Myriad Genetics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Myriad Genetics is a genetic testing and precision medicine company operating as one reporting segment across Hereditary Cancer, Tumor Profiling, Prenatal, and Pharmacogenomics products. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the prior-year periods.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Testing revenue | $183.5 million | $179.3 million | $364.7 million | $344.2 million |
| Gross profit | $125.7 million | $129.6 million | $247.7 million | $246.5 million |
| Gross margin | 68.5% | 72.3% | 67.9% | 71.6% |
| Operating loss | $(113.7) million | $(17.8) million | $(165.9) million | $(43.4) million |
| Operating margin | (61.9)% | (9.9)% | (45.5)% | (12.6)% |
| Net loss | $(116.1) million | $(14.1) million | $(170.8) million | $(34.6) million |
| Net loss per share | $(1.42) | $(0.18) | $(2.10) | $(0.43) |
| Cash flow from operations | Not separately provided | Not separately provided | $(34.1) million | $(96.2) million |
Q2 revenue increased 2% year over year. Reported testing volumes increased 38%, or 17% excluding SneakPeek, with MyRisk hereditary cancer volumes up 20% and GeneSight pharmacogenomics volumes up 23%. Revenue growth was constrained by lower average revenue per test and payor-related pricing and administrative changes.
- Q2 product revenue: Hereditary Cancer $76.7 million, Tumor Profiling $36.0 million, Prenatal $35.6 million, and Pharmacogenomics $35.2 million.
- Six-month revenue growth was $20.5 million, or approximately 6%, driven by higher volumes and the Gateway-acquired SneakPeek product, partially offset by lower average revenue per test.
- Q2 cost of testing revenue rose to 31.5% of revenue from 27.7%; six-month cost rose to 32.1% from 28.4%, primarily due to product mix and higher compensation costs.
- Q2 SG&A increased $13.6 million to $140.7 million, including higher compensation, rent, severance, legal, commissions, and sales and marketing costs.
- Research and development expense increased to $21.2 million in Q2 and $43.7 million for six months.
Cash, Debt, Liquidity, and Capital Investment
- Cash and cash equivalents were $102.8 million at June 30, 2023, compared with $56.9 million at December 31, 2022.
- Total cash, cash equivalents, and marketable securities were $127.8 million, down from $169.7 million at year-end 2022. Restricted cash was $9.9 million, bringing cash, cash equivalents, and restricted cash to $112.7 million.
- Operating activities used $34.1 million during the first six months, while capital expenditures were $42.3 million, primarily related to new laboratory and facility construction.
- Investing activities provided $46.4 million, principally from $88.7 million of maturities and sales of marketable securities.
- Financing activities provided $33.5 million, including $40.0 million borrowed under the new ABL Facility, partially offset by debt issuance costs and stock-related tax withholding.
- On June 30, 2023, the Company entered into a secured asset-based revolving credit facility with a $90.0 million initial commitment and a potential $25.0 million increase. The facility matures June 30, 2026.
- Borrowings were $40.0 million at quarter-end, with stated interest of 7.59% and availability of $48.5 million. The facility requires minimum liquidity of $60.0 million and minimum availability of $25.0 million while specified conditions apply.
Material Changes Versus the Prior Comparable Period
- Net loss worsened by $102.0 million in Q2 and $136.2 million for the first six months, primarily because of a $77.5 million accrual for a securities class action settlement and higher operating expenses.
- SG&A as a percentage of revenue increased to 76.7% in Q2 from 70.9% and to 80.2% for six months from 69.1%.
- Gross margin declined because of product mix, higher labor costs, and lower average revenue per test.
- The Company recorded no goodwill or long-lived asset impairment in 2023, compared with $10.7 million in the first half of 2022.
- The Gateway acquisition contributed $5.1 million of Q2 revenue and $10.6 million of first-half revenue in 2023, primarily through SneakPeek.
- The Company ceased using its former Salt Lake City headquarters and is transitioning corporate support operations to a new west Salt Lake City facility. It recorded $5.7 million of accelerated depreciation in the first quarter and has not yet recognized a loss on the vacated lease.
- Stockholders’ equity declined to $735.2 million from $885.8 million at December 31, 2022, primarily due to the period net loss.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide a clear numerical revenue or earnings guidance range. Management expects existing cash, marketable securities, operating cash flow, and ABL availability to meet anticipated cash requirements for at least the next 12 months, including the securities settlement; however, management cautions that resources could be consumed more rapidly than expected.
- Management is focused on Oncology, Women’s Health, and Mental Health, with planned investments in commercial tools, laboratory facilities, automation, product expansion, and new offerings including FirstGene and research-use-only Precise MRD.
- The $77.5 million securities class action settlement was accrued at June 30, 2023. The settlement requires at least $20.0 million in cash and permits up to $57.5 million in freely tradable common stock, subject to court approval. The Company expects to pay the majority in cash using cash on hand, operating cash flow, and the ABL Facility.
- The settlement may dilute existing stockholders if shares are issued. The settlement was expected to receive preliminary approval in the third quarter of 2023 and final judgment in the first quarter of 2024, subject to court proceedings.
- Other legal matters include derivative actions, a patent infringement lawsuit involving Ravgen, a purported class action concerning the Prequel prenatal test, and payor recoupment requests. The filing states that outcomes could materially affect results, cash flows, or financial condition.
- Key operating risks include reimbursement and coverage changes, competition, regulatory and intellectual-property risks, test accuracy and liability claims, cyber and data-security events, facility transitions, labor and supply-chain pressures, inflation, foreign currency exposure, and compliance with ABL covenants.
- A 100-basis-point change in borrowing rates would affect annual interest expense by approximately $0.4 million based on quarter-end debt. Approximately 10% of revenue is denominated in foreign currencies, primarily Japanese yen.
- Management reported effective disclosure controls as of June 30, 2023 and no material changes in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the securities class action settlement receives court approval, the final cash versus stock mix, and the resulting liquidity and dilution.
- Whether testing-volume growth converts into revenue growth despite declining average revenue per test and payor pricing changes.
- Progress toward improved gross margins and reduced SG&A intensity as new facilities and commercial investments mature.
- Compliance with the ABL Facility’s liquidity, availability, fixed-charge coverage, and other covenants.
- Cash usage, capital expenditures, and the Company’s ability to fund settlement obligations while continuing laboratory build-out and product development.
- Developments in the Ravgen patent case, Prequel-related litigation, derivative actions, payor recoupment requests, and other contingencies.