General
We are a leading precision medicine company acting as a trusted advisor to transform patient lives through pioneering molecular diagnostics. Through our proprietary technologies, we believe we are positioned to identify important disease genes, the proteins they produce, and the biological pathways in which such genes and proteins are involved to better understand the genetic basis of certain human diseases. We believe that identifying these biomarkers (i.e., DNA, RNA and proteins) will enable us to develop novel molecular diagnostic tests that can provide important information to solve unmet medical needs. During the three months endedDecember 31, 2019 , we reported total revenues of$195.1 million and net loss of$8.3 million that included income tax benefit of$(3.1) million resulting in$(0.11) diluted earnings per share. During the six months endedDecember 31, 2019 , we reported total revenues of$381.4 million and net loss of$28.9 million that included income tax benefit of$(4.8) million resulting in$(0.39) diluted earnings per share. Our business units have been aligned with how the Chief Operating Decision Maker reviews performance and makes decisions in managing the Company. The business units have been aggregated into two reportable segments: (i) diagnostics and (ii) other. The diagnostics segment provides testing and collaborative development of testing that is designed to assess an individual's risk for developing disease later in life, identify a patient's likelihood of responding to drug therapy and guide a patient's dosing to ensure optimal treatment, or assess a patient's risk of disease progression and disease recurrence. The other segment provides testing products and services to the pharmaceutical, biotechnology and medical research industries, research and development, and clinical services for patients, and includes corporate services such as finance, human resources, legal and information technology.
Business Highlights
During the quarter endedDecember 31, 2019 , Myriad grew hereditary cancer revenue at a single-digit rate on a year-over-year basis. Additionally, the Company presented data at the San Antonio Breast Cancer Symposium on the ability of its riskScore test to modify cancer risk assessments for women with breast cancer who test positive for a genetic mutation. With GeneSight, the Company announced coverage decisions from additional self-funded insurance plans bringing the total to six. The Company also published the precision medicine analysis of the GUIDED study in theJournal of Clinical Psychiatry . The study evaluated 787 patients at baseline who were on medications with known gene drug interactions. The analysis showed that patients who had their treatment guided by GeneSight saw a 70 percent improvement in remission, 42 percent improvement in response, and a 23 percent improvement in symptoms, all of which were statistically significant. Additionally, the Company published a new analysis of the GUIDED clinical trial using the 6-item Hamilton Depression Rating Scale (HAM-D6) in BMC Psychiatry. The key finding of the study was that there was a statistically significant improvement in all three clinical endpoints of remission, response and symptoms between GeneSight®-guided care and treatment-as-usual at Week 8 using the HAM-D6 scale. Myriad published two new studies with its Prequel non-invasive prenatal screening test. The first study was published in Prenatal Diagnosis demonstrating that Prequel® is the only non-invasive prenatal screening (NIPS) test that outperforms traditional measures of aneuploidy detection across all classes of obesity. The second study was a 58,000 patient study published in Ultrasound in Obstetrics and Gynecology showing Prequel is more sensitive than other technologies in low fetal fraction samples with an industry leading 1 in 1,000 no call rate.
Myriad's Prolaris test received a positive coverage decision from
Myriad achieved several milestones with its companion diagnostic products. First, the Company submitted an application to theU.S. Food and Drug Administration (FDA) to authorize BRACAnalysis® CDx as a companion diagnostic test for Lynparza® in metastatic, castrate-resistant, prostate cancer patients with germline BRCA mutations. Secondly, the Company received FDA approval for BRACAnalysis CDx as a companion diagnostic test for patients with metastatic pancreatic cancer seeking treatment with Lynparza®. With myChoice HRD, the Company received FDA approval as a companion diagnostic in ovarian cancer patients being considered for niraparib PARP inhibitor therapy in accordance with the approved label and received application for Advanced Diagnostic Laboratory Test status for myChoice CDx with an initial price of$4,040 . Finally, the Company received regulatory approval fromJapan's Ministry of Health, Labour and Welfare for the BRACAnalysis® Diagnostic System to help physicians determine which women with breast cancer have Hereditary Breast and Ovarian Cancer (HBOC) syndrome and qualify for additional medical management. 24
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Results of Operations for the Three Months Ended
Revenue Three months ended December 31, (In millions) 2019 2018 Change Revenue$ 195.1 $ 216.8 $ (21.7 ) The decrease in revenue was primarily due to a reduction of$9.0 million in Hereditary Cancer Testing revenue due to reduced reimbursement and a reduction of$14.8 million in Prenatal revenue due to reduced reimbursement, including changes in estimates for tests in which the performance obligation of delivering the test results was met in prior periods.
The following table presents additional detail regarding the composition of our
total revenue for the three months ended
Three months ended December 31, $ % of Total Revenue (In millions) 2019 2018 Change 2019 2018 Molecular diagnostic revenues: Hereditary Cancer Testing$ 117.7 $ 126.7 $ (9.0 ) 60 % 59 % GeneSight 22.5 24.0 (1.5 ) 12 % 11 % Prenatal 16.4 31.2 (14.8 ) 8 % 14 % Vectra 10.3 11.8 (1.5 ) 5 % 6 % Prolaris 6.8 6.1 0.7 4 % 3 % EndoPredict 2.6 2.2 0.4 1 % 1 % Other 4.8 1.0 3.8 3 % 0 % Total molecular diagnostic revenue 181.1 203.0 (21.9 ) Pharmaceutical and clinical service revenue 14.0 13.8 0.2 7 % 6 % Total revenue$ 195.1 $ 216.8 $ (21.7 ) 100 % 100 % Cost of Sales Three months ended December 31, (In millions) 2019 2018 Change Cost of sales$ 49.6 $ 52.1 $ (2.5 )
Cost of sales as a % of sales 25.4 % 24.0 %
Cost of sales as a percentage of revenue increased from 24.0% to 25.4% during
the three months ended
Research and Development Expenses
Three months ended December 31, (In millions) 2019 2018 Change R&D expense$ 18.8 $ 22.4 $ (3.6 ) R&D expense as a % of sales 9.6 % 10.3 % Research and development expense for the three months endedDecember 31, 2019 decreased compared to the same period in the prior year primarily related to synergies recognized as part of the integration of theCounsyl business.
Change in the Fair Value of Contingent Consideration
25 -------------------------------------------------------------------------------- Three months ended December 31, (In millions) 2019 2018
Change
Change in the fair value of contingent consideration$ (0.1 ) $ 1.0 $ (1.1 ) Change in the fair value of contingent consideration as a % of sales (0.1 )%
0.5 %
The fair value of contingent consideration for the three months endedDecember 31, 2019 decreased compared to the same period in the prior year due to changes in timing of expected cash payments associated with the contingent consideration related to the Sividon acquisition.
Selling, General and Administrative Expenses
Three months ended December 31, (In millions) 2019 2018 Change SG&A expense$ 135.6 $ 135.2 $ 0.4 SG&A expense as a % of sales 69.5 % 62.4 % Selling, general and administrative expense increased slightly for the three months endedDecember 31, 2019 compared to the same period in the prior year primarily related to increased legal fees and impairment of goodwill. These were partially offset by reduction in costs related to synergies recognized relating to the integration of theCounsyl business. Other Income (Expense) Three months ended December 31, (In millions) 2019 2018 Change Other income (expense)$ (2.6 ) $ (2.5 ) $ (0.1 )
Other income expense remained flat for the three months ended
Income Tax Expense Three months ended December 31, (In millions) 2019 2018 Change
Income tax expense (benefit)
27.2 % 27.8 % Our tax rate is the product of a blendedU.S. federal effective rate of 21% and a blended state income tax rate of approximately 3%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period. Income tax benefit for the three months endedDecember 31, 2019 is$(3.1) million , and our effective tax rate was 27.2%. The decrease in the effective rate for the three months endedDecember 31, 2019 as compared to the same period in prior year is due to state income taxes, foreign income taxes, and the differences related to the tax effect of equity compensation expense and the deduction realized when exercised, released or sold.
Results of Operations for the six months ended
Six months ended December 31, (In millions) 2019 2018 Change Revenue$ 381.4 $ 419.1 $ (37.7 ) The decrease in revenue was primarily due to a reduction of$20.9 million in Hereditary Cancer Testing revenue due to reduced reimbursement, including changes in estimates for tests in which the performance obligation of delivering the test results was met in 26
-------------------------------------------------------------------------------- prior periods, a reduction of$9.4 million in Prenatal revenue due to reduction in average selling price, including changes in estimates for tests in which the performance obligation of delivering the test results was met in prior periods and a reduction of$8.0 million in GeneSight revenue due to reduced volumes.
The following table presents additional detail regarding the composition of our
total revenue for the six months ended
Six months ended December 31, $ % of Total Revenue (In millions) 2019 2018 Change 2019 2018 Molecular diagnostic revenues: Hereditary Cancer Testing$ 222.2 $ 243.1 $ (20.9 ) 58 % 58 % GeneSight 45.2 53.2 (8.0 ) 12 % 13 % Prenatal 39.9 49.3 (9.4 ) 10 % 12 % Vectra 21.4 24.8 (3.4 ) 6 % 6 % Prolaris 13.3 12.3 1.0 4 % 3 % EndoPredict 4.8 4.6 0.2 1 % 1 % Other 6.3 4.7 1.6 2 % 1 % Total molecular diagnostic revenue 353.1 392.0 (38.9 ) Pharmaceutical and clinical service revenue 28.3 27.1 1.2 7 % 6 % Total revenue$ 381.4 $ 419.1 $ (37.7 ) 100 % 100 % Cost of Sales Six months ended December 31, (In millions) 2019 2018 Change Cost of sales$ 99.3 $ 101.8 $ (2.5 )
Cost of sales as a % of sales 26.0 % 24.3 %
Cost of sales as a percentage of revenue increased from 24.3% to 26.0% during the six months endedDecember 31, 2019 compared to the same period in the prior year. The increase was primarily driven by lower gross margins associated with theCounsyl business and reduction of reimbursement related to Hereditary Cancer and Prenatal, partially offset by the implementation of efficiency programs in our DNA, RNA, and protein based laboratories.
Research and Development Expenses
Six months ended December 31, (In millions) 2019 2018 Change R&D expense$ 40.1 $ 43.5 $ (3.4 ) R&D expense as a % of sales 10.5 % 10.4 %
Research and development expense for the six months ended
Change in the Fair Value of Contingent Consideration
Six months ended December 31, (In millions) 2019 2018 Change Change in the fair value of contingent consideration$ 0.6 $ 1.4 $ (0.8 ) Change in the fair value of contingent consideration as a % of sales 0.2 % 0.3 % 27
-------------------------------------------------------------------------------- The fair value of contingent consideration for the six months endedDecember 31, 2019 decreased compared to the same period in the prior year due to changes in timing of expected cash payments associated with the contingent consideration related to the Sividon acquisition.
Selling, General and Administrative Expenses
Six months ended December 31, (In millions) 2019 2018 Change SG&A expense$ 271.1 $ 265.1 $ 6.0 SG&A expense as a % of sales 71.1 % 63.3 % Selling, general and administrative expense increased for the six months endedDecember 31, 2019 compared to the same period in the prior year primarily related toCounsyl being included for a full six months during the six months endedDecember 31, 2019 compared to only a portion the six months endedDecember 31, 2019 , as well as increased legal fees and impairment of goodwill in the current year. These increases were partially offset by reduction in costs related to synergies recognized relating to the integration of theCounsyl business. Other Income (Expense) Six months ended December 31, (In millions) 2019 2018 Change Other income (expense)$ (4.0 ) $ (2.9 ) $ (1.1 ) For the six months endedDecember 31, 2019 compared to the same period in the prior year, the change in other income expense was primarily driven by a lower gains on dispositions and higher unrealized losses in the current year. Income Tax Expense Six months ended December 31, (In millions) 2019 2018 Change Income tax expense (benefit)$ (4.8 ) $ 2.6 $ (7.4 ) Effective tax rate 14.2 % 59.1 % Our tax rate is the product of a blendedU.S. federal effective rate of 21% and a blended state income tax rate of approximately 3%. Certain significant or unusual items are separately recognized during the period in which they occur and can be a source of variability in the effective tax rates from period to period. Income tax benefit for the six months endedDecember 31, 2019 is$(4.8) million and our effective tax rate was 14.2%. The decrease in the effective rate for the six months endedDecember 31, 2019 as compared to the same period in prior year is due to state income taxes, foreign income taxes, and the differences related to the tax effect of equity compensation expense and the deduction realized when exercised, released or sold.
Liquidity and Capital Resources
We believe that our existing capital resources and the cash to be generated from future sales will be sufficient to meet our projected operating requirements, including contingent consideration and repayment of the outstanding Facility, which matures onJuly 31, 2023 , for the foreseeable future. There are no scheduled principal payments of the Facility prior to its maturity date; however, our available capital resources may be consumed more rapidly than currently expected and we may need or want to raise additional financing. We may not be able to secure such financing in a timely manner or on favorable terms, if at all. Without additional funds, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations and potentially delay development of our diagnostic tests in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected. Our capital deployment strategy focuses on use of resources in three key areas: research and development, acquisitions and the repurchase of our common stock. We believe that research and development provides the best return on invested capital. We also allocate capital for acquisitions that support our business strategy and share repurchases based on business and market conditions. 28
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The following table represents the balances of cash, cash equivalents and marketable investment securities:
December 31, June 30, (In millions) 2019 2019 Change Cash and cash equivalents$ 81.2 $ 93.2 $ (12.0 ) Marketable investment securities 60.4 43.7 16.7 Long-term marketable investment securities 47.6 54.9 (7.3 )
Cash, cash equivalents and marketable investment
securities$ 189.2 $ 191.8 $ (2.6 ) The decrease in cash and cash equivalents was primarily driven by the repayment of principle on the Amended Facility of$8.6 million , and the payment of contingent consideration of$3.9 million related to Sividon. This is partially offset by$13.9 million in cash provided by operations.
The following table represents the condensed consolidated cash flow statement:
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