What happened
Shares of Myriad Genetics (MYGN +4.25%) soared 14.6% as of 12:07 p.m. EDT on Wednesday after a Wall Street analyst upgraded the stock from overweight to equal weight.
Steve Beuchaw, an analyst with Morgan Stanley, thinks that Myriad Genetics' core hereditary cancer testing business could be holding up better than previously expected. He now projects that the molecular diagnostics company will see a return of volume growth accompanied by slower price reductions. Beuchaw is also optimistic about the impact of Myriad's 2016 buyout of Assurex Health and recent announcement that it plans to acquire Counsyl, which specializes in genetic testing related to women's health.
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So what
Wall Street analysts frequently change their minds about the prospects of stocks. Sometimes they're right, but sometimes they're wrong. The best thing for investors to do is to examine the underlying business and decide for themselves how attractive it really is.
Myriad Genetics' hereditary cancer testing business continues to face challenges. There are more rivals in this market than there were several years ago, thanks in part to lower costs of gene sequencing. Whether or not Myriad can actually see higher volumes and fewer price cuts in this business remains to be seen.
The company's acquisitions, though, should be positive overall. Myriad's purchase of Assurex enabled it to pick up GeneSight, a genetic test that helps healthcare providers determine the most appropriate antidepressant for patients. GeneSight has already proved to be a catalyst for Myriad stock's performance, and there's still a huge market potential for the product. The Counsyl deal gives Myriad an opportunity to be the leader in the expanding market for women's health genetic testing.
Now what
Nothing changed with Myriad Genetics' prospects because one analyst upgraded his rating of the stock. My view is to take a wait-and-see approach with Myriad. While its acquisitions could help, the company's hereditary cancer testing business still generates 64% of total revenue. Until this business clearly turns around, Myriad's growth could be held back.
In addition, the company received a subpoena from the Office of Inspector General with the Department of Health and Human Services (HHS) in May. This subpoena was related to an ongoing HHS investigation into Myriad's billing to Medicare and Medicaid. The investigation could be a dark cloud over Myriad Genetics for a while to come.
