Myriad Genetics, Inc. Form 10-K Summary
Business context and reporting period
Myriad Genetics is a genetic testing and precision medicine company operating in oncology, women’s health and mental health. Its principal products include hereditary cancer, tumor profiling, prenatal and pharmacogenomic tests, including GeneSight, MyRisk, BRACAnalysis CDx, MyChoice CDx, Prolaris, Prequel, Foresight and SneakPeek.
This filing covers the fiscal year ended December 31, 2022, with comparisons to the year ended December 31, 2021. The company changed from a June 30 fiscal year-end to a calendar year-end effective January 1, 2021.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $678.4 million | $690.6 million | Down $12.2 million |
| Testing revenue | $678.4 million | $666.4 million | Up $12.0 million |
| Operating loss | $140.6 million | $190.5 million | Improved $49.9 million |
| Net loss attributable to stockholders | $112.0 million | $27.2 million | Higher loss of $84.8 million |
| Basic and diluted loss per share | $1.39 | $0.35 | Higher loss per share |
| Cash flow from operations | $(106.3) million | $18.6 million | Decrease of $124.9 million |
| Research and development expense | $85.4 million | $81.9 million | Up $3.5 million |
| Cost of testing revenue as percentage of revenue | 29.8% | 27.9% | Higher by 1.9 percentage points |
Revenue mix shifted toward pharmacogenomics, tumor profiling and prenatal testing. Pharmacogenomics revenue increased $33.9 million, supported primarily by 35% volume growth. Prenatal revenue increased $9.6 million, while tumor profiling revenue increased $7.7 million. Hereditary cancer revenue declined $10.8 million, primarily because of foreign exchange, and autoimmune revenue declined $27.9 million following the 2021 divestiture.
Operating expenses remained high: selling, general and administrative expense was $514.7 million, or 75.9% of revenue, and research and development expense was 12.6% of revenue. The company recorded $16.9 million of impairment charges, primarily related to leased facilities and leasehold improvements.
The 2022 net loss was affected by the absence of $133.4 million of other income recorded in 2021, which primarily reflected gains from divestitures. The 2022 results also included a $28.6 million income tax benefit and $38.1 million of stock-based compensation expense.
Liquidity, capital resources and debt
- Cash, cash equivalents and marketable investment securities totaled $169.7 million at December 31, 2022, down from $397.8 million at December 31, 2021. Restricted cash was $9.5 million.
- Cash used in operations was $106.3 million, including $62.0 million of legal settlement payments.
- Investing cash outflows were $77.5 million, including $57.2 million for the Gateway acquisition and $45.3 million of capital expenditures.
- The company had no outstanding borrowings under its revolving credit facility at year-end. The facility had a $150.0 million commitment, but borrowing was generally restricted because unrestricted cash, cash equivalents and marketable securities exceeded $150.0 million.
- The facility matures July 31, 2023 and includes a $150.0 million minimum liquidity covenant. The company was in compliance with applicable covenants at year-end.
- The company entered into leases with approximately $78.0 million of future rent payments for a West Salt Lake City facility and approximately $58.8 million for a South San Francisco facility. These commitments are expected to commence in the third quarter of 2023.
- The company has $110.7 million remaining under its $200.0 million share repurchase authorization, but made no repurchases during 2022.
Material changes versus the prior comparable period
- Testing revenue grew 1.8%, but total revenue declined because 2021 included $24.2 million of revenue from businesses subsequently divested.
- GeneSight-related pharmacogenomics revenue grew 36%, while pharmacogenomics volume increased 35%.
- Hereditary cancer volumes rebounded, with 10% growth in the second half of 2022 compared with the second half of 2021.
- The company acquired Gateway Genomics on November 1, 2022 for $68.7 million of fair-value consideration, including $48.7 million of goodwill. Gateway contributed $3.3 million of revenue and $2.8 million of net loss after acquisition.
- The company launched Precise Oncology Solutions and continued investments in new laboratories, automation and technology-enabled commercial tools.
- Legal charges declined by $62.0 million because 2021 included accruals for the Crescendo qui tam settlement and the Abelli lawsuit. Those matters were paid or settled in 2022, including $45.25 million to the United States and California and $2.75 million to relator’s counsel in the qui tam matter, and $14.0 million for the Abelli settlement.
- Selling, general and administrative expense decreased $23.1 million, primarily due to lower legal, transformation, amortization, bonus and commission costs, partly offset by higher sales and marketing, compensation, consulting and information technology expenses.
- Cash generation deteriorated substantially because of legal settlements, the Gateway acquisition, capital expenditures and the absence of 2021 divestiture proceeds.
Guidance, outlook, commentary and risks
Management did not provide a clear numerical revenue or earnings guidance range in the supplied filing text. Management expects to launch or advance several products and capabilities in 2023, including the unified ordering portal, FirstGene prenatal screening and Precise MRD on a research-use-only basis. FirstGene was expected to launch in the third quarter of 2023, and Precise Liquid was planned for late 2023.
Management’s strategy emphasizes organic growth, new commercial models, broader physician and patient access, reimbursement expansion, acquisitions and investment in laboratories, automation and digital tools. The filing states that the company has not operated profitably in recent years and may not achieve profitability in the future.
- Reimbursement pressure, coverage restrictions and potential reductions under PAMA could reduce revenue and margins. The next PAMA reporting period was delayed to 2024, with rate reductions potentially beginning in 2024 and continuing through 2026.
- California’s prenatal screening exclusivity regulation remains subject to litigation. A preliminary injunction allowed Myriad to continue offering Prequel in California, but the ultimate ability to offer the test and the applicable reimbursement rates remain uncertain.
- The company faces securities class-action and derivative litigation, patent litigation involving Ravgen, a consumer class action involving Prequel accuracy and periodic payor recoupment requests. No material accrual was recorded for legal contingencies at year-end because an unfavorable outcome was not considered probable and reasonably estimable.
- The Gateway acquisition includes contingent consideration with a maximum potential value of up to $32.5 million, subject to performance targets.
- The company relies on single or limited-source laboratories, suppliers, couriers and information technology systems. A disruption at a laboratory could interrupt testing because each test is processed at a designated facility without a fully redundant backup facility.
- Regulatory uncertainty includes possible future FDA oversight of laboratory-developed tests, potential regulation of GeneSight, continuing requirements for companion diagnostics and evolving international IVD rules.
- Foreign exchange reduced 2022 revenue by approximately $10.4 million. The company does not currently hedge foreign currency exposure.
- Inflation, higher interest rates, competition, cybersecurity incidents, data privacy requirements, COVID-19 or other public health events, intellectual property challenges and difficulty retaining specialized personnel could adversely affect results.
Investor verification checklist
- Verify the company’s ability to reduce operating losses and reach positive operating and free cash flow.
- Assess whether pharmacogenomics growth, particularly GeneSight, can offset weakness or reimbursement pressure in hereditary cancer and prenatal testing.
- Review the July 31, 2023 credit facility maturity, liquidity covenant and the company’s financing alternatives.
- Evaluate the cash requirements and expected returns from the Gateway acquisition, new laboratories and major lease commitments.
- Monitor the California Prequel litigation, Ravgen patent litigation, securities and derivative actions, and potential payor recoupments.
- Assess the effect of PAMA reimbursement changes, private-payor pricing and coverage decisions on average reimbursement per test.
- Review regulatory developments affecting laboratory-developed tests, GeneSight, companion diagnostics and international operations.
- Consider dilution from stock-based compensation and potential future equity financing; 4.4 million potentially dilutive options and restricted stock units were excluded from 2022 diluted EPS.