Image source: Getty Images.
What happened
Myriad Genetics (MYGN +1.76%), a personalized medicine company that provides an array of molecular diagnostic tests, had its DNA scrambled in August, with shares of the company plunging 34% during the month, according to data from S&P Global Market Intelligence. The culprit for the plunge can be traced to the company's fiscal fourth-quarter earnings release after the bell on Aug. 9.
So what
Heading into its earnings report, Myriad Genetics was expected to generate $187.8 million in sales per Capital IQ estimates, and deliver $0.37 in full-year EPS. Looking toward 2017, Wall Street was forecasting $1.78 in EPS and $791 million in full-year sales.
What Myriad actually reported in Q4 2016 was $0.36 in adjusted profits per share, a penny lower than expected, and $186.5 million in sales, which is more or less close enough to be considered in-line with estimates. The company saw strong growth from its newer diagnostic tests, including Prolaris for prostate cancer staging, where revenue rose 400% to $3.5 million. Conversely, its hereditary cancer testing revenue led by its flagship BracAnalysis test fell 7% to $152.8 million from the prior-year period. Competition among hereditary cancer tests is increasing, and negative revenue trends among Myriad's bread-and-butter revenue generator could persist into 2017.
It was the Myriad's forward guidance for fiscal 2017 that really spliced its share price. Moving forward, the company anticipates reporting $740 million to $760 million in sales and between $1 and $1.10 in full-year adjusted EPS. These are both a far cry from what Wall Street was expecting, and this miss played a big role in slashing Myriad's valuation.
Additionally, Myriad agreed in August to buy Assurex Health, which is expected to reduce its fiscal 2017 EPS by about $0.20. Though Assurex's lead product, GeneSight Psychotropic, could eventually help Myriad's bottom-line, the transaction is expected to be dilutive through fiscal 2017.
Image source: Myriad Genetics.
Now what
Sometimes you just have to admit defeat -- and oh, have I been dead wrong about Myriad Genetics.
On one hand, the company could be wildly successful as physicians and consumers push to personalize the treatment process. As cancer drug developers continue to pinpoint certain biomarkers known to lead to higher cancer risk, the case for companies like Myriad that develop molecular diagnostic tools is strengthened.
On the other hand, Myriad business model is intricately tied to Medicare, and Medicare is doing what it can to reduce the reliance of third parties on the program in the coming years. Furthermore, as the company noted in its quarterly report, competition has increased and could continue to pressure its BracAnalysis line of products. While Myriad does have a number of new molecular options that have been recently introduced, the decline in BracAnalysis sales could be too much to overcome in the near-term.
For the time being, I'd suggest being a patient observer on the sidelines.
