Myriad Genetics (MYGN) reported earnings per share ("EPS") of 34 cents for the third quarter of fiscal 2012, beating both the Zacks Consensus Estimate of 32 cents and the year-ago quarter’s EPS of 31 cents. Revenues were $129.8 million, up 27% year over year and higher than the Zacks Consensus Estimate of $119 million.
Myriad’s two businesses – Molecular diagnostic testing and Companion diagnostic services – recorded revenues of $123.3 million (up 20% year over year) and $6.5 million, respectively. The company acquired the Companion diagnostic business following the acquisition of Rules-Based Medicine in May 2011 which now accounts for 5% of total revenues. Molecular diagnostic testing revenue is derived from both Oncology (up 19% to $86.6 million) and Women’s Health (up 25% to $36.7 million).
While Myriad markets several molecular diagnostic products, the company's flagship product is Bracanalysis (representing 81% of total revenues during the quarter), which studies BRCA1 and BRCA2 genes for assessing a woman's risk of developing hereditary breast and ovarian cancers. This test recorded a 17% jump in revenues to $105.9 million. Moreover, revenues derived from Colaris and Colaris AP, which assess a patient's risk of developing hereditary colorectal and uterine cancers, increased 51% to $11.2 million.
Gross profit increased 23.3% year over year to $112.5 million. Gross margin, however, declined 240 basis points (bps) to 86.7%. Operating expenses increased 34.5% during the quarter to $66.4 million due to a 27.9% rise in selling, general and administrative expenses ($54.7 million) and a 76.3% increase in research and development (R&D) expenses ($11.7 million). Consequently, operating margin declined 530 bps to 35.5%.
Myriad exited the quarter with cash, cash equivalents and marketable securities of $466.7 million, down from $417.3 million at the end of fiscal 2011. The company repurchased 502,008 million shares during the quarter. The consistent share buyback program had a favorable impact on the company’s bottom line as shares outstanding declined 4.1% year over year.
Myriad upgraded its guidance for fiscal 2012 after raising it at the end of the second quarter. The company now expects to report revenues of $492–$496 million (previous guidance of $465–$475 million) resulting in an EPS of $1.29–$1.31 ($1.24–$1.28). The revised guidance is more optimistic than the current Zacks Consensus Estimates of $474 million in revenues and EPS of $1.26. The lift in guidance was due to an improvement in outlook on the Molecular diagnostic testing business, sales estimates of which have been upped to $467–$471 million (previous guidance of $440–$450 million). The outlook for Companion diagnostic services remained unchanged at $24–$26 million.
We consider Myriad’s Bracanalysis as a valuable asset for top-line growth as it has the potential to tap a widely unexplored market. We are encouraged by the company’s various initiatives to achieve this objective. During the quarter, the company had entered into an agreement with Cephalon, a subsidiary of Teva Pharmaceutical (TEVA), to conduct BRCA1 and BRCA2 mutations testing on patients to be enrolled in a Phase 1/II clinical trial. Moreover, with a strong cash balance, the company is well placed to expand its product portfolio and target new territories. The stock retains a Zacks #2 Rank (“Buy”) in the short term.
However, operating expenses are on rise due to the company’s focus on international expansion and product development. As a result, the company’s margin remains under pressure, although the bottom line should benefit from the repurchase program. The company also faces stiff competition from players such as Genomic Health (GHDX) and Qiagen (QGEN) among others. We currently have a Neutral recommendation on Myriad.
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