Myriad Genetics, Inc. Form 10-Q Summary
Business context and reporting period
Myriad Genetics develops and commercializes molecular diagnostic tests used to assess disease risk, disease progression, and treatment decisions. This report covers the three and nine months ended September 30, 2021, compared with the same periods in 2020. The company continued a strategic transformation focused on hereditary cancer, tumor profiling, prenatal, and pharmacogenomics products while divesting selected non-core businesses.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $167.3 million | $145.2 million | $529.8 million | $402.4 million |
| Operating loss | $(79.9) million | $(39.6) million | $(147.4) million | $(241.6) million |
| Net income (loss) | $24.6 million | $(15.2) million | $(19.6) million | $(185.9) million |
| Diluted EPS | $0.30 | $(0.20) | $(0.25) | $(2.49) |
| Cash flow from operations | Not separately provided | Not separately provided | $28.1 million | $(12.5) million |
| Cash, equivalents and investments | — | $413.6 million at September 30, 2021 | $171.7 million at December 31, 2020 | |
| Long-term debt | — | None at September 30, 2021 | $224.8 million at December 31, 2020 |
Molecular diagnostic revenue increased 23% in Q3 and 37% for the nine-month period. Q3 revenue growth was led by tumor profiling, prenatal, and pharmacogenomics. Hereditary cancer revenue declined slightly, reflecting lower reimbursement and market commoditization. Pharmaceutical and clinical services revenue fell to zero in Q3 following the sale of Myriad RBM.
Approximate Q3 operating margin was negative 47.8%, compared with negative 27.3% in the prior-year quarter. Approximate nine-month operating margin improved to negative 27.8% from negative 60.0%. Approximate total gross margin was 71.4% in Q3 and 71.3% for nine months, compared with approximately 69.1% and 67.2%, respectively, in the comparable periods.
Material changes versus the prior comparable period
- Q3 revenue increased $22.1 million, primarily from tumor profiling, prenatal, and pharmacogenomics growth.
- Nine-month revenue increased $127.4 million, with higher test volumes and improved reimbursement, while prior-year results were heavily affected by COVID-19.
- Selling, general and administrative expense increased $56.1 million in Q3 and $96.1 million for nine months. The increases included a $48.0 million accrual for a potential qui tam settlement, strategic transformation costs, higher stock compensation, bonuses, legal expense, and consulting costs.
- Other income included a $121.0 million gain on the sale of Myriad RBM in Q3 and total net gains of $152.2 million from the RBM and myPath divestitures for the nine-month period.
- The company sold the myPath laboratory for $32.5 million in May 2021, Myriad RBM for $197.0 million in July 2021, and selected Autoimmune assets, including Vectra, for $150.0 million in September 2021.
- Goodwill and long-lived asset impairment charges declined to $1.8 million for nine months from $98.4 million in the prior-year period.
- The company repaid $226.4 million under its revolving credit facility, including $106.4 million paid in July, leaving no outstanding debt at September 30, 2021.
Liquidity, outlook, risks and unusual items
Cash and cash equivalents were $295.2 million, with total cash, equivalents and marketable securities of $413.6 million at September 30, 2021. Nine-month investing cash flow was $300.3 million, primarily reflecting $379.1 million of divestiture proceeds. Financing cash flow was negative $149.5 million, principally because of debt repayment. Management stated that existing capital resources are expected to fund current and projected operating requirements for the foreseeable future, but no quantitative revenue or earnings guidance was provided.
The revolving facility had a $250.0 million commitment at quarter-end, but the company stated that future borrowings are restricted while unrestricted cash, cash equivalents, and marketable securities exceed $150.0 million, except for certain permitted acquisitions. Leverage and interest coverage covenant waivers extend through March 31, 2022; specified financial covenants apply thereafter.
- COVID-19 and variants may reduce testing volumes, disrupt laboratories and suppliers, and affect workforce availability and reimbursement.
- The company faces reimbursement pressure, competition, regulatory and coverage changes, intellectual-property risks, cybersecurity risks, and challenges commercializing new tests.
- A $48.0 million accrued liability relates to a potential settlement of the Crescendo qui tam lawsuit. The ultimate loss could exceed the accrued amount.
- Securities class-action and stockholder derivative lawsuits remain unresolved; the filing does not provide a reliable estimate of potential losses.
- The company identified a material weakness in internal control over financial reporting related to the quarterly income-tax provision process. Disclosure controls were therefore deemed ineffective as of September 30, 2021. Management is implementing remediation measures.
- A 15-year lease for the new headquarters commenced in April 2021, with approximately $67.0 million of future lease payments at quarter-end.
- Revenue included $7.6 million in Q3 and $16.6 million for nine months from changes in estimates for tests performed in prior periods. Q3 tumor profiling revenue also included a $4.0 million one-time international milestone payment.
Investor verification checklist
- Assess the sustainability of diagnostic revenue growth after the divestitures and normalization of COVID-19 comparisons.
- Separate recurring operating performance from divestiture gains, prior-period revenue estimate changes, milestone payments, and other unusual items.
- Monitor reimbursement trends and volumes in hereditary cancer, tumor profiling, prenatal, and pharmacogenomics.
- Verify progress and independent auditor implications of remediation of the income-tax controls material weakness.
- Track resolution and potential additional exposure from the qui tam, securities, derivative, and other legal proceedings.
- Review the company’s capital deployment plans, facility restrictions, post-waiver covenant compliance, and remaining share-repurchase authorization.