Myriad Beats, Raises Guidance - Analyst Blog

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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.

Guidance Raised

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.

Recommendation

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.


 
GENOMIC HEALTH (GHDX): Free Stock Analysis Report
 
MYRIAD GENETICS (MYGN): Free Stock Analysis Report
 
QIAGEN NV (QGEN): Free Stock Analysis Report
 
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GHDX , MYGN , QGEN , TEVA

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