Myriad Genetics, Inc. — Form 10-Q Summary
Business context and reporting period
Myriad Genetics is a genetic testing and precision medicine company operating as a single reporting segment. The company develops and commercializes molecular diagnostic tests across oncology, women's health, mental health, and other specialties. This filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results reflect the divestiture of Myriad RBM in July 2021 and the sale of the Autoimmune business in September 2021.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $164.9 million | $173.1 million | Down $8.2 million |
| Molecular diagnostic revenue | $164.9 million | $159.6 million | Up $5.3 million |
| Operating loss | $25.6 million | $46.7 million | Improved $21.1 million |
| Net loss | $20.5 million | $39.5 million | Improved $19.0 million |
| Net loss per share | $0.26 | $0.52 | Improved $0.26 |
| Cash flow from operations | $(46.5) million | $71.8 million | Down $118.3 million |
| Capital expenditures | $6.3 million | $7.1 million | Down $0.8 million |
Molecular diagnostic gross margin was approximately 70.9%, compared with 72.4% in the prior-year quarter, as cost of molecular diagnostic testing increased to 29.1% of revenue from 27.6%. The filing does not provide a consolidated gross margin that is directly comparable because pharmaceutical and clinical services were no longer reported in the current period.
Revenue trends included increases in Pharmacogenomics of $11.7 million, primarily from a 49% volume increase; Prenatal revenue of $8.2 million, supported by a 23% increase in average reimbursement per test and prior-period test revenue; and Tumor Profiling revenue of $1.5 million. Hereditary Cancer revenue declined $5.2 million, principally due to a 13% volume decrease. Autoimmune revenue declined $10.4 million following the business sale.
Cash, cash equivalents, and marketable investment securities totaled $339.2 million at March 31, 2022, down from $398.8 million at December 31, 2021. Cash and cash equivalents were $165.2 million. The company had no outstanding borrowings under its revolving credit facility, which had a $250.0 million commitment at quarter-end. However, borrowings were restricted because unrestricted cash, cash equivalents, and marketable securities exceeded $150.0 million, unless used for a permitted acquisition.
Material changes versus the prior comparable period
- Total revenue decreased because the prior-year period included $13.5 million of pharmaceutical and clinical services revenue, while current-period molecular diagnostic revenue increased $5.3 million.
- Selling, general and administrative expense declined $35.8 million to $110.6 million, primarily due to lower strategic transformation costs, insurance proceeds related to the Abelli settlement and other legal expenses, lower compensation costs, lower amortization, and lower general legal expenses. These savings were partly offset by higher marketing costs.
- Research and development expense decreased $1.9 million to $21.2 million, primarily because certain strategic transformation costs did not recur.
- The company recorded $10.7 million of impairment charges related to exiting a Salt Lake City facility, including $8.6 million for right-of-use assets and $2.1 million for leasehold improvements.
- Interest expense declined by $2.1 million because debt was fully repaid in July 2021.
- Operating cash flow changed from $71.8 million provided in Q1 2021 to $46.5 million used in Q1 2022. The prior-year period benefited from an approximately $89.6 million federal tax refund, while the current period included lower accrued liabilities and working-capital uses.
- The $29.7 million of advance Medicare payments received in 2020 had been fully recognized as revenue by March 31, 2022; deferred revenue declined to $0.7 million from $31.1 million at March 31, 2021.
Guidance, outlook, commentary, risks, and unusual items
Management stated that it is executing a strategic transformation focused on innovation, enterprise capabilities, and execution. Priorities include oncology, women's health, and mental health, supported by a new commercial model, a unified ordering portal, sequencing technologies, direct-to-consumer channels, and expanded commercial capabilities. The filing does not provide specific quantitative revenue or earnings guidance.
Management believes existing capital resources will be sufficient for projected operating requirements for the foreseeable future, but cautions that cash could be consumed faster than expected and additional financing may become necessary. Risks include COVID-19 effects, seasonality, reimbursement and coverage changes, competition, product commercialization, regulatory requirements, intellectual property, cybersecurity, personnel retention, supply-chain disruptions, inflation, and potential credit-facility covenant violations.
The company accrued $48.0 million for a qui tam lawsuit at March 31, 2022. It subsequently settled the matter on April 1, 2022 for $48.0 million in total and paid the settlement on April 7, 2022. The case was formally dismissed on May 4, 2022. Other securities class action, derivative actions, a prenatal-test class action, and payor recoupment matters remain potential sources of exposure; the filing does not provide a clear quantified loss estimate for these matters.
The company entered into a 15-year, approximately 230,000-square-foot Salt Lake City lease in the first quarter. Rent payments are expected to begin in the third quarter of 2023, with total future rent payments of approximately $77.8 million.
Disclosure controls were determined to be ineffective as of March 31, 2022 because a previously identified material weakness in general information technology controls had not been remediated. Management stated that the separate material weakness related to the income tax provision process had been remediated.
Important facts for investors to verify
- Whether molecular diagnostic volume and reimbursement trends, particularly in Hereditary Cancer, Prenatal, and Pharmacogenomics, are sustainable.
- The pace and cost of remediation of the material weakness in general information technology controls.
- The effect of the $48.0 million qui tam settlement on second-quarter 2022 cash flow and liquidity.
- Compliance with leverage and interest coverage covenants beginning with the quarter ended June 30, 2022, after the prior covenant waiver expired.
- The potential financial impact and timing of the securities class action, derivative actions, prenatal-test litigation, and payor recoupment requests.
- Execution of the strategic transformation, including new commercial initiatives, product launches, and the planned Salt Lake City facility.