Myriad(US:MYGN)2023-11-06 16:00PART I - Financial Information Financial Statements The company reported increased net losses for the three and nine months ended September 30, 2023, driven by legal charges, with total assets and stockholders' equity decreasing despite improved operating cash flow Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $1,149.1 million while total liabilities increased, leading to a sharp decline in stockholders' equity due to an increased accumulated deficit Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,149.1 | $1,198.7 | ($49.6) | | Cash and cash equivalents | $76.0 | $56.9 | $19.1 | | Marketable investment securities (Current & Long-term) | $10.3 | $112.8 | ($102.5) | | Total Liabilities | $465.7 | $312.9 | $152.8 | | Accrued liabilities | $157.6 | $94.3 | $63.3 | | Long-term debt | $38.5 | $0.0 | $38.5 | | Total Stockholders' Equity | $683.4 | $885.8 | ($202.4) | | Accumulated deficit | ($598.3) | ($366.2) | ($232.1) | Condensed Consolidated Statements of Operations For Q3 and the nine months ended September 30, 2023, revenue increased, but significant legal charges led to a substantial rise in net loss compared to the prior year Statement of Operations Summary (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Testing revenue | $191.9 | $156.4 | $556.6 | $500.6 | | Total costs and expenses | $252.0 | $201.4 | $782.6 | $589.0 | | incl. Legal charges pending settlement | $34.3 | $0.0 | $111.8 | $0.0 | | Operating loss | ($60.1) | ($45.0) | ($226.0) | ($88.4) | | Net loss | ($61.3) | ($35.1) | ($232.1) | ($69.7) | | Net loss per share (basic and diluted) | ($0.75) | ($0.43) | ($2.84) | ($0.87) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operations improved, while investing activities provided cash, and financing activities generated inflow from new debt Cash Flow Summary for the Nine Months Ended September 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($56.2) | ($99.0) | | Net cash provided by (used in) investing activities | $43.9 | ($41.9) | | Net cash provided by (used in) financing activities | $31.0 | ($5.9) | | Net increase (decrease) in cash | $18.6 | ($148.1) | Notes to Condensed Consolidated Financial Statements Key notes detail revenue recognition, significant legal contingencies totaling $111.8 million for settlements, and the establishment of a new $115.0 million asset-based revolving credit facility Testing Revenue by Product (Q3 2023 vs Q3 2022, in millions) | Product Category | Q3 2023 Revenue | Q3 2022 Revenue | Change | | :--- | :--- | :--- | :--- | | Hereditary Cancer | $86.5 | $70.5 | +22.7% | | Tumor Profiling | $30.2 | $30.8 | -1.9% | | Prenatal | $39.5 | $22.1 | +78.7% | | Pharmacogenomics | $35.7 | $33.0 | +8.2% | | Total Revenue | $191.9 | $156.4 | +22.7% | - The company accrued $77.5 million for a securities class action settlement, with $20 million paid in cash and the remaining $57.5 million payable in cash or common stock8587 - The company settled a patent lawsuit with Ravgen, Inc. for a minimum of $12.75 million and a potential additional $21.25 million contingent on future events, with $34.0 million accrued for this matter93 - In June 2023, the company entered a new asset-based revolving credit facility (ABL Facility) for up to $90.0 million and had drawn $40.0 million as of September 30, 2023, with the facility upsized to $115.0 million in October 202351110 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2023 revenue growth to increased testing volumes, while operating expenses rose significantly due to compensation and $111.8 million in legal accruals, with liquidity supported by cash and a new ABL facility Results of Operations Q3 2023 revenue grew 23% year-over-year driven by testing volumes, but increased costs, SG&A expenses, and $34.3 million in legal charges widened the operating loss for both the quarter and nine-month period - Q3 2023 testing volumes grew 40% year-over-year (18% excluding SneakPeek), driven by strong performance in MyRisk (+18%), GeneSight (+19%), and Prenatal (+20% excluding SneakPeek)120 Revenue by Product (Q3 2023 vs Q3 2022, in millions) | Product Category | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Hereditary Cancer | $86.5 | $70.5 | +$16.0 | | Tumor Profiling | $30.2 | $30.8 | ($0.6) | | Prenatal | $39.5 | $22.1 | +$17.4 | | Pharmacogenomics | $35.7 | $33.0 | +$2.7 | | Total Revenue | $191.9 | $156.4 | +$35.5 | - For the nine months ended Sep 30, 2023, legal charges pending settlement amounted to $111.8 million, with no corresponding charges in the prior year136 - SG&A expense for the nine months ended Sep 30, 2023 increased by $60.3 million compared to the prior year, driven by higher compensation costs, legal expenses, depreciation, and rent135 Liquidity and Capital Resources The company's liquidity, comprising $86.3 million in cash and marketable securities and a $115.0 million ABL facility, is deemed sufficient for the next 12 months, despite ongoing operational cash use and litigation costs Liquidity Position (in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $76.0 | $56.9 | | Marketable investment securities | $10.3 | $112.8 | | Total Cash & Marketable Securities | $86.3 | $169.7 | - The company entered an ABL facility in June 2023, subsequently increased to $115.0 million, with $40.0 million outstanding and $48.5 million available as of Sep 30, 2023144 - Cash used in operating activities for the nine months ended Sep 30, 2023, was $56.2 million, compared to $99.0 million in the prior-year period, primarily due to the timing of legal settlement payments152153 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its ABL Facility and foreign currency exposure, primarily from Japanese yen-denominated revenues, without using derivative hedging instruments - The company is exposed to interest rate risk through its ABL Facility, where a 100 basis point change would alter annual interest expense by $0.4 million based on the $40.0 million debt outstanding at September 30, 2023160 - Approximately 10% of revenues are denominated in foreign currencies, primarily the Japanese yen, where a hypothetical 10% change in its value would cause a 1% change in total revenues161 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level163 - No material changes to the company's internal control over financial reporting occurred during the nine months ended September 30, 2023164 PART II - Other Information Legal Proceedings The company refers to Note 13 of the financial statements for details on current legal proceedings, including settled securities class action and patent infringement lawsuits - For information on legal proceedings, the report directs readers to Note 13, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements166 Risk Factors The company faces material risks including potential funding insufficiency, significant litigation costs from settlements like Ravgen's, ongoing pressure from third-party payors, and regulatory uncertainty regarding FDA oversight of Laboratory Developed Tests - The company may need additional funding if cash flow is insufficient, and its ABL Facility contains covenants that could limit its ability to incur more debt169170171 - The company settled a patent infringement lawsuit with Ravgen, Inc. and is required to pay a minimum of $12.75 million, with potential for an additional $21.25 million in contingent payments174 - Failure of third-party payors to provide adequate coverage and payment remains a significant risk, noting ongoing pricing pressure, PAMA impact, and a recent legal victory preventing California from making its PNS program the exclusive provider of cfDNA screening176178180 - Potential changes in FDA regulation of Laboratory Developed Tests (LDTs), through a proposed rule or legislation like the VALID Act, could result in significant delays, additional expenses, and adversely impact operations, with the GeneSight test specifically noted as facing FDA scrutiny184187 Unregistered Sales of Equity Securities and Use of Proceeds The company has a $200.0 million share repurchase program with $110.7 million remaining available, and no shares were repurchased during the nine months ended September 30, 2023 - As of September 30, 2023, $110.7 million remains under the company's $200.0 million share repurchase authorization, with no repurchases made in the first nine months of 2023191 Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans during the fiscal quarter ended September 30, 2023 - No directors or executive officers adopted, modified, or terminated a Rule 10b5-1 trading plan during the third quarter of 2023193 Exhibits The filing includes key exhibits such as new employment and separation agreements, alongside required CEO and CFO certifications - Key exhibits filed include new employment and separation agreements, as well as required CEO and CFO certifications195