Myriad Genetics, Inc. — Form 10-Q Summary
Business context and reporting period
Myriad Genetics is a molecular diagnostics company offering predictive, personalized and prognostic testing, as well as companion diagnostic services through Myriad RBM. This unaudited report covers the three months ended September 30, 2012, compared with the three months ended September 30, 2011. The fiscal year ended June 30, 2012 is the balance-sheet comparison date.
- Core molecular diagnostic products included BRACAnalysis, COLARIS, COLARIS AP, BART, MELARIS, OnDose, PANEXIA, PREZEON, Prolaris and Theraguide 5-FU.
- The company continued expanding its sales, laboratory and administrative presence in Europe and maintained distributor relationships in selected international markets.
Financial performance and key metrics
| Metric | Three months ended September 30, 2012 | Three months ended September 30, 2011 | Change |
|---|
| Total revenue | $133.4 million | $110.5 million | 21% |
| Molecular diagnostic revenue | $127.3 million | $104.0 million | 22% |
| Companion diagnostic revenue | $6.2 million | $6.5 million | (5%) |
| Operating income | $48.6 million | $41.5 million | 17% |
| Net income | $30.1 million | $25.1 million | 20% |
| Diluted EPS | $0.36 | $0.29 | 24% |
| Net cash from operating activities | $51.4 million | $31.8 million | 61% |
- Approximate gross margin was 87.0% in both periods, based on revenue less molecular and companion diagnostic costs.
- Approximate operating margin was 36.4%, compared with 37.5% in the prior-year quarter; higher research and development and selling, general and administrative expenses offset part of the revenue growth.
- Approximate net margin was 22.6%, compared with 22.7% in the prior-year quarter.
- BRACAnalysis revenue increased 17% to $105.0 million. COLARIS and COLARIS AP revenue increased 26% to $12.1 million, and BART revenue increased 188% to $7.6 million.
- Oncology represented 68% and women’s health 32% of molecular diagnostic revenue in the current quarter.
- Research and development expense increased 34% to $11.4 million. Selling, general and administrative expense increased 22% to $56.1 million, including higher sales and marketing costs, international costs and bad debt expense.
Balance sheet, cash flow, debt and liquidity
| Balance-sheet metric | September 30, 2012 | June 30, 2012 |
|---|
| Cash and cash equivalents | $95.6 million | $86.4 million |
| Current marketable securities | $253.6 million | $254.2 million |
| Long-term marketable securities | $117.1 million | $113.7 million |
| Total assets | $703.1 million | $690.6 million |
| Total liabilities | $67.5 million | $55.0 million |
| Stockholders’ equity | $635.6 million | $635.7 million |
- Cash, cash equivalents and marketable investment securities totaled approximately $466.3 million at September 30, 2012, up $12.1 million from June 30, 2012.
- The filing does not show outstanding borrowings or conventional debt. The company held a $19.7 million note receivable from Crescendo Bioscience, not a debt obligation.
- Operating cash flow was $51.4 million. Investing activities used $5.0 million, including $2.5 million of capital expenditures. Financing activities used $37.1 million, primarily for share repurchases.
- Trade accounts receivable increased to $62.5 million from $60.4 million, while accrued liabilities increased to $43.0 million from $32.8 million.
- The company stated that existing capital resources and expected operating cash flow should fund current and planned operations for the foreseeable future, while noting that additional funding could become necessary if conditions change.
Material changes, outlook, risks and unusual items
- Revenue growth was driven primarily by higher testing volume for BRACAnalysis, COLARIS, COLARIS AP and BART. Companion diagnostic revenue declined modestly.
- The company repurchased 1.84 million shares for $46.2 million during the quarter. Approximately $53.5 million remained available under the current $200 million authorization.
- Weighted-average basic shares declined to 81.6 million from 85.2 million, supporting the increase in EPS. Share-based compensation expense remained significant at $6.6 million.
- The company amended the Crescendo loan agreement to increase the stated interest rate from 6% to 7%. The related three-year acquisition option remained recorded at $8.0 million, with no impairment indicator identified.
- A severe storm affected an important customer base in the Eastern United States. Management expected any effect on testing volume to be short term, but the timing and ultimate revenue impact were not determinable at filing.
- Management expected research and development and selling, general and administrative expenses to continue increasing as the company expands its product pipeline, international operations and commercial activities. The filing provided no quantitative revenue or earnings guidance.
- The company remained involved in the Association for Molecular Pathology litigation challenging patents related to BRACAnalysis. As of the filing, the Court of Appeals had upheld the eligibility of certain composition and method claims while affirming invalidity of five method claims; plaintiffs had petitioned the Supreme Court for review. Management stated that the matter was not expected to have a material adverse impact, citing more than 500 separate claims under 24 other patents.
- New York State tax returns for fiscal years 2007 through 2009 were under examination. Accrued tax amounts could differ from the ultimate assessment.
- Other principal risks included reimbursement changes, regulatory developments, patent challenges, competition, laboratory operating issues, international expansion, product development and acquisition or integration risks.
Investor verification points
- Verify the sustainability of BRACAnalysis and BART volume growth and the concentration of revenue in the molecular diagnostics business.
- Monitor companion diagnostic revenue, research and development spending, selling and marketing costs, bad debt expense and the resulting operating margin.
- Assess the collectability and terms of the $19.7 million Crescendo note receivable and the status of the acquisition option.
- Review the remaining share-repurchase authorization and its effect on cash balances, share count and future EPS.
- Track developments in the BRACAnalysis patent litigation, reimbursement policy, regulatory oversight and intellectual-property protection.
- Reconcile the company’s liquidity outlook with planned international expansion, product development, acquisitions and potential litigation or tax exposures.
