Business Context and Reporting Period
Myriad Genetics, Inc. filed this Form 10-K for the fiscal year ended June 30, 2015, not a standalone 2014 fourth-quarter filing. Myriad is a molecular diagnostics company focused primarily on hereditary cancer testing, with additional autoimmune, urology, dermatology, companion diagnostic, pharmaceutical and clinical services businesses.
- Approximately 88% of fiscal 2015 revenue came from hereditary cancer products.
- MyRisk revenue increased to $320.7 million, while BRACAnalysis revenue declined to $237.6 million as the portfolio transitioned from single-syndrome testing to panel testing.
- Approximately 72% of hereditary cancer testing had transitioned to MyRisk by June 30, 2015.
- Vectra DA represented 6.0% of total revenue; Myriad RBM represented 2.9%.
Financial Performance and Liquidity
| Metric | Fiscal 2015 | Fiscal 2014 | Change |
|---|---|---|---|
| Total revenue | $723.1 million | $778.2 million | Down $55.1 million, or approximately 7.1% |
| Molecular diagnostic revenue | $695.5 million | $748.2 million | Down $52.7 million |
| Pharmaceutical and clinical services revenue | $27.6 million | $30.0 million | Down $2.4 million |
| Operating income | $134.2 million | $274.4 million | Down $140.2 million |
| Operating margin | 18.6% | 35.3% | Down approximately 16.7 percentage points |
| Net income | $80.2 million | $176.2 million | Down $96.0 million |
| Diluted EPS | $1.08 | $2.25 | Down $1.17 |
| Net margin | 11.1% | 22.6% | Down approximately 11.5 percentage points |
| Cash flow from operations | $140.5 million | $190.2 million | Down $49.7 million |
| Cash, cash equivalents and marketable securities | $185.4 million | $270.5 million | Down $85.1 million |
| Working capital | $214.9 million | $241.8 million | Down $26.9 million |
Cost of sales increased to $147.4 million, or 20.4% of revenue, from $109.2 million, or 14.0%, primarily because of higher costs associated with MyRisk, products not yet receiving reimbursement, and a full year of Vectra DA. Research and development expense increased to $75.5 million from $67.5 million, while selling, general and administrative expense increased to $366.0 million from $327.1 million.
The filing does not disclose material funded debt. Total liabilities were $104.1 million at June 30, 2015, including $26.4 million of unrecognized tax benefits and $8.8 million of other long-term liabilities. Stockholders’ equity was $662.1 million.
Cash flow from investing activities was $40.9 million, including $20.1 million for the German Clinic acquisition and $23.9 million of capital expenditures. Financing activities used $177.3 million, principally reflecting $210.7 million of share repurchases. The company had $155.0 million remaining under its share-repurchase authorization at year-end.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because fiscal 2014 included an approximately $50.0 million one-time BRACAnalysis demand increase associated with celebrity publicity. Fiscal 2015 also reflected a $12.0 million lost payor contract and a $3.0 million Medicare reimbursement reduction.
- These declines were partially offset by $29.7 million from a full year of Vectra DA revenue following the Crescendo acquisition.
- MyRisk revenue grew by $267.0 million, while BRACAnalysis revenue fell by $280.3 million.
- Operating income and net income fell sharply as revenue declined while cost of sales, research and development, and SG&A increased.
- SG&A included $15.9 million of share-based compensation related to executive transition costs, including approximately $3.1 million related to the former CFO and $12.8 million related to the former CEO.
- The company acquired Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG in Germany for $20.1 million on February 27, 2015, recording preliminary goodwill and assuming pension obligations.
- Myriad received FDA premarket approval in December 2014 for BRACAnalysis CDx, a companion diagnostic for AstraZeneca’s Lynparza.
- Cash and marketable securities declined primarily because of $210.7 million of stock repurchases and the German Clinic acquisition, partly offset by $140.5 million of operating cash flow.
Outlook, Risks, Contingencies and Unusual Items
Management stated that existing capital resources and expected operating cash flow should fund current and planned operations for the foreseeable future, while acknowledging that additional financing could become necessary if spending, acquisitions, development programs or international expansion consume cash faster than expected. The filing does not provide a specific fiscal 2016 revenue or earnings guidance range.
- Key strategic priorities are completing the transition to MyRisk, launching additional tests, expanding internationally and developing companion diagnostics.
- Principal commercial risks include intense competition after the 2013 Supreme Court decision invalidating certain hereditary cancer patent claims, reimbursement reductions, loss of payor contracts, pricing pressure and dependence on hereditary cancer testing.
- Regulatory uncertainty includes possible future FDA oversight of laboratory-developed tests and the cost and timing of companion diagnostic approvals.
- Approximately 85% of revenue came from private third-party payors, creating exposure to coverage decisions, collection risk and reimbursement changes.
- The company relies on single principal laboratory facilities for major testing operations, creating concentration and business interruption risk.
- Contractual obligations totaled $102.9 million, including $38.9 million of purchase obligations and $64.0 million of operating leases.
- A Crescendo vendor agreement included approximately $33.4 million of remaining unconditional purchase obligations, primarily over fiscal 2016 and 2017.
- The company disclosed no material litigation expected to affect its financial position or results, no off-balance-sheet arrangements and no goodwill impairment for fiscal 2015.
- Foreign exchange losses reduced comprehensive income, and the company does not use hedging strategies for foreign currency exposure.
- Ernst & Young issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important Facts for Investors to Verify
- Whether MyRisk growth can replace declining BRACAnalysis revenue without further erosion in revenue, gross margin and operating margin.
- Current reimbursement status and pricing for MyRisk, Vectra DA and other recently launched products.
- The sustainability of revenue excluding the fiscal 2014 celebrity-related BRACAnalysis increase.
- The impact of executive-transition share-based compensation and other acquisition-related costs on normalized earnings.
- Remaining share-repurchase capacity and the effect of future repurchases on cash, liquidity and share count.
- Potential FDA regulation of laboratory-developed tests and the approval pipeline for additional companion diagnostics.
- The carrying values and future performance of goodwill and acquired intangible assets, particularly the Crescendo and German Clinic businesses.
- The company’s exposure to payor concentration, reimbursement reductions, data privacy requirements, patent disputes and laboratory-operational interruptions.
- Because the supplied filing is a fiscal 2015 10-K, investors seeking 2014 Q4-specific results should verify the applicable fiscal quarter and comparable quarterly filing separately.