A lot of attention has swirled around the launch of the Affordable Care Act's health care insurance exchanges. Those exchanges aim to sign up millions of Americans who previously lacked insurance coverage. In the process, larger patient pools are likely to present unique challenges and opportunities for a range of health care-related companies, especially as research unlocks promising new ways of identifying those most at risk of disease.
One of the companies at the forefront of innovation in identifying those at risk is Myriad Genetics (NASDAQ: MYGN ) . The company provides a range of DNA testing kits designed to help doctors determine if people possess specific DNA mutations that are commonly associated with diseases such as breast cancer.
BRCA tests impact on Myriad
Myriad's best seller is its BRACAnalysis test for hereditary breast and ovarian cancer. BRCA1 and BRCA2 gene mutations are associated with 20%-25% of hereditary breast and ovarian cancers, and those with the mutation have a significantly higher risk of developing these cancers. As a result, BRCA testing is increasingly being incorporated into standard care at OB-GYN and oncology offices. This is moving the revenue needle for Myriad, given that BRACAnlaysis generated reimbursement rates of up to $2,750.
This past week, biotech company BioMarin (NASDAQ: BMRN ) announced that it is advancing BMN-673 into phase 3 trials. BMN-673 is a promising drug that targets tumors in breast and ovarian cancer patients with the BRCA1 and BRCA2 mutation. Similar to BioMarin's phase 1 and phase 2 trials, Myriad Genetics' BRACAnalysis test will be used to pre-screen patients for the presence of the BRCA mutation.
Myriad is also providing its BRACAnalysis tool for AstraZeneca's (NYSE: AZN ) Olaparib, another PARP-inhibitor drug targeting the BRCA1 and BRCA2 genes. That drug is currently in phase 3 trials after a retrospective study of earlier trials gave AstraZeneca confidence that the drug could provide benefits to this subset of patients. In phase 2 trials, those with BRCA mutations saw progression-free survival of 11.2 months versus only 4.3 months in those receiving placebo. Myriad provided the testing in Olaparib's earlier trials as well.
AbbVie (NYSE: ABBV ) is also researching its own PARP inhibitor, Veliparib, for use with various cancers including BRCA1 and BRCA2 mutation patients. Veliparib is in phase 2 trials, and patients are also screened using Myriad's BRACAnalysis solution. In early trials, AbbVie believes BRCA testing can help better target who is most likely to benefit from treatments that combine Veliparib with other existing therapies.
If successful in BioMarin's, AstraZeneca's, and AbbVie's late-stage trials, the inclusion of BRACAnalysis as a companion diagnostic tool for these drugs positions BRACAnalysis for stand-alone sales once Myriad merges its tests together into its new myRisk cancer screening solution.
Testing demand boosts results
BRACAnalysis accounted for roughly 75% of Myriad's $166 million in sales during the last quarter. Sales of BRACAnalysis grew 19% from a year ago, prompting Myriad to guide analysts to expect full-year fiscal 2014 sales of $690-$710 million, up 13%-16% from fiscal 2013.
The company also saw sales growth for its BRAC Large Rearrangement Test, known as BART. While the test is provided free alongside BRACAnalysis for some, rising demand tied to the inclusion of BART in guidelines from the National Comprehensive Cancer Network helped BART sales climb 310% year-over-year to $18.8 million during the last quarter. The company charges $700 for BART.
Outside of BRAC testing, Myriad also saw sales growth for its Colaris and Colaris AP. Those two combined for $14.5 million in sales last quarter, up 26% for last year as demand for assessing patient risk of hereditary colorectal and uterine cancers grew.
Even better, the company is earning more on its tests as margins drove earnings per share up 36% in the full fiscal year, outpacing the company's 24% top line growth. The company's operating margin expanded 230 basis points to 37.9% in the quarter.
Myriad's long term goal
The company is migrating its existing products into one solution called myRisk.
That platform was rolled out to select health care providers last month, and Myriad expects to commercialize it more broadly throughout the year. Eventually, myRisk will serve as a broad cancer screening solution, analyzing 25 genes related to a variety of cancer including breast, ovarian, prostate, colorectal, endometrial, gastric, pancreatic, and melanoma cancers. The product is expected to carry a list price of $4,000-$4,500, generating an estimated 87% gross margin for the company.
In support of the company's transition, data showing the predictive ability of the myRisk tool is expected to be presented at The Collaborative Group of the Americas' annual meeting on Inherited Colorectal Cancer today and tomorrow. Data will also be presented at the San Antonio Breast Cancer Symposium in December.
The company also has new tests in clinical trials. Its myPlan lung cancer test recently met its primary endpoints, paving the way for identifying patients that are most likely to benefit from additional post-surgical chemotherapy. As a result, the company plans to launch myPlan later this fiscal year.
The company is also researching additional diagnostic tests including myPath Melanoma, which seeks to help doctors determine whether biopsies are malignant. Myriad is on track to commercialize myPath this fiscal year.
It's not all clear sailing
There may be future competition from generic kits following a Supreme Court ruling saying that companies can't patent genes found naturally in the body. As a result, smaller competitors Ambry and Gene by Gene released their own BRAC tests this year. However, those generic solutions may infringe on other Myriad patents related to the testing process rather than the genes themselves. If so, Myriad may find that it's insulated against the Supreme Court's ruling.
The company may also face some headwinds if insurers balk at the rising use of its tests. Cigna recently required counseling for patients prior to testing, and other insurers may follow suit. Of course, Cigna's move also reinforces just how strong the demand has become for Myriad's testing; Cigna's assumption is that such growth will continue.
This Fool's final take
Myriad doesn't come without risks. Generic competitors may skirt patent challenges and force prices lower. New targeted drug cancer treatments in clinical trials may not prove as successful in late-stage trials as they did in earlier trials. With longer-living patients and the potential for global sales across a growing range of life-threatening diseases, Myriad appears well positioned to benefit from an increasingly insured population.
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