I'd replace
idx = strfind(myfile(i).name,'_thumb');
if ~isempty(idx)
%do nothing
else
by the simpler
if ~contains(myfile(i).name, '_thumb')
which does the required work inside the if.
The problem is that you only pass the filename of the source to copyfile so it looks for it in the current directory, not in path1. The fix is simple:
if ~contains(myfile(i).name, '_thumb')
copyfile(fullfile(path1, myfile(i).name), dest);
end
