MYRIAD GENETICS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 28, 2025. “We,” “us,” “our,” “Myriad” and the “Company” as used in this Quarterly Report on Form 10‑Q refer to Myriad Genetics, Inc., a Delaware corporation, and its subsidiaries. Myriad, the Myriad logo, BRACAnalysis, BRACAnalysis CDx, Colaris, MyRisk, Myriad myRisk, MyRisk Hereditary Cancer, myChoice, Tumor BRACAnalysis CDx, MyChoice CDx, Prequel, Prequel with Amplify, Amplify, Foresight, Foresight Universal Plus, Precise Tumor, Precise Oncology Solutions, Precise Liquid, Precise MRD, FirstGene, SneakPeek, SneakPeek Early Gender DNA Test, SneakPeek Snap, Urosuite, Mygenehistory, Health.Illuminated., RiskScore, Prolaris, and GeneSight are registered trademarks or trademarks of Myriad. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ® , ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. Cautionary Statement Regarding Forward-Looking Statements The SEC 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 10‑Q 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 as of the date hereof and are subject to a number of known and unknown risks and uncertainties that could cause actual results, conditions, and events to differ materially and adversely from those anticipated. These risks include, but are not limited to: • the risk that sales and profit margins of our existing tests may decline; • the risk that we may not be able to operate our business on a profitable basis; • risks related to our ability to achieve certain revenue growth targets and generate sufficient revenue from our existing product portfolio or in launching and commercializing new tests to be profitable; • 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, including with respect to UnitedHealthcare's coverage decisions to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test; • risks related to increased competition and the development of new competing tests; • the risk that we may be unable to develop or achieve commercial success for additional tests in a timely manner, or at all; • the risk that we may not successfully develop new markets or channels for our tests; • the risk that we are not able to secure additional financing to fund our business, if needed, in a timely manner or on favorable terms, if it all; • the risk that licenses to the technology underlying our tests and any future tests are terminated or cannot be maintained on satisfactory terms; • risks related to delays or other problems with operating 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 in the 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; 19 Table of Contents • 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 or estimates 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 tests, or patents or enforcement, in the United States and foreign countries; • risks related to security breaches, loss of data and other disruptions, including from cyberattacks and other cybersecurity incidents; • risks of new, changing and competitive technologies in the United States and internationally, and that we may not be able to keep pace with the rapid technology changes in our industry, or properly leverage new technologies to achieve or sustain competitive advantages in our products; • the risk that we may be unable to comply with financial or operating covenants under our credit or lending agreements; • the risk that we may not be able to maintain effective disclosure controls and procedures and internal control over financial reporting; • risks related to current and future investigations, claims or lawsuits, including derivative claims, product or professional liability claims, and risks related to the amount of our insurance coverage limits and scope of insurance coverage with respect thereto; and • other factors discussed under the heading "Risk Factors" contained in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 28, 2025, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q, and subsequent filings we make with the SEC. In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q, 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 on Form 10-Q. 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 except as required by applicable law. All forward-looking statements in this Quarterly Report on Form 10-Q 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 molecular diagnostic testing and precision medicine company dedicated to advancing health and well-being for all. We develop and offer molecular tests that help assess the risk of developing disease or disease progression and guide treatment decisions across medical specialties where molecular insights can significantly improve patient care and lower health care costs. Our molecular tests provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease. Personalized molecular data and digital and virtual consumer trends are converging to transform traditional models of care. We believe that engaging with providers and patients throughout their consumer or patient journey will better enable us to execute our strategies and fulfill our mission. We believe there are significant growth opportunities in addressing the pressing healthcare needs of patient populations through innovative molecular diagnostic testing and precision medicine solutions and services. Our focus is on innovation and growth in three key areas where we have specialized products, capabilities, and expertise: Oncology, Women's Health, and Pharmacogenomics. Our long-term growth strategy is built on investments in science and innovation, technology-enabled operations, an enhanced customer experience, strong commercial execution, and scalable operations. To drive continued growth, we plan to accelerate electronic medical records (EMR) integrations, expand our sales channels, including into large health systems, cross sell our portfolio of testing products to providers, enhance our testing products within medical guidelines, demonstrate our clinical differentiation and value compared to the standard of care, and optimize our revenue cycle processes. We also continue to invest in clinical evidence development to support the growth of our existing products and launch of new products, such as FirstGene, Precise Liquid, and Precise molecular residual disease (MRD) which we expect will help us continue to grow. We intend to continue to develop and enhance our products and services to support growth, improve patient and provider experience, and reach more patients of all backgrounds. 20 Table of Contents In addition, by investing in technology-enabled commercial tools, new laboratory facilities, advanced automation, and standardized processes and technology, we believe we will be able to reduce complexity and cost, while enhancing our ability to scale and grow. We are committed to making molecular testing accessible and actionable for patients and providers while driving long-term growth and profitability. Business Updates Our recent significant business updates include the following: • Samraat Raha has been appointed President and Chief Executive Officer, effective April 30, 2025. • Mark Verratti has been appointed Chief Operating Officer, effective April 30, 2025. • Brian Donnelly has been appointed Chief Commercial Officer, effective May 1, 2025. • In April 2025, new clinical data on the Precise MRD test in oligometastatic clear-cell Renal Cell Carcinoma was presented at the American Association for Cancer Research. Results of Operations for the Three Months Ended March 31, 2025 and 2024 The results of operations for the three months ended March 31, 2025 and 2024 are discussed below. Revenue The following table summarizes revenue changes in our core product categories: Three months ended March 31, % of Total Revenue (in millions) 2025 2024 Change 2025 2024 Hereditary Cancer $ 86.3 $ 88.1 $ (1.8) 44% 44% Tumor Profiling 29.3 30.9 (1.6) 15% 15% Prenatal 49.3 44.3 5.0 25% 22% Pharmacogenomics 31.0 38.9 (7.9) 16% 19% Total revenue $ 195.9 $ 202.2 $ (6.3) 100% 100% The following table summarizes volume changes in our core product categories: Three months ended March 31, (in thousands) 2025 2024 % Change Product volumes: Hereditary Cancer 73 71 3% Tumor Profiling 12 14 (14)% Prenatal 173 172 1% Pharmacogenomics 127 124 2% Total 385 381 1% Revenue decreased $6.3 million for the three months ended March 31, 2025 compared to the same period in the prior year. For the three months ended March 31, 2024, the Company recognized $7.0 million of revenue for tests in which the performance obligation was met in a prior period, including $3.0 million in revenue due to a retroactive coverage change by a payor for one of its prenatal products. For the three months ended March 31, 2025, revenue for tests in which the performance obligation was met in a prior period was immaterial. Pharmacogenomics revenue decreased $7.9 million for the three months ended March 31, 2025 compared to the same period in the prior year due primarily to a 22% decrease in the average revenue per test. Pharmacogenomics revenue for the three months ended March 31, 2025 has been negatively impacted by UnitedHealthcare’s recent change in coverage of the GeneSight test under its commercial, individual exchange benefit, and certain managed Medicaid plans. We expect this coverage decision will continue to negatively affect revenue in future periods. Hereditary Cancer revenue decreased $1.8 million for the three months ended March 31, 2025 compared to the same period in the prior year due to a 5% decrease in average revenue per test, partially offset by a 3% increase in testing volume. Tumor Profiling revenue decreased $1.6 million for the three months ended March 31, 2025 compared to the same period in the prior year due primarily to a decrease in testing volume for EndoPredict due to the sale of our EndoPredict business in August 2024. These decreases were partially offset by an increase in revenue from Prenatal. 21 Table of Contents Prenatal revenue increased $5.0 million for the three months ended March 31, 2025 compared to the same period in the prior year due to an 11% increase in average revenue per test. Cost of Revenue Three months ended March 31, (in millions) 2025 2024 Change % Change Cost of revenue $ 61.7 $ 64.6 $ (2.9) (4) % Cost of revenue as a % of total revenue 31.5 % 31.9 % Cost of revenue for the three months ended March 31, 2025 decreased $2.9 million compared to the same period in the prior year primarily due to a reduction in the cost per test for the current period. Operating Expenses Three months ended March 31, (in millions) 2025 2024 Change % Change Research and development expense $ 27.5 $ 24.9 $ 2.6 10 % Sales and marketing expense 69.2 69.4 (0.2) — % General and administrative expense 66.5 71.2 (4.7) (7) % Total operating expenses $ 163.2 $ 165.5 $ (2.3) (1) % Research and development expense as a % of total revenue 14.0 % 12.3 % Sales and marketing expense as a % of total revenue 35.3 % 34.3 % General and administrative expense as a % of total revenue 33.9 % 35.2 % Total operating expenses as a % of total revenue 83.2 % 81.8 % For the three months ended March 31, 2025, operating expenses were relatively consistent with the expenses incurred in the same period of the prior year, reflecting stable operating activities across the business. The Company remains committed to disciplined cost management while maintaining investments in key strategic areas, such as research and development. Other Income (Expense), Net Three months ended March 31, (in millions) 2025 2024 Change % Change Other income (expense), net $ (0.4) $ 2.0 $ (2.4) (120)% Other income (expense), net decreased for the three months ended March 31, 2025 as compared to the same period in the prior year due primarily to the $2.2 million gain recognized on the Precise Tumor acquisition in the prior period. Income Tax (Benefit) Expense Three months ended March 31, (in millions) 2025 2024 Change % Change Income tax (benefit) expense $ (29.3) $ 0.1 $ (29.4) (29400)% Effective tax rate 99.7 % (0.4) % Our tax rate is the product of a blended U.S. statutory federal income tax rate of 21.0% and a blended state income tax rate of approximately 3.4%. 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, 2025 was $29.3 million and our effective tax rate was 99.7%. Income tax expense for the three months ended March 31, 2024 was $0.1 million and our effective tax rate was (0.4)%. For the three months ended March 31, 2025 and 2024, our recognized effective tax rate differs from the U.S. federal statutory rate primarily due to the release of unrecognized tax benefits and the recognition of valuation allowances. The unrecognized tax benefits released were primarily related to tax refund claims following the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, that allowed the carryback of losses related to tax years ended June 30, 2017 through June 30, 2020. During the three months ended March 31, 2025, we were notified by the Joint Committee on Taxation that it had concluded its review of these tax refund claims. 22 Table of Contents We remeasured or released the unrecognized benefits resulting in a discrete tax benefit of $29.6 million. Due to our cumulative loss and the exhaustion of future taxable income from the reversal of taxable temporary differences, our estimated annual effective tax rate for the current year includes a valuation allowance against the majority of the current year increase in deferred tax assets. Liquidity and Capital Resources Our primary sources of liquidity are our cash and cash equivalents, our expected cash flows from operations, and, in certain circumstances as discussed below, amounts available for borrowing under our asset-based revolving credit facility ("ABL Facility"). As of March 31, 2025, we had cash and cash equivalents of $91.8 million and our availability under the ABL Facility was $41.9 million. 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 and new product development or acquisitively to support our business strategy provides the best return on invested capital. In March 2025, we received notification from the congressional Joint Committee on Taxation that it had concluded its review of tax refund claims following the CARES Act that allowed the carryback of losses. As a result, we currently estimate we will receive a refund of approximately $13 million, including interest, during 2025. On June 30, 2023, we entered into an ABL Facility with an initial maximum principal amount of $90.0 million. On October 31, 2023, we entered into an amendment to the ABL Facility pursuant to which we increased the maximum principal amount of the available revolving line of credit by $25.0 million for a total maximum principal commitment of $115.0 million under the ABL Facility. Our ABL Facility has a total maximum principal commitment of $115.0 million. The ABL Facility requires that we and our subsidiaries guaranteeing the indebtedness, on a consolidated basis, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 if availability under the ABL Facility is less than the greater of (a) $10.6 million and (b) 12.5% of the lesser of the maximum commitment amount and the borrowing base. As of March 31, 2025, we had $60.0 million outstanding under the ABL Facility and our availability under the ABL Facility was $41.9 million. We believe that our existing capital resources will be sufficient to meet our projected operating requirements for at least the next 12 months. Our available capital resources, however, may be consumed more rapidly than currently expected, or may be insufficient for our business needs for many reasons, including as a result of our operational cash needs or capital expenditures. As a result, we may need or want to raise additional fi nancing. We may not be able to secure such financing in a timely manner or on favorable terms, if at all. In addition, we are subject to covenants under our ABL Facility which could limit our ability to incur additional indebtedness or impact our ability to pursue other financing. Our ability to raise capital through equity or equity-based financing may also be constrained by the current price of our common stock, and any such financing could result in dilution to existing stockholders. If we do not gene rate sufficient cash from operations, if our capital resources are consumed more rapidly than expected, or if we no longer have access to additional funds under our ABL Facility and we are unable to secure additional funds on acceptable terms, or at all, we may be forced to delay, scale back or eliminate some of our sales and marketing efforts, research and development activities, or other operations; or delay development of our 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. From time to time, we enter into purchase commitments or other agreements that may materially impact our liquidity position in future periods. Third-party payors, including state and federal health care programs such as Medicare, managed care organizations, and other private health insurers, are increasingly attempting to contain health care costs by limiting or denying coverage for certain tests and reducing reimbursement rates for both new and existing tests. We have experienced and may continue to experience coverage limitations or denials for many of our products. For example, UnitedHealthcare updated its medical policies for pharmacogenetic testing to no longer provide coverage for certain multi-gene panel pharmacogenetic tests, including our GeneSight test, under its commercial, individual exchange benefit, and certain managed Medicaid plans, effective during the first half of 2025. The change in UnitedHealthcare coverage has negatively impacted our revenue, profitability, and cash flow in the first quarter of 2025 and we expect that these negative impacts will continue into future periods. 23 Table of Contents The following table represents the balances of cash and cash equivalents securities as of the dates set forth in the table below: (in millions) March 31, 2025 December 31, 2024 Change Cash and cash equivalents $ 91.8 $ 102.4 $ (10.6) The decrease in cash and cash equivalents as of March 31, 2025 as compared to December 31, 2024 was primarily driven by $16.3 million in cash used by operations, $5.3 million in cash used for capital expenditures, $3.0 million in cash used for the capitalization of internal-use software, and $5.8 million in cash used for the payment of withholding tax for the issuance of common stock, net of proceeds from the issuance of common stock. The decrease in cash was partially offset by $19.5 million increase in net borrowings under the ABL Facility. The following table represents the Condensed Consolidated Cash Flow Statement: Three Months Ended March 31, (in millions) 2025 2024 Change Cash flows used in operating activities $ (16.3) $ (18.6) $ 2.3 Cash flows used in investing activities (8.3) (7.1) (1.2) Cash flows provided by (used in) financing activities 13.6 (8.8) 22.4 Effect of foreign exchange rates on cash, cash equivalents, and restricted cash 0.1 (0.8) 0.9 Net decrease in cash, cash equivalents, and restricted cash (10.9) (35.3) 24.4 Cash, cash equivalents, and restricted cash at the beginning of the period 111.9 140.9 (29.0) Cash, cash equivalents, and restricted cash at the end of the period $ 101.0 $ 105.6 $ (4.6) Cash Flows from Operating Activities We used $2.3 million less cash for operating activities for the three months ended March 31, 2025 compared to the same period in the prior year. The improvement in cash used for operating activities was driven by an overall improvement in our operating assets and liabilities of $6.7 million and annual cash bonuses for senior leaders not being paid until the second quarter of 2025, whereas in the prior year annual bonuses were paid in the first quarter of 2024. Cash Flows from Investing Activities Cash flows used in investing activities increased $1.2 million for the three months ended March 31, 2025 compared to the same period in the prior year. The increase was primarily due to an increase in the capitalization of intangible assets expenditures for software developed for internal use. Cash Flows from Financing Activities Cash flows from financing activities increased $22.4 million for the three months ended March 31, 2025 compared to cash flows used in financing activities in the same period in the prior year, primarily due to the incremental borrowing of $19.5 million from the ABL Facility. Effects of Inflation While inflation returned to more moderate levels in 2024 and 2025, inflation has had, and may continue to have, an impact on the labor costs we incur to attract and retain qualified personnel, costs to generate sales and produce testing results, and costs of laboratory supplies. If inflation were to increase it may negatively impact our profitability and may adversely affect our business, financial condition and results of operations. In addition, increased inflation has had, and may continue to have, an effect on interest rates. An increase in interest rates in the future may adversely affect our borrowing rate and our ability to obtain, or the terms under which we can obtain, additional funding. Furthermore, to the extent tariffs imposed by the United States affect our costs, we may not be able to pass on any portion of the cost increase to our customers. 24 Table of Contents Critical Accounting Estimates Critical accounting estimates are those policies which are both important to the presentation of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a further discussion of our critical accounting estimates, see our Annual Report on Form 10-K filed with the SEC on February 28, 2025. No significant changes to our accounting policies took place during the three months ended March 31, 2025.