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Myriad Genetics Stock Plummets on Lower-Than-Expected Q4 Revenues, FDA Interactions on GeneSight

NEW YORK – Myriad Genetics reported after the close of the market on Tuesday that its fiscal fourth quarter revenues rose 11 percent year over year, but the company faced unanticipated reimbursement pressures that negatively impacted its fourth quarter and fiscal year revenues.

Furthermore, the company projected FY2020 revenue guidance that is below market analysts' expectations, and revealed that it had encountered regulatory uncertainties related to its GeneSight pharmacogenetic test that analysts expect could negatively impact future uptake of the test. 

Together, the negative updates led to a sell-off by investors as Myriad's stock tanked around 40 percent on the Nasdaq to $26.60 today in early morning trading.

For the three months ended June 30, the firm reported total revenues of $215.4 million, up from $193.9 million in fiscal Q4 2018, but below the consensus Wall Street estimate of $221.0 million.

"Unfortunately, revenue in the fourth quarter was 2 percent below our expectations, with a corresponding impact to earnings that’s largely related to lower reimbursement for our expanded carrier screening test as a result of laboratory benefit management programs," said Myriad CEO Mark Capone during a conference call to discuss the latest financials, adding that this impact was unanticipated at the start of the fiscal year. 

Capone further noted that during FY2019, the cumulative impact of these laboratory benefit management programs across Myriad's portfolio of tests was "unprecedented" and reduced revenues by about $50 million and adjusted earnings per share by approximately $.51. The company, however, expects pricing to stabilize in Q1 FY2020.

Myriad's molecular diagnostic testing revenues were up 9 percent to $196.9 million compared to $180.6 million a year ago. Within that category, hereditary cancer test sales remained flat year over year at $119.0 million; Vectra DA testing revenues declined 19 percent to $12.2 million from $15.1 million; Prolaris testing revenues dropped 10 percent to $6.3 million from $7.0 million; and other testing revenues fell 41 percent to $1.6 million from $2.7 million. 

Also, EndoPredict testing revenues rose 11 percent to $3.0 million from $2.7 million. Myriad's prenatal testing business, which it garnered last July through the acquisition of Counsyl, brought in $25.0 million for the quarter. 

During the quarter, GeneSight pharmacogenetic testing revenues fell 12 percent to $29.8 million from $34.0 million a year earlier.

Myriad CFO Bryan Riggsbee said on the call that the company decided during the quarter to discontinue GeneSight’s test indication for analgesic and attention deficit/hyperactivity disorder drugs "because the level of clinical evidence did not meet the high standard set by the GeneSight psychotropic test in the GUIDED study." 

UnitedHealthcare recently decided to cover GeneSight for this indication. "A few payors expressed similar views and we wanted to eliminate any potential hurdles to commercial payor coverage for GeneSight psychotropic," Riggsbee said. This decision to do away with two PGx test indications, however, reduced June revenues for the test by 15 percent, and also negatively impacted use of the psychotropic indication. 

Capone added that there were a number of physicians who ordered GeneSight readily for all three indications. "I think we obviously saw the direct impact of pulling ADHD and analgesic," he said. "The collateral impact was that consequently GeneSight psychotropic volume came down as well."

Riggsbee also said that the US Food and Drug Administration reached out to the company regarding GeneSight. The agency has indicated its intention to increase oversight of pharmacogenetic tests that lack FDA clearance or approval, and earlier this year issued a warning letter to Inova Health System's lab regarding its PGx testing service. 

Myriad earlier this year provided FDA with clinical evidence and other information regarding the GeneSight psychotropic test. "Recently the FDA requested changes to the GeneSight test offering and we have been in ongoing discussions with the FDA regarding its request," Riggsbee said. 

"Although we continue to disagree that changes to the test are required, on August 10, 2019 we submitted a proposal regarding the reporting of GeneSight test results to healthcare providers that we believe addressed the FDA’s principle concerns," he added. "We believe that this approach will not affect the benefits provided by the GeneSight test." During the call, company executives declined further comment on the company's discussions with the FDA in this regard. 

Meanwhile, the company’s pharmaceutical and clinical service segment rose 39 percent to $18.5 million is fiscal Q4 from $13.3 million a year earlier.   

Myriad reported a net loss attributable to its shareholders of $4.2 million, or $.06 per share, compared to a net income of $14.5 million, or $.20 per share, in Q4 2018. Adjusted EPS was $.41, and fell short of the average Wall Street EPS estimate of $.47.

The firm's fourth quarter R&D expenses grew 18 percent to $20.9 million from $17.7 million, and its SG&A spending grew 33 percent to $149.8 million from $112.5 million.

For full-year 2019, the firm's total revenues increased 14 percent to $851.1 million compared to $743.7 million in fiscal 2018. Analysts were expecting full-year revenues of $857.7 million.

Myriad's molecular diagnostic testing revenues also increased 14 percent to $789.4 million compared to $690.4 million in 2018. Within that category, hereditary cancer test sales increased 2 percent to $479.7 from $471.4 a year ago; GeneSight revenues fell 10 percent to $112.6 million from $124.9; Vectra DA revenues declined 13 percent to $48.3 million from $55.2 million; Prolaris test sales increased 19 percent to $25.5 million from $21.5 million; EndoPredict revenues rose 18 percent to $10.4 million from $8.8 million, and other tests sales dropped 7 percent to $8.0 million from $8.6 million. Prenatal revenues grew to $104.9 million from none a year ago.

Pharmaceutical and clinical service revenues rose 16 percent in fiscal 2019 to $61.7 million from $53.3 million in the prior-year period.

Myriad's fiscal 2019 net income attributable to its shareholders was $4.6 million, or $.06 per share, compared to a net income of $133.3 million, or $1.85  per share, in 2018. Adjusted EPS was $1.67. The average Wall Street estimate was $1.75 per share.

The firm's 2019 R&D expenses increased 21 percent to $85.9 million from $70.8 million, and its SG&A spending increased 27 percent to $555.5 million from $435.0 million.

Myriad ended the year with $93.2 million in cash and cash equivalents and $43.7 million in marketable investment securities.

For fiscal year 2020, the firm expects revenues of $865 million to $875 million, EPS of $.55 to $.65, and adjusted EPS of $1.80 to $1.90. For fiscal Q1 2020, Myriad expects revenues of $200 million to $202 million, a per share loss of $.02 to break-even, and adjusted EPS of $.30 to $.32. Analysts, on average, expect fiscal Q1 revenues of $217.35 million and EPS of $.42, and 2020 revenues of $922.0 million and EPS of $1.92.

The company's revenue projections factor in flat hereditary cancer revenues for FY2020 compared to FY2019, offset by modest volume growth and pricing contingent on long-term contract renewals. The revenue estimates also assume double-digit revenue growth for GeneSight, driven by UnitedHealthcare coverage which takes effect Oct. 1. However, the company expects that its baseline revenue expectations for the tests will be lower starting next quarter due to the discontinuation of the ADHD and analgesic indications. 

Following the financial call, several analysts wrote in notes to investors about the company’s disappointing performance in the quarter and fiscal year overall, and that it remains unknown whether Myriad will be able to overcome regulatory and reimbursement headwinds. 

Based on the risk to GeneSight and reimbursement pressures, Piper Jaffray downgraded Myriad from a maintain overweight rating to neutral and lowered its stock pricing target to $40 from $44.55. "GeneSight appears to be at an inflection point following a positive [Medicare Evidence Development & Coverage Advisory Committee] pharmacogenomics meeting and UnitedHealthcare coverage, which would make FY2020 guidance appear conservative given multiple levers for upside (GeneSight coverage, ACOG)," analyst William Quirk wrote in a note. "But the magnitude of the guidance shortfall leaves us to believe there is risk from the FDA regarding GeneSight's future."