Myriad Genetics: improving financial profile

Goldman Sachs were very encouraged by the presentation and lab tour at the Investor Day. While the stock could benefit from a clean quarter where the improved organic growth profile is highlighted, the market should be ascribing more credit to the transformation in the business over the past few years. Goldman see an improving financial profile as previous investments in commercial, revenue cycle management, lab automation and R&D contribute to growth while opex and capex normalize.

Financials: MYGN reaffirmed their 2023 guidance of $730-$750mn in revenue, 68%-70% gross margin, $535mn-$555mn in opex and eps of $(0.36)-($0.24). Longer term, MYGN introduced a revenue CAGR of 10%+ in 2024-2026 with HCT growing MSD. Importantly, the 10%+ long term growth forecast does not include the contribution from FirstGene or Precise MRD, they see these new products as potential upside to their forecast with contribution beginning in 2025.MYGN gave a gross margin target of 70%+ in 2026, expected to benefit from accelerating volume growth, product mix, revenue cycle management progress, and lab transition to advanced automation. They also are guiding to 2026 SG&A of 10% lower vs 2023 as a percentage of revenue with opex growing at a 5%-6% CAGR. Management noted they are in the process of addressing the challenge of zero pays, specifically targeting those claims where there are missing records from the provider or where provider records did not sufficiently support medical necessity, as they noted those are the most solvable category of claim denials.

Women’s health: Management targeted the soft launch of FirstGene in 2Q24 with a commercialization target towards the end of 3Q24. They noted Prequel/Foresight improvements following extensive customer feedback. There will be space for all three aforementioned tests, with very minor cannibalization of Foresight/Prequel expected from FirstGene. Instead, FirstGene will unlock a new space as per management

Oncology: Management highlighted their MyRisk flagship product in hereditary cancer screening. They noted >50% of unaffected patients tested with MyRisk will eventually undergo a change in medical management following MyRisk results. Further, the market penetration into the $3bn unaffected market is roughly 15%, growing at HSD. The unaffected patient market is the larger growth opportunity as it is currently only 15% penetrated, where MYGN holds roughly 35% market share. Share gains is the main driver of HCT growth and believe it will continue into 2024

Mental health: A larger market opportunity than HCT, the pharmacogenomics for mental health TAM is estimated to be ~$5bn. MYGN holds roughly 55%-60% market share, and they estimate the market is growing in the mid-teens. GeneSight continues to be an important growth driver for MYGN as evidenced by test volume growth of 27% yoy in the LTM. This business segment is a key differentiator for MYGN as compared with other diagnostics companies due to the growth in the mental health category and their leading share position. While they noted increased Medicare reimbursement, The opportunity for commercial coverage is a key catalyst and validation of this test if it were to happen.

MRD: MYGN highlighted the development work on their Precise MRD assay where they use whole genome sequencing resulting in 10x lower tumor fraction, 100x more of the genome explored, requiring 2x less tissue vs exome based MRD and 30x more sites resulting in a potentially highly sensitive MRD assay. They are targeting pharma availability in 2024 and a potential commercial launch (LDT) in 1H25. They have a partnership with MD Anderson in renal cell carcinoma (120 patients) and this week announced a new partnership with Memorial Sloan Kettering on breast cancer (100 patients). MRD is an attractive pipeline opportunity for MYGN entering a large market where we see room for multiple participants