Business Context and Reporting Period
Myriad Genetics, Inc. is a precision-medicine company focused on molecular diagnostic testing and pharmaceutical and clinical services. This unaudited Form 10-Q covers the three months ended September 30, 2020, compared with the three months ended September 30, 2019. The company subsequently changed its fiscal year-end from June 30 to December 31, creating a six-month transition period ending December 31, 2020.
Reportable segments were diagnostics and other. Management reported that diagnostic test volumes recovered to approximately 90% of pre-pandemic levels by the end of the quarter, compared with 75% at June 30, 2020, although COVID-19 continued to affect demand and patient access to healthcare professionals.
Key Financial Metrics
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Total revenue | $145.2 million | $186.3 million | Down $41.1 million |
| Gross profit | $101.0 million | $136.6 million | Down $35.6 million |
| Gross margin | 69.6% | 73.3% | Down 3.7 percentage points |
| Operating loss | $39.6 million | $20.9 million | Loss increased $18.7 million |
| Operating margin | (27.3%) | (11.2%) | Down 16.1 percentage points |
| Net loss | $15.2 million | $20.6 million | Improved $5.4 million |
| Net loss per share | $0.20 | $0.28 | Improved $0.08 |
| Cash flow from operations | $(59.3) million | $15.8 million | Down $75.1 million |
Molecular diagnostic revenue was $135.7 million, down from $172.0 million. Pharmaceutical and clinical service revenue was $9.5 million, down from $14.3 million, primarily following the sale of the Clinic in February 2020.
Major revenue categories included Hereditary Cancer Testing of $80.6 million, Prenatal of $16.5 million, GeneSight of $11.9 million, Vectra of $9.1 million, myChoice CDx of $7.8 million, Prolaris of $6.4 million, and EndoPredict of $2.8 million.
Cash, cash equivalents, and marketable investment securities totaled $190.6 million at September 30, 2020, down from $254.8 million at June 30, 2020. Cash and cash equivalents were $118.3 million. Net cash used in investing activities was $17.1 million, primarily reflecting proceeds from marketable security maturities, while financing activities used $3.9 million.
Net long-term debt was $224.6 million, consisting of $226.7 million of borrowings less a $2.1 million debt discount. The revolving facility matures July 31, 2023 and had no scheduled principal payments before maturity. The interest rate was 4.5% at September 30, 2020.
Material Changes Versus the Prior Comparable Period
- Revenue declined 22.1%, reflecting COVID-19-related volume reductions, lower average reimbursement per test, and a $2.2 million reduction for estimated future refunds.
- Hereditary Cancer Testing revenue declined $23.9 million, driven primarily by an approximately 18% volume decrease and a 6% decrease in average reimbursement per test.
- GeneSight revenue declined $10.8 million, driven by approximately 28% lower volumes and 27% lower average reimbursement per test.
- Prenatal revenue declined $7.0 million, primarily due to an approximately 34% decline in average reimbursement per test.
- Cost of molecular diagnostic testing declined in absolute dollars but increased to 29.4% of molecular diagnostic revenue from 24.0%, as lower volumes reduced absorption of fixed costs.
- Research and development expense declined to $17.6 million from $21.3 million, primarily due to lower headcount and technology-related costs.
- Selling, general and administrative expense declined to $124.1 million from $135.5 million, reflecting cost-saving measures and the Clinic sale, partly offset by higher legal and leadership-transition costs.
- The company recorded a $28.5 million income tax benefit, compared with $1.7 million, primarily due to the CARES Act net operating loss carryback provisions. The company recognized a $20.0 million net tax benefit related to the CARES Act, including a $14.3 million increase in uncertain tax benefits.
- Operating cash flow changed from $15.8 million provided to $59.3 million used. Key uses included a $107.9 million increase in prepaid taxes and a $17.0 million increase in trade accounts receivable.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide numerical revenue or earnings guidance. Management stated that existing capital resources and expected future sales are currently expected to fund operations and repayment of the revolving facility, but warned that resources could be consumed more rapidly than expected and that additional financing may be required.
COVID-19 remains the principal near-term uncertainty. The company cannot estimate the pandemic’s future effects on operations, financial condition, liquidity, demand, suppliers, workforce, or seasonality. Management also cautioned that historical testing seasonality may not recur.
The amended credit facility waived leverage and interest-coverage covenant compliance through March 31, 2021, added minimum liquidity requirements through March 2021, and added minimum EBITDA requirements for the quarters ending December 31, 2020 and March 31, 2021. The company was compliant at September 30, 2020 but stated that future covenant violations remain possible. A violation could increase interest costs, restrict financing flexibility, or accelerate repayment.
The company will perform annual goodwill impairment testing in the quarter ending December 31, 2020. Deteriorating business conditions, market factors, or strategic changes could result in impairment charges. Intangible assets totaled $590.9 million and goodwill totaled $328.3 million at September 30, 2020.
Significant legal matters include a securities class action, an Illinois insurance-fraud-related action involving Assurex, and a federal and California False Claims Act qui tam action involving Crescendo Bioscience. The filing states that the potential loss or range of loss cannot currently be estimated for these matters.
Management appointed Paul J. Diaz as President and Chief Executive Officer effective August 13, 2020. The company also continued implementation of Oracle Fusion Cloud Services and disclosed risks associated with system implementation and the fiscal year-end change.
Business developments included expanded payer coverage for average-risk prenatal testing, a new Prolaris local coverage determination effective December 6, 2020, expanded pharmacogenomic testing coverage, and German statutory coverage for EndoPredict.
Important Facts for Investors to Verify
- Whether diagnostic volumes continue recovering toward pre-pandemic levels and whether recovery translates into improved revenue and operating leverage.
- Average reimbursement trends, payer contract changes, refund estimates, and Medicare concentration, which represented approximately 16% of revenue.
- Cash burn, the $190.6 million of cash and investments, and the company’s ability to meet minimum liquidity and EBITDA requirements.
- Compliance with the amended credit facility covenants through June 30, 2021 and the risk of acceleration if a default occurs.
- The outcome and potential financial exposure from the disclosed securities, insurance-fraud, and False Claims Act litigation.
- Results of the December 31, 2020 goodwill impairment test and any impairment of the company’s substantial intangible asset balance.
- The impact of the fiscal year-end transition and Oracle Fusion implementation on reporting processes and internal controls.
- The sustainability of the unusually large income tax benefit generated by CARES Act net operating loss carrybacks.