Myriad Genetics Drops despite Earnings, Revs Beat; Ups View - Analyst Blog

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Myriad Genetics ( MYGN ) reported earnings per share (EPS) of 60 cents in the third quarter of fiscal 2014, registering a remarkable 30.4% beat over the Zacks Consensus Estimate as well as the year-over-year adjusted number. EPS growth was boosted by a strong top line and a reduced share count. Without these adjustments, reported EPS came in at 48 cents, up 4.3% year over year.

However, despite outperforming all estimates, shares of Myriad slashed 9.8% to close at $36.87 following the earnings release.

Quarter in Detail

Revenues increased 17% year over year to $182.9 million, sailing past the Zacks Consensus Estimate of $174 million. Growth was mainly driven by strong performance in the core markets, complemented by international expansion. According to the company, it is perfectly in sync with the strategic initiatives of expanding core hereditary cancer market, growing international business and launching new life-saving products. The company noted that, this quarter is more reflective of a true year-over-year performance sans the impact from additional publicity involving celebrities, which had otherwise acted as a major factorboosting revenues for the past few quarters.

Segments in Detail

Myriad operates through two major segments. Molecular diagnostic tests contributed 96% to total revenue in the quarter while Companion diagnostic tests accounted for the remaining 4% of sales.

Molecular diagnostic tests recorded revenues of $176.2 million, up 19% year over year. Molecular diagnostic testing revenues were, in turn, derived from the Oncology (down 3.5% to $92.4 million) and Women's Health (up 53% to $80.7 million) segments. Myriad noted that, the year-over-year decline in Oncology sales resulted from aMedicare reimbursement reduction of $6 million for BRAC Analysis , effective from Jan 1, 2014. However, the company is looking forward to the 37% increase in reimbursement rate that is now in effect since Apr 1, 2014.

The Hereditary Cancer test generated revenues of $169.6 million in the third quarter, up 16% year over year. Under this segment, BRAC Analysis revenues grossed $119.7 million, BART revenues were $21.1 million, myRisk(TM) Hereditary Cancer revenues totaled $14.5 million, and Colarisand Colaris APrevenues came in at $14.4 million.

Other molecular diagnostic tests generated revenues of $3.5 million, up 25% from the comparable quarter in fiscal 2013.

Companion diagnostic service revenues declined 17% from the year-ago quarter to $6.7 million. According to the company, this segment may reflect fluctuation in sales performance going forward due to the timing of research projects with Myriad's pharmaceutical partners.

Operational Update

Adjusted gross margin in the reported quarter declined 130 basis points (bps) to 85.7% due to the inclusion of revenues from the Crescendo acquisition, which at current volumes has lower margins. Adjusted research and development expenses declined 29.5% to $9.5 million while adjusted selling, general and administrative expenses increased 21.2% to $78.1 million. This led to a 40 bps expansion in adjusted operating margin to reach 37.8%.

Financial Update

Myriad Genetics exited the quarter with cash, cash equivalents and marketable securities of $277.7 million, compared with $531.1 million at the end of fiscal 2013. Myriad's Board of Directors repurchased 1.6 million shares for $41.9 million during the reported quarter.

Guidance

Banking on core market growth that led to another solid quarter and several recent positive takeaways including the recent acquisition of Crescendo Bioscience; the three-year contract with United Healthcare to provide coverage for Myriad's myRisk Hereditary Cancer test; and the collaboration with Tesaro for the use of Myriad's proprietary HRD test to identify tumor subtypes that may respond to Tesaro's investigational new PARP inhibitor niraparib, Myriad has raised its revenue outlook for fiscal 2014.

The company expects revenues in the range of $770-$775 million, higher than the prior forecast of $740-$750 million implying annualized growth of 26% (from earlier 21% to 22%). The current Zacks Consensus Estimate of $776 million remains marginally ahead of the company's guidance.

Myriad has also hauled up its EPS guidance for the fiscal year. The company currently projects its earnings to vary between $2.37 and $2.40, up from the previous range of $2.09 to $2.12. The revised outlook reflects growth of 34% to 35% as compared to the earlier range of 18% to 20%. However, the Zacks Consensus Estimate for EPS is pegged at $2.22, which falls below the guided range.

Our Take

Myriad Genetics has been consistently reporting impressive results over the past few quarters. The higher-than-expected earnings guidance for the current fiscal is also encouraging. With positive results from the company's major cancer tests and the recent acquisitions and collaborations, we believe Myriad Genetics will tread steadily on the growth trajectory going forward.

However, as Myriad rolls out its myRisk hereditary cancer test in the U.S., it plans to gradually discontinue its legacy products including BRACAnalysis, Colaris, Colaris AP, Melaris and Panexia. In line with its strategy to replace these legacy products with the more innovative myRisk, Myriad plans to convert the hereditary cancer testing market by the summer of 2015. Per the company, the period 2013-2015 will serve as the conversion phase toward the pan-cancer panel.

Although the company expects to increase its addressable market with myRisk in the near future, we remain cautious owing to the market conversion phase with the discontinuance of the company's successful legacy products.

Zacks Rank

Currently, the stock carries a Zacks Rank #1 (Strong Buy). Some other top-placed stocks that are worth a look include Alexion Pharmaceuticals, Inc. ( ALXN ), Gilead Sciences Inc. ( GILD ) and Affymetrix Inc. ( AFFX ). While ALXN and GILD sport a Zacks Rank #1 (Strong Buy), AFFX carries a Zacks Rank #2 (Buy).


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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 , Earnings , Stocks

Referenced Stocks: EPS , TM , AFFX , ALXN , GILD

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