Myriad Genetics, Inc. Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020. The provided filing is a fiscal 2020 Form 10-K, not a 2019 fourth-quarter filing. Comparisons are primarily with fiscal 2019. Myriad is a molecular diagnostics and precision medicine company offering hereditary cancer, pharmacogenomic, prenatal, oncology, autoimmune and pharmaceutical research services.
Financial Performance and Liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $638.6 million | $851.1 million | Down $212.5 million, or approximately 25% |
| Molecular diagnostic revenue | $586.9 million | $789.4 million | Down $202.5 million |
| Pharmaceutical and clinical services revenue | $51.7 million | $61.7 million | Down $10.0 million |
| Operating income (loss) | $(231.7) million | $7.6 million | Declined $239.3 million |
| Net income (loss) attributable to stockholders | $(199.5) million | $4.6 million | Declined $204.1 million |
| Diluted EPS | $(2.69) | $0.06 | Turned negative |
| Cash flow from operations | $60.7 million | $83.7 million | Down $23.0 million |
| Cash, equivalents and marketable securities | $254.8 million | $191.8 million | Up $63.0 million |
| Net long-term debt | $224.4 million | $233.5 million | Down $9.1 million |
- Gross margin was approximately 70.9%, compared with approximately 76.4% in FY2019, reflecting lower volumes, fixed-cost deleverage and reimbursement reductions.
- Operating margin was approximately negative 36.3%, versus approximately 0.9% in FY2019. Net margin was approximately negative 31.2%, versus approximately 0.5%.
- FY2020 results included $99.7 million of goodwill and intangible-asset impairment charges, including $80.7 million related to Crescendo, $1.3 million related to the Clinic and $17.7 million for an abandoned in-process research and development asset.
- Operating cash flow remained positive but declined from FY2019. The company also received $14.6 million from the CARES Act Provider Relief Fund and approximately $29.7 million in advance Medicare payments, recorded in deferred revenue.
- The senior secured revolving facility matures July 31, 2023. Outstanding principal was approximately $226.7 million, or $224.4 million net of debt discount, with an interest rate of 4.5% at June 30, 2020. No scheduled principal payments were due before maturity.
- The company had $184.7 million of working capital and approximately $342.4 million of disclosed fixed contractual obligations, including debt, leases, interest and purchase commitments.
Material Changes Versus FY2019
- COVID-19 materially reduced testing volumes beginning in late March 2020. In early April, hereditary cancer, GeneSight and Vectra volumes fell approximately 70% to 75%; cancer tests fell approximately 40% to 45%; and prenatal tests fell approximately 20% to 25% versus early March.
- Late-June volumes recovered to approximately 75% of pre-pandemic levels on average, but management stated that the pace and duration of recovery could not be predicted.
- Hereditary cancer revenue decreased $132.3 million, GeneSight decreased $38.5 million, prenatal decreased $28.2 million, Vectra decreased $9.2 million and pharmaceutical and clinical services decreased $10.0 million.
- Cost-saving measures included reduced commissions, marketing, travel and mileage expenses; temporary employee furloughs; temporary reductions in senior executive and Board compensation; and virtual rather than in-office sales activity.
- FY2020 included a full year of Counsyl operations, but the company recorded significant revenue declines despite the expanded prenatal and reproductive testing portfolio. The Clinic was sold on February 28, 2020, generating a pre-tax gain of approximately $1.0 million.
- SG&A declined to $510.1 million from $555.5 million, primarily due to cost reductions and Counsyl integration synergies. Research and development expense declined to $77.2 million from $85.9 million.
- No shares were repurchased during FY2020. The company had $110.7 million remaining under its $200 million repurchase authorization.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide clear quantitative revenue, earnings or margin guidance. Management expected existing capital resources and future operating cash flow to fund planned operations for the foreseeable future, while warning that COVID-19 could cause capital needs to arise sooner.
- Amendment No. 2 to the credit facility waived certain leverage and interest-coverage covenants through March 31, 2021, added minimum liquidity and EBITDA requirements during portions of the amendment period, and increased pricing during that period. The company reported compliance with covenants at June 30, 2020.
- Key strategic priorities are maintaining hereditary cancer leadership, expanding newer products, and increasing reimbursement coverage. Approximately 54% of FY2020 revenue came from hereditary cancer products, while products outside hereditary cancer represented more than 70% of testing volume.
- Regulatory risks include potential changes to FDA oversight of laboratory-developed tests, the proposed VALID Act, FDA requirements for companion diagnostics, and continued scrutiny of pharmacogenomic testing such as GeneSight.
- Reimbursement and pricing pressure remains material. Approximately 65% of revenue came from private third-party payors, and the company reported reductions in reimbursement for hereditary cancer, prenatal and GeneSight testing.
- The company is defending a federal and California False Claims Act qui tam action involving Crescendo Bioscience. The United States and California declined to intervene, but the court denied the defendants’ motion to dismiss. The company cannot estimate the likelihood or amount of any potential loss.
- The company is also defending a purported securities class action concerning alleged misleading statements about its business, operations and acquisitions, and an Illinois insurance-fraud-related action involving Assurex. Potential losses are not estimable.
- Other significant risks include competition, intellectual-property challenges, dependence on specialized laboratories and suppliers, data privacy and cybersecurity exposure, foreign exchange risk, reimbursement recoupments and the ability to transition to newer products.
Facts Investors Should Verify
- Whether testing volumes fully recovered after June 30, 2020 and whether recovery was sustained across hereditary cancer, GeneSight, prenatal and oncology products.
- The company’s ability to meet minimum liquidity and EBITDA requirements and other amended debt covenants through the July 2023 facility maturity.
- Future reimbursement rates, especially for GeneSight following the pharmacogenomics coverage determination and for newer products with limited coverage.
- Additional goodwill or intangible-asset impairment risk, particularly for Crescendo and other reporting units whose valuations depend on projected cash flows and discount rates.
- The outcome and potential financial exposure from the Crescendo qui tam matter, the securities class action and the Assurex-related Illinois litigation.
- Whether newer products and FDA-approved companion diagnostics can offset declines in the legacy hereditary cancer portfolio and support a return to profitability.