MYRIAD GENETICS INC annual report, FY2021

Myriad Genetics, Inc. — 2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The company changed from a June 30 fiscal year-end to a calendar year-end effective January 1, 2021; the 2020 full-year comparison is unaudited and is not directly comparable to the six-month transition period reported elsewhere.

Business Context and Strategy

Myriad is a genetic testing and precision medicine company focused on Oncology, Women’s Health and Mental Health. Its principal products include hereditary cancer, tumor profiling, prenatal, pharmacogenomic and other molecular diagnostic tests. Management is executing a strategic transformation centered on innovation, commercial scale, improved patient and provider experience, technology investment and long-term profitability.

• Key 2021 initiatives included the expanded MyRisk test with RiskScore for all ancestries, collaboration with Illumina and Intermountain Precision Genomics, and further international expansion of MyChoice CDx.
• Myriad completed the divestitures of Myriad myPath, Myriad RBM and selected Autoimmune assets, narrowing the business toward core molecular diagnostics.
• Precise Oncology Solutions was expected to launch in the first quarter of 2022; FirstGene prenatal screening was expected in 2023.

Financial Performance

Metric	2021	2020	Change
Total revenue	$690.6 million	$557.1 million	+$133.5 million
Molecular diagnostic revenue	$666.4 million	$513.5 million	+$152.9 million
Operating loss	$(190.5) million	$(289.7) million	Improved by $99.2 million
Net loss attributable to shareholders	$(27.2) million	$(53.1) million	Improved by $25.9 million
Basic and diluted loss per share	$(0.35)	$(0.71)	Improved
Cash flow from operations	$18.2 million	$(26.9) million	Improved by $45.1 million

• Revenue mix: Hereditary Cancer $316.3 million; Tumor Profiling $120.9 million; Prenatal $106.8 million; Pharmacogenomics $93.7 million; Autoimmune $28.2 million; pharmaceutical and clinical services $24.2 million.
• Revenue growth reflected recovery from COVID-19 disruptions, higher testing volumes, expanded reimbursement and prior-period revenue estimate changes. Tumor Profiling increased $62.5 million, Pharmacogenomics $35.0 million, Prenatal $32.3 million and Hereditary Cancer $31.9 million.
• Approximate consolidated gross margin was 71.4%, based on total revenue less molecular diagnostic and pharmaceutical/clinical service costs. Operating margin was approximately negative 27.6%; net margin was approximately negative 3.9%.
• Research and development expense was $81.9 million, or 11.9% of revenue, compared with $73.3 million in 2020.
• Selling, general and administrative expense was $537.8 million, or 77.9% of revenue, compared with $496.9 million in 2020.
• Legal charges pending settlement were $62.0 million, including $48.0 million for a qui tam matter and $14.0 million for the Abelli lawsuit.
• Other income included a net $152.2 million gain from the Myriad RBM and myPath divestitures, partly offset by divestiture-related inventory and other losses. Total other income was $139.3 million.
• The company recorded a $29.9 million income tax benefit and reported a 52.4% effective tax benefit rate, substantially affected by divestiture-related tax items and other unusual items.

Liquidity, Debt and Capital Resources

• Cash, cash equivalents and marketable securities totaled $398.8 million at December 31, 2021, up from $171.7 million at December 31, 2020.
• Cash and cash equivalents were $258.4 million; current and long-term marketable securities were $81.4 million and $59.0 million, respectively.
• Operating cash flow was positive at $18.2 million. Investing cash flow was $274.4 million, primarily reflecting $379.1 million of divestiture proceeds. Financing cash flow was $(150.6) million, including $226.4 million of debt repayments.
• All borrowings under the revolving credit facility were repaid by July 30, 2021. No debt was outstanding at year-end, although the facility had a $250.0 million revolving commitment.
• Because unrestricted cash, cash equivalents and marketable securities exceeded $150.0 million, future borrowing under the facility was generally restricted unless used for permitted acquisitions. Covenant waivers for leverage and interest coverage ratios were effective through March 31, 2022.
• Operating lease liabilities totaled $151.1 million on a present-value basis. The company also entered into additional long-term leases, including a 15-year Salt Lake City lease signed in the first quarter of 2022 with approximately $77.8 million of future payments.
• The company had $110.7 million remaining under its $200.0 million share repurchase authorization, but made no repurchases in 2021 and does not plan to pay dividends in the foreseeable future.

Material Changes Versus the Prior Comparable Period

• Total revenue increased 24.0%, led by molecular diagnostic testing and the recovery from pandemic-related healthcare access constraints.
• Cost of molecular diagnostic testing declined to 26.9% of related revenue from 28.3%, reflecting operating leverage from higher test volumes.
• Operating loss improved substantially, primarily because 2020 included $98.4 million of goodwill and long-lived asset impairment charges; however, 2021 included $62.0 million of legal settlement accruals.
• Net loss narrowed despite higher operating expenses, aided by divestiture gains and a tax benefit.
• Liquidity increased by $379.1 million from divestiture proceeds, a $89.6 million federal tax refund and $91.8 million of stock-option exercise proceeds, partly offset by debt repayment and transaction expenses.
• Goodwill declined to $239.2 million from $329.2 million, primarily due to divestitures and foreign currency translation.

Outlook, Commentary, Risks and Unusual Items

The filing does not provide a specific quantitative revenue, earnings or margin outlook. Management expects growth from new products, expanded reimbursement, international markets, technology-enabled commercial tools, direct-to-consumer channels and strategic partnerships, but acknowledges that the transformation plan may take longer than expected or fail to deliver anticipated benefits.

• COVID-19, including Delta and Omicron variants, could reduce testing volumes, disrupt staffing, supply chains, laboratory operations and healthcare access.
• Reimbursement pressure remains significant. Approximately 65% of revenue came from private third-party payors, while Medicare represented approximately 17% of total revenue in 2021. PAMA-related rate reductions of up to 15% per year were scheduled for 2023 through 2025 for certain tests.
• Competition, technological change, regulatory oversight of laboratory-developed tests, FDA approval requirements for companion diagnostics, and changing privacy and data-security requirements could adversely affect results.
• The company relies on single laboratory facilities for several tests and has limited redundancy if a laboratory is disrupted or loses required certification.
• Myriad disclosed two material weaknesses in internal control over financial reporting: income tax provision controls and information technology general controls. Management and Ernst & Young concluded that internal controls and disclosure controls were not effective as of December 31, 2021. Ernst & Young issued an adverse opinion on internal control over financial reporting, while issuing an unqualified opinion on the financial statements.
• Pending litigation includes a securities class action certified in December 2021 and related derivative actions. The company cannot estimate potential losses for those matters. The $14.0 million Abelli settlement was reached in January 2022; a separate purported class action concerning the Prequel test was filed in February 2022.
• Revenue recognition requires estimates of reimbursement, payor mix, collections and refunds. The company recognized $15.9 million of 2021 revenue related to tests performed in prior periods, including $6.8 million associated with expanded Prolaris coverage.

Investor Verification Checklist

• Verify whether revenue growth and positive operating cash flow are sustainable without divestiture proceeds, tax refunds or favorable reimbursement adjustments.
• Review the quality and recurrence of the $139.3 million of other income, including the $152.2 million net divestiture gain and divestiture-related losses.
• Track remediation of the income-tax and IT-control material weaknesses and assess whether any restatement, reporting delay or regulatory consequence develops.
• Monitor reimbursement changes, PAMA rate impacts, Medicare and private-payor concentration, and the sustainability of Prolaris and GeneSight revenue.
• Assess the cash impact of legal settlements, pending litigation, long-term lease commitments and potential covenant restrictions after March 31, 2022.
• Evaluate execution and commercial adoption of Precise Oncology Solutions, new prenatal offerings, MyRisk RiskScore and other pipeline products.