Myriad Genetics, Inc. Form 10-Q Summary
Business context and reporting period
Myriad Genetics is a molecular diagnostics company focused on predictive, personalized, and prognostic testing, with companion diagnostic services provided through Myriad RBM. The filing covers the three months ended September 30, 2013, the first quarter of fiscal 2014. Results are unaudited and should be read with the fiscal 2013 Form 10-K.
The company marketed ten primary molecular diagnostic tests, operated laboratories and international operations in Europe and Canada, and launched myRisk Hereditary Cancer in September 2013 through a staged rollout. It also planned the launch of myPlan Lung Cancer and myPath Melanoma.
Key financial metrics
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Total revenue | $202.5 million | $133.4 million | +52% |
| Operating income | $82.9 million | $48.6 million | +71% |
| Net income | $55.5 million | $30.1 million | +84% |
| Diluted EPS | $0.68 | $0.36 | +89% |
| Net cash from operations | $90.5 million | $51.4 million | +76% |
- Molecular diagnostic testing revenue was $193.0 million, up 52%; companion diagnostic services revenue was $9.5 million, up 54%.
- Estimated gross margin was approximately 87.4%, compared with approximately 87.0% in the prior-year quarter. Operating margin was approximately 40.9%, compared with 36.4%.
- Research and development expense increased 47% to $16.8 million. Selling, general, and administrative expense increased 38% to $77.3 million.
- Cash, cash equivalents, and marketable securities totaled approximately $515.6 million at September 30, 2013, compared with $531.1 million at June 30, 2013.
- Cash and cash equivalents were $85.0 million. The company reported no debt; its $22.3 million note receivable relates to a term loan made to Crescendo Bioscience.
- Capital expenditures were $5.3 million. Financing activities used $101.5 million, principally for $102.3 million of common-stock repurchases.
- Total liabilities were $91.4 million, including $59.4 million of accrued liabilities and $12.4 million of unrecognized tax benefits.
Material changes versus the prior comparable period
- BRACAnalysis revenue increased 42% to $149.6 million, while BART revenue increased 225% to $24.8 million. COLARIS and COLARIS AP revenue increased 19% to $14.3 million.
- Women’s health molecular diagnostic revenue increased 93% to $84.7 million; oncology revenue increased 30% to $108.3 million.
- Management estimated that approximately $35 million of molecular diagnostic revenue benefited from celebrity publicity for BRACAnalysis during the quarter and expected that effect to wane. Newly launched competitive tests were estimated to have reduced revenue by approximately $5 million.
- Bad debt expense increased by approximately $4.2 million, legal fees increased by approximately $1.7 million, and international administrative costs increased by approximately $1.4 million.
- The effective tax rate declined to approximately 34% from 40%, partly because of a deduction related to the write-off of stock in a divested subsidiary and tax effects associated with incentive stock options.
- The company repurchased approximately 3.8 million shares for $102.3 million during the quarter, compared with approximately 1.8 million shares for $46.2 million in the prior-year quarter.
Guidance, outlook, risks, contingencies, and unusual items
- No specific quantitative revenue or earnings guidance was provided. Management stated that existing capital resources and expected operating cash flow should fund current and planned operations for the next several years.
- Management expects research and development spending to increase as it develops its pipeline and expands its molecular and companion diagnostic offerings. Selling, general, and administrative expense may fluctuate substantially with product launches, marketing, litigation, and international expansion.
- Competition increased following the June 2013 Supreme Court decision involving BRCA gene patents. Competitors may offer tests at lower prices, potentially reducing revenue and margins.
- Myriad and its patent owners pursued infringement actions against Ambry Genetics, Gene by Gene, Quest Diagnostics, and GeneDx. Counsyl filed a declaratory judgment action; Quest also filed a declaratory judgment action. Management stated that ordinary-course proceedings were not expected to have a material adverse effect, but litigation costs and outcomes remain uncertain.
- New York State tax returns for fiscal years 2007 through 2009 were under examination. The ultimate tax assessment could differ materially from accrued amounts.
- The company held a three-year option to acquire Crescendo Bioscience and had a $22.3 million related note receivable. Collectability and the potential exercise of the option are contingencies requiring monitoring.
- In November 2013, the company completed the prior $200 million repurchase authorization and received authorization for an additional $300 million repurchase program.
- Other principal risks include reimbursement changes, regulatory requirements, patent validity and enforcement, licensing arrangements, laboratory operations, product development, international expansion, acquisitions, and healthcare payment-system changes.
Important facts for investors to verify
- Whether the approximately $35 million publicity-related revenue benefit was temporary and how subsequent competitive offerings affected BRACAnalysis volumes, pricing, and margins.
- Progress and commercial adoption of myRisk Hereditary Cancer, myPlan Lung Cancer, and myPath Melanoma.
- Trends in bad debt expense, accounts receivable collections, and the $8.9 million allowance for doubtful accounts at September 30, 2013.
- Outcomes, costs, and potential injunctions or damages related to the BRCA patent litigation and associated counterclaims.
- Use of the new $300 million share-repurchase authorization and its effect on liquidity, share count, and capital allocation.
- Results of the New York State tax examination and any changes to unrecognized tax benefits.
- Whether operating cash flow remains sufficient to fund increased research, development, litigation, international expansion, acquisitions, and repurchases.