Myriad Genetics (MYGN) 10-Q2022 Q3 Quarterly report

UNITED STATES

Myriad Genetics, Inc. and its subsidiaries (collectively, the “Company” or “Myriad”) is a leading genetic testing and precision medicine company dedicated to advancing health and well-being for all. Myriad provides insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease. Myriad develops and offers genetic tests that help assess the risk of developing disease or disease progression or guide treatment decisions across medical specialties. The Company generates revenue by performing molecular diagnostic tests and, prior to the sale of Myriad RBM, Inc. on July 1, 2021, by providing pharmaceutical services to the pharmaceutical and biotechnology industries and medical research institutions utilizing its multiplexed immunoassay technology. The Company currently operates as a single reporting segment. The Company’s principal executive office is located in Salt Lake City, Utah.

The accompanying Condensed Consolidated Financial Statements for the Company have been prepared 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”). 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 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”).

The preparation of financial statements in conformity with 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. Operating results for the three and nine months ended September 30, 2022 may not necessarily be indicative of results to be expected for any other interim period or for the full year.

The Company has historically experienced seasonality in its testing business. The volume of testing is negatively impacted by the summer season, which is generally reflected in the quarter ended September 30. The quarter ended December 31 is generally strong as the Company typically experiences an increase in volumes from patients who have met their annual insurance deductible. In the quarters ended March 31, the Company has typically experienced a decrease in volumes due to the annual reset of patient deductibles.

Due to the COVID-19 global pandemic, including variants of COVID-19 (“COVID-19”), seasonality may not follow the same pattern as in prior years. Volumes and results of operations were impacted negatively in calendar year 2021 and early 2022 by COVID-19. As such, the Company’s year over year results may not be comparable. Management continues to monitor the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period's presentation. The reclassifications have no impact on the total assets, total liabilities, stockholders’ equity, cash flows from operations, or net loss for the period.

Myriad primarily generates revenue by performing molecular diagnostic testing. Molecular diagnostic revenues are primarily derived from the following categories of products: Hereditary Cancer (myRisk, BRACAnalysis, BRACAnalysis CDx), Tumor Profiling (MyChoice CDx, Prolaris, and EndoPredict), Prenatal (Foresight and Prequel), and Pharmacogenomics (GeneSight). The Company previously provided pharmaceutical services and clinical services prior to the sale of Myriad RBM, Inc. in July 2021 and Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG in February 2020, respectively. Prior to the sale of the Myriad myPath, LLC laboratory in May 2021 and the Myriad Autoimmune business in September 2021, the associated revenue from such businesses was included within Molecular diagnostic revenues. Revenue is recorded at the estimated transaction price. The Company has determined that the communication of test results or the completion of pharmaceutical and clinical services indicates transfer of control for revenue recognition purposes.

The following table presents detail regarding the composition of the Company’s total revenue by type and by U.S. versus rest of world (“RoW”):

In accordance with ASC Topic 606, Revenue from Contracts with Customers, 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 the Company’s performance to date.

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 the vast majority of payment terms have a payback period of less than one year.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Substantially all of the Company’s accounts receivable are with companies in the healthcare industry, U.S. and state governmental agencies, and individuals. The Company does not believe that receivables due from U.S. and state governmental agencies, such as Medicare, represent a credit risk since the related healthcare programs are funded by the U.S. and state governments. The Company only has one payor, Medicare, which represents greater than 10% of its revenues. Revenues received from Medicare represented 15% and 14% of total revenue for the three and nine months ended September 30, 2022, respectively, and 17% of total revenue for each of the three and nine months ended September 30, 2021. Concentrations of credit risk are mitigated due to the number of the Company’s customers as well as their dispersion across many geographic regions. No payor accounted for more than 10% of accounts receivable at September 30, 2022 or December 31, 2021. The Company does not require collateral from its customers.

The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value for available-for-sale securities by major security type and class of security at September 30, 2022 and December 31, 2021 were as follows:

Cash, cash equivalents, and maturities of debt securities classified as available-for-sale securities were as follows at September 30, 2022:

The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:

All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs.  For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. For Level 3 contingent consideration, the Company reassesses the fair value of expected contingent consideration and the corresponding liability each reporting period using the Monte Carlo Method, which is consistent with the initial measurement of the expected earn out liability. This fair value measurement is considered a Level 3 measurement because the Company estimates projections during the expected measurement period of approximately 12.75 years, utilizing various potential pay-out scenarios.  Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn-out itself, the related projections, and the overall business. The contingent earn-out liabilities are classified as components of Accrued liabilities and Other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets.  Changes to contingent consideration liabilities are reflected in Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Operations. Changes to the unobservable inputs could have a material impact on the Company’s financial statements.

The following table sets forth the fair value of the financial assets and liabilities that the Company re-measures on a regular basis:

Goodwill

Intangible Assets

Intangible assets consists of purchased licenses and technologies. The following summarizes the amounts reported as intangible assets:

On December 23, 2016, the Company entered into a senior secured revolving credit facility (the “Facility”) as borrower, with the lenders from time to time party thereto. On July 31, 2018, the Company entered into Amendment No. 1 to the Facility, which effected an “amend and extend” transaction with respect to the Facility by which the maturity date thereof was extended to July 31, 2023 (the "Maturity Date") and the maximum aggregate principal commitment was increased from $300.0 million to $350.0 million. On May 1, 2020, the Company entered into Amendment No. 2 to the Facility, which waived the Company’s compliance with certain covenants and modified the interest rate and other terms during the modification period from March 31, 2020 through June 30, 2021 (as modified, the “Modification Period”). This included a modification to the Facility's compliance with the leverage covenant and the interest coverage ratio covenant, which were waived through March 31, 2021, as well as revision to certain negative covenants of the Facility during the Modification Period. On February 22, 2021, the Company entered into Amendment No. 3 to the Facility, which waived compliance with the leverage ratio and the interest coverage ratio covenants through the quarter ended March 31, 2022 and also lowered the minimum liquidity covenant, which was added by Amendment No. 2, to $150.0 million, and made it applicable through such quarter. Amendment No. 3 also restricted the Company from borrowing under the Facility if unrestricted cash, cash equivalents and marketable investment securities exceed $150.0 million, unless such borrowings are in connection with permitted acquisitions, decreased the maximum aggregate principal commitment from $350.0 million to $300.0 million, with a further reduction in the maximum aggregate principal commitment from $300.0 million to $250.0 million by September 30, 2021, extended the Modification Period for an additional year through June 30, 2022, and revised certain negative covenants in connection with the extension. The amendments were accounted for as modifications pursuant to guidance in ASC 470-50, Debt. On July 26, 2022, the Company entered into Amendment No. 4 to the Facility (the "Amended Facility"), which extended the Modification Period through the Maturity Date, decreased the maximum aggregate principal commitment from $250.0 million to $200.0 million, with a further reduction to $150.0 million by December 31, 2022, waived compliance with the leverage ratio and interest coverage ratio covenants through the Maturity Date, and provided for monthly reporting of the Company's liquidity if the total revolving credit exposure is greater than $0, without giving effect to the dollar amount of any letter of credit exposure not in excess of $5.0 million.

Covenants in the Amended Facility impose operating and financial restrictions on the Company. These restrictions may prohibit or place limitations on, among other things, the Company’s ability to incur additional indebtedness, create certain types of liens, and complete mergers, consolidations, or change in control transactions. The Amended Facility may also prohibit or place limitations on the Company’s ability to sell assets, pay dividends or provide other distributions to stockholders.

The Amended Facility contains customary loan terms, interest rates, representations and warranties, affirmative and negative covenants, in each case, subject to customary limitations, exceptions and exclusions. The Amended Facility also contains certain customary events of default. Amendment No. 2 modified the Amended Facility to increase the interest rate to be fixed at a spread of LIBOR plus 350 basis points on drawn balances and the undrawn fee was increased to 50 basis points during the Modification Period. Amendment No. 4 replaced the option to make Eurodollar borrowings, which bore interest by reference to the LIBOR rate, with term benchmark loans, which will bear interest by reference to the secured overnight financing rate ("SOFR"). Amendment No. 4 did not modify the applicable margins and undrawn fee amounts. The interest rate for term benchmark loans continues to be fixed at a spread of SOFR plus 350 basis points on drawn balances and undrawn fees continue to be 50 basis points. The SOFR floor was revised to 0.0%.

During the year ended December 31, 2021, the Company made principal repayments totaling $226.4 million to pay off the remaining outstanding balances on the Amended Facility. As a result, the Company had no outstanding balances under the Amended Facility as of September 30, 2022 and December 31, 2021.

The Company's balance of other long-term liabilities at September 30, 2022 and December 31, 2021 consisted primarily of the long-term portion of contingent consideration related to the acquisition of Sividon Diagnostics.

The Company is authorized to issue up to 5.0 million shares of preferred stock, par value $0.01 per share. There were no shares of preferred stock outstanding at September 30, 2022.

The Company is authorized to issue up to 150.0 million shares of common stock, par value $0.01 per share. There were 80.9 million shares of common stock issued and outstanding at September 30, 2022.

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding. Diluted earnings per share is computed based on the weighted-average number of shares of common stock, including the dilutive effect of common stock equivalents, outstanding. In periods when the Company has a net loss, stock awards are excluded from the calculation of diluted net loss per share as their inclusion would have an antidilutive effect.

The following is a reconciliation of the denominators of the basic and diluted earnings per share (“EPS”) computations:

In June 2016, the Company’s Board of Directors authorized a share repurchase program of $200.0 million of the Company’s outstanding common stock. The Company may repurchase its common stock from time to time or on an accelerated basis through open market transactions or privately negotiated transactions as determined by the Company's management. The amount and timing of stock repurchases under the program will depend on business and market conditions, stock price, trading restrictions, acquisition activity and other factors.  As of September 30, 2022, the Company has $110.7 million remaining under its current share repurchase authorization. No shares were repurchased during the nine months ended September 30, 2022 or 2021.

On November 30, 2017, the Company’s stockholders approved the adoption of the 2017 Employee, Director and Consultant Equity Incentive Plan (as amended, the “2017 Plan”). The 2017 Plan allows the Company, under the direction of the Compensation and Human Capital Committee of the Board of Directors, to make grants of restricted and unrestricted stock awards to employees, consultants, and directors. Stockholders have approved amendments to the 2017 Plan increasing the shares available to grant. As of September 30, 2022, the Company has 2.0 million shares of common stock available for grant under the 2017 Plan. If an RSU awarded under the 2017 Plan is cancelled or forfeited without the issuance of shares of common stock, the unissued or reacquired shares that were subject to the RSU will again be available for issuance pursuant to the 2017 Plan. To the extent that awards outstanding under the Company's prior equity plans expire or are cancelled without delivery of shares of common stock, they also will be available for issuance pursuant to the 2017 Plan.

The number of shares, terms, and vesting periods are generally determined by the Company’s Board of Directors or a committee thereof on an award-by-award basis. RSUs granted to employees generally vest ratably over four years or after three years either on the anniversary of the date on which the RSUs were granted or during the month in which such anniversary dates occur. The number of performance-based RSUs ("PSUs") awarded to certain employees may be increased or may be reduced based on certain additional performance and market metrics. Options and RSUs granted to non-employee directors vest in full upon the earlier of the completion of one year of service following the date of the grant or the date of the next annual meeting of stockholders following such grant. Options granted generally expire ten years from the date of grant. Options granted to the Company's President and Chief Executive Officer as an inducement to his employment expire seven years from the grant date.

The performance and market conditions associated with PSU awards granted during the nine months ended September 30, 2022 include vesting that is based on revenue growth targets (34% weighting), adjusted earnings per share targets (33% weighting), and relative total stockholder return (33% weighting) measured against the Nasdaq Health Care Index (IXHC) using the 20-trading day averages at the beginning and end of the measurement period. The measurement period for the PSUs is January 1, 2022 through December 31, 2024. The Company estimates the likelihood of achievement of performance conditions at the end of each period. The portion of the awards pertaining to relative total stockholder return represent market based awards and, accordingly, the estimated fair value of such awards are recognized over the performance period. We have also assessed that as of September 30, 2022 the performance conditions for the remaining two performance targets (revenue growth and adjusted earnings per share) are considered probable of being achieved and, accordingly, these portions of the awards are also being expensed over the performance period.

A summary of the stock option activity under the Company’s equity plans and inducement awards for the nine months ended September 30, 2022 is as follows:

As of September 30, 2022, there was $1.4 million of total unrecognized stock-based compensation expense related to stock options that will be recognized over a weighted-average period of 1.2 years. There were no options granted during the nine months ended September 30, 2022.

A summary of the RSU awards activity under the Company’s equity plans and inducement awards, including PSU awards, for the nine months ended September 30, 2022 is as follows:

The Company also has an Employee Stock Purchase Plan that was approved by stockholders in 2012, under which 2.0 million shares of common stock were originally authorized.  On September 23, 2021, the Board of Directors of the Company approved an Amended and Restated 2012 Employee Stock Purchase Plan (the "Amended and Restated Purchase Plan"), which authorized an additional 2.0 million shares of common stock and extended the term of the plan to November 30, 2032, subject in each case to obtaining stockholder approval. The Company's stockholders subsequently approved the Amended and Restated Purchase Plan on June 2, 2022. The Amended and Restated Purchase Plan also expanded the definition of "offering period" to provide that the Board of Directors may determine the period in accordance with the terms of the plan, and capped the number of shares that may be purchased by any participant during an offering period at 5,000 shares. Shares are issued under the Amended and Restated Purchase Plan twice yearly at the end of each offering period. As of September 30, 2022, 1.8 million shares of common stock were available for issuance under the Amended and Restated Purchase Plan.

Stock-based compensation expense recognized and included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) was allocated as follows:

In order to determine the Company’s quarterly provision for income taxes, the Company used an estimated annual effective tax rate that is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rate from quarter to quarter.

Income tax benefit for the three months ended September 30, 2022 was $9.1 million, or approximately 20.6% of pre-tax loss compared to an income tax expense of $15.2 million, or approximately 38.2% of pre-tax loss, for the three months ended September 30, 2021. Income tax benefit for the nine months ended September 30, 2022 was $18.8 million, or approximately 21.2% of pre-tax loss compared to an income tax expense of $6.0 million, or approximately (44.1)% of pre-tax loss, for the nine months ended September 30, 2021.  For the three and nine months ended September 30, 2022, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to disallowed executive compensation, stock compensation, uncertain tax positions and asset impairments. For the three and nine months ended September 30, 2021, the Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to disallowed executive compensation, stock compensation, carrying back net operating losses, asset impairments, release of a valuation allowance, and differences between the book and tax basis of assets divested. In connection with the sale of Crescendo Biosciences, the Company recognized a change in the valuation allowance related to the change of the corresponding tax attributes, with no impact on the Company's income tax expense in the quarter ended September 30, 2022.

The Company files U.S., foreign and state income tax returns in jurisdictions with various statutes of limitations.  The Company is currently under audit by the State of California for the fiscal years ended June 30, 2017-2018, the State of New Jersey for the fiscal years ended June 30, 2013-2017; and Switzerland for the fiscal years ended June 30, 2015-2016. Annual and interim tax provisions include amounts considered necessary to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues may differ materially from the amount accrued.

The Company is involved from time to time in various disputes, claims and legal actions, including class actions and other litigation, including the matters described below, arising in the ordinary course of business. Such actions may include allegations of negligence, product or professional liability or other legal claims, and could involve claims for substantial compensatory and punitive damages or claims for indeterminate amount of damages. The Company is also involved, from time to time, in investigations by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of the government or private payors. The Company is involved, and has received subpoenas, from time to time, related to billing or other practices based on the False Claims Act or other federal and state statutes, regulations or other laws.

The Company intends to vigorously defend its current litigation matters, but cannot provide any assurance as to the ultimate outcome or that an adverse resolution would not have a material adverse effect on its financial condition, results of operations or cash flows.

The Company assesses legal contingencies to determine the degree of probability and range of possible loss for potential accrual in its financial statements. When evaluating legal contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the proceedings may be in early stages, there may be uncertainty as to the outcome of pending appeals or motions, there may be significant factual issues to be resolved, and there may be complex or novel legal theories to be presented. In addition, damages may not be specified or the damage amounts claimed may be unsupported, exaggerated or unrelated to possible outcomes, and therefore, such amounts are not a reliable indicator of potential liability.

Securities Class Action

Stockholder Derivative Actions

On August 9, 2021, a stockholder derivative complaint was filed in the Delaware Court of Chancery against the Company's former President and Chief Executive Officer, Mark C. Capone, its Chief Financial Officer, R. Bryan Riggsbee, its former Executive Vice President of Clinical Development, Bryan M. Dechairo, and certain of its current and former directors, Lawrence C. Best, Walter Gilbert, John T. Henderson, Heiner Dreismann, Dennis Langer, Lee N. Newcomer, S. Louise Phanstiel, and Colleen F. Reitan (collectively, the "Individual Defendants"), and the Company, as nominal defendant. The complaint is premised upon similar allegations as set forth in the securities class action, including that the Individual Defendants made false and misleading statements regarding the Company's business and operations. The plaintiff, Donna Hickock, asserts breach of fiduciary duty and unjust enrichment claims against the Individual Defendants and seeks, on behalf of the Company, damages allegedly sustained by the Company as a result of the alleged breaches, or disgorgement or restitution, from each of the Individual Defendants, plus interest. Plaintiff Hickock also seeks legal and other costs and fees relating to this action. On November 19, 2021, this action was stayed by the Delaware Court of Chancery pending the resolution of the securities class action lawsuit.

On January 18, 2022, a stockholder derivative complaint was filed in the Delaware Court of Chancery against the Individual Defendants, and the Company, as nominal defendant. The action is premised upon similar allegations as set forth in the securities class action and the Hickock stockholder derivative action. The plaintiff, Esther Kogus, asserts that the Individual Defendants breached their fiduciary duties and also asserts unjust enrichment and aiding and abetting breaches of fiduciary duty claims against the Individual Defendants. Plaintiff Kogus seeks, on behalf of the Company, damages allegedly sustained by the Company as a result of the alleged breaches and claims, and restitution from the Individual Defendants. On behalf of herself, plaintiff Kogus seeks legal and other costs and fees relating to this action.

On March 3, 2022, the Delaware Court of Chancery consolidated the Hickock and Kogus derivative actions and stayed the consolidated action.

On September 17, 2021, a stockholder derivative complaint was filed in the United States District Court in the District of Delaware against the Individual Defendants, and the Company, as nominal defendant. The action is premised upon similar allegations as set forth in the securities class action and Hickock stockholder derivative action. The plaintiff, Karen Marcey, asserts that the Individual Defendants violated U.S. securities laws and breached their fiduciary duties, and also asserts unjust enrichment, waste of corporate assets and insider trading claims against all or some of the Individual Defendants. Plaintiff Marcey seeks, on behalf of the Company, damages allegedly sustained by the Company as a result of the alleged violations and restitution from the Individual Defendants, plus interest and, on behalf of herself, legal and other costs and fees relating to this action. On January 4, 2022, this action was stayed by the United States District Court for the District of Delaware pending the resolution of the securities class action lawsuit.

Other Legal Matters

On December 21, 2020, Ravgen, Inc. filed a lawsuit against the Company and its wholly owned subsidiary, Myriad Women's Health, Inc., in the United States District Court for the District of Delaware, alleging infringement of two Ravgen-owned patents. The lawsuit seeks monetary damages, enhancement of those damages for willfulness, injunctive relief, and recovery of attorney's fees and costs. Various third parties have filed challenges to the validity of the asserted patents with the United States Patent and Trademark Office, which challenges have been instituted for review. On March 14, 2022, the case was stayed pending the outcome of the first of these validity challenges.

On February 3, 2022, a purported class action lawsuit was filed against the Company in the United States District Court in the Northern District of California by Ashley Carroll. Plaintiff alleges, among other things, that the Company made false statements about the accuracy of its Prequel prenatal screening test. The complaint seeks unspecified monetary damages and injunctive relief. On April 1, 2022, the Company filed a motion to dismiss the lawsuit. On May 2, 2022, the plaintiff amended her complaint. On June 2, 2022, the Company filed a motion to dismiss the amended complaint. On July 26, 2022, the United States District Court in the Northern District of California granted and denied in part the Company's motion to dismiss the amended complaint. As part of the court's order, plaintiff was granted leave to file a second amended complaint. The plaintiff filed a second amended complaint on August 16, 2022. On September 6, 2022, the Company filed a motion to dismiss the second amended complaint.

From time to time, the Company receives recoupment requests from third-party payors for alleged overpayments. The Company disagrees with the contentions of the pending requests or has recorded an estimated reserve for the alleged overpayments.

In the first quarter of 2022, the Company entered into a non-cancelable operating lease for approximately 230,000 square feet in west Salt Lake City, Utah. The lease has a term of 15 years, which, along with rent payments, are expected to commence in the third quarter of 2023. The Company will take possession of the leased facility in phases, which began in the three months ended June 30, 2022. As a result, the Company has recognized the related lease balances for the phase, or portion, of the leased facility that the Company has taken possession of, and will recognize the additional phases of the leased facility as possession occurs. As of September 30, 2022, the Company has recognized an approximately $13.9 million right-of-use asset and corresponding lease liability, net of tenant improvement allowance not yet received. Total future rent payments under the lease are approximately $77.8 million.

During the three months ended September 30, 2022, the Company took possession of a lease for approximately 63,000 square feet in South San Francisco, California with a term of 10 years, which, along with rent payments, are expected to commence in the third quarter of 2023. As a result, the Company recognized the related right-of-use asset and lease liability, net of tenant improvement allowance not yet received, of $30.7 million in the Condensed Consolidated Balance Sheet as of September 30, 2022. Total future rent payments under the lease are approximately $58.8 million.

On May 28, 2021, the Company completed its sale of the Myriad myPath, LLC laboratory to Castle Biosciences, Inc. for total cash consideration of $32.5 million. The transaction was accounted for as a sale of assets and the Company recognized a net gain of $31.2 million in the quarter ended June 30, 2021, in Other income on the Company’s Condensed Consolidated Statements of Operations related to the sale. Prior to the sale, Myriad myPath operations were included in the Company’s diagnostics reporting segment.

On May 21, 2021, the Company entered into a definitive agreement to sell Myriad RBM, Inc., a wholly owned subsidiary of the Company, to IQVIA RDS, Inc. for cash consideration of $197.0 million. This transaction closed on July 1, 2021. The transaction was accounted for as a sale of a business and the Company recognized a gain of $121.0 million in the quarter ended September 30, 2021, in Other income on the Company's Condensed Consolidated Statements of Operations related to the sale. Prior to the sale, Myriad RBM, Inc. operations were included in the Company’s other reporting segment.

Inventory

In connection with the divestiture transactions, the Company recognized losses of $5.2 million and $6.5 million for a non-cancelable inventory purchase commitment and inventory, respectively, during the nine months ended September 30, 2021, as the Company would no longer have use for the goods. Both of these losses are included in Other income (expense) in the Company's Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.

The following table details the amounts recognized in Other income for the three and nine months ended September 30, 2021:

On November 1, 2022, the Company acquired Gateway Genomics, LLC ("Gateway"), a personal genomics company and developer of consumer genetic tests that gives families insight into their future children, for an upfront cash purchase price of $67.5 million, subject to customary adjustments, and up to $32.5 million in contingent cash consideration upon the achievement of certain performance-based targets. The acquisition was consummated pursuant to an Agreement and Plan of Merger, dated November 1, 2022, among the Company, Genos Merger Sub LLC, a wholly owned subsidiary of the Company ("Merger Sub"), Gateway, the equity holders of Gateway, and Shareholder Representative Services LLC, in its capacity as the equity holders' representative, whereby Merger Sub merged with and into Gateway, with Gateway surviving the merger as the surviving company and a wholly owned subsidiary of Myriad.

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 notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on February 25, 2022. “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.

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 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:

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report, 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. 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 law. All forward-looking statements in this Quarterly Report 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.

We are a leading genetic testing and precision medicine company dedicated to advancing health and well-being for all. We provide insights that help people take control of their health and enable healthcare providers to better detect, treat, and prevent disease. We develop and offer genetic tests that help assess the risk of developing disease or disease progression or guide treatment decisions across medical specialties where critical genetic insights can significantly improve patient care and lower health care costs.

Personalized genetic data and digital and virtual consumer trends are converging to change traditional models of care. Significant growth opportunities exist to help patient populations with pressing health care needs through innovative solutions and services. We are currently executing a strategic transformation and growth plan that aims to capitalize on those trends by focusing on three strategic priorities: (1) innovation that improves clinical outcomes, ease of use, and access; (2) enterprise capabilities to accelerate growth and scale to market opportunity; and (3) a focus on execution and delivery of consistent results. In connection with these strategic priorities, we are focusing our efforts in three key areas where we have specialized products, capabilities, and expertise: Oncology, Women's Health, and Mental Health. In each of these areas, we intend to develop and enhance best-in-class products to support growth, improve patient and provider experience, and reach more patients of all backgrounds. By investing in tech-enabled commercial tools, we believe we will be able to drive increased engagement, improve revenue cycle management, and reduce complexity and cost. We are committed to disciplined management of a key set of initiatives to fulfill our mission and drive long-term growth and profitability. With a foundation of financial, commercial, operational and technological strength, we expect to accelerate growth as we launch a new enterprise commercial model, launch a unified ordering portal, invest in new sequencing technologies, further develop direct-to-consumer channels, and build commercial capabilities to support new products and offerings.

Molecular diagnostic revenues decreased $10.9 million for the three months ended September 30, 2022 compared to the same period in the prior year. Hereditary Cancer revenues decreased $8.9 million compared to the same period in the prior year due to a 15% decrease in average reimbursement per test, driven by change in the estimated reimbursement per test, changes in foreign exchange rates, and a change in customer mix. Autoimmune revenues decreased $7.3 million due to the sale of the Myriad Autoimmune business on September 13, 2021. Tumor profiling revenues decreased $2.1 million compared to the same period in the prior year due primarily to one-time milestone revenue earned in the three months ended September 30, 2021. Prenatal revenues decreased $1.5 million compared to the same period in the prior year due primarily to a decrease in the estimated reimbursement per test. Revenues from Pharmacogenomics increased $8.9 million compared to the same period in the prior year due primarily to a 34% increase in volume.