Myriad Genetics Inc. 10-Q Summary: Period Ended December 31, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 31, 2008, and the six months ended on that date. Myriad Genetics, Inc. operates three reportable segments: Research, Molecular Diagnostics, and Pharmaceutical Development. The company is a leading healthcare firm focused on molecular diagnostic products and therapeutic drug development. As of January 30, 2009, 46,804,719 shares of common stock were outstanding.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Dec 31, 2008 | 6 Months Ended Dec 31, 2008 |
|---|---|---|
| Total Revenue | $84,376 | $158,026 |
| Net Income (Loss) | $21,203 | $35,657 |
| Operating Income (Loss) | $17,766 | $31,078 |
| Diluted EPS | $0.43 | $0.73 |
| Cash and Cash Equivalents | $178,985 | $178,985 (Balance Sheet) |
| Total Marketable Securities | $317,937 | $317,937 (Balance Sheet) |
| Net Cash from Operating Activities | N/A | $37,244 |
| Accumulated Deficit | $(168,898) | $(168,898) |
Margins: Gross profit margin for molecular diagnostics was 87% for the three months ended Dec 31, 2008, and 86% for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 49% year-over-year for the quarter ($84.4M vs. $56.7M) and 51% for the six-month period ($158.0M vs. $105.0M). Molecular diagnostic revenue drove this growth, rising 58% in the quarter and 55% over six months due to increased testing volumes.
- Profitability Turnaround: The company reported a net income of $21.2M for the quarter and $35.7M for the six months, a significant improvement from net losses of $5.1M and $13.1M in the comparable 2007 periods.
- Expense Reduction: Research and development (R&D) expenses decreased 27% in the quarter and 30% over six months, primarily due to the discontinuance of an Alzheimer's disease drug candidate.
- Investment Impairment: The company recorded a $2.0 million other-than-temporary impairment loss on marketable investment securities related to Lehman Brothers Holdings, Inc. bonds.
Guidance, Outlook, and Risks
Corporate Restructuring: On October 20, 2008, the Board authorized the separation of the Research and Pharmaceutical Development businesses from the Molecular Diagnostics business. The company anticipates completing this as a pro-rata tax-free dividend distribution in the second calendar quarter of 2009.
Outlook: Management expects R&D and SG&A expenses to fluctuate based on clinical trial progress and new product launches. While the company believes it has adequate capital for at least the next two years, future funding needs depend on clinical trial outcomes and regulatory approvals.
Risks and Contingencies:
- Investment Portfolio: Market conditions have caused uncertainty in valuing auction rate securities and corporate bonds. While unrealized losses are currently deemed temporary, the ultimate value may change.
- Clinical Development: Significant risks exist regarding the timing, cost, and success of clinical trials for drug candidates such as Azixa and Vivecon.
- Spin-off Execution: Completion of the proposed separation is subject to SEC filings and solvency opinions.
Key Facts for Investor Verification
- Verify the status and timeline of the proposed spin-off of the research and pharmaceutical segments.
- Monitor the valuation and liquidity of the $317.9 million marketable securities portfolio, specifically regarding auction rate securities and financial institution bonds.
- Track the progress and results of Phase 2 clinical trials for Azixa (brain tumors) and Vivecon (AIDS).
- Confirm the sustainability of the 55-58% growth rate in molecular diagnostic revenue.
- Review the impact of the $7 million acquisition of Bevirimat (HIV treatment) announced as a subsequent event on January 20, 2009.