Myriad Remains Neutral

Zacks

We have reaffirmed our Neutral recommendation on Myriad Genetics (MYGN) with a target price of $29.00.

The company reported earnings of 34 cents per share in the first quarter of fiscal 2013, which met the Zacks Consensus Estimate while revenues of $133 million exceeded nominally.

While Myriad markets several molecular diagnostic products, the company's flagship product is Bracanalysis (representing 81.7% of total revenues during the last reported quarter), which studies BRCA1 and BRCA2 genes to assess a woman's risk of developing hereditary breast and ovarian cancers. This test recorded a 17% jump in revenues to $108.7 million during the quarter. Moreover, revenues derived from Colaris and Colaris AP, which assess a patient's risk of developing hereditary colorectal and uterine cancers, increased 51% to $11.5 million.

Bracanalysis has been recording robust growth over the past few quarters on the back of increasing penetration in both Oncology and Women’s Health markets. The company’s continuous focus on penetrating the segments of ovarian cancer, carcinoma in situ and triple negative breast cancer indications has increased the addressable oncology market for Bracanalysis by $200 million to an annual market potential of $650 million. Revenues from these three indications grew 45% during the reported quarter. To further expand in the Women’s Health market, Myriad is looking to add new territories and implement better interactive media campaigns. Besides, significant growth opportunity lies in the Women’s Health market for Bracanalysis due to the low penetration level (7%).

The company’s expansion plan in Europe is on track with its goal to record $15 million of revenues from international operations by fiscal 2016. The company’s laboratory in Munich, Germany has been operational since January and is capable of generating $50 million in revenues each year within the next five years. Attempts are being made to build infrastructure in the five major markets of Germany, France, Italy, Spain and Switzerland. While reimbursement for Bracanalysis, Colaris and Colaris AP has already been received in these markets, Myriad is working to receive reimbursement for Prolaris. The company is confident about the potential of Prolaris in Europe and has undertaken several key clinical studies in prostate cancer to drive adoption and obtain reimbursement for the test.

We are also impressed by Myriad’s focus on establishing itself as a strong player in the companion diagnostic market. The company has agreements with several pharmaceutical companies including Abbott Laboratories (ABT), Johnson & Johnson (JNJ), and AstraZeneca (AZN), among others.

Meanwhile, due to the company’s focus on international expansion and pipeline development, expenses are on the rise. This is reflected in the decline in operating margin during the reported quarter. Moreover, several ongoing tests are in the early-to-middle stages of development and, hence, some years away from commercialization.

Our recommendation is backed by a Zacks #3 Rank (Hold) in the short term.

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