On Mar 5, 2013, we reaffirmed our long-term Outperform recommendation on Myriad Genetics Inc. (MYGN) following its strong second-quarter fiscal 2013 results and upward revision in the fiscal outlook.
Why the Reiteration?
On Feb 5, Myriad reported another positive earnings surprise when its second-quarter earnings per share rose 27% on a year-over-year basis to 42 cents, reflecting a beat of 10.5% over the Zacks Consensus Estimate. Revenues climbed 21% to $149.1 million, surpassing the Zacks Consensus Estimate. The quarter showed sign of balanced growth as Myriad’s mainstay franchise of molecular diagnostic test was supported by the relatively minor companion diagnostic segment.
While Bracanalysis test remains Myriad’s flagship product, the BART (Bracanalysis Rearrangement Technology) test continues to gain traction. The positive momentum of the BART test is reflected in the massive five time increase of its revenues to $15.8 million.
Apart from these, Myriad has a gamut of other tests to drive growth. The company’s strong pipeline, with certain tests that will serve a billion-dollar market, is another upside.
On the other hand, Myriad’s focus on the companion diagnostic market is encouraging. The company’s agreements with several pharmaceutical companies like Sanofi (SNY) is likely to boost revenues for the companion diagnostic franchise going forward.
Myriad’s new share buyback program should provide earnings upside in the coming quarters. Meanwhile, the company has made commendable progress with respect to its expansion in Europe.
Although there is no dearth of growth catalysts for Myriad, margin pressure and reimbursement price cuts for its tests might sour its momentum. We also remain watchful of the patent litigation (to decide whether isolated human genes can be patented), which might affect Myriad’s patent landscape for its flagship product. The decision is anticipated in Jun 2013.
Accordingly, the stock carries a Zacks Rank #3 (Hold). Other medical stocks that warrant a look are Cyberonics (CYBX) and Given Imaging (GIVN), both carrying Zacks Rank #1 (Strong Buy).
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