Myriad Genetics, Inc. — Form 10-Q Summary
Business context and reporting period
This filing covers the fiscal quarter and nine months ended March 31, 2013, corresponding to Myriad Genetics’ fiscal third quarter. The company provides molecular diagnostic tests and companion diagnostic services, with principal markets in oncology and women’s health. Its commercial portfolio included BRACAnalysis, COLARIS, COLARIS AP, BART, Prolaris and other predictive, personalized and prognostic tests.
The filing was signed May 8, 2013. The request metadata identifies “2012 Q3,” but the filing itself clearly reports fiscal 2013 third-quarter results and compares them with the periods ended March 31, 2012.
Key financial metrics
| Metric | Three months ended March 31, 2013 | Three months ended March 31, 2012 | Nine months ended March 31, 2013 | Nine months ended March 31, 2012 |
|---|---|---|---|---|
| Total revenue | $156.5 million | $129.8 million | $439.1 million | $363.0 million |
| Operating income | $57.9 million | $46.1 million | $162.1 million | $133.0 million |
| Net income | $37.9 million | $29.6 million | $103.1 million | $83.0 million |
| Diluted EPS | $0.46 | $0.34 | $1.23 | $0.96 |
| Operating cash flow | Not separately provided | Not separately provided | $110.9 million | $100.1 million |
Molecular diagnostic testing revenue increased 20% to $148.4 million in the quarter and 21% to $416.3 million for the nine months. Companion diagnostic services increased 25% to $8.1 million in the quarter and 25% to $22.7 million for the nine months.
Based on reported revenue and cost of revenue, the approximate gross margin was 87.0% in the quarter and 87.0% for the nine months. The approximate operating margin was 37.0% in the quarter and 36.9% for the nine months. These are calculated measures, not separately reported margins.
Growth was led by BART revenue, which increased 392% year over year in the quarter to $16.9 million and 348% for the nine months to $40.3 million. BRACAnalysis remained the largest product, generating $115.4 million in quarterly revenue and $330.6 million for the nine months.
At March 31, 2013, cash and cash equivalents were $112.3 million, current marketable securities were $223.8 million and long-term marketable securities were $126.1 million. Total cash, cash equivalents and marketable securities were approximately $462.3 million, compared with $454.2 million at June 30, 2012. The company reported no senior debt or borrowing balance; it had a $21.0 million note receivable from Crescendo Bioscience.
Material changes versus the prior comparable period
- Quarterly revenue increased 21%, operating income increased 26%, net income increased 28% and diluted EPS increased 35%.
- Nine-month revenue increased 21%, operating income increased 22%, net income increased 24% and diluted EPS increased 28%.
- Research and development expense increased 16% in the quarter and 28% for the nine months, reflecting development of future products, clinical studies and companion diagnostic activities.
- Selling, general and administrative expense increased 18% in the quarter and 19% for the nine months, driven by sales and marketing, international expansion, commissions and higher bad debt expense.
- The company repurchased $124.7 million of common stock during the nine months, including $25.1 million during the quarter. Approximately $174.9 million remained available under the new $200 million repurchase authorization at March 31, 2013.
- Trade accounts receivable increased to $93.2 million from $60.4 million at June 30, 2012, primarily because Medicare payments were delayed while revised BRACAnalysis pricing was finalized.
- The company recorded a $1.5 million impairment charge related to the OnDose license and terminated that license.
Cash flow, liquidity and capital allocation
- Operating cash flow was $110.9 million for the nine months, up from $100.1 million in the prior-year period.
- Investing activities provided $9.0 million, primarily reflecting marketable-securities maturities and sales exceeding purchases; capital expenditures were $8.6 million.
- Financing activities used $93.9 million, principally because of share repurchases, partly offset by $25.5 million from stock issuance under share-based compensation plans.
- Cash and cash equivalents increased $26.0 million during the nine months to $112.3 million.
- Management stated that existing capital resources and expected operating cash generation should fund current and planned operations for the foreseeable future, while noting that acquisitions, development activities, reimbursement changes and weaker operating results could alter capital needs.
Guidance, outlook, commentary and risks
The filing does not provide formal revenue or earnings guidance. Management expected research and development spending to increase over the next several years as the product pipeline expands and expected selling, general and administrative spending to fluctuate with product launches and international expansion.
Management attributed growth to increased testing volumes, broader physician acceptance, expanded sales and marketing efforts, increased BART testing and additional research collaborations. Management also expected Medicare accounts receivable and days sales outstanding to normalize over the following quarters after revised BRACAnalysis billing-code pricing was established.
- Key risks include reimbursement reductions or delays, regulatory changes, patent and intellectual-property challenges, competition, licensing constraints, laboratory operating problems, international expansion costs and failure to commercialize new tests.
- The Association for Molecular Pathology litigation challenging BRCA-related patent claims remained pending before the U.S. Supreme Court, which heard oral arguments on April 15, 2013. Management stated that the lawsuit was not expected to have a material adverse effect, citing more than 500 other claims under 24 patents and related proprietary technology.
- The company was subject to ordinary-course claims and legal proceedings, but management believed any resulting liability would not materially affect financial position, results or cash flows.
- New York State tax returns for fiscal years 2007 through 2009 were under examination. The ultimate tax liability could differ materially from accrued amounts.
- In April 2013, after quarter-end, the company acquired approximately 28 million shares of RainDance Technologies Series E preferred stock for $5.0 million.
Most important facts for investors to verify
- Whether revenue growth, particularly BART and BRACAnalysis volume, continued after March 31, 2013.
- Whether Medicare reimbursement changes reduced accounts receivable balances and days sales outstanding as management anticipated.
- The outcome and commercial implications of the BRCA patent litigation before the Supreme Court.
- The remaining authorization and actual pace of share repurchases, including their effect on cash and share count.
- Whether elevated sales, marketing, research and development, bad debt and international expenses pressured future margins.
- The collectability and strategic outcome of the $21.0 million Crescendo note receivable and related acquisition option.
- Potential impairment of intangible assets, including the remaining $13.5 million of net intangible assets and $56.9 million of goodwill.