Zacks_Analysts' Blog : Myriad Beats, Raises Guidance - Analyst Blog

Myriad Genetics (MYGN) reported an EPS of 33 cents for the second quarter of fiscal 2012, beating both the Zacks Consensus Estimate of 31 cents and the year-ago quarter’s EPS of 26 cents. Revenues were $122.8 million, up 22% year over year and higher than the Zacks Consensus Estimate of $115 million.

Myriad’s two businesses – Molecular diagnostic testing and Companion diagnostic services – recorded revenues of $117.6 million (up 17% year over year) and $5.2 million, respectively. The company acquired the Companion diagnostic business following the acquisition of Rules-Based Medicine in May 2011. Molecular diagnostic testing revenue is derived from both Oncology (up 15% to $79.8 million) and Women’s Health (up 22% to $37.9 million).

While Myriad markets several molecular diagnostic products, the company's flagship product is Bracanalysis (representing 82.6% 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 14% jump in revenues to $101.4 million. Moreover, revenues derived from Colaris and Colaris AP, which assess a patient's risk of developing hereditary colorectal and uterine cancers, increased 56% to $10.9 million.

Gross profit increased 20.7% year over year to $106.7 million. Gross margin, however, declined 113 basis points (bps) to 86.9%. Operating expenses increased by 22.9% during the quarter to $61.2 million due to a 16.6% rise in selling, general and administrative expenses ($50.9 million) while research and development (R&D) expenses increased 68.1% ($10.2 million). Consequently, operating margin declined 140 bps to 37%.

Myriad exited the quarter with cash, cash equivalents and marketable securities of $428.3 million, down from $417.3 million at the end of fiscal 2011. The company repurchased 927,709 million shares during the quarter. The consistent share buyback program had a favorable impact on the company’s bottom line as shares outstanding declined 8% year over year.

Guidance Raised

Myriad upgraded its guidance for fiscal 2012. The company now expects to report revenues of $465–$475 million (previous guidance of $445–$465 million) resulting in an EPS of $1.24–$1.28 ($1.20–$1.25). The revised guidance is more optimistic than the current Zacks Consensus Estimate of $460 million in revenues and EPS of $1.24.  Molecular diagnostic testing and Companion diagnostic services are expected to record revenues of $440–$450 million ($421–$439 million) and $24–$26 million, respectively.

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. Moreover, with a strong cash balance, the company is well placed to expand its product portfolio and target new territories. 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), Qiagen (QGEN), among others.

We currently have a Neutral recommendation on Myriad. The stock retains a Zacks #4 Rank (“Sell”) in the short term.