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Q4 2023 Myriad Genetics Inc Earnings Call

Participants

Mark S. Verratti; Chief Commercial Officer; Myriad Genetics, Inc.

Matthew Scalo; SVP of IR; Myriad Genetics, Inc.

Paul J. Diaz; CEO, President & Director; Myriad Genetics, Inc.

Samraat S. Raha; COO; Myriad Genetics, Inc.

Scott J. Leffler; CFO; Myriad Genetics, Inc.

Andrew Harris Cooper; Research Analyst; Raymond James & Associates, Inc., Research Division

Brandon Kramer

Casey Rene Woodring; Research Analyst; JPMorgan Chase & Co, Research Division

Colleen Babington

David Michael Westenberg; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Jack Meehan; Partner; Nephron Research LLC

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John Kim; Research Analyst; BofA Securities, Research Division

Kayla Hostetler; Equity Associate; Jefferies LLC, Research Division

Kyle Boucher; Associate; TD Cowen, Research Division

Mason Owen Carrico; Research Analyst; Stephens Inc., Research Division

Prashant Kota; Research Analyst; Goldman Sachs Group, Inc., Research Division

Puneet Souda; Senior MD of Life Science Tools and Diagnostics & Senior Research Analyst; Leerink Partners LLC, Research Division

Presentation

Operator

Good day, and welcome to the Myriad Genetics Fourth Quarter 2023 Financial Earnings Call. (Operator Instructions) As a reminder, this call is being recorded.
I would now like to turn the call over to Matt Scalo. You may begin.

Matthew Scalo

All right. Thanks, Michelle, and good afternoon, and welcome to the Myriad Genetics' Fourth Quarter and Full Year 2023 Earnings Call. During the call, we will review the financial results we released today. And afterwards, we will host a question-and-answer session.
Our quarterly earnings release was issued this afternoon on Form 8-K and can be found on our website at investor.myriad.com.
I'm Matt Scalo, Senior Vice President of Investor Relations, and on the call today are Paul Diaz, our President and Chief Executive Officer; Scott Leffler, our Chief Financial Officer; Sam Raha, our Chief Operating Officer; and Mark Verratti, our Chief Commercial Officer.
This call can be heard live via webcast at investor.myriad.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 these expectations for a variety of reasons. We refer you to the document the company files from time to time with the Securities and Exchange Commission, specifically, the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.
I'll now turn the call over to Paul.

Paul J. Diaz

Thanks, Matt. Good afternoon, everyone, and thank you for joining us. On today's call, we will discuss the highlights from our fourth quarter and year-end performance and provide an update on the progress we continue to make, accelerating profitable revenue growth.
I want to start by thanking the team here at Myriad Genetics for their efforts this year. Despite the challenges we faced in 2023, our team's commitment to delivering on our mission was evident as we served more patients and added more customers than ever before.
Next slide, please. Our overarching goals are to continue to develop best-in-class molecular diagnostic tests to better detect disease, support treatment decisions and improve clinical outcomes; second, to improve the clinical utility and ease of use for our patients and provider partners; and make our genetic test more accessible and affordable by leveraging technology and scale in our lab and commercial operations.
On Slide 5, you'll see that we are not alone in our endeavor to become part of a more patient-centric and integrated health care system as our industry partners help us create better products and data solutions that allow us to address friction points and expand adoption and access for our genetic tests. Over the next few years, we expect to build on these technology and health care system partnerships to drive continued innovation and growth.
Turning now to the quarter and full year results released today on the next slide. We are pleased that we continue to deliver on our commitment to shareholders to achieve double-digit profitable growth as total revenue increased more than 11% in 2023 compared to last year, and we achieved positive adjusted EPS as well as positive adjusted operating cash flow in the fourth quarter. With this strong performance and market share gains in mind, we are raising our full year 2024 revenue guidance and introducing positive adjusted EPS guidance.
In November of 2023, we raised $118 million from our successful equity offering, which puts our balance sheet in a strong position to enter 2024 with cash, cash equivalents and marketable securities of $141 million and no legal overhangs on the business.
Next slide, please. As we look towards 2024 and beyond, we see adoption in use cases for genomic testing and precision medicine growing, providing strong tailwinds for organic profitable growth across our core products with an increasing ability to sell across the sales channels that we have deep commercial roots in. At the same time, we would remind investors that not only is it early days for precision medicine but it is highly fragmented with less than 20% share concentrated among the top players, providing us with significant opportunity for market share gains.
We are excited to expand the breadth of our oncology testing options this month with the acquisition of Intermountain Precision Genomics. Bringing Precise Tumor and Precise Liquid in-house allows us to capture 100% of the economics that we expect from these products and aligns these with our strategic priority of unifying our oncology offerings under our Precise Oncology Solutions platform. We plan to launch Precise Liquid from our Campus West facility in Q3 of this year with the rest of the acquired IPG lab operations, including Precise Tumor, moving by year-end. We are excited to welcome the IPG employees to the Myriad team.
Over the course of 2023, we continue to lay the foundation in our lab operations and back office to support accelerated profitable growth at scale in 2024 and beyond. In 2023, we hit our full year revenue and fourth quarter adjusted profitability targets, and we did so in a year that saw higher-than-average ASP compression, above our pre-stated 3% to 5% range, due to payer issues and transitioning to GeneSight's new PLA code at the start of '23 as well as the transition of multiple Blues health plans and new claims administrative processes that had a negative impact on our collections in ASP in the first half of 2023. Having addressed these issues, we expect improvement in our ASP at or below our pre-stated 3% compression target in 2024.
Looking forward, we see the investments that we have made in R&D over the past 3 years starting to bear fruit with an emerging body of clinical evidence that we believe will support guideline expansion, clinical utility and adoption and improved reimbursement over the next few years.
This morning, we were excited to announce the research collaboration with the National Cancer Center Hospital East in Japan to use our highly sensitive, precise MRD test for patients diagnosed with a wide array of solid tumor hematological cancers. We align with Dr. Yoshino, Deputy Director of Hospital East, when he says, "This study has a potential to revolutionize the scope of WGS-based MRD projects."
With a strong 2023 behind us, we look forward to continued growth into 2025 as we launch Foresight Universal Plus expanded carrier screen, FirstGene multiple prenatal screen, Precise Liquid comprehensive genomic panel and Precise MRD for research use with our pharma partners.
I'll now turn it over to Mark.

Mark S. Verratti

Thanks, Paul. I'll start on Slide 12. We remain focused on women's health, oncology and pharmacogenomics. On the call, I will share a snapshot of our 2023 performance by business unit as well as an update on our commercial transformation and product development efforts.
On Slide 13, we saw a strong double-digit growth across all of our core products in 2023. As the commercial leader of Myriad, I want to sincerely thank our commercial teams for their part in delivering this level of company growth and success. In the slides to come, I will share how we will plan to continue this momentum in 2024.
Now on Slide 14, I want to provide an update on the commercial transformation that has driven our success in 2023. By creating enterprise-wide efficiencies across the company, we have optimized our enterprise and business unit capabilities, using data and insights to deliver consistent performance. We have also enhanced our customer targeting, digital marketing and overall operating model to drive commercial leverage in 2024 and beyond.
Next slide. Continued commercial execution led to record-breaking volume growth for our pharmacogenomics business in 2023 as we added approximately 16,000 new providers ordering GeneSight for the first time over the course of the year. In the fourth quarter, GeneSight volumes grew 21% year-over-year, while revenues grew 11% over the same period. We continue to build on GeneSight's strong foundation of clinical data, including a collaboration with Optum, to create a multiphase study design better to understand GeneSight's ability to improve clinical outcomes and reduce overall health care costs. We look forward to the updates on the Optum study sometime in the second half of this year.
The momentum that our women's health team carried through 2023 is demonstrated by the strong results. In the fourth quarter, women's health grew hereditary cancer testing volumes 10% year-over-year. And after excluding SneakPeek, prenatal volumes grew 17% over the same period.
Finally, we eagerly await the upcoming ACOG guidelines to include expanded carrier screening and look forward to rolling out Foresight Universal Plus in response.
Myriad's oncology team ended 2023 on a strong note as they increased hereditary cancer testing volumes by 7% in the fourth quarter compared to last year. We continue to add depth to our oncology offering with the addition of Precise Liquid to our testing menu. We've also expanded the urology portfolio with Myriad's UroSuite, a combination of Prolaris, myRisk and Precise Tumor, that provides enhanced diagnostic information for prostate cancer patients. The Prolaris revenues increased 14% in the fourth quarter and 21% in 2023 compared to the year prior.
Next slide. As Paul spoke earlier to the breadth of our testing menu, which is something that we're always investing in, and it's important to note that we are investing in depth not just chasing our newer products, we develop our test to compete and win across our different channels while investing in IT, infrastructure, clinical data and everything else that enhances the clinical utility and use of our tests.
Finally, I want to give a brief look at how we see the future of our tests coming together. Our product development is focused on new and innovative products that meet the ongoing needs of our patients and providers. In 2024, we expect to launch Foresight Universal Plus, FirstGene, Precise Liquid and Precise MRD for research use to address these needs.
I want to conclude with how extremely proud we are of every team across the enterprise as they continue to rise to the challenge of reaching more patients, exceeding our goals and remaining patient and provider focused.
Now I will turn the call over to our new Chief Operating Officer, Sam Raha.

Samraat S. Raha

Thank you, Mark. I'm excited to be here today for my first earnings call since joining Myriad in December. I believe in this company's mission to advance health and well-being for all, and I'm energized with the significant opportunity we have to shape the molecular diagnostics market and positively impact patient lives.
Moving to Slide 21. Let me start with our enterprise-level strategic measures tied to driving near- and long-term profitable growth. We actively measure and track key performance indicators for five important categories: people, quality, growth, productivity and finance, doing so on a quarterly and annual basis. Our analytical capabilities are improving as we continue to mature into a high-performing business. We are increasing our focus on customer-centric initiatives and expanding how we track productivity gains in our commercial, lab operations and technology functions.
Turning now to the next slide. Let me touch on select operational highlights from 2023. We are proud to have a high level of organizational engagement across the company. We have been designated a Great Place to Work, with 86% of our team indicating their strong endorsement of Myriad. We also significantly improved our employee turnover in 2023 at a just 9%.
Health care providers are among our most important constituents, and their satisfaction led to a Net Promoter Score of 70 for 2023, a figure that has improved over the past few years as a testament to the focus and ongoing investments we have made in the patient and provider experience.
We continue to see rapid test turnaround times in our labs while reducing operating costs and actively identifying opportunities to improve and differentiate ourselves. Notably, with credit to Mark and his team, we increased sales productivity by 12% in 2023 compared to last year and saw an increase of $45 million of revenue in excess of expectations in 2021 through '23 delivered by our revenue cycle team.
Moving to the next slide. One of my highest priorities is to ensure that Myriad continues to improve the patient-provider experience. Industry surveys and focus groups tell us that the health care providers' decision to work with a diagnostic testing lab are based on five requirements: first, tests need to be backed by strong clinical validity and utility; second, providers want a comprehensive product offering and menu, which we see as an opportunity to differentiate ourselves from our competitors; third, they require fast turnaround time; and fourth, ease of use on ordering a test with results that are readily interpretable; finally, providers want testing options that are affordable to their patients. We are taking a structured approach to address these requirements, coordinating across the company to ensure that we are all working towards the same goal.
While ensuring that individual patient identity is never revealed, we believe in freely sharing our data to the broader scientific and medical community for the betterment of health care rather than looking to monetize such patient-related information. On that note, we recently launched the Myriad Collaborative Research Registry that includes data across germline and tumor testing results for Myriad Genetics Precision Oncology Solutions products on more than 1 million patients.
Moving now to Slide 24. Digital technologies are foundational to improving the customer experience, and we have invested significantly to deliver value to patient-providers in real-world clinical settings to enable better treatment decision for patients. This slide illustrates technology-enabled projects that are actively being implemented at Myriad. Again, our focus is to invest in projects that make it easier to do business with us, from learning about our products, to ordering tests and receiving easy-to-understand results supported by ongoing investments in EMR integration, enhanced patient-provider portals and our unified order management system.
Finally, let me update you on our road map of enterprise-wide infrastructure and capability programs we have been focused on. We made significant progress in 2023, including the completion of our new facilities in South San Francisco and Salt Lake City. Earlier this month, we hosted investors for a tour at our new Salt Lake City facility and hope to see more investors who want to visit us. We also completed the transition of our prenatal products to the NovaSeq 6000 sequencing platform in 2023.
Our 2024 focus includes moving over the recently acquired Precise Tumor, Precise Liquid tests as well as our Precise MRD assay to our Salt Lake City West facility and also building on our EMR integrations from the 1,200 locations that we successfully added in 2023 with more than an additional 1,900 locations expected in 2024. All of these programs require significant investment, and we are confident that we will see a positive return in the form of improved test turnaround times, lowered operating costs and improved customer experience, which will continue to differentiate us from our competitors.
And now let me turn it over to our newest executive, Scott Leffler, our Chief Financial Officer.

Scott J. Leffler

Thanks, Sam. I'm also excited to be here for my first earnings call with Myriad Genetics. Like Sam, I was attracted to Myriad because of the company's mission to advance health and well-being for all and for the opportunity to leverage my own experiences with both payers and lab services to drive profitable and sustainable growth.
We'll begin on Slide 27 with a review of key volume growth drivers. In 2023, we delivered double-digit volume growth year-over-year across hereditary cancer, prenatal and pharmacogenomics. This performance speaks to several factors, such as an improving customer experience that Sam talked about and the strong execution from our commercial team that Mark discussed. This most recent quarter marked Myriad's sixth consecutive quarter of positive volume growth year-over-year in hereditary cancer testing, and we continue to grow at the high end of our market growth estimates.
On Slide 28, I want to highlight our financial performance by quarter throughout 2023. As Paul mentioned, full year 2023 financial results hit the high end of our financial guidance, and we achieved our goal to generate profitability on an adjusted basis in the fourth quarter. We delivered revenue growth in all three of our business units compared to 2022 and remain disciplined in our cost management, which contributed to our adjusted EPS of positive $0.04 and adjusted operating cash flow of positive $14 million in the quarter.
While revenue progression during the year typically follows a seasonal pattern, we benefited from a concentration of biopharma revenue in Q1 of 2023. That being the case, we expect only mid- to high single-digit percentage growth for revenue in Q1 of this year compared to last year. We then expect year-over-year growth rates to increase in subsequent quarters. Also, as a reminder, adjusted operating expenses tend to be seasonally higher in Q1 due to timing of certain commercial spend, resulting in negative EPS in the first quarter of this year.
Our balance sheet finished 2023 in a strong position with approximately $141 million in cash, cash equivalents and marketable securities. This balance includes $40 million drawn from our asset-based facility as we borrowed ahead of expected seasonal working capital outflows in Q1. We have made a step-change improvement in adjusted operating cash flow in 2023 compared to 2022, especially during Q4 when adjusted operating cash flow was positive $14 million.
In addition, as Sam mentioned, we are excited by the progress of our transformation and real estate initiatives and are pleased to have the lion's share of the investment behind us. That being the case, we should see significant reductions in those categories of cash costs that have been adjusted out of our non-GAAP metrics beginning with 2024. Most importantly, we believe that we have line of sight to realizing the benefits of those investments beginning in 2025 as those assets are more fully operationalized.
On Slide 29, we compare actual full year 2023 results to our initial 2023 financial guidance offered in February of last year. Actual 2023 revenue exceeded the initial revenue range with gross margin and adjusted operating expense within the initial ranges provided a year ago. This positive overall financial performance for full year 2023 reflects the significant progress Myriad has made on all fronts discussed here today.
On Slide 30, looking forward, we are optimistic regarding the overall business trends and the company's ability to grow at or above industry growth rates, which is why we are increasing our full year 2024 revenue guidance. As mentioned earlier, Q1 of 2023 was an unseasonably strong comp. So first quarter 2024 revenue is expected to grow at a mid- to high single-digit percentage rate over the prior year period and accelerate through the rest of 2024.
2024 gross margin is expected to improve between 50 and 150 basis points over 2023 given expected volume growth, product mix, pricing trends and our ongoing focus on operational excellence. For first quarter, gross margins are expected to be lower than fourth quarter levels, reflecting typical seasonality and are expected to ramp up throughout the year.
With adjusted operating expense expected to grow between 5% and 7% in 2024, we expect to see operating leverage drop to the bottom line with 2024 adjusted EPS expected to be positive versus a loss of $0.27 for full year 2023.
This year, we are also introducing adjusted EBITDA as a new metric in our guidance for 2024, which we believe will be a useful metric for investors in understanding Myriad's trajectory with respect to both underlying profitability and cash-generating potential. For full year 2024, adjusted EBITDA is expected to be between $20 million and $30 million.
While we aren't formally including CapEx in our guidance, I'll note that capital expenditures are expected to return closer to normal levels in 2024, projected at approximately $20 million to $25 million for the year and consistent with commentary made at our September 2023 investor event.
Now let me turn the call back to Paul.

Paul J. Diaz

Thanks, Scott, and welcome. We continue to build on the pillars of long-term growth and profitability that has delivered our strong results this year. our clinically differentiated products supported by technology deliver value in real-world clinical settings and enable early detection and better treatment decisions for providers and their patients. Our modernized lab and commercial engine are examples of where investments in automation and advanced technology are yielding improved workflows, faster turnaround times and reduce operating costs.
Looking forward, we will deploy our strong balance sheet in a disciplined manner in ways to support the enterprise in our shared mission and vision to make genetic testing and precision medicine more accessible.
With that, I will turn it over for Q&A.

Matthew Scalo

All right. 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 in our earnings release and under the Investor Relations section of our website.
Now we're ready to begin the Q&A session. (Operator Instructions) Michelle, we are now ready for the Q&A portion of the call.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Doug Schenkel with Wolfe Research.

Colleen Babington

This is actually Colleen Babington in for Doug Schenkel. I've got a question about MRD. Could you give any updates on the timing of new data releases and the path forward for reimbursement?

Paul J. Diaz

Yes. We're really proud of the progress that we're making in the study. We mentioned the study this morning in the press release. We have the study with Memorial Sloan Kettering as well in MD Anderson advancing pretty quickly. Not really ready to call out sort of the expected readout of those studies, but from all indications, they're progressing well, and all the analytical validation in our labs are also progressing really well to the specs that we expect.
In terms of reimbursement, to some extent, we're going to take advantage of the progress that others have made here and be a fast follower. We're building those use cases and working on the clinical utility studies, which I think are going to be really important to reimbursement. And so there are a number of different efforts in that regard that we'll be talking about. So we're expecting a commercial launch in 2025 following the research studies that we'll do later this year, with pharma going into '25 as well. But we'll have more to update on MRD, including our freedom to operate and other IP in the months to come.

Colleen Babington

Just one quick follow-up there. Are there any concerns given the patent landscape in MRD?

Paul J. Diaz

We are quite confident in our freedom to operate. And as we've spoken to before. We've built these technologies on existing platforms and systems and processes that have been in existence and are patent-protected for a ways back. So we're very confident, when we come to market, we're going to have a highly accurate and sensitive MRD assay and that we'll be able to participate in what is a large market and a great opportunity for patients most of all.

Operator

Our next question comes from Rachel Vatnsdal with JPMorgan.

Casey Rene Woodring

This is Casey on for Rachel. So I wanted to start on prenatal. Curious how sustainable the strength is that you guys have been seeing, another strong quarter here in 4Q with 17% volume growth outside of SneakPeek. What does that runway look like in terms of share gains in '24? And how much upside would the carrier screening guideline updates potentially later this year provide?

Paul J. Diaz

Yes. Our women's health team, and Mark can dive into this some more, we're really pleased about the progress that we're making both in terms of wallet share and new customers. Obviously, there's been a lot of dislocation in the women's health space, and we are certainly seeing our fair share of new customers and market share gains. So we do expect those gains to continue. And as you noted, we see significant upside both in terms of volume and ASP as guidelines come out for expanded carrier screening. And that will also be supportive of our FirstGene launch, hopefully, later this year as well.
Mark, would you add anything?

Mark S. Verratti

No, I think Paul said it best. When we think about the momentum coming out of 2023, we really don't see any headwinds in 2024. I think we've stated before it actually is an underpenetrated market. Awareness, in many cases, still seems to be low, and especially when you think about the unaffected on the hereditary cancer side that is in the OB/GYN channel. And so we expect this continued momentum going into 2024, both in driving depth as well as earning back some new customers due to the dislocation.

Operator

Our next question comes from Andrew Cooper with Raymond James.

Andrew Harris Cooper

Maybe first, I appreciate the comment on pricing being at the low end or a little bit better for 2024. I was hoping you could maybe just break that down a little bit more in terms of, is it largely hereditary where you continue to see the headwinds and GeneSight gets a lot more stable after a bit more challenged of 2023? Just kind of how do we think across the segment about what pricing maybe looks like as part of that build for '24?

Paul J. Diaz

Yes, Andrew, I mean, again, despite those headwinds, we had a really good year. And again, hats off to Mark and the commercial team and our folks in lab operations that kept up with the volumes. So the volume more than made up for a tough year on ASP, and we made up the cash collection piece in the back half of the year.
I would say that, obviously, the low-hanging fruit is with FirstGene. I mean, with GeneSight, we see a lot of opportunity for improvement and coverage there. It's market by market, Blues plans by Blues plans, but the biomarker laws have given us another ability in 14 states now to look to expand coverage. But the transition issues we have with the payers, we don't see any of that dislocation going into 2024. So really across the product portfolio, probably less than Prolaris, we saw a really strong ASP year in Prolaris, but both for hereditary cancer, prenatal and especially for GeneSight, we see ASP opportunities here in 2024 and 2025.

Andrew Harris Cooper

Okay. Helpful. And then I did notice, I forget if it was in the slide deck or the press release, the word relaunch next to Precise Tumor, just maybe a little bit of color on kind of some of the moving parts there. And then how do you think about the opportunity and how it changes when you do have that broader set of tumor and liquid and MRD and kind of the rest of the portfolio together as being ideally more than the sum of the parts? So I just would love sort of your latest thinking on how much of a step-up can that broader portfolio really mean as opposed to some individual pieces that are there today?

Mark S. Verratti

Yes, thanks. I think it's an excellent question. This is Mark. Historically, Myriad has always been known for having the gold standard when it comes to the germline test. And I think more and more, especially as you think of health systems where you think of larger accounts, they are really looking for a single provider because it makes their workflows easier, and ultimately, they want as many answers or all the answers that they can at the same time when they're making treatment decisions for their patients. So bringing in Precise Tumor, bringing in Precise Liquid and eventually MRD, that's going to round out the Myriad portfolio, combined with what we're doing on the operational side that Sam will talk to in terms of that ease of use, is really first in mind for all of the health care systems that we talk to.
Sam, do you want to add to that?

Samraat S. Raha

Yes. Thank you, Mark. Building on one of the slides that I covered, right, we know very definitively one of the major drivers for our customers, the providers of health care systems, building on what Mark said, is really the comprehensive nature of our offerings. And this allows us to really participate all the way from hereditary cancer unaffected, all the way through therapy selection, down the line with Precise MRD, which we've touched on really to monitoring MRD. So we think that we also have a real differentiation in the sense that, listen, liquid biopsy is very important. We're all talking about it in the industry now. But at Myriad, we've been doing this for almost three decades, right? Because our myRisk tests, our foundational assay, has started from liquid, and that also gives us that capability, the infrastructure all the way through collection, through how we process samples, to do it at scale with excellence, which I think will be part of the differentiation that we're going to have across the portfolio.

Paul J. Diaz

And lastly, Andrew, I would just say we're having meetings with health systems now that wouldn't talk to us 6 months ago. And so we really see an emerging health system strategy. That's a world that I come from, as you know. And so we've built up a whole infrastructure and team to really across our portfolio from oncology to prenatal to pharmacogenomics. And Intermountain, LifePoint, specialty providers like SimonMed are just the first of what we think will be a much bigger opportunity for us. And also in academic medical centers that, quite frankly, we've been shut out at for many years because of some of our own self-inflicted wounds, those doors are opening up and we're having some really great conversations in a lot of systems across the country.

Operator

Our next question comes from Matt Sykes with Goldman Sachs.

Prashant Kota

Congrats on the quarter. This is Prashant Kota on for Matt. Could you provide some color on OpEx cadence throughout the year?

Scott J. Leffler

Sorry, that was OpEx, what?

Prashant Kota

Cadence progression.

Scott J. Leffler

So you're asking about 2024 or 2023?

Prashant Kota

Yes, 2024.

Scott J. Leffler

2024. Yes, we made some reference in the prepared comments about the fact that seasonally, Q1 does typically have an elevated level of CapEx and certainly elevated relative to Q4 2023 on a sequential basis. And then you could see it follow normal seasonal patterns from there as well throughout the year. But beyond that, we're not going to provide a specific quarterly guidance.

Paul J. Diaz

Yes. I think the only thing I would add is that I think you've seen the team just do a really great job in the lab, on COGS as well as managing OpEx. You really saw us bring that down actually over the course of the year even as we address wage rate issues and other things, and we're committed to continuing to do that for our teammates to keep people competitive. So we've just continued to build more discipline on the OpEx even as we're investing more in R&D. So as we find productivity gains, we're investing more in Dale's shop in clinical studies and other things to advance the portfolio. So it will continue to be a focus of ours but with a real disciplined approach, as Sam talked about.

Prashant Kota

Got it. And then can you just provide some color on revenue contribution, cost implications in 2024 from the acquisition of Intermountain for both 1Q '24 and for the year?

Paul J. Diaz

I'm sorry, you're going to have to speak up because we really can't hear you.

Prashant Kota

Sorry about that. Can you hear me now?

Paul J. Diaz

A little better. Go ahead.

Prashant Kota

So can you provide color on revenue contribution and cost implications in 2024 from the acquisition of Intermountain for both 1Q '24 and for 2024 full year?

Paul J. Diaz

Let me see if I can give you that specific number. I think it's modest. So we will certainly have transition costs and integration costs that we've built into the guidance. And as Scott pointed out, we'll probably have a heavier hit for OpEx in Q1 because of all the new business that we're onboarding. So we'll probably spend an extra $2 million on EMR integrations for new customers and try to keep -- so hopefully, that's helpful. But we've got high returns on investment for the OpEx that we're investing whether it's to bring on new customers or integrate Intermountain Precision Genomics.

Operator

Our next question comes from Jack Meehan with Nephron Research.

Jack Meehan

I wanted to ask about hereditary cancer testing. So historically, the fourth quarter is a pretty seasonally strong volume quarter. I'm not sure if this is right, but I'm calculating a sequential decline in the fourth quarter this year, though. Can you just talk about the sequential trends you're seeing in the hereditary cancer testing?

Paul J. Diaz

That's incorrect, Jack. Seasonally, the hereditary cancer is pretty strong in Q4, and it was off a pretty big base from the prior year in '23 and you saw really strong growth in women's health as well, so depending on work in process and lots of different factors. But let me just underscore very clearly that we are very excited about both the organic growth of myRisk hereditary cancer test as a highly differentiated product, ASP opportunities there. That was a bigger challenge in '23, quite frankly, it was not volume, it was ASP, but we're having to address those issues with a couple of our payers as we work through some of the coding issues. And we see accelerated market share gains. So when I joined the company, everybody thought hereditary cancer, just like GeneSight, should be put out to pasture. I think we've proven that now to be an incorrect set of assumptions here.

Jack Meehan

Okay. So I mean, just looking at your women's health volume, in the fourth quarter in the deck, it was 191,000. Last quarter, it was 190,000. But I assume prenatal is up sequentially.

Paul J. Diaz

Well, why don't we take your numbers off-line, Jack, and maybe focus on more strategic issues for the company. If you have questions about specific volume numbers or your model, I'm sure the team can handle that after the call.

Jack Meehan

Sure. Yes. I just wanted to address the financial questions here on your fourth quarter earnings call. Maybe one guidance question, too. Can you talk about what gives you the confidence in the 50 to 150 basis points of gross margin expansion in 2024? Just considering they've been on the downslope since 2013, so what's going to move this back to expansion?

Paul J. Diaz

I don't think that's correct. There's quarterly volatility in gross margins depending on product mix, and we always see that in Q1, but we have maintained within our guidance range of 68% to 70% gross margins for the last 2.5 years. So again, I'm not sure what numbers you're looking at, Jack, but they're not the same numbers that we're reporting.
Again, we're happy to go through those off-line with you.

Operator

Our next question comes from David Westenberg with Piper Sandler.

David Michael Westenberg

I have two questions. I'll just ask them both upfront here. Can you quantify or maybe just discuss, if you can, some of the potential exits in BRCA, in women's health and actually in noninvasive prenatal testing, if you contemplated a big competitor exiting in your guidance or if that is upside to your guidance.
And then secondly, when should we anticipate or do you think you anticipate expanded carrier screening in ACOG? And then can you tell about if that's contemplated in guidance and how fast you can really get coverage for expanded carrier screening? I know that's long with both of them at the same time.

Paul J. Diaz

Those are really very thoughtful questions. So as we mentioned before, we do see a lot of disruption in the marketplace. It is not something that we are celebrating that some of our peers are struggling. And I think we all want to make sure that patients have access to both the hereditary cancer and prenatal testing. And I think everybody is working hard to make sure that, that happens. And there have been several companies, unfortunately, that have struggled over the last year and more, sort of under the radar, smaller companies. As I said, this is still a pretty fractured market. We certainly expect to continue to see share gains. We don't have an overly aggressive sense of market share gains in our guidance. We've sort of tried to keep that pretty centered. It does present more opportunity for us. But we do not want to get ahead of ourselves here, and we're certainly not the only ones that are going to try to be there for patients and do that.
With respect to ACOG, I think we've all been waiting for ACOG guideline expansion. We think it might happen this spring. As we've talked about on prior calls, it will take 12 to 18 months before the payers get onboard. So none of that is really contemplated in terms of volume or ASP lift in '24. We certainly believe it could be a great tailwind for Foresight Universal Plus as well as for FirstGene in '25. But both of those are not factored into our guidance.

Operator

Our next question comes from Mason Carrico with Stephens.

Mason Owen Carrico

Congrats on the quarter and the year. First, could you talk about the opportunity to begin capturing some incremental hereditary cancer volumes this year given the disruptions with a key competitor? I think at least in the near term, they'll continue to operate. So I guess the question is, what do you think has to play out? Or what do you think the catalyst will be for clinicians to begin shifting volumes away from them? Is it turnaround times get impacted? Or how are you thinking about that?

Paul J. Diaz

Well, look, I think over the last year, we've been talking about increased wallet share gains. In part, as I mentioned earlier, we had lost fellowship with genetic counselors and others. And so we've continued to see wallet share gains and, more recently, an acceleration in new customers, Mason. So we certainly believe that those trends will accelerate in '24. Even as we're signing some of these customers, it will take a quarter or so to onboard them and even a couple of quarters to transition to the EMRs that hopefully we can transition to. Those will not happen overnight. But we do see both prenatal and hereditary cancer volume opportunities because of the dislocation in the marketplace among a number of different providers and, obviously, a big one that, again, we are -- yes, it's a sad thing.

Mason Owen Carrico

Got it. And then maybe a follow-up here. I know it was still relatively recent, but just given what you're seeing from hereditary cancer and the opportunity there, has it changed your view at all around the mid-single-digit growth in hereditary implied in your 2026 target?

Paul J. Diaz

We are pretty excited about our core myRisk with RiskScore product. It's clinically differentiated. We see guidelines expansions for the use cases for hereditary cancer. So we do see probably upside in the size of the market, and we certainly see upside in terms of our ability to win market share gains. And as Sam and Mark both talked about that Precise Oncology Solutions for affected patients, including myChoice HRD, and on the unaffected side where it's only 15% penetrated, and you've seen, again, 17% growth in women's health this quarter, I think 20% last quarter. So again, quarter-to-quarter, I'll just remind everybody, the volumes tend to be choppy. But we have a high degree of confidence in our 2024 annual guidance that we've given you this afternoon.

Operator

Our next question comes from Kyle Boucher with TD Cowen.

Kyle Boucher

This is Kyle on for Dan. I wanted to start, maybe if you could just walk us -- there's a little bit more detail on the announcement you made this morning with the National Cancer Center Hospital East in Japan. I guess what are the key milestones we should be looking for as this sort of progresses?

Paul J. Diaz

Yes. It's like 2,000 patients across a broad array of indications. The industry leader right now did a lot of their seminal work with this institution. So we're quite proud that they've chosen our highly accurate MRD assay to follow. But it's really too early to talk about readouts. But they're an incredibly efficient organization, and we've had great success in Japan with myChoice and other products. So we're quite excited about the study. And the fact that it does cover a broad array of cancers really will help us advance our MRD strategy, again, to be among the leaders in MRD. It will also help, I think, as we work with Optum Genomics and others on clinical utility.
I'm as enthusiastic about MRD as anyone, but it is early days here for adoption and use in clinic. A lot of the docs that we talk to at San Antonio Breast and other places, they're really excited about this but do not quite know what to do with it. And I think that's on us to sort of figure that out. And the payers are certainly looking for us to figure out how and when to pay for MRD and how often, et cetera.

Kyle Boucher

Got it. Got it. So moving back to the disruption in the hereditary cancer testing market. I guess, conceptually, how should we think about maybe ASPs on hereditary cancer going forward? If share gains come from -- I think a bit of this market is maybe in a lower-priced space, how should we think about that?

Paul J. Diaz

Well, we're not taking on a lower-price, profit-losing business. That has not been the strategy here, which is why we kind of stand alone as the only profitable company in our space with the gross margins that we have, again, right around 69%, 70%, depending on the quarter. And as I stated earlier, we do see improvements in ASP. We had some disruptions for hereditary cancer ASP this year because of some payer issues.
So we're not going to be taking on business to go downstream in terms of pricing, which is why we don't buy customer lists and pursue the opportunity that way. So people are moving to our products, on our contracts. And as you know, we signed a 4-year contract with United. We've got a lot more visibility on ASP than we've had in a long time despite some of the things that we went through in 2023 or because of the things we went through 2023. So again, we're very excited about the opportunities for hereditary cancer, and that's a sustainable growth part of the business.

Operator

Our next question comes from Brandon Kramer with Guggenheim Securities.

Brandon Kramer

Guys, can you hear me okay?

Paul J. Diaz

Yes.

Brandon Kramer

Awesome. This is Brandon on for Subbu Nambi. I just had a quick follow-up on the unaffected market. That 15% market share, do you have any levers that you're looking to push over the next 1 to 2 years that could help you grow that penetration?

Paul J. Diaz

Yes. No, the market is only 15% penetrated. That's what I meant. What I'm saying, there's a lot of white space there. But Mark, why don't you take this.

Mark S. Verratti

Yes. I think some of the levers that we've talked about them, I think, during our Investor Day and previous, I think one of the challenges with the unaffected market is really the customer journey that, that patient is on and, quite honestly, the awareness level, I think we've quoted before. And if you look at the market, there's over 13 million women who are seeing OB/GYNs, who are getting mammograms, but are not aware that they qualify for a hereditary test cancer because they're just not being asked the questions around their family risk and so on. And so I think the challenge that a lot of health care systems have is, at time of intake, when they're collecting all the information, how do they accurately, in a very swift digital way that it has a great ease of use and a great customer experience, ask those questions, raise those flags, so that those patients actually know that they do qualify.
So we have stood up a digital solution that we're excited to share with different health systems. We're in conversations with many health systems now, which I think is probably one of the biggest levers, which is how do we increase awareness level, how do we incorporate it into the current customer journey where patients are visiting imaging centers and are getting mammograms. You'll hear more from us on that as the year progresses.

Brandon Kramer

Great. And then just one quick follow-up on the margin outlook. You said that the first quarter, expect a bit of a step-down, then a ramp-up in the second half. Is there anything strategically you would point out in the second half, like cost of goods sold per test or lab automation, that you want us to focus on moving into the second half to help that margin boost?

Paul J. Diaz

I mean we're in the middle of our lab moves. So the fact that we are maintaining the volume and gross margins that we have while we're flying the airplane and changing the engines on the airplane in the air are a big testament to our team, and then we continue to get through FDA approvals and CLIA certification. There's a lot of moving parts here that Sam and the team are working through. So I think as we go into '25, as we finish these moves into the new facilities, as we continue to automate in our Archer system -- essentially, we've moved the robots or built robots and move them from South San Francisco into Campus West. For those of you that toured a few weeks ago got to see that.
So as we're standing that up and as we continue to move to new sequencing technology like X Plus, we see a lot of opportunity with that to improve margins over the next couple of years. But believe me, Sam has a supply chain $200 million target that he is responsible going after. So we do see near-term opportunities in supply chain that he and the team are going after today even while the automation and the new lab of the future stuff takes more time.

Operator

Our next question comes from Puneet Souda with Leerink Partners.

Puneet Souda

First one, just a clarification, was there a contribution from the biomarker bills in the quarter? And wondering just sort of what line items actually had helped in the segments and the assays.

Paul J. Diaz

We saw a little bit of lift in a couple of states with GeneSight, but it's early days. Remember, many of these state biomarker laws are just going into effect in January. A bunch don't go into effect until July. And believe me, the payers are like, "What biomarker law?" And then you have to go to the attorney general's office in the state to weigh into the GC of the payers. And then the payers say, "Well, we don't think it's covered." So the fact that we have for oncology and for GeneSight in 11 of the 15 states, and they're big states, Texas, New York and others, and California just passed, the ability to put more pressure on the state Blues plans to cover our genomic products, it's an indication of a broader opportunity for adoption.
Again, it's early days for genomic testing. This industry, we're still toddlers here as compared to the rest of the health care system. And so I just think it creates a lot of opportunity to increase awareness, penetration. And that's a tide that should lift all the boats in our sector, quite frankly.

Puneet Souda

Got it. And maybe if I could ask about MRD, could you just elaborate a bit on the indication path forward? I mean there's obviously a leader in the space that has started out with CRC, then breast, then IO monitoring, other indications. And more indications are coming onboard. So just wondering sort of what's your strategy? Is there an indication that you're pursuing that's potentially maybe not mined just yet, obviously, very nascent to market still?

Paul J. Diaz

Yes. No, look, our hats off to them. They've done a great job, and they've paved the way. So we were appreciative of the work they've done. We have a deeper test. We think that that's going to matter, particularly when you're talking about withholding treatment for patients. But I think there's room for more than 1, 2, 3, 4, 5 in a market as big as this opportunity could be.
I think you'll see us stay pretty disciplined to the cancers that, as Mark described, within Precise Oncology Solutions that we're known for: breast, ovarian, endometrial, prostate. But the studies will enable us to look at the more complicated tumors and the ability to think about the different indications that we can express. And we're doing the same thing with our expansion of myChoice HRD. Remember, that's ovarian only but we're looking to expand that to breast and prostate as well.
So yes, we're really excited about MRD for us as a company. I'm not sure if anybody is giving us credit for those on a sum of the parts basis or anything else, but we're quite excited to be a fast follower. And we think we'll have a highly sensitive test with a building body of clinical evidence between Memorial Sloan Kettering, MD Anderson in the study we announced this morning.

Operator

Our next question comes from Derik De Bruin with Bank of America.

John Kim

This is John Kim on for Derik. A quick one, if there are, how much opportunities are there left from improving prior authorizations or cash collections or working on RCM or reducing no pays? And looking at that medium-term plan, you have the MRD launching this year in the second half. What sort of contribution can we expect?

Paul J. Diaz

Yes. So MRD for our pharma partners, great news, they pay. And so we'll be doing MRD, running MRD assay for our pharma partners in the back half of this year, that's our expectation, with hopefully a commercial launch with reimbursement in '25 sometime. That's the goal. Again, plenty of runway, I think, for MRD as we just described.
Look, the broader rev cycle prior auth ASP issue is hundreds of millions of dollars. We are not getting paid 46% of the time for our test. So we are very focused across the portfolio, whether it's in GeneSight where we have the biggest opportunity, but even in some of our more mature products like myRisk, our hereditary cancer test. So across our products, and it's one of the things that we're excited that Scott can join the team given his experiences, we do think there's a lot of upside over the next few years in engaging with Washington and policymakers about prior auth. And we know there was an OIG report that talked about the Medicare Advantage plan not only for local diagnostic providers and for others putting up undue barriers.
But it's kind of trench warfare with the payers. It's payer by payer, state by state, continuing to build clinical evidence and working through all the gymnastics. But our investments in EMR, which allow us to pull the prior auth out of the record, to pull the clinical necessity documentation out of the record, all of that enables us to do a better job and be a better partner for the payers. So it is something that we're very focused on, and we think provides a lot of opportunity for the company over the next few years.

John Kim

Appreciate it. And talking about investments, you're chucking the guide in terms of the cash flow and you're reducing the CapEx this year, as you said you would. But are there any other organic...

Paul J. Diaz

We've done everything we said we would, by the way, just for the record.

John Kim

Any assets that you see would complement the existing portfolio? Anything that you're eyeing in the, say, like the MRD landscape? I know you're launching with the pharma partners in 3Q and going for that commercial launch next year, but yes, just wanted to ask on that.

Paul J. Diaz

Yes. We faced that question when I first came to the company, and we were told we needed to spend $500 million in MRD, and our team has built an MRD assay all in probably for $75 million by the time we launch commercially. So our return on invested capital for an assay that we know we can stand up in our labs, that we know we can get through FDA approval, we think that was the right decision for shareholders.
There's a lot of great science out there. And we're going to keep our eyes open but be really judicious on their balance sheet and do tuck-ins like Intermountain that we did. It's something that we know we can put into the sales channel. It's additive. But we'd always rather build than buy, quite frankly, because the probability of success is much higher there. But there's going to be a lot of assets coming to market and we are looking at some really interesting things right now. What we're not going to do is take on somebody else's big burn rate, what we're not going to do is take on people's commercial issues in coding and those kind of things. So we're going to be pretty careful about M&A.

Operator

Our last question comes from Brandon Couillard with Jefferies.

Kayla Hostetler

This is Kayla on for Brandon. I'll start off with just some of the modern lab investments you guys are making. I know you talked about maybe around $12 million a year of savings starting in '25. Is there any chance that we'll see that start to come in a little bit in '24? Or is that still more of a '25 and beyond event?

Paul J. Diaz

I mean, it's all in the mix, right? So we have product mix changes that affect gross margins. The team has dropped our cost per test like 8% last year, so there's a lot of moving parts in there. But yes, I think every day, Sam and the team are working to stand up our new lab, get through CLIA certification, get through analytical validation. And there's a lot of process improvement the team is looking at across each of our products as we move them into the new labs. So we actually see more opportunity than the 12 that we had originally identified, it's just going to take time to get there. What we have in the guide, though, is that we've assumed that people are going to continue to work hard to get some of those savings as quickly as possible.
Sam, I don't know if you'd add anything.

Samraat S. Raha

Paul, I think that's comprehensive.

Kayla Hostetler

Awesome. And then just quickly on Precise Liquid. Before the launch in 3Q, can you talk through any steps you're taking on the commercial side ahead of that?

Mark S. Verratti

Yes. I don't know if there's anything unique about launching Precise Liquid, right? I think the good news is we are currently in almost all of the oncology offices today that are currently using tumor, both on the solid as well on the liquid side. I think something that we spoke to on this call is consistently, when we talk to our customers, both large and small, they look for clinical utility, which Myriad has proven to do time and time again. But they do look for a comprehensive panel. And so now that we have comprehensive offerings, both on germline as well as solid tumor as well as liquid, I think that puts us in a very unique position with customers where before Myriad wasn't even considered. And then the other two points is obviously ease of use, which I think we've talked a lot about, and then the third piece is affordability.
And so we've always met the customers in many of those, but in the one area where Myriad did not have, we didn't have a comprehensive offering. And now we will. So we'll make sure to share some of those details. But I think Myriad has got a success of launching products into the market. And I think the benefit is we're already with most of those customers today.

Paul J. Diaz

Great. Well, thank you all very much. Matt?

Matthew Scalo

Yes. Thank you very much. This concludes our earnings call. A replay will be available via webcast on our website for 1 week. Thanks again for joining us, and have a good afternoon.

Operator

Thank you for your participation. This does conclude the program. You may now disconnect.