Myriad Genetics, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Myriad Genetics is a genetic testing and precision medicine company operating as one reporting segment. Its principal product categories are Hereditary Cancer, Tumor Profiling, Prenatal, and Pharmacogenomics. The filing covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. Results may be affected by testing-volume seasonality, including annual patient deductible resets.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Testing revenue | $181.2 million | $164.9 million | +$16.3 million, +10% |
| Cost of testing revenue | $59.2 million | $48.0 million | +$11.2 million |
| Gross profit | $122.0 million | $116.9 million | +$5.1 million |
| Gross margin | 67.3% | 70.9% | Down 3.6 percentage points |
| Operating loss | $(52.2) million | $(25.6) million | Loss increased $26.6 million |
| Net loss | $(54.7) million | $(20.5) million | Loss increased $34.2 million |
| Net loss per share | $(0.67) | $(0.26) | Lower by $0.41 |
| Cash flow from operations | $(33.2) million | $(46.5) million | Use decreased $13.3 million |
| Capital expenditures | $23.5 million | $6.3 million | +$17.2 million |
Operating margin was approximately negative 28.8% in Q1 2023 versus negative 15.5% in Q1 2022; net margin was approximately negative 30.2% versus negative 12.4%. Selling, general and administrative expense increased $41.1 million to $151.7 million, while research and development expense increased $1.3 million to $22.5 million.
Revenue by product was $75.7 million for Hereditary Cancer, $37.3 million for Tumor Profiling, $36.2 million for Prenatal, and $32.0 million for Pharmacogenomics. First-quarter testing volumes increased 45% year over year, or 21% excluding SneakPeek. MyRisk volumes increased 24% and GeneSight volumes increased 31%.
At March 31, 2023, cash and cash equivalents were $53.6 million, marketable investment securities were $55.5 million, and total cash, cash equivalents and marketable securities were $109.1 million, down from $169.7 million at December 31, 2022. Cash, cash equivalents and restricted cash were $63.1 million. Accounts receivable were $119.1 million and total assets were $1.169 billion.
The company had no borrowings under its amended revolving credit facility. The facility had a $150.0 million revolving commitment, was subject to a $150.0 million minimum liquidity covenant, and expires July 31, 2023. The company was in compliance with applicable financial covenants at March 31, 2023.
Material changes versus the prior comparable period
- Revenue increased 10%, supported by higher volumes across major product categories and $5.5 million of Prenatal revenue from SneakPeek.
- Average revenue per test declined 14% for Hereditary Cancer and 17% for Pharmacogenomics, primarily reflecting changes in estimates and reimbursement dynamics.
- Cost of testing revenue as a percentage of revenue rose to 32.7% from 29.1%, primarily due to product mix and higher compensation costs.
- SG&A increased substantially due to higher compensation, increased commissions and sales and marketing activity, accelerated depreciation, and the absence of $11.4 million of insurance recoveries received in Q1 2022.
- Q1 2023 included $5.7 million of accelerated depreciation related to the planned exit from the Salt Lake City corporate headquarters. Q1 2022 included $10.7 million of impairment charges related to vacated facilities; no comparable impairment was recorded in Q1 2023.
- Operating cash use improved year over year, partly due to $13.2 million of tenant-improvement reimbursements and lower cash use from accrued liabilities, but capital expenditures increased materially.
- Net loss increased to $54.7 million, and accumulated deficit increased to $420.9 million from $366.2 million at year-end 2022.
Guidance, outlook, risks and unusual items
The filing does not provide clear quantitative full-year revenue or earnings guidance. Management stated that its strategy focuses on organic growth, new products, technology-enabled commercial tools, new laboratory facilities, automation, and potential acquisitions. Planned or developing offerings include FirstGene and Precise minimal residual disease testing on a research-use-only basis.
Management believes existing cash, marketable securities and expected operating cash flow will fund anticipated requirements for at least the next 12 months. However, the company cautioned that it may need additional financing, particularly because the revolving facility expires in July 2023, operating activities remain cash consumptive, capital expenditures are significant, and litigation or other costs could exceed expectations.
Key risks include reimbursement reductions or denials, payor recoupment requests, competition, regulatory changes, intellectual-property disputes, litigation, cybersecurity and data risks, supply-chain disruptions, inflation, employee retention, and the ability to commercialize new tests profitably. The company may owe up to an additional $32.5 million to former Gateway equity and incentive holders if specified targets are achieved.
Material legal matters include a securities class action and related derivative litigation, patent litigation brought by Ravgen, a purported class action concerning the accuracy of the Prequel prenatal screening test, and payor recoupment requests. No material legal-loss accrual was recorded, and management had not determined that an unfavorable outcome was probable and reasonably estimable.
In California, the company and Labcorp obtained a permanent injunction against exclusivity rules for the state prenatal screening program, but final judgment and potential appeal remained pending as of the filing. An adverse ultimate outcome could restrict Prequel sales or reduce reimbursement rates.
Most important facts for investors to verify
- Whether Myriad replaced or extended the revolving credit facility before its July 31, 2023 expiration.
- The pace of cash use, capital expenditures, laboratory build-out costs, and progress toward operating profitability.
- Whether volume growth can offset declining average revenue per test and reimbursement pressure.
- The outcome and potential financial exposure from the securities, derivative, patent, Prequel, and payor-related matters.
- The status and economics of FirstGene, Precise MRD, the expanded Illumina relationship, and other planned commercial initiatives.
- Potential Gateway contingent consideration of up to $32.5 million and related liquidity implications.
- Changes in California Prequel access following entry of the final judgment and any appeal by CDPH.