What happened

Shares of Myriad Genetics (NASDAQ:MYGN) gained nearly 22% last month, according to data provided by S&P Global Market Intelligence. While several genetic-testing peers saw their stock prices decline by double digits in September, the pioneering developer of DNA diagnostics enjoyed a bounce thanks largely to an awful end to August.

The year-to-date stock chart for Myriad Genetics resembles a city skyline -- complete with zigs and zags, abrupt rises, and equally abrupt drops. Things got a little weird in August when the company quietly announced that a major insurer would cover an important test. Shares popped over 50% that day, but gave up all of that and more when investors realized the test in question has drawn significant scrutiny from the U.S. Food and Drug Administration (FDA).

Unfortunately, September's rise doesn't alleviate those concerns for investors, who remain hesitant. Shares of Myriad Genetics have gained just 0.4% from the beginning of the year through the first week of October.

An arrow jumping up shelves on a wall

Image source: Getty Images.

So what

Myriad Genetics has big plans for its GeneSight Psychotropic Test, which matches patients with major depressive disorder or anxiety to the medications most likely to be effective for each individual. But the test didn't demonstrate statistical significance in a clinical trial, and it costs $2,000.

That originally led Wall Street to sour on the product's potential. Would insurance companies really cover it? The surprise disclosure that UnitedHealth would cover the GeneSight Psychotropic test forced analysts to abruptly reconsider their position.

But Wall Street wasn't the only one balking at the value proposition of the GeneSight product. The FDA has been caught off guard by the proliferation of genetic-testing products and services, but has moved quickly to make up for lost time. Regulators have asked several genetic-testing providers, including Myriad Genetics, to alter marketing language when claims made for tests, including GeneSight, aren't supported by clinical evidence.

Now what

To be blunt, investors are still in the maelstrom, which makes it difficult to know how things will shake out for the GeneSight Psychotropic test. It's possible that more insurers pick up coverage of the product. But it's also possible that insurers balk at covering it and doctors hesitate to order it with watered-down claims. Given the company's low margins, it may be best for investors on the prowl for growth stocks to sit on the sidelines when it comes to Myriad Genetics.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.