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 BRACAnalysis, 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, BRACAnalysis 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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