MYRIAD GENETICS, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the related notes thereto included in this Quarterly Report on Form 10-Q and the audited Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theSEC onFebruary 25, 2022 . "We," "us," "our," "Myriad" and the "Company" as used in this Quarterly Report on Form 10Q refer toMyriad Genetics, Inc. , aDelaware corporation, and its subsidiaries.
Cautionary Statement Regarding Forward-Looking Statements
TheSEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes," "seek," "could," "continue," "likely," "will," "strategy" and "goal" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to: •uncertainties associated with COVID-19, including its possible effects on our operations and the demand for our products and services and on our ability to efficiently and flexibly manage our business; •the risk that sales and profit margins of our existing molecular diagnostic tests may decline or that we may not be able to operate our business on a profitable basis; •risks related to our ability to generate sufficient revenue from our existing product portfolio or in launching and commercializing new tests; •risks related to changes in governmental or private insurers' coverage and reimbursement levels for our tests or our ability to obtain reimbursement for our new tests at comparable levels to our existing tests; •risks related to increased competition and the development of new competing tests and services; •the risk that we may be unable to develop or achieve commercial success for additional molecular diagnostic tests in a timely manner, or at all; •the risk that we may not successfully develop new markets for our molecular diagnostic tests, including our ability to successfully generate revenue outsidethe United States ; •the risk that licenses to the technology underlying our molecular diagnostic tests and any future tests are terminated or cannot be maintained on satisfactory terms; •risks related to delays or other problems with operating and constructing our laboratory testing facilities; •risks related to public concern over genetic testing in general or our tests in particular; •risks related to regulatory requirements or enforcement inthe United States and foreign countries and changes in the structure of the healthcare system or healthcare payment systems; •risks related to our ability to obtain new corporate collaborations or licenses and acquire or develop new technologies or businesses on satisfactory terms, if at all; •risks related to our ability to successfully integrate and derive benefits from any technologies or businesses that we license, acquire, or develop; •risks related to our projections about the potential market opportunity for our current and future products; •the risk that we or our licensors may be unable to protect or that third parties will infringe the proprietary technologies underlying our tests; •the risk of patent-infringement claims or challenges to the validity of our patents; •risks related to changes in intellectual property laws covering our molecular diagnostic tests, or patents or enforcement, inthe United States and foreign countries; 23 -------------------------------------------------------------------------------- Table of Contents •risks related to security breaches, loss of data and other disruptions, including from cyberattacks; •risks of new, changing and competitive technologies and regulations inthe United States and internationally; •the risk that we may be unable to comply with financial operating covenants under our credit or lending agreements; •risks related to the material weakness related to our general information technology controls, including the impact thereof and our remediation plan, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting; •risks related to current and future lawsuits, including product or professional liability claims; and •other factors discussed under the heading "Risk Factors" contained in Item 1A of our Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission onFebruary 25, 2022 . In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report, or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements in this Quarterly Report attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. General We are a leading genetic testing and precision medicine company dedicated to advancing health and well-being for all. We provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease. We develop and commercialize genetic tests that help assess the risk of developing disease or disease progression or guide treatment decisions across medical specialties where critical genetic insights can significantly improve patient care and lower health care costs. Personalized genetic data and digital and virtual consumer trends are converging to change traditional models of care. Significant growth opportunities exist to help patient populations with pressing health care needs through innovative solutions and services. We are currently executing a strategic transformation and growth plan that aims to capitalize on those trends by focusing on three strategic priorities: (1) innovation that improves clinical outcomes, ease of use, and access, (2) enterprise capabilities to accelerate growth and scale to market opportunity; and (3) a focus on execution and delivery of consistent results. In connection with these strategic priorities, we are focusing our efforts in three key areas where we have specialized products, capabilities, and expertise: Oncology,Women's Health , and Mental Health. In each of these areas, we intend to develop and enhance best-in-class products to support growth, improve patient and provider experience, and reach more patients of all backgrounds. By investing in tech-enabled commercial tools, we believe we will be able to drive increased engagement, improve revenue cycle management, and reduce complexity and cost. We are committed to disciplined management of a key set of initiatives to fulfill our mission and drive long-term growth and profitability. With a foundation of financial, commercial, operational and technological strength, we expect to accelerate growth as we launch a new enterprise commercial model, launch a unified ordering portal, invest in new sequencing technologies, further develop direct-to-consumer channels, and build commercial capabilities to support new products and offerings.
Business Updates
During the quarter endedMarch 31, 2022 , we continued to take meaningful steps to fulfill our mission and execute our strategic transformation and growth plan. We have also made the following recent announcements: •OnFebruary 23, 2022 , we announced that peer-reviewed journalPsychiatry Research published a new analysis of GeneSight Psychotropic showing that the combinatorial approach available in the GeneSight® Psychotropic test is more effective than single-gene testing at predicting setraline metabolism in patients with major depressive disorder.
•On
•On
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Results of Operations for the Three Months Ended
The results of operations for the three months endedMarch 31, 2022 and 2021 are discussed below. Revenue Three months ended March 31, Change % of total revenue (in millions) 2022 2021 2022 2022 2021 Molecular diagnostic revenues: Hereditary Cancer $ 70.9$ 76.1 $ (5.2) 43% 44% Tumor Profiling 32.5 31.0 1.5 20% 18% Prenatal 31.9 23.7 8.2 19% 14% Pharmacogenomics 29.3 17.6 11.7 18% 10% Autoimmune 0.3 10.7 (10.4) -% 6% Other - 0.5 (0.5) -% -% Total molecular diagnostic revenue 164.9 159.6 5.3 Pharmaceutical and clinical services revenue - 13.5 (13.5) -% 8% Total revenue$ 164.9 $ 173.1 $ (8.2) 100% 100% Molecular diagnostic revenues increased$5.3 million for the three months endedMarch 31, 2022 compared to the same period in the prior year. Revenues from Pharmacogenomics increased$11.7 million compared to the same period in the prior year due primarily to a 49% increase in volume. Prenatal revenues increased$8.2 million compared to the same period in the prior year due primarily to a 23% increase in average reimbursement per test and revenue related to tests performed in prior periods. Hereditary Cancer revenues decreased$5.2 million compared to the same period in the prior year due to a 13% decrease in volume, partially offset by a 4% increase in average reimbursement per test. Tumor profiling revenues increased$1.5 million compared to the same period in the prior year. Autoimmune revenues decreased$10.4 million due to the sale of the Myriad Autoimmune business onSeptember 13, 2021 . Pharmaceutical and clinical services revenues were$13.5 million in the prior period. As a result of the sale ofMyriad RBM, Inc. onJuly 1, 2021 , there were no Pharmaceutical and clinical services revenues during the current period. Cost of Sales Three months ended March 31, (in millions) 2022 2021 Change Cost of molecular diagnostic testing$ 48.0 $ 44.1 $ 3.9
Cost of molecular diagnostic testing as a % of revenue 29.1 %
27.6 %
Cost of pharmaceutical and clinical services $ - $ 6.2 $ (6.2)
Cost of pharmaceutical and clinical services as a % of revenue
- % 45.9 %
The cost of molecular diagnostic testing as a percentage of revenue increased
from 27.6% to 29.1% during the three months ended March 31, 2022 compared to the
same period in the prior year. The increase was primarily driven by the shift in
the product mix for the current period.
The cost of pharmaceutical and clinical services as a percentage of revenue was
45.9% for the three months ended March 31, 2021 . The sale of Myriad RBM, Inc.
was completed on July 1, 2021 , and as a result there were no corresponding costs
during the current period.
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Research and Development Expense
Three months ended March 31,
(in millions) 2022 2021 Change
R&D expense $ 21.2 $ 23.1 $ (1.9)
R&D expense as a % of total revenue 12.9 % 13.3 %
Research and development expense for the three months endedMarch 31, 2022 decreased compared to the same period in the prior year primarily due to a decrease in costs incurred in the current period as a result of certain costs related to the Company's strategic transformation initiatives not recurring in the current period.
Selling, General and Administrative Expense
Three months ended March 31,
(in millions) 2022 2021 Change
Selling, general and administrative expense $ 110.6 $ 146.4 $ (35.8)
Selling, general and administrative expense as a % of total revenue
67.1 % 84.6 %
Selling, general and administrative expense decreased for the three months ended
March 31, 2022 compared to the same period in the prior year primarily due to an
$11.0 million decrease in costs incurred in the current period as part of the
Company's strategic transformation initiatives, the receipt of $11.4 million
from insurers to offset the previously accrued Abelli settlement and other legal
expenses, an $8.7 million decrease in compensation-related expenses due to lower
headcount as a result of the divestitures in the prior year, a $2.9 million
decrease in amortization expense due to intangible assets sold in the
divestitures in the prior year, and a $2.7 million decrease in general legal
expenses, partially offset by a $3.0 million increase in marketing expenses.
Three months ended March 31,
(in millions) 2022 2021 Change
Goodwill and long-lived asset impairment charges $ 10.7 $ - $ 10.7
6.5 % - %
Goodwill and long-lived asset impairment charges increased for the three months
ended March 31, 2022 compared to the same period in the prior year primarily due
to the Company recognizing an $8.6 million impairment to right-of-use assets and
a $2.1 million impairment to the related leasehold improvements in the current
period as a result of its decision to no longer use one of its facilities in
order to consolidate space. There were no impairments recognized in the prior
period.
Other Income (Expense), Net
Three months ended March 31,
(in millions) 2022 2021 Change
Other income (expense), net $ (0.8) $ (2.9) $ 2.1
Other income (expense), net decreased for the three months ended March 31, 2022
compared to the same period in the prior year due primarily to a $2.1 million
decrease in interest expense in the current period. The interest expense in the
prior period is related to the debt outstanding at that time with no
corresponding debt outstanding in the current period, as the debt was repaid in
full on July 30, 2021 .
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Income Tax Benefit
Three months ended March 31,
(in millions) 2022 2021 Change
Income tax benefit $ (5.9) $ (10.1) $ 4.2
Effective tax rate 22.3 % 20.4 %
Our tax rate is the product of a blended U.S. federal effective rate of 21.0%
and a blended state income tax rate of approximately 4.2%. 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 ended March 31, 2022 was $5.9 million ,
and our effective tax rate was 22.3%. For the three months ended March 31, 2022 ,
our recognized effective tax rate differs from the U.S. federal statutory rate
primarily due to disallowed executive compensation expenses, disallowed meals
and entertainment expenses, stock compensation expenses and asset impairment
expenses. For the three months ended March 31, 2021 , our recognized effective
tax rate differs from the U.S. federal statutory rate primarily due to
disallowed executive compensation expenses, disallowed meals and entertainment
expenses, and stock compensation expenses.
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Liquidity and Capital Resources
Our primary sources of liquidity are our cash, cash equivalents and marketable investment securities, our cash flows from operations, our cash flows from investing activities, and, in certain circumstances, as discussed below, amounts available for borrowing under our Amended Facility. Our capital deployment strategy focuses on use of resources in the key areas of research and development, technology and acquisitions. We believe that investing organically through research and development or acquisitively to support business strategy provides the best return on invested capital. We believe that our existing capital resources will be sufficient to meet our projected operating requirements for the foreseeable future. In addition, our capital resources and cash on hand may be used for acquisitions or other strategic investments. All previously outstanding borrowings under our Amended Facility, which matures onJuly 31, 2023 , were repaid onJuly 30, 2021 using cash generated from our recent divestitures and as such, we have no outstanding borrowings as ofMarch 31, 2022 . Our available capital resources, however, 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, and the current rising interest rate environment could make any potential financing more difficult or expensive to obtain. In addition, we are subject to financial covenants under our Amended Facility that could limit our ability to incur additional indebtedness or impact our decision to pursue other financing. 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 could be adversely affected. The Amended Facility restricts our ability to make future borrowings if unrestricted cash, cash equivalents and marketable securities exceed$150.0 million , unless such borrowings are used in connection with certain permitted acquisitions. Unrestricted cash, cash equivalents and marketable securities totaled$339.2 million as ofMarch 31, 2022 . Our revolving commitment amount is$250.0 million as ofMarch 31, 2022 . As the Company's total unrestricted cash, cash equivalents, and marketable securities exceeded$150.0 million as ofMarch 31, 2022 , we are unable to make future borrowings unless related to a permitted acquisition. In addition, following the expiration of the waiver of the leverage ratio and interest coverage ratio covenants, which waiver was effective untilMarch 31, 2022 , our ability to borrow under the Amended Facility will be limited if we are unable to comply with those financial covenants. If we are unable to comply with certain covenants and ratios in the Amended Facility, we may be in default under the Amended Facility, which could impact our ability to borrow under the facility or result in the termination of the commitments under the Amended Facility or the Company being required to pay off any outstanding loans or fees and cash collateralize any outstanding letters of credit. In the future, we may seek waivers or amendments from our lenders in order to avoid a future covenant violation, in addition to taking other potential actions. From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. InFebruary 2022 , we entered into a non-cancelable operating lease for approximately 230,000 square feet in westSalt Lake City, Utah . The lease has a term of 15 years, which, along with rent payments, are expected to commence in the third quarter of 2023. Total future rent payments under the lease is approximately$77.8 million . In addition, we have accrued$48.0 million for the settlement of the qui tam lawsuit againstCrescendo Bioscience, LLC and the Company, which is included in Accrued liabilities in our Condensed Consolidated Balance Sheet as ofMarch 31, 2022 . The$48.0 million settlement was subsequently paid inApril 2022 . Due to the continually evolving global situation from the COVID-19 pandemic, it is not possible to predict whether ongoing consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future. Because of the technical nature of our business and our focus on science, research and development, we are highly dependent upon our ability to attract and retain highly qualified and experienced management, scientific, and technical personnel. Competition and compensation for such personnel and other qualified personnel increased as employment vacancies surged during the year endedDecember 31, 2021 and into the quarter endedMarch 31, 2022 , which has increased the difficulty and cost of hiring and retaining qualified personnel. Loss of the services of or failure to recruit additional key management, scientific and technical personnel and other qualified personnel who are necessary to operate our business would adversely affect our business, and it may have a material adverse effect on our business as a whole. Additionally, disruptions to our supply chain could cause shortages of critical materials required to conduct our business, which may have a material adverse effect on our business as a whole. In addition, inflation has had, and we expect it will continue to have, an impact on the costs we incur to attract and retain qualified personnel, costs to generate sales and produce diagnostic testing results, and costs of lab supplies. 28
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The following table represents the balances of cash, cash equivalents and marketable investment securities:
March 31, December 31,
(in millions) 2022 2021 Change
Cash and cash equivalents $ 165.2 $ 258.4 $ (93.2)
Marketable investment securities 103.2 81.4 21.8
Long-term marketable investment securities 70.8 59.0 11.8
Cash, cash equivalents and marketable investment
securities $ 339.2 The decrease in cash, cash equivalents, and marketable investment securities was primarily driven by$46.5 million in cash used by operations,$6.3 million used for capital expenditures, and$4.8 million used for the payment of withholding tax for the issuance of common stock, net of proceeds from the issuance of common stock.
The following table represents the Condensed Consolidated Cash Flow Statement:
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