Myriad in Research Partnership

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Myriad Genetics (MYGN) has entered into a research agreement with Intermountain Healthcare, a nonprofit healthcare system, to carry out studies on molecular diagnostic tests developed by the company. This agreement will benefit treatment decisions for patients at Intermountain.

While Myriad has been conducting several studies to help in the rapid uptake of its tests, the recent agreement with Intermountain will be another step in this direction. The collaboration will evaluate Myriad’s Prolaris test, in the first project (Pro-008), by analyzing biopsy samples of 200 patients diagnosed with prostate cancer. The study will assess if the Prolaris test is able to identify those patients who are at an increased risk of biochemical recurrence. This identification is significant since patients at higher recurrence risk will need more aggressive therapy.

Myriad is conducting a number of additional studies to help in the penetration of the Prolaris test. The program in Germany (Pro-009), which is studying 450 radical prostatectomy samples with the clinical endpoint of biochemical recurrence, is ahead of schedule. The program, representing the ninth clinical validation study on Prolaris, has already received most of the prostate tumor samples with results expected next year. Other validation studies are also progressing well. The company has also stepped up its commercialization efforts and has almost doubled its sales team.

We are encouraged by Myriad’s ahead-of-schedule expansion plan in Europe. The company hopes to generate $15 million of revenues from international operations by fiscal 2016.  While reimbursements for Bracanalysis, Colaris and Colaris AP have already been received in these markets, Myriad is working to receive reimbursement for Prolaris. The Prolaris clinical program is progressing smoothly and the company is in talks with large institutions in France and Australia to initiate additional validation studies later this year.

Meanwhile, due to the company’s focus on international expansion and pipeline development, expenses are on the rise. With R&D expenses touching 9% of the total revenue level in 2012 (from 7% in 2011), margins will come under pressure. This is reflected in the decline in operating margin during the reported quarter. Moreover, the competitive landscape is quite tough with the presence of players such as Cepheid (CPHD) and Genomic Health (GHDX).

We have a Neutral recommendation on Myriad genetics. Our recommendation is backed by a Zacks #3 Rank (Hold) in the short term.

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