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Myriad Genetics Q2 Revenues Decrease 10 Percent; CEO Mark Capone Steps Down

NEW YORK– Myriad Genetics reported after the close of the market on Thursday that its fiscal second quarter revenues declined 10 percent year over year due to billing issues in its prenatal business.

For the three months ended Dec. 31, 2019 the firm reported total revenues of $195.1 million, compared to $216.8 million in the year-ago period and far short of the consensus Wall Street estimate of $209.8 million, and its previously stated guidance.

At the end of Q1, during which the company had also reported an 8 percent decrease in year-over-year revenues, Myriad had said it expected fiscal Q2 2020 revenues of $210 million to $212 million.

Amid another financial miss, the company announced that current CEO Mark Capone would step down immediately and CFO Bryan Riggsbee would take the helm in the interim. Capone has also resigned as a member of the company's board.

"As we position Myriad for its next phase of growth and value creation, the board and Mark have mutually agreed that now is the right time for a leadership transition," said John Henderson, chairman of Myriad's Board of Directors. "We are committed to taking the necessary steps to enhance our performance and are confident in the strength of our product pipeline to deliver on our value creation objectives."

According to the company, the revenue shortfall was due to billing changes in the prenatal testing segment, which Myriad garnered through its acquisition of Counsyl. Sales in the prenatal business were down 47 percent year over year to $16.4 million from $31.2 million.

"Prenatal cash collections were negatively impacted by issues in billing operations that occurred during the transition of the homegrown Counsyl billing system to an industry-standard system used by Myriad," Riggsbee said in a statement. "We are in the process of implementing a number of initiatives focused on improving cash collections, have made several organizational changes to bolster growth, and are evaluating additional initiatives."

In a conference call recapping earnings, Riggsbee added that the billing transition issues are already resolved, but Myriad took a $10 million hit in its prenatal testing business in the second quarter. Myriad had to adjust recognized revenues in prior quarters due to lower cash collections. If the company is able to ultimately collect on these past orders, it could result in a positive out-of-period revenue adjustment in the future, he said. 

Myriad's total molecular diagnostic testing revenues were down 11 percent to $181.1 million from $203.0 million in Q2 2019. Hereditary cancer test sales declined 7 percent to $117.7 million from $126.7 million. Revenues for the Vectra DA rheumatoid arthritis test were also down 13 percent to $10.3 million from $11.8 million. GeneSight pharmacogenetic test revenues dropped 6 percent to $22.5 million from $24.0 million in Q2 2019.

Myriad also had a shortfall in GeneSight cash collections from UnitedHealthcare, Riggsbee said during the call. In a coverage policy that took effect on Oct. 1, UHC said it would cover pharmacogenetic multi-gene panels for guiding use of antidepressants and antipsychotic drugs for patients with major depressive disorder or anxiety under certain conditions. 

"While we had anticipated sequential revenue growth from the UnitedHealthcare coverage decision, cash collections were lower than anticipated," Riggsbee said. A larger proportion of samples were denied — more than the 30 percent denial rate Myriad had assumed. The amount patients were expected to pay was also higher than what the company had expected, which lowered GeneSight's average selling price.

However, Prolaris prostate cancer test revenues increased 12 percent to $6.8 million from $6.1 million, while EndoPredict breast cancer test revenues grew 18 percent to $2.6 million from $2.2 million. Other testing revenues more than quadrupled to $4.8 million from $1.0 million.

During the quarter, Myriad's pharmaceutical and clinical service revenues also increased 1 percent to $14.0 million from $13.8 million a year ago.

The company had a net loss of $8.3 million, or $.11 per share, compared to a net income of $2.6 million, or $.03 per share, in Q2 2019. On an adjusted basis, EPS was $.23, below the Wall Street estimate of $.31.

During the call, Riggsbee described how changing prior authorization requirements and coding directions, inappropriate denials, and new documentation requirements have had a negative impact on the molecular testing industry over the past 18 months. The difficult reimbursement environment has "significantly impacted" the company's average selling price, he added.

But the company is making changes to try to address this. For example, Myriad has established a new "revenue operations" department, which is using an artificial intelligence-powered early warning system to try to anticipate and stay ahead of "billing anomalies" that might impact its financials.

The firm's Q2 R&D expenses decreased 16 percent to $18.8 million from $22.4 million, and its SG&A spending was essentially flat in the quarter at $135.6 million.

Myriad ended the quarter with $81.2 million in cash and cash equivalents, and $60.4 million in marketable investment securities.

Myriad expects fiscal third quarter revenues of $172 million, EPS of $.30, and adjusted EPS of $.02. For full-year fiscal 2020, the firm is now projecting revenues of $735 million, EPS of $.80, and adjusted EPS of $.45. The company last quarter had projected 2020 revenues of $800 million to $810 million and adjusted EPS of $1.00 to $1.10.

During the earnings call, Myriad refused to answer any questions related to Capone and the board's abrupt decision to change the company's leadership.

Riggsbee noted that the company is currently focused on hitting the guidance numbers that it has set forth, and pushing ahead with strategies to realize the revenue potential of its products. He was optimistic during the call that some potential positive events in the coming quarters could improve the company's financial position.

For example, GeneSight may receive a positive final local coverage decision that will facilitate Medicare coverage when used in the primary care setting. Anticipating this, and additional uptake of the test by more employer groups, the company is expanding the sales force behind the test by 40 percent.

As of Jan. 1, the company has a four-year fixed price contract with UnitedHealthcare for its entire portfolio of products. The terms of the contract will allow the company to "maintain a solid hereditary cancer foundation," Riggsbee said, as Myriad is betting that the volume growth facilitated by the UHC contract will offset the pricing reductions in the first year.

In the second quarter, the US Food and Drug Administration approved Myriad's myChoice CDx as a companion test for niraparib (GlaxoSmithKline's Zejula) in heavily pretreated ovarian cancer patients. The company said that it has garnered advanced diagnostic laboratory test status for myChoice CDx, which enables the company to receive Medicare payment at the list price of $4,040 for a year. Riggsbee said that myChoice CDx volumes during the quarter increased 80 percent compared to adoption of the test pre-FDA approval in the first quarter, and projected that uptake may continue to grow with new indications of the test.

Still, analysts expressed disappointment with the way Myriad's management has handled the business to date. Analyst William Quirk from Piper Sandler noted that with the latest Q2 performance, Myriad has missed expectations for six quarters in a row. "Perhaps the most disappointing element of the current situation is that while Myriad has several reimbursement related items out of its control (e.g. ACOG, timing around GeneSight coverage expansion) many of its current challenges are because of poor execution on items that have been part and parcel of the high value CLIA lab market for several years like billing and preauthorizations," Quirk wrote. "Myriad claimed the problems are industry-wide; and we agree, but their competitors appear to be coping far better at this juncture and likely taking share."

Analyst Doug Schenkel of Cowen wrote in a note that while he was maintaining the $21 price target, the bias is toward a downside. "It is tough to have confidence in this leadership team and to confidently believe that we really know what is going on with the business given a litany of obfuscations," he wrote. 

In morning trading, the company's stock price on the Nasdaq was down around 30 percent to $20.46. 

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