) 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
), 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
) among others. We currently have a Neutral recommendation on
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