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Why Myriad Genetics Inc. Shares Were Clobbered

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Myriad Genetics (NASDAQ: MYGN  ) , a molecular diagnostics company best known for its BRACAnalysis BRCA 1 & 2 gene test, slumped as much as 17% after the Centers for Medicare and Medicaid Services proposed drastic cuts to its Medicare reimbursement rate.

So what: According to the CMS press release, it will hold an open forum for commentary through Jan. 27, but if all goes as proposed, the reimbursement rate for Myraid Genetics' BRACAnalysis gene test will drop by 48.6% to just $1,438 from its current $2,795. Based on figures from Bloomberg, Medicare reimbursements currently make up about 10% of Myriad's total BRACAnalysis gene test sales. Following this news, Myriad was hit with a flurry of downgrades and price target cuts including JMP Securities cutting the company to "underperform," Mizuho Financial cutting Myriad to "neutral" from "buy," and Goldman Sachs lowering its price target to $20 from $32.

Now what: This has been a miserable year for Myriad Genetics' shareholders, and it just keeps getting worse. Earlier this year, U.S. courts invalidated some of its previously key patents that had protected the exclusivity of its BRCA gene test, allowing Quest Diagnostics (NYSE: DGX  ) and other competitors to introduce competing tests just days later. Now, with the prospect of a major Medicare reimbursement haircut on the horizon, Myriad could be facing a revenue decline in the coming years when growth was anticipated by investors. There's obviously still time to adjust the CMS' rates for the upcoming year, so all hope is not lost, but it'd probably be best to wait on the sidelines until we know exactly what the final reimbursement cuts will be.

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Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2013, at 4:41 PM, jgffa wrote:

    At First Financial Advisors, we are bullish on MYGN. For more info, please go to:

  • Report this Comment On December 31, 2013, at 11:53 AM, deckdawg wrote:

    Sean, I'm a MYGN investor, and you are right. It has been a roller coaster year. Your info on the test pricing is not quite correct. I read the 8-K posted by MYGN on this. The CMS NLA for both the BRCA 1 & 2 genes is $2,795. The NLA for just the BRCA 1 gene is $1,449. There is no NLA for just the BRCA 2 gene. (Which is puzzling) MYGN will be questioning all of this during the public comment period which runs until Jan 27. (I'm assuming MYGN was careful to correctly describe the pricing situation in their 8K).

    The interesting thing about MYGN is that they have this massive pipeline of new products coming to market which seem to be given no value at all by the market.

  • Report this Comment On December 31, 2013, at 12:00 PM, deckdawg wrote:

    First Financial guys, I'm glad there's at least one other investor bullish on MYGN. I've got a cost basis of about $17 (so I've been a shareholder for a while). I see great potential here, but have been questioning my sanity a bit as so few others seem to see it.

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