Despite my fondness for the company, I'm very peeved by an action it took last week. Myriad announced that it was going to rake its shareholders over the coals with a 7-million-share stock offering that has an option for another 1 million shares. Based upon the share count of 30.9 million shares outstanding at the end of the most recent quarter, it's a dilution of 26%. This comes on the heels of an offering of 3.4 million shares just 16 months ago. If you're a shareholder and you feel like you're repeatedly being taken out behind the woodshed, you're not the only one.
Not only is the level of dilution excessive but also there was absolutely no need for the company to raise this cash in this manner at this time. The company has $103 million cash on hand, no debt, and a cash-burn rate of about $10 million per quarter. This is not a company that needs to raise money.
While I'm very upset about the dilution, it's only a symptom of a larger problem -- the way Myriad is being managed. My No. 1 concern is that management is guilty of empire building. In other words, it's trying to do too much, too soon. It has a growing portfolio of investigational drugs that it has kept entirely to itself. Management claims shareholders will receive the most benefit if the company retains all of the rights to products it develops. However, this comes at a huge upfront cost to its investors.
By implementing its current strategy, Myraid is taking on the burden of all of the R&D risks and costs. I see this as very unwise. I would much prefer to see the company selectively partner some of its R&D programs. This doesn't mean it has to give away everything. It can do a deal that allows it to keep at least co-promotion rights in the U.S. if it is concerned about retaining long-term value. In exchange, the company would get upfront cash, royalties from possible future sales outside the U.S., and, very importantly, shift some of the drug development risk to the partner, as R&D costs would be shared.
Partnering some of the drug programs would decrease the company's burn rate a bit and bring in cash through upfront and milestone payments. This would dramatically cut down on the need to regularly issue new shares; it would also allow shareholders to participate in long-term value creation from these drugs.
Instead, management wants to pretend it has the resources of an Amgen
Shareholders in Myriad Genetics need to be aware that as long as management sticks to its current strategy, we need to be ready to absorb abusive levels of share dilution. I sure hope it's worth it.
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