Shares of Myriad Genetics fell more than 40% on Tuesday, after the molecular diagnostics developer lowered its earnings guidance for its current fiscal year and reported lower-than-expected quarterly revenue that its CEO blamed on this year’s change in Current Procedural Terminology (CPT) codes covering hereditary cancer testing for two genes.
Investors sent shares of Myriad tumbling 42% or $14.60 from yesterday’s closing price of $35.10, to $20.50 as of 1:36 p.m. The stock selloff came after Myriad said it now expects to generate between $800 million and $810 million over the fiscal year that began July 1, down from between $865 million and $875 million. The company also lowered its earnings per share (EPS) range to between $1 and $1.10, from its earlier range of between $1.80 and $1.90.
“This particular issue was not associated with coverage or contract pricing nor was it related to test volume. The root cause of this shortfall was the deletion of the 81211 and 81213 codes beginning on January 1, 2019,” Myriad President and CEO Mark C. Capone stated yesterday on the company’s quarterly conference call, according to transcripts published by The Motley Fool and Seeking Alpha.
Those codes cover sequencing and large rearrangement codes used for BRCA1 and BRCA2 testing, which had been included in Myriad’s payer contracts since 2012. While 300 payer contracts account for about 85% of hereditary cancer revenue, more than 1,000 payers are responsible for the remaining revenue, according to the company.
The deletion of the 81211 and 81213 CPT codes accounted for Myriad’s 10% decrease in molecular diagnostic testing revenue generated by its hereditary cancer business, which fell to $104.5 million in fiscal Q1 2020 from $116.3 million in the first three months of Myriad’s FY2019.
“Between laboratory benefit management programs and the recent hereditary cancer coding changes we have faced substantial headwinds that have reduced revenues by almost $100 million per year with a corresponding reduction in earnings,” Capone told analysts.
“Nonetheless we believe that our portfolio provides substantial untapped potential and fully expect our efforts to increase volumes and reimbursement will offset these headwinds and provide significant future growth,” Capone added.
Hereditary cancer wasn’t the only MDx testing business to see year-over-year declines during fiscal Q1 2020:
- EndoPredict breast cancer prognostic test dipped 4%, to $2.3 million from $2.4 million.
- Vectra for rheumatoid arthritis saw a 15% decline, to $11 million from $13 million in July-September 2018, “which was consistent with our expectations given summer seasonality,” Capone said.
- GeneSight Psychotropic gene tests for antidepressants showed the largest revenue decrease, down 22%, to $22.7 million from $29.3 million in FQ1 2019. Capone cited seasonal demand fluctuation and volume reductions due to the discontinuation of the company’s GeneSight ADHD and analgesic tests.
“Pharmacy benefit managers have been interested in both GeneSight and Vectra based upon the ability of these tests to lower both prescription drug costs and overall healthcare costs as part of a value-added service to their customers,” Capone told analysts. “We are currently engaged in discussions with the other pharmacy benefit managers for both products and expect that we could see further positive developments in this channel during the fiscal year.”
However, Myriad enjoyed a 30% jump in MDx prenatal testing revenue, to $23.5 million in FQ1 2020 from $18.1 million a year earlier.
In a statement issued before the conference call, Capone said Myriad expected earnings to be “significantly higher” in the second half of the fiscal year, and believed that “a number of important upsides will materialize during the fiscal year generating momentum as we transition into fiscal year 2021.”
While Myriad’s hereditary cancer business “has returned to strong double-digit volume growth,” Capone stated, the revenue accrual impact from the CPT code changes led the company to lower its financial outlook for the year.
Myriad finished the first quarter of its 2020 fiscal year, the three months ending September 30, with a $20.6 million net loss, compared with a net loss of 0.7 million in the year-ago quarter. Myriad’s total revenue during the fiscal Q1 fell 8%, to $186.3 million from $202.3 million a year earlier.
The company’s 8 cents EPS fell well short of the 32 cent EPS and revenue of $202.1 million expected, according to Refinitiv consensus estimates cited by CNBC.