytical validation on the samples that we have been running.
And really pleased with the outcomes there.
We're in discussions with several academic medical centers as well as some large oncology groups to partner on not only the validation around MLR D, but quite frankly, the commercial implementation in advance of that.
And so.
Yes, we're look we're trying to learn from our own successes and failures.
But.
Even since our Investor day, I would say our confidence level.
Has increased.
And our path to reimbursement and I understand what happened and what our competitors in terms of their submission we will learn from that and as we're learning from the success that others have had which I think will make the path easier for us, but as you've seen.
We have a history of success and we talked about it earlier today with my risk and with our FDA approval of my choice and moving to new sequencing technology other things of navigating the regulatory and reimbursement path pretty successfully and that's a core capability of the company that I.
Youll see bring to bear as we come to market with liquid MRV.
Okay, Great and then maybe this is for Brian .
Should we imagine any pressure.
Pressure or my risk being subject to Panama down the road. Thank you.
Yes, so I believe the 847 nine it would not it would not be subject to Pam or going forward. One of the big benefits is it's already incorporated in it. So it is excluded from Pamela.
Sure.
Okay.
And there are no further questions at this time.
Okay. This concludes our earnings call a replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.
Thanks, everyone.
That does conclude today's call. We thank you for your participation and ask that you. Please disconnect your line.
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