Myriad Genetics, Inc. Form 10-Q Summary
Reporting period: The filing is for the three and nine months ended March 31, 2012, the third quarter of fiscal 2012, although the request metadata identifies “2011 Q3.” The filing was signed May 2, 2012. Myriad develops and markets molecular diagnostic tests and companion diagnostic services, with principal markets in oncology and women’s health.
Financial Results and Position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Total revenue | $129.8 million, up 27% | $363.0 million, up 23% |
| Operating income | $46.1 million; 35.5% margin | $133.0 million; 36.6% margin |
| Net income | $29.6 million, up 6% | $83.0 million, up 11% |
| Diluted EPS | $0.34, versus $0.31 | $0.96, versus $0.80 |
| Estimated gross margin | 86.7% | 86.9% |
| Operating cash flow | Not separately provided | $100.1 million, versus $94.5 million |
- Molecular diagnostic revenue was $123.3 million for the quarter and $344.9 million for the nine months, increasing 20% and 17%, respectively. Companion diagnostic revenue contributed $6.5 million for the quarter and $18.1 million year to date following the Myriad RBM acquisition.
- Quarterly revenue included BRACAnalysis revenue of $105.9 million, COLARIS and COLARIS AP revenue of $11.2 million, and other molecular diagnostic revenue of $6.2 million.
- Research and development expense increased 76% to $11.8 million in the quarter and 65% to $30.5 million for the nine months. Selling, general and administrative expense increased 28% to $54.7 million in the quarter and 21% to $151.8 million year to date.
- Bad debt expense was $17.5 million for the nine months, compared with $12.3 million in the prior-year period, contributing to higher selling, general and administrative expense.
- Cash and cash equivalents were $104.9 million at March 31, 2012, compared with $52.7 million at June 30, 2011. Cash, cash equivalents, and marketable investment securities totaled $466.7 million, up from $417.3 million.
- Current assets were $418.7 million versus current liabilities of $37.1 million. The filing lists no conventional debt outstanding; the $25.0 million Crescendo term loan is recorded as a note receivable asset.
- Stockholders’ equity was $652.2 million, compared with $566.8 million at June 30, 2011. The accumulated deficit declined to approximately $0.1 million.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by higher molecular diagnostic testing volume, broader sales, marketing and education efforts, and the addition of Myriad RBM’s companion diagnostic services.
- Myriad RBM contributed $6.5 million of quarterly revenue and $18.1 million of year-to-date revenue, together with incremental administrative and research costs.
- Research and development spending increased substantially because of companion diagnostic discovery, clinical studies supporting existing products, future product development, and in-licensed candidates.
- International administrative costs increased as European operations expanded.
- Shares outstanding declined due to repurchases. The company repurchased 502,008 shares during the quarter for approximately $12.0 million and had approximately $160.6 million remaining under its $200 million ongoing repurchase authorization at March 31, 2012.
- Income tax expense increased to $17.9 million for the quarter and $53.1 million for the nine months. Effective tax rates were approximately 38% and 39%, compared with 34% and 36% in the prior-year periods.
Cash Flow, Outlook, Risks, and Unusual Items
- Operating cash flow was $100.1 million for the nine months. Investing activities used $30.7 million, including $7.2 million of capital expenditures, $0.8 million for the Myriad RBM acquisition, an $8.0 million Crescendo purchase option, and a $17.0 million Crescendo note receivable investment.
- Financing activities used $17.2 million, primarily reflecting $67.5 million of share repurchases, partially offset by stock-option proceeds and excess tax benefits.
- Management stated that existing capital resources and expected operating cash flow should fund current and planned operations for the foreseeable future, but provided no specific revenue, earnings, or margin guidance.
- Management expects research and development and selling, general and administrative expenses to continue increasing as the company develops its pipeline, expands internationally, supports existing products, and launches additional diagnostic services.
- Myriad holds an exclusive three-year option to acquire Crescendo Bioscience. The option was recorded at $8.0 million and the related note receivable at $17.0 million. The note bears stated interest at 6% and is subject to collectability risk; no impairment indicator was identified at March 31, 2012.
- The Association for Molecular Pathology litigation challenging BRCA-related patent claims remains unresolved. The Supreme Court vacated the Federal Circuit decision and remanded the case for reconsideration following the Mayo v. Prometheus decision. Management believes the litigation will not have a material adverse effect, citing additional unchallenged patent claims and patents.
- Other key risks include reimbursement changes, regulatory developments, patent challenges, competition, licensing risks, laboratory operating issues, international expansion, acquisitions, and the ability to sustain testing volumes and margins.
- The company plans to early adopt new goodwill impairment guidance for its fiscal 2012 annual assessment. No goodwill impairment was recorded during the reported periods.
Important Facts for Investors to Verify
- Confirm that the applicable comparison is fiscal third quarter 2012, ended March 31, 2012, rather than calendar or fiscal 2011 third quarter.
- Assess the sustainability of revenue growth and the concentration of revenue in BRACAnalysis and molecular diagnostic testing.
- Review the increase in bad debt expense, receivables, reimbursement exposure, and collection assumptions.
- Evaluate whether rising research, sales, international, and administrative expenses could pressure future operating margins.
- Review the terms, valuation, collectability, and potential acquisition consequences of the Crescendo note and purchase option.
- Monitor the remanded BRCA patent litigation and any potential effect on testing rights, competition, and intellectual property protection.
- Reconcile operating cash flow with changes in receivables, prepaid taxes, inventory, share-based compensation, and excess tax benefits.
- Review the remaining share repurchase authorization and its effects on cash balances, shares outstanding, and earnings per share.