Myriad Genetics, Inc. Fiscal 2019 Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2019. The supplied metadata references 2018 Q4, but the filing is an annual Form 10-K for fiscal 2019, not a quarterly filing.
Business Context
Myriad is a precision-medicine and molecular-diagnostics company offering DNA, RNA and protein-based tests across hereditary cancer, neuroscience, prenatal, autoimmune, urology, oncology and women’s health markets. It also provides pharmaceutical and clinical services through Myriad RBM and related operations.
- Fiscal 2019 revenue was $851.1 million; approximately 56% came from hereditary cancer testing.
- Non-hereditary cancer products represented approximately 75% of test volume and 46% of revenue, reflecting continued portfolio diversification.
- The company completed the $405.9 million acquisition of Counsyl on July 31, 2018, expanding into prenatal and reproductive genetic testing.
Financial Performance and Key Metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $851.1 million | $743.7 million | +$107.4 million, approximately 14% |
| Molecular diagnostic revenue | $789.4 million | $690.4 million | +$99.0 million |
| Pharmaceutical and clinical services revenue | $61.7 million | $53.3 million | +$8.4 million |
| Operating income | $7.6 million | $121.9 million | Down $114.3 million |
| Operating margin | Approximately 0.9% | Approximately 16.4% | Material decline |
| Net income attributable to shareholders | $4.6 million | $133.3 million | Down $128.7 million |
| Diluted EPS | $0.06 | $1.85 | Down $1.79 |
| Net cash from operating activities | $83.7 million | $115.9 million | Down $32.2 million |
| Cash, equivalents and marketable securities | $191.8 million | $211.3 million | Down $19.5 million |
Cost of sales was $201.0 million, or 23.6% of revenue, compared with 23.8% in fiscal 2018. Research and development expense increased to $85.9 million from $70.8 million, while selling, general and administrative expense increased to $555.5 million from $435.0 million.
The fiscal 2019 income tax benefit was $4.4 million, producing an unusual effective tax rate of negative 14,107.7% because pretax income was approximately zero. Fiscal 2018 benefited from a $32.0 million one-time Tax Cuts and Jobs Act benefit.
Revenue Mix and Material Changes
- Hereditary cancer revenue increased 2% to $479.7 million, the first growth in five years, but declined to 56% of total revenue from 63% in fiscal 2018.
- GeneSight revenue decreased $12.3 million to $112.6 million, primarily because of reduced reimbursement.
- Prenatal revenue contributed $104.9 million from the Counsyl acquisition.
- Vectra revenue declined $6.9 million to $48.3 million due to lower volumes.
- Prolaris revenue increased $4.0 million to $25.5 million, driven by volume and reimbursement.
- Pharmaceutical and clinical services revenue increased $8.4 million to $61.7 million, with Myriad RBM accounting for approximately 4% of total revenue.
- SG&A included approximately $55.0 million of Counsyl operating costs, $22.1 million of Counsyl amortization, $20.8 million of acquisition and integration costs, $9.1 million related to a qui tam settlement, and additional information-technology spending.
- The fiscal 2018 comparison included a $61.2 million benefit from the change in fair value of contingent consideration; fiscal 2019 recorded a $1.1 million expense, creating a significant year-over-year comparison effect.
Liquidity, Debt and Capital Allocation
- Cash, cash equivalents and marketable securities totaled $191.8 million at June 30, 2019, including $93.2 million of cash and cash equivalents.
- Operating cash flow was $83.7 million. Investing cash flow was negative $286.4 million, primarily because of $278.5 million paid for Counsyl.
- Financing cash flow was positive $182.3 million, largely reflecting net borrowings under the amended revolving credit facility.
- Gross revolving debt was $235.0 million and net long-term debt was $233.5 million at year-end. The facility matures July 31, 2023, has a $350.0 million maximum commitment and had no scheduled principal payments before maturity.
- The company was in compliance with its financial covenants at June 30, 2019. The facility imposes leverage, interest coverage and other operating restrictions.
- Myriad repurchased $50.0 million of common stock during fiscal 2019; $110.7 million remained under the authorization at year-end.
- Contractual obligations totaled $96.6 million, including $85.5 million of operating lease commitments.
Guidance, Outlook and Management Commentary
- Management stated that existing capital resources and expected operating cash flow should fund current operations and repayment of the facility for the foreseeable future, while cautioning that additional financing could become necessary if conditions change.
- The Elevate 2020 program targets $50 million of incremental operating income by fiscal 2020 through centralized resources, technology, sourcing and laboratory-efficiency initiatives.
- Management identified continued growth in new products, broader reimbursement coverage, international expansion and hereditary-cancer leadership as key strategic priorities.
- The company published positive GeneSight GUIDED study results and submitted updated reimbursement materials to commercial insurers.
- Myriad submitted FDA premarket approval applications for BRACAnalysis CDx in pancreatic cancer and myChoice HRD in advanced ovarian cancer, with anticipated approvals in late calendar 2019; approval timing and outcome were not assured.
- Myriad stated that it submitted a proposal to the FDA on August 10, 2019 concerning GeneSight reporting. The FDA’s ultimate position could affect the test offering and related revenue.
Risks, Contingencies and Unusual Items
- Reimbursement pressure, particularly for hereditary cancer and GeneSight, may reduce pricing and margins. Approximately 85% of revenue came from private third-party payors.
- The company faces significant competition following the 2013 Supreme Court decision invalidating certain hereditary-cancer patent claims.
- Regulatory uncertainty includes potential FDA oversight of laboratory-developed tests, companion-diagnostic approval requirements and scrutiny of pharmacogenetic testing.
- An Office of Inspector General investigation involving Crescendo remained unresolved; the company had provided requested documentation and could not predict the outcome.
- A separate qui tam matter concerning Medicare billing was settled in July 2019 for $9.1 million, pending OIG approval. Myriad denied wrongdoing and did not expect material billing changes.
- Assurex faced an Illinois insurance-claims-fraud action; the company intended to defend the matter, but could not estimate the likelihood or amount of potential loss.
- Goodwill was $417.2 million and indefinite-lived in-process research and development assets were $23.0 million. Valuations depend on projected cash flows, discount rates and product-development assumptions.
- Internal control over financial reporting was assessed as effective, and a previously reported material weakness related to payor collection estimates was reported as remediated. Counsyl was excluded from management’s assessment and represented approximately 28.8% of total assets and 12.3% of revenue.
- The company expects fiscal 2020 adoption of lease accounting rules to add approximately $68 million to $75 million of right-of-use assets and $73 million to $79 million of lease liabilities.
Investor Verification Checklist
- Verify whether GeneSight reimbursement and FDA discussions improve or constrain future revenue.
- Track hereditary-cancer pricing, reimbursement, testing volume and competitive share.
- Assess Counsyl integration, prenatal-test margins and whether expected synergies materialize.
- Monitor operating cash flow relative to $235.0 million of gross debt and the July 2023 maturity.
- Review outcomes of the OIG investigation, the $9.1 million qui tam settlement and the Illinois litigation.
- Test goodwill and acquired-intangible-asset valuations against actual growth, margins, discount rates and product-development results.
- Confirm the timing and outcome of FDA applications for myChoice HRD and BRACAnalysis CDx.
- Evaluate whether the Elevate 2020 program delivers the targeted $50 million of incremental operating income.