Myriad shares plunge 40% after missing targets, slashing outlook

Dive Brief:

Shares in Myriad Genetics fell 40% Tuesday after its first-quarter results fell well short of its own guidance.
In results posted Monday, Myriad reported double-digit drops in sales at its two largest units, which market genetic tests for cancer and depression.
Myriad attributed the declines to a coding change and product discontinuations. With more headwinds predicted for the rest of fiscal 2020, Myriad wiped around 7% off its outlook for the year.

Dive Insight:

Myriad began fiscal 2020 much like it ended the previous year. In August, shares in Myriad plunged 35% after it fell short of revenue and earnings expectations. Myriad blamed the subpar results on reimbursement pressures created by the lack of specific codes GeneSight and ForeSight.

Three months later, Myriad is again reeling from a major stock drop triggered by results that fell short of expectations. Once again, Myriad blamed the results on a coding problem.

"There are a lot of things to fix here," Cowen analysts wrote, summing up the woes.

This time, the coding problem relates to the Jan. 1 deletion of two codes for BRCA testing, a service offered by Myriad’s hereditary cancer unit. Myriad worked with its top 300 payer contracts to ensure ongoing reimbursement under the new system but had less contact with the more than 1,000 payers that make up about 15% of sales at the hereditary cancer unit.

Myriad thought notifying these small customers of the change and offering to discuss any concerns they had would mitigate the impact of the coding change. That rationale proved too optimistic. Despite double-digit volume growth, revenue at the hereditary cancer business fell 10%. Myriad expects the problems to drag on.

“We believe that prudent approach at this point is to assume that we will not be able to correct these administrative issues and our lowered revenue accrual rates are consistent with our actual cash collection rates,” Myriad CEO Mark Capone said on a conference call with investors.

Myriad responded to the headwind by lowering its revenue guidance to between $800 million and $810 million, down from up to $875 million going into the year. The reduction reflects strengthening headwinds at the hereditary cancer unit and the GeneSight depression test business.

"It continues to be unknown if commercial payers will cover GeneSight," Cowen noted.

GeneSight sales fell 22% in the first quarter. Myriad had warned investors to expect GeneSight to struggle in the first quarter, pointing to its discontinuation of its analgesic and ADHD products to explain the anticipated drop in sales. However, the decline in GeneSight volume was “slightly higher” than expected, Capone said.

Myriad was looking to UnitedHealthcare’s coverage of GeneSight to drive growth but it downgraded its near-term expectations for that opportunity in its latest financial results.

"We are revising our GeneSight revenue outlook for the year due to the UnitedHealthcare pre-authorization process that was formalized in September. The process will require additional administrative requirements and as a result we are assuming 30% of tests will not meet those administrative requirements," Myriad CFO Bryan Riggsbee told investors.

Myriad hopes to reduce the noncompliance rate to below 30% but its revised 2020 guidance assumes it will stay at that level throughout the year. Despite that headwind, Myriad still expects the higher reimbursement provided by the UnitedHealthcare contract to contribute to growth later in the year.