Myriad Genetics, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2013, filed August 14, 2013. The requested “2012 Q4” does not match the filing period; the filing includes unaudited quarterly data for the quarter ended June 30, 2013 and comparative quarters from fiscal 2012.
Business context
Myriad is a molecular diagnostics company offering predictive, personalized and prognostic tests across oncology, women’s health and urology. It operated nine commercial molecular diagnostic tests, marketed primarily through a U.S. sales force of approximately 400 people, and provided companion diagnostic services through Myriad RBM. Strategic priorities included expanding existing products, international expansion and launching new diagnostic products.
Key financial metrics
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Total revenue | $613.2 million | $496.0 million | 24% |
| Molecular diagnostic revenue | $582.4 million | $472.4 million | 23% |
| Companion diagnostic revenue | $30.8 million | $23.6 million | 30% |
| Operating income | $228.0 million | $180.3 million | 26% |
| Net income | $147.1 million | $112.2 million | 31% |
| Diluted EPS | $1.77 | $1.30 | 36% |
| Net cash from operating activities | $173.9 million | $141.8 million | 23% |
Calculated margins were approximately 87.0% gross, 37.2% operating and 24.0% net in FY2013, compared with approximately 87.0%, 36.4% and 22.6%, respectively, in FY2012. Research and development expense increased 26% to $53.7 million, while selling, general and administrative expense increased 21% to $251.8 million.
BRACAnalysis generated $460.3 million, or 75.1% of total revenue, compared with 81.7% in FY2012. BART revenue increased 335% to $59.1 million, primarily due to revised medical guidelines. COLARIS and COLARIS AP revenue increased 20% to $51.9 million.
Liquidity, capital resources and debt
- Cash, cash equivalents and marketable securities were $531.1 million at June 30, 2013, up from $454.2 million.
- Working capital was $419.5 million and stockholders’ equity was $728.6 million.
- The company reported no conventional corporate debt. It held a $21.7 million note receivable from Crescendo Bioscience and an $8.0 million acquisition option asset.
- Capital expenditures were $11.4 million. Investing activities used $75.6 million, largely reflecting purchases and maturities or sales of marketable securities.
- The company repurchased $146.3 million of common stock during FY2013 and had $153.4 million remaining under its repurchase authorization at the filing date.
- Contractual obligations totaled $75.8 million, consisting primarily of $73.2 million of operating leases.
Quarter ended June 30, 2013
| Metric | Q4 FY2013 | Q4 FY2012 |
|---|---|---|
| Total revenue | $174.1 million | $133.0 million |
| Operating income | $65.9 million | $47.3 million |
| Net income | $44.1 million | $29.1 million |
| Diluted EPS | $0.53 | $0.34 |
Material changes and unusual items
- Revenue growth was driven by higher testing volume, particularly BRACAnalysis, COLARIS, COLARIS AP and BART, plus growth in companion diagnostic collaborations.
- The company incurred a $1.5 million impairment charge related to the OnDose license after notifying the licensor of its intent to terminate the agreement.
- Income tax expense was $86.1 million, representing an effective rate of approximately 37%, compared with approximately 39% in FY2012. The company recognized $7.9 million of excess tax benefits from stock-based compensation directly in additional paid-in capital.
- Bad debt expense increased to $33.3 million, and trade accounts receivable rose to $94.3 million from $60.4 million.
- The company invested $5.0 million in RainDance Technologies preferred stock and held less than 5% of that company.
Outlook, commentary and risks
Management stated that existing cash resources and expected operating cash flow should fund current planned operations for the foreseeable future, while noting that additional financing could be required for acquisitions, expanded development programs or changes in the operating plan. The filing did not provide a clear quantitative FY2014 revenue or earnings guidance range.
Management planned three FY2014 launches: myRisk Hereditary Cancer, a 25-gene hereditary cancer panel; myPath Melanoma; and myPlan Lung Cancer. The filing stated that myRisk was expected to have a list price of $4,000 to $4,500, while pricing for the other two tests had not been determined.
- Revenue concentration remains significant: BRACAnalysis represented 75.1% of FY2013 revenue, and most revenue came from third-party payors.
- The June 2013 Supreme Court decision held that naturally occurring isolated DNA is not patent eligible, although cDNA and certain application claims may remain eligible. Myriad subsequently filed patent infringement lawsuits against Ambry Genetics and Gene By Gene.
- Reimbursement reductions, billing disputes, changes in molecular pathology codes, regulatory changes affecting laboratory-developed tests, and healthcare reform could reduce revenue or margins.
- The company relies on single principal laboratories in Salt Lake City, Munich and Austin; operational disruption or loss of certification could materially affect results.
- International expansion exposes the company to reimbursement, regulatory, currency, compliance and collection risks.
- The Crescendo note and acquisition option could result in a loss of up to $25.0 million plus unpaid interest if Crescendo defaults and the option is not exercised.
- The companion diagnostics reporting unit had $56.9 million of goodwill; its estimated fair value exceeded carrying value by slightly more than 10%, making the valuation sensitive to forecasts, discount rates and growth assumptions.
Important facts for investors to verify
- Whether BRACAnalysis revenue concentration continues to decline and whether competing hereditary cancer tests affect volume, pricing or reimbursement.
- The commercial launch timing, reimbursement status and adoption of myRisk, myPath Melanoma and myPlan Lung Cancer.
- The status and potential financial impact of the patent litigation against Ambry Genetics and Gene By Gene following the Supreme Court decision.
- Accounts receivable aging, bad debt trends and the sustainability of reported operating cash flow.
- The collectability of the Crescendo note receivable and the economics and exercise decision for the acquisition option.
- Whether the company maintains its reported liquidity after share repurchases, international expansion and increased research and development spending.