What happened
Shares of Myriad Genetics (MYGN 18.29%), a leading developer of molecular diagnostic tests, surged by 26% during the month of August, according to data from S&P Global Market Intelligence. Why the sudden surge? The bulk of the gains look traceable to the company's fourth-quarter and full-year earnings release on Aug. 8, as well as positive insurance coverage decisions made on a key diagnostic product mid-month.
So what
The rally really began for Myriad Genetics following the release of its fourth-quarter report. During Q4, Myriad wound up generating $200.5 million in sales, an 8% year-over-year improvement, largely helped by growth in its GeneSight test. Despite the jump in sales, its adjusted profit fell by 17% to $0.30 per share. Nevertheless, Myriad wound up topping Wall Street's sales and profit projections for the fourth quarter. This beat, coupled with growth from newer diagnostic products, which have helped offset competitive weaknesses in its hereditary cancer testing franchise (e.g., BRCA gene tests), clearly have investors upbeat about Myriad's prospects.
Image source: Getty Images.
The other catalyst driving big gains in August was favorable insurer coverage decisions for EndoPredict, a next-generation prognostic test that helps physicians determine a best course of care for patients with breast cancer. Myriad wound up announcing that Palmetto GBA, the Medicare contractor that oversees the MoIDx (Molecular Diagnostics) program, and Anthem, the second-largest insurer nationally, have decided to cover EndoPredict. Following the implementation of these decisions, Myriad will be able to cover more than 90% of breast cancer patients, which is pretty impressive considering EndoPredict was launched less than six months ago.
Now what
In a world of personalized medicine, Myriad Genetics continues to lead the charge. Unfortunately, this is also an increasingly crowded space that tends to rely on healthy reimbursements from Medicare and Medicaid. With the Trump administration looking to cut long-term payouts to both programs, it leaves Myriad's future somewhat cloudy.
By a similar token, the company has also seen price erosion from competition in its hereditary cancer segment, from which it derives about three-quarters of its sales. However, growth from new products, compounded with volume growth in hereditary cancer testing, even at a lower margin, could still fuel substantial sales and profit improvements in the coming years.
So, what's an investor to do? I'd suggest that modest optimism seems fair at these levels. It's probably going to take a few more years before sales in Myriad's core operating segment level off, but at the same time it should be able to continue to grow its newly launched diagnostic products. Once the company has a more balanced revenue stream, it should be able to throttle back a bit on its operating expenses and allow its operating margin to soar. Patient investors with at least a five-year time horizon should do just fine.
