Two molecular-diagnostics companies: One is profitable. The other isn't. One saw its bottom line grow year over year in the most recent quarter. The other saw a decline. The first company is Myriad Genetics (NASDAQ:MYGN). The second company is Exact Sciences (NASDAQ:EXAS).
One of these two companies' stock is up over 120% so far in 2016. The other stock is down more than 50%. If you guessed that the profitable, earnings-growing Myriad was the big winner, think again. Exact Sciences' stock performance has trounced Myriad's. So which of these two stocks is the better buy now? Let's look at the arguments for both Exact Sciences and Myriad Genetics.
The case for Exact Sciences
Yes, Exact Sciences is still operating in the red. And yes, the company lost more money in the second quarter of 2016 than it did in the prior-year period. But there's a lot for investors to like about Exact Sciences.
For one thing, revenue grew more than 160% year over year last quarter and nearly tripled in the first half of 2016 compared to the same period last year. Exact Sciences achieved that impressive growth thanks to soaring sales of its Cologuard DNA screening test for colon cancer.
What about that greater net loss in the second quarter? It stemmed mainly from Exact Sciences' increasing sales and marketing spending by a whopping 47%. That strategy makes sense, though, since the company wants to both expand consumer awareness and encourage physicians to prescribe Cologuard.
Exact Sciences expects to generate between $90 million and $100 million in 2016, which implies even brisker sales for Cologuard in the second half of the year. That seems quite attainable. When the company announced that revenue goal on July 26, the DNA test was covered for around 58% of its estimated total addressable population. Just over two weeks later, that figure stood at 62% thanks to two large insurers updating their medical policies to pay for Cologuard.
Wall Street expects Exact Sciences to grow its bottom line at an annual rate of 22.5% over the next five years. Profitability shouldn't be too far away if the company hits that target.
The case for Myriad Genetics
Myriad Genetics reported year-over-year earnings growth of 25% in its fiscal fourth quarter, which ended on June 30. The company generated net income of $23.4 million on revenue of $186.5 million last quarter and expects to pull in sales of around $750 million in its new fiscal year.
The biggest moneymaker for Myriad by far is its hereditary-cancer testing. The company's product lineup includes six DNA tests. The most comprehensive of these tests, myRisk, screens for eight different forms of cancer: breast, ovarian, gastric, colorectal, pancreatic, melanoma, prostate, and endometrial.
Myriad also markets Vectra DA, a blood test for rheumatoid arthritis disease activity. Vectra helps physicians develop better individualized treatment plans for rheumatoid arthritis patients. Myriad continues to gain more reimbursement acceptance for the test, signing up three payers last quarter that together cover around a million people.
The company's Prolaris prostate cancer test isn't making a lot of money yet (only $3.5 million last quarter), but sales are soaring. Myriad reported that fiscal-fourth-quarter revenue for Prolaris quintupled compared to the prior-year period.
Acquisitions are also a factor for Myriad's growth strategy. The company bought Sividon Diagnostics in May, picking up Sividon's EndoPredict breast cancer prognostic test. Myriad thinks that there's a $600 million global market for EndoPredict.
On Aug. 3, Myriad announced plans to buy Assurex Health, leader in genetic testing for psychotropic medicine selection. This deal gives Myriad its first product for the neuroscience market, GeneSight.
There is a catch with Myriad, though. The company provided fiscal 2017 earnings guidance well below expectations. In fiscal 2016, Myriad racked up earnings of $1.71 per diluted share. For fiscal 2017, the company expects generally accepted accounting principles (GAAP) earnings of between $0.47 and $0.57 per diluted share.
Exact Sciences' shares have soared this year, while Myriad Genetics' shares have tanked. I think the market has made the right call. Exact Sciences is the better buy.
While the acquisitions of Assurex and Sividon are good moves in my view, I'm concerned about Myriad's losing ground to competition with its core hereditary cancer products. Perhaps investors overreacted in the sell-off following the company's earnings announcement, but I'm not sure.
On the other hand, Exact Sciences is on a clear growth trajectory. I suspect the company's increased efforts to market directly to customers via television and social-media campaigns will pay off. Exact Sciences is exactly the kind of stock long-term investors should consider.