MYRIAD GENETICS INC annual report, FY2023

Myriad Genetics, Inc. Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter filing. Myriad is a genetic testing and precision medicine company operating as one reporting segment across Oncology, Women’s Health, and Pharmacogenomics.

Financial performance and key metrics

Metric	2023	2022	Change
Total revenue	$753.2 million	$678.4 million	+11%
Operating loss	$(257.4) million	$(140.6) million	Wider loss
Net loss	$(263.3) million	$(112.0) million	Wider loss
Basic and diluted loss per share	$(3.18)	$(1.39)	Wider loss
Cash flow from operations	$(110.9) million	$(106.3) million	Greater use of cash
Capital expenditures and internal-use software	$73.3 million	$45.3 million	Higher investment
Cash, cash equivalents and marketable securities	$140.9 million	$169.7 million	Down $28.8 million

• Revenue by category was $327.8 million from Hereditary Cancer, $135.6 million from Tumor Profiling, $151.3 million from Prenatal, and $138.5 million from Pharmacogenomics.
• Testing volumes increased 35% year over year, or 18% excluding SneakPeek. Growth excluding SneakPeek included Pharmacogenomics of 24%, Hereditary Cancer of 17%, Prenatal of 15%, and Tumor Profiling of 2%.
• Cost of testing revenue increased to $236.2 million from $202.0 million. The reported gross margin was approximately 68.6%, down from approximately 70.2% in 2022, as revenue per test declined faster than cost per test.
• Research and development expense increased to $88.7 million from $85.4 million. Selling, general and administrative expense increased to $572.9 million from $514.7 million.
• The approximate operating margin was negative 34.2%, compared with negative 20.7% in 2022. The approximate net margin was negative 35.0%, compared with negative 16.5% in 2022.
• Interest expense was $2.9 million, and other expense was $4.4 million, including a $3.4 million foreign-currency loss and a $1.5 million loss on sales of investment securities.

Liquidity, debt and cash flow

• Cash, cash equivalents and marketable securities totaled $140.9 million at year-end, including $132.1 million of cash and cash equivalents and $8.8 million of marketable securities.
• Operating cash outflow was $110.9 million. Legal settlement payments of $82.8 million were a significant use of cash.
• Investing cash flow was positive $31.9 million, primarily reflecting $105.2 million of proceeds from maturities and sales of marketable securities, partly offset by $63.2 million of capital expenditures and $10.1 million of capitalized internal-use software costs.
• Financing cash flow was positive $152.9 million, including $117.6 million of net proceeds from a November 2023 equity offering and $38.3 million of net proceeds from the ABL Facility.
• At December 31, 2023, the Company had $40.0 million of borrowings under its asset-based revolving credit facility, reported as $38.5 million of long-term debt net of issuance costs. The facility has a maximum commitment of $115.0 million and matures June 30, 2026.
• Reported availability under the ABL Facility was $40.7 million, subject to borrowing-base and minimum-availability requirements. The facility requires minimum liquidity of $60.0 million and minimum availability of $25.0 million before specified fixed-charge coverage conditions are met.
• The ABL Facility carried an interest rate of 9.75% at year-end. A 100-basis-point rate change would affect annual interest expense by approximately $0.4 million based on year-end borrowings.
• Management stated that existing capital resources, expected operating cash flow and borrowing availability should meet anticipated requirements for at least the next 12 months, but noted that additional financing may be required if cash consumption accelerates or operating performance deteriorates.

Material changes versus the prior comparable period

• Revenue increased 11%, driven primarily by higher testing volumes and the inclusion of a full year of SneakPeek revenue following the 2022 Gateway acquisition. SneakPeek contributed $17.8 million of 2023 revenue.
• Average revenue per test declined in several businesses, including an 8% decrease in Hereditary Cancer and a 12% decrease in Pharmacogenomics.
• MyChoice CDx revenue declined $7.3 million, primarily due to a 19% volume decrease, while Prolaris revenue increased $12.8 million.
• Legal settlements increased expenses by $112.8 million, including the $77.5 million securities class action settlement and $34.0 million related to the Ravgen patent settlement.
• In 2022, the Company recorded $16.9 million of goodwill and long-lived asset impairment charges; no such charges were recorded in 2023.
• Cash resources declined despite the equity offering because of operating losses, settlement payments, capital spending, and use of investment securities to fund operations.
• Shares outstanding increased to 89.9 million at year-end from 81.2 million, primarily due to the 7.4 million-share public offering, creating dilution for existing shareholders.

Guidance, outlook, commentary and unusual items

• The filing does not provide clear quantitative revenue, earnings or cash-flow guidance for 2024.
• Management’s strategy emphasizes growth through clinical differentiation, expanded commercial execution, technology-enabled operations, new laboratory facilities, automation, and product launches.
• Expected or planned products include Foresight Universal Plus in the second half of 2024, Precise Liquid and Precise MRD, and FirstGene, which management expects to launch in the first half of 2025. The Company also completed analytical validation and enrollment targets for FirstGene studies during 2023.
• On February 1, 2024, Myriad acquired selected assets from Intermountain Health, including the Precise Tumor Test, Precise Liquid Test and a CLIA-certified laboratory, for an immaterial amount.
• The Company is transitioning operations to new facilities in west Salt Lake City and South San Francisco. The Salt Lake City transition is expected by the second half of 2025, and the South San Francisco transition is expected by 2025. New lease commitments include approximately $79.6 million of future rent in Salt Lake City and $56.7 million in South San Francisco.
• The Company recognized $7.2 million of 2023 revenue from changes in estimates for tests delivered in prior periods, compared with $22.1 million in 2022. Revenue recognition depends substantially on estimates of payor mix, collection rates, contractual adjustments and refunds.
• The securities class action was settled and paid for $77.5 million. The Ravgen settlement requires at least $12.75 million in installment payments through 2025 and may require an additional $21.25 million beginning no earlier than 2026 if specified conditions are satisfied.
• The Company reported no material cybersecurity incidents during 2023 and concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. Ernst & Young issued unqualified audit opinions.

Principal risks and contingencies

• Persistent operating losses and negative operating cash flow may require additional financing. Equity financing could cause further dilution, while debt financing could impose additional covenants.
• Reimbursement pressure, payor denials, recoupment requests, prior authorization requirements and changes under PAMA could reduce revenue and margins. Approximately 62% of revenue comes from private third-party payors, and Medicare represented approximately 12% of 2023 revenue.
• Proposed FDA regulation of laboratory-developed tests could require substantial additional validation, regulatory submissions, costs and operational changes. GeneSight may be particularly affected by evolving FDA scrutiny of pharmacogenomic tests.
• The Company relies on single or limited laboratory facilities and suppliers. Delays or failures in facility transitions, loss of certification, supply shortages, cyberattacks or other disruptions could interrupt testing operations.
• Competition is intense across genetic testing, prenatal screening, oncology diagnostics and pharmacogenomics. Price competition and declining reimbursement may offset volume growth.
• Patent protection and licensing are material to several products. Patent expirations, infringement claims, license terminations or adverse intellectual-property proceedings could restrict commercialization.
• Privacy, cybersecurity, genetic-information, HIPAA, GDPR and other data-protection requirements create compliance, litigation and reputational risks.
• The Company has substantial tax attributes and deferred tax assets, but recorded a $95.0 million valuation allowance against deferred tax assets at year-end. Net unrecognized tax benefits were $48.1 million.

Important facts for investors to verify

• Whether volume growth converts into sustainable revenue and margin expansion despite lower average revenue per test.
• The pace of operating cash-flow improvement and whether year-end liquidity remains adequate after settlement payments, capital spending and lease obligations.
• Compliance with the ABL Facility’s minimum liquidity, availability and other covenants.
• The commercial launch timing, regulatory status, reimbursement prospects and clinical evidence for FirstGene, Precise Liquid, Precise MRD and Foresight Universal Plus.
• The ultimate cash cost and timing of the Ravgen contingent payments and the status of the stayed derivative litigation.
• The financial and operational impact of new laboratory transitions and associated lease commitments.
• Potential effects of FDA LDT regulation, PAMA reimbursement changes and additional payor recoupments.
• Revenue-recognition estimates, including the $7.2 million prior-period estimate adjustment and the $20.1 million reserve for refunds payable and related reserves.