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MYGN Faces Payment Cuts, Shares Fall

Zacks Equity Research

Shares of Myriad Genetics Inc. (MYGN) fell 12.2%, following the Dec 27, 2013 announcement by the Centers for Medicare & Medicaid Services (CMS) to cut reimbursement rates on the former’s popular breast cancer test, BRACAnalysis.

The CMS lately announced its final plan to pay $1,438.14 to Myriad for each BRACAnalysis test conducted by the company. The new rate proposed by the CMS is considerably lower than the previously proposed amount of $2,795. The reduced reimbursement rate is now effective starting Jan 1, 2014.

BRACAnalysis is a popular breast cancer test used to identify people who are highly susceptible to developing breast and ovarian cancer. The revised reimbursement rates are expected to heavily burden MYGN, affecting revenues to a certain extent.

CMS’ decision carries forward its intentions to make the test affordable for women in the country. The cost of the BRACAnalysis test, as offered by Myriad Genetics in the United States, is quite expensive, varying in the range of $3,000 to $4,000. The CMS also took into consideration the Supreme Court’s decision to invalidate some of MYGN's patents, which stated that genes are products of nature and thus cannot be patented.

The genetic testing industry welcomed the ruling of the apex court as it opened up avenues for other players to enter into this market wherein Myriad Genetics enjoyed monopoly rights. The entry of new players is expected to deter growth in the BRACAnalysis market, thereby exerting pressure on Myriad's revenues. As one of Myriad’s prime offerings, the BRACAnalysis test accounted for almost 74% of the company’s total revenue in the first quarter of fiscal 2014.

We acknowledge that MYGN has several competitive advantages based on its solid experience, highly efficient laboratory network and brand recognition. Nonetheless, the company is poised to face market erosion in the forthcoming quarters due to increased competition from companies such as Bio-Reference Laboratories (BRLI) and Quest Diagnostics (DGX), as well as privately-held entities including Ambry and Invitae.

Currently, Myriad Genetics carries a Zacks Rank #3 (Hold). Investors interested in the Medical Biogene industry may consider a better-ranked stock, Heska Corporation (HSKA) which carries a Zacks Rank #1 (Strong Buy).

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