mygn-10q_20190930.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission file number:  0-26642

 

MYRIAD GENETICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

87-0494517

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

320 Wakara Way, Salt Lake City, UT

84108

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code: (801) 584-3600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Public Common Stock, $0.01 par value

 

MYGN

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of November 4, 2019 the registrant had 74,389,024 shares of $0.01 par value common stock outstanding.

 

 


MYRIAD GENETICS, INC.

INDEX TO FORM 10-Q

 

 

 

Page

 

PART I - Financial Information

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2019 and June 30, 2019

3

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended September 30, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended September 30, 2019 and 2018

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended September 30, 2019 and 2018

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

 

PART II - Other Information

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosures

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 

 

 

Signatures

31

 

2


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In millions)

 

 

 

September 30,

 

 

June 30,

 

ASSETS

 

2019

 

 

2019

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

89.9

 

 

$

93.2

 

Marketable investment securities

 

 

52.7

 

 

 

43.7

 

Prepaid expenses

 

 

14.0

 

 

 

16.6

 

Inventory

 

 

28.1

 

 

 

31.4

 

Trade accounts receivable

 

 

117.0

 

 

 

133.9

 

Prepaid taxes

 

 

23.0

 

 

 

25.1

 

Other receivables

 

 

4.8

 

 

 

4.7

 

Total current assets

 

 

329.5

 

 

 

348.6

 

Property, plant and equipment, net

 

 

55.0

 

 

 

57.3

 

Operating lease right-of-use assets

 

 

71.3

 

 

 

 

Long-term marketable investment securities

 

 

51.5

 

 

 

54.9

 

Intangibles, net

 

 

667.8

 

 

 

684.7

 

Goodwill

 

 

416.1

 

 

 

417.2

 

Total assets

 

$

1,591.2

 

 

$

1,562.7

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

24.0

 

 

$

33.3

 

Accrued liabilities

 

 

73.0

 

 

 

78.9

 

Current maturities of operating lease liabilities

 

 

13.0

 

 

 

 

Short-term contingent consideration

 

 

3.3

 

 

 

3.4

 

Deferred revenue

 

 

2.1

 

 

 

2.2

 

Total current liabilities

 

 

115.4

 

 

 

117.8

 

Unrecognized tax benefits

 

 

22.1

 

 

 

21.7

 

Noncurrent operating lease liabilities

 

 

62.6

 

 

 

 

Other long-term liabilities

 

 

7.3

 

 

 

7.8

 

Contingent consideration

 

 

7.4

 

 

 

10.4

 

Long-term debt

 

 

225.0

 

 

 

233.5

 

Long-term deferred taxes

 

 

76.9

 

 

 

82.6

 

Total liabilities

 

 

516.7

 

 

 

473.8

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, 74.4 and 73.5 shares outstanding at September 30, 2019 and

   June 30, 2019 respectively

 

 

0.7

 

 

 

0.7

 

Additional paid-in capital

 

 

1,076.3

 

 

 

1,068.0

 

Accumulated other comprehensive loss

 

 

(7.5

)

 

 

(5.4

)

Retained earnings

 

 

5.0

 

 

 

25.6

 

Total Myriad Genetics, Inc. stockholders’ equity

 

 

1,074.5

 

 

 

1,088.9

 

Non-Controlling Interest

 

 

 

 

 

 

Total stockholders' equity

 

 

1,074.5

 

 

 

1,088.9

 

Total liabilities and stockholders’ equity

 

$

1,591.2

 

 

$

1,562.7

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In millions, except per share amounts)

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Molecular diagnostic testing

 

$

172.0

 

 

$

189.0

 

Pharmaceutical and clinical services

 

 

14.3

 

 

 

13.3

 

Total revenue

 

 

186.3

 

 

 

202.3

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of molecular diagnostic testing

 

 

41.2

 

 

 

42.3

 

Cost of pharmaceutical and clinical services

 

 

8.5

 

 

 

7.4

 

Research and development expense

 

 

21.3

 

 

 

21.1

 

Change in the fair value of contingent consideration

 

 

0.7

 

 

 

0.4

 

Selling, general, and administrative expense

 

 

135.5

 

 

 

129.9

 

Total costs and expenses

 

 

207.2

 

 

 

201.1

 

Operating income (loss)

 

 

(20.9

)

 

 

1.2

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

0.9

 

 

 

0.7

 

Interest expense

 

 

(2.9

)

 

 

(2.2

)

Other

 

 

0.6

 

 

 

1.1

 

Total other expense:

 

 

(1.4

)

 

 

(0.4

)

Income (loss) before income tax

 

 

(22.3

)

 

 

0.8

 

Income tax provision (benefit)

 

 

(1.7

)

 

 

1.6

 

Net income (loss)

 

$

(20.6

)

 

$

(0.8

)

Net loss attributable to non-controlling interest

 

 

 

 

 

(0.1

)

Net income (loss) attributable to Myriad Genetics, Inc. stockholders

 

$

(20.6

)

 

$

(0.7

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.28

)

 

$

(0.01

)

Diluted

 

$

(0.28

)

 

$

(0.01

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

73.7

 

 

 

73.0

 

Diluted

 

 

73.7

 

 

 

73.0

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Net income (loss) attributable to Myriad Genetics, Inc. stockholders

 

$

(20.6

)

 

$

(0.7

)

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 

 

(0.2

)

Change in foreign currency translation adjustment, net of tax

 

 

(2.2

)

 

 

0.4

 

Comprehensive income (loss)

 

 

(22.8

)

 

 

(0.5

)

Comprehensive income attributable to non-controlling interest

 

 

 

 

 

 

Comprehensive income (loss) attributable to Myriad Genetics, Inc.

   shareholders

 

$

(22.8

)

 

$

(0.5

)

 

See accompanying notes to condensed consolidated financial statements.

 

5


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In millions)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Retained

 

 

Myriad

 

 

 

 

 

 

 

Additional

 

 

other

 

 

earnings

 

 

Genetics, Inc.

 

 

 

Common

 

 

paid-in

 

 

comprehensive

 

 

(accumulated

 

 

Stockholders’

 

 

 

stock

 

 

capital

 

 

loss

 

 

deficit)

 

 

equity

 

BALANCES AT JUNE 30, 2018

 

$

0.7

 

 

$

915.4

 

 

$

(4.1

)

 

$

54.1

 

 

$

966.1

 

Issuance of common stock under share-based compensation plans

 

 

 

 

 

1.9

 

 

 

 

 

 

 

 

 

1.9

 

Share-based payment expense

 

 

 

 

 

127.4

 

 

 

 

 

 

 

 

 

127.4

 

Repurchase and retirement of common stock

 

 

 

 

 

7.7

 

 

 

 

 

 

 

 

 

7.7

 

Net income

 

 

 

 

 

 

 

 

 

 

 

(0.7

)

 

 

(0.7

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

(0.2

)

 

 

 

 

 

(0.2

)

BALANCES AT SEPTEMBER 30, 2018

 

$

0.7

 

 

$

1,052.4

 

 

$

(4.3

)

 

$

53.4

 

 

$

1,102.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT JUNE 30, 2019

 

$

0.7

 

 

$

1,068.0

 

 

$

(5.4

)

 

$

25.6

 

 

$

1,088.9

 

Issuance of common stock under share-based

   compensation plans

 

 

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

(0.5

)

Share-based payment expense

 

 

 

 

 

8.8

 

 

 

 

 

 

 

 

 

8.8

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(20.6

)

 

 

(20.6

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

(2.1

)

 

 

 

 

 

(2.1

)

BALANCES AT SEPTEMBER 30, 2019

 

$

0.7

 

 

$

1,076.3

 

 

$

(7.5

)

 

$

5.0

 

 

$

1,074.5

 

 

See accompanying notes to consolidated financial statements.

6


MYRIAD GENETICS, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net Income (loss) attributable to Myriad Genetics, Inc. stockholders

 

$

(20.6

)

 

 

(0.7

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

18.2

 

 

 

18.3

 

Non-cash interest expense

 

 

0.1

 

 

 

(1.3

)

Loss (gain) on disposition of assets

 

 

(0.1

)

 

 

(1.0

)

Share-based compensation expense

 

 

8.8

 

 

 

7.7

 

Deferred income taxes

 

 

(5.1

)

 

 

2.7

 

Unrecognized tax benefits

 

 

0.4

 

 

 

(2.6

)

Change in fair value of contingent consideration

 

 

0.7

 

 

 

(0.4

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

2.6

 

 

 

1.8

 

Trade accounts receivable

 

 

16.7

 

 

 

(3.3

)

Other receivables

 

 

(0.1

)

 

 

(0.3

)

Inventory

 

 

3.1

 

 

 

3.5

 

Prepaid taxes

 

 

2.1

 

 

 

(3.6

)

Accounts payable

 

 

(9.3

)

 

 

(8.4

)

Accrued liabilities

 

 

(1.7

)

 

 

(4.4

)

Deferred revenue

 

 

 

 

 

(0.2

)

Net cash provided by operating activities

 

 

15.8

 

 

 

7.8

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(1.4

)

 

 

(1.3

)

Acquisitions, net of cash acquired

 

 

 

 

 

(279.6

)

Purchases of marketable investment securities

 

 

(23.1

)

 

 

(14.4

)

Proceeds from maturities and sales of marketable investment securities

 

 

17.4

 

 

 

16.3

 

Net cash used in investing activities

 

 

(7.1

)

 

 

(279.0

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Net proceeds from common stock issued under share-based compensation plans

 

 

(0.4

)

 

 

2.1

 

Payment of contingent consideration recognized at acquisition

 

 

(3.3

)

 

 

 

Net proceeds from revolving credit facility

 

 

 

 

 

290.0

 

Repayment of revolving credit facility

 

 

(8.6

)

 

 

(40.0

)

Net cash provided by (used in) financing activities

 

 

(12.3

)

 

 

252.1

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

0.3

 

 

 

1.5

 

Net decrease in cash and cash equivalents

 

 

(3.3

)

 

 

(17.6

)

Cash and cash equivalents at beginning of the period

 

 

93.2

 

 

 

110.9

 

Cash and cash equivalents at end of the period

 

$

89.9

 

 

$

93.3

 

 

See accompanying notes to condensed consolidated financial statements. 

 

7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars and shares in millions, except per share data)

(1)

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by Myriad Genetics, Inc. (the “Company” or “Myriad”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements in accordance with GAAP. The condensed consolidated financial statements herein should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2019, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. Operating results for the three months ended September 30, 2019 may not necessarily be indicative of results to be expected for any other interim period or for the full year.

The consolidated financial statements include the accounts of the Company’s majority-owned subsidiary, Assurex Canada, Ltd. which is 85% owned by Assurex Health, Inc. (“Assurex”), a wholly owned subsidiary of the Company, and 15% owned by the Centre for Addiction and Mental Health. Assurex Canada, Ltd. is a consolidated subsidiary of Assurex Health, Inc. The value of the non-controlling interest represents the portion of Assurex Canada, Ltd.’s profit or loss and net assets that is not held by Assurex Health, Inc. The Company attributes comprehensive income or loss of the subsidiary between the Company and the non-controlling interest based on the respective ownership interest.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

Recently Adopted Standards

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and changing certain lessor accounting requirements. ASU 2016-02 also requires entities to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. On July 1, 2019, the Company adopted ASU 2016-02 under the modified retrospective approach by initially applying ASU 2016-02 at the adoption date, rather than at the beginning of the earliest comparative period presented. Results for the three months ended September 30, 2019 are presented under ASU 2016-02. Prior period amounts were not adjusted and continue to be reported under previous lease accounting guidance.

Under ASU 2016-02, the Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.

As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. When calculating the Company’s incremental borrowing rates, the Company gives consideration to its credit risk, term of the lease, total lease payments and adjust for the impacts of collateral, as necessary. The lease term used may reflect any option to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expenses for the Company's operating leases are recognized on a straight-line basis over the lease term.

ASU 2016-02 provides a number of optional practical expedients in transitioning to ASU 2016-02. The Company has elected the package of practical expedients to avoid reassessing under ASU 2016-02 prior conclusions about lease identification, lease classification and initial direct costs. The Company has also elected the practical expedient allowing the use of hindsight in determining the lease term and assessing impairment of right-of-use ROU assets based on all facts and circumstances through the effective date of the new standard. ASU 2016-02 also provides practical expedients for ongoing lease accounting. The Company has elected the recognition exemption for short-term leases for all leases that qualify. Under this exemption, the Company will not recognize ROU assets or lease liabilities for those leases that qualify as a short-term lease (leases with lease terms of 12 months or less), which includes not recognizing ROU assets or lease liabilities for existing short-term leases in transition. The Company also has elected the practical expedient avoid separating lease and non-lease components for any of its leases within its existing classes of assets.

8


The Company recognized operating lease liabilities of $78.8 and right-of-use assets related to operating leases totaling $74.5 as of the adoption date. These are presented as “Current maturities of operating lease liabilities” for a total of $13.1, “Noncurrent operating lease liabilities” for a total of $65.7, and “Operating lease right-of-use assets” for a total of $74.5 on the Company’s consolidated balance sheet. No adjustments to the beginning retained earnings balance were required.

 

Standards Effective in Future Years and Not Yet Adopted

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”) which introduces new guidance for the accounting for credit losses on certain instruments within its scope. ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. For trade receivables, the Company will be required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. ASU 2016-13 is effective for fiscal years beginning after December 31, 2019, including interim periods within those years. Early application of the guidance is permitted for all entities for fiscal years beginning after December 15, 2018, including the interim periods within those fiscal years. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.

 

(2)

REVENUE

The following table presents detail regarding the composition of our total revenue by product and U.S versus rest of world, “RoW”:

 

 

 

Three months ended September 30,

 

 

 

2019

 

 

2018

 

(In millions)

 

U.S.

 

 

RoW

 

 

Total

 

 

U.S.

 

 

RoW

 

 

Total

 

Molecular diagnostic revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hereditary Cancer Testing

 

$

100.6

 

 

$

3.9

 

 

$

104.5

 

 

$

113.5

 

 

$

2.8

 

 

$

116.3

 

GeneSight

 

 

22.7

 

 

 

 

 

 

22.7

 

 

 

29.3

 

 

 

 

 

 

29.3

 

Prenatal

 

 

23.5

 

 

 

 

 

 

23.5

 

 

 

18.1

 

 

 

 

 

 

18.1

 

VectraDA

 

 

11.0

 

 

 

 

 

 

11.0

 

 

 

13.0

 

 

 

 

 

 

13.0

 

Prolaris

 

 

6.5

 

 

 

 

 

 

6.5

 

 

 

6.2

 

 

 

 

 

 

6.2

 

EndoPredict

 

 

0.5

 

 

 

1.8

 

 

 

2.3

 

 

 

0.3

 

 

 

2.1

 

 

 

2.4

 

Other

 

 

1.4

 

 

 

0.1

 

 

 

1.5

 

 

 

3.6

 

 

 

0.1

 

 

 

3.7

 

Total molecular diagnostic revenue

 

 

166.2

 

 

 

5.8

 

 

 

172.0

 

 

 

184.0

 

 

 

5.0

 

 

 

189.0

 

Pharmaceutical and clinical service revenue

 

 

8.5

 

 

 

5.9

 

 

 

14.3

 

 

 

7.6

 

 

 

5.7

 

 

 

13.3

 

Total revenue

 

$

174.7

 

 

$

11.7

 

 

$

186.3

 

 

$

191.6

 

 

$

10.7

 

 

$

202.3

 

The Company performs its obligation under a contract with a customer by processing diagnostic tests and communicating the test results to customers, in exchange for consideration from the customer. The Company has the right to bill its customers upon the completion of performance obligations and thus does not record contract assets.  Occasionally customers make payments prior to the Company's performance of its contractual obligations.  When this occurs the Company records a contract liability as deferred revenue.  A reconciliation of the beginning and ending balances of deferred revenue is shown in the table below:

 

 

 

Three months ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Deferred revenue - beginning balance

 

$

2.2

 

 

$

2.6

 

Revenue recognized

 

 

(0.4

)

 

 

(1.7

)

Prepayments

 

 

0.3

 

 

 

1.6

 

Deferred revenue - Ending Balance

 

$

2.1

 

 

$

2.5

 

 

9


Myriad Companies generate revenue by performing molecular diagnostic testing and pharmaceutical & clinical services. Revenue from the sale of molecular diagnostic tests and pharmaceutical and clinical services is recorded at the invoiced amount net of any discounts or contractual allowances. The Company has determined that the communication of test results or the completion of clinical and pharmaceutical services indicates transfer of control for revenue recognition purposes.

In accordance with ASU 2014-09, the Company has elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year. Furthermore, the Company has elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its agreements wherein the Company’s right to payment is in an amount that directly corresponds with the value of Company’s performance to date. However, periodically the Company enters into arrangements with customers to provide diagnostic testing and/or pharmaceutical and clinical services that may have terms longer than one year and include multiple performance obligations.  As of September 30, 2019, the aggregate amount of the transaction price of such contracts that is allocated to the remaining performance obligations is $1.8.  

The Company provides discounts such as early payment, self-pay and volume discounts to its customers.  In determining the transaction price, Myriad includes an estimate of the expected amount of consideration as revenue. The Company applies this method consistently for similar contracts when estimating the effect of any uncertainty on an amount of variable consideration to which it will be entitled.  The Company applies the expected value method for sales where the Company has a large number of contracts with similar characteristics.

In addition, the Company considers all the information (historical, current, and forecast) that is reasonably available to identify possible consideration amounts. The Company considers the probability of the variable consideration for each possible scenario. The Company also has significant experience with historical discount patterns and uses this experience to estimate transaction prices. The Company excludes from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer for e.g. sales tax, value added tax etc.

The Company applies the practical expedient related to costs to obtain or fulfill a contract since the amortization period for such costs will be one year or less. Accordingly no costs incurred to obtain or fulfill a contract have been capitalized. The Company also applies the practical expedient for not adjusting revenue recognized for the effects of the time value of money. This practical expedient has been elected because the Company collects very little cash from customers under payment terms and vast majority of payments terms have a payback period of less than one year.

During the three months ended September 30, 2019, the Company recognized a $10.9 decrease in revenue, which resulted in an ($0.11) impact to EPS, for tests in which the performance obligation of delivering the tests results was met in prior periods.  The changes were primarily driven by changes in the estimated transaction price due to contractual adjustments, obtaining updated information from payors and patients that was unknown at the time the performance obligation was met and settlements with third party payors.

 

(3)

ACQUISITIONS

Acquisition of Counsyl, Inc.

 

On July 31, 2018, the Company completed the acquisition of Counsyl, Inc. (“Counsyl”), a leading provider of genetic testing and DNA analysis services, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated May 25, 2018.  Pursuant to the terms of the Merger Agreement, Myriad Merger Sub, Inc., a newly-created wholly-owned subsidiary of the Company, was merged with and into Counsyl, with Counsyl continuing as the surviving corporation and a wholly-owned subsidiary of Myriad.  The Company believes the acquisition allows for greater entry into the high-growth reproductive testing market, with the ability to become a leader in women’s health genetic testing.  

 

The Company acquired Counsyl for total consideration of $405.9, consisting of $278.5 in cash, financed in part by the Amendment to the Facility (see Note 8) and 2,994,251 shares of common stock issued, valued at $127.4.  The shares were issued and valued as of July 31, 2018 at a per share market closing price of $42.53. To complete the purchase transaction, the Company incurred approximately $6.8 of acquisition costs, which were recorded as selling, general and administrative expenses in the period incurred.

 

Of the cash consideration, $5.0 was deposited into an escrow account to fund any post-closing adjustments payable to Myriad based upon differences between the estimated working capital and the actual working capital of Counsyl at closing.

 

10


Consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date. Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. The allocation of the consideration transferred was finalized within the measurement period (which was up to one year from the acquisition date).

 

 

 

Estimated Fair

Value

 

Current assets

 

$

42.5

 

Intangible assets

 

 

290.0

 

Equipment

 

 

18.2

 

Other assets

 

 

0.1

 

Goodwill

 

 

99.3

 

Current liabilities

 

 

(19.6

)

Long term liabilities

 

 

(0.1

)

Deferred tax liability

 

 

(9.2

)

Total fair value purchase price

 

$

421.2

 

Less: Cash acquired

 

 

(15.3

)

Total consideration transferred

 

$

405.9

 

 

Identifiable Intangible Assets

Through its acquisition of Counsyl, the Company acquired intangible assets that consisted of developed screening processes with an estimated fair value of $290.0. The fair values of these developed screening processes were estimated using a probability-weighted income approach that discounts expected future cash flows to present value. Under the probability-weighted income approach, the estimated net cash flows from these developed screening processes were discounted using a discount rate of 12.5%, which is based on the estimated internal rate of return for the acquired developed screening processes and represents the rate that market participants may use to value these intangible assets. The Company will amortize these intangible assets on a straight-line basis over their estimated useful lives of 12 years.      

 

Goodwill

 

The goodwill represents the excess of consideration transferred over the fair value of assets acquired and liabilities assumed from Counsyl and is attributable to the benefits expected from combining the Company’s expertise with Counsyl’s technology and customer insights and the opportunity to integrate genetic screening into clinical practice with OBGYNs.  Changes in goodwill since the Counsyl acquisition as of September 30, 2019 are shown below:

 

 

 

Carrying

 

 

 

amount

 

Balance September 30, 2018

 

$

94.9

 

Fair value adjustment to equipment

 

 

0.7

 

Intangible adjustment

 

 

2.9

 

Working capital adjustment