Would you like to know if you were at a higher risk for certain diseases than everyone else because of your genes? For example, imagine if because of your genetic background, you had a higher risk of certain types of cancer. With that knowledge, you could then take precautionary actions such as a more rigorous screening schedule to keep an eye out for the development of a tumor. If cancer is caught early, it is much easier to treat.
Sounds good, huh? Fortunately this is not science fiction; it's a reality. One company that is making significant inroads in this area is Myriad Genetics (NASDAQ:MYGN). Myriad offers a lineup of products that screen for genetic mutations known to be associated with increased risk of breast, colorectal, melanoma, and pancreatic cancers.
Yesterday, Myriad reported earnings for its fiscal year ending June 30, 2004, and these predictive tests have turned out to be a very good business. Sales came in at $43.3 million, up 25% from $34.7 million in fiscal year 2003. With fourth-quarter sales of $13.1 million, it appears that this growth rate will continue into fiscal year 2005.
When I see a sales figure, my first question is always, "So, what's the operating profit?" A company can have great sales, but if the cost of goods is incredibly high, then I don't view it as an attractive business. In Myriad's case, the company reported gross margins of 68% on these predictive tests. Management commented during yesterday's conference call that margins are going to increase to the mid-70% range over the next year. Outside of the sky-high margins found in the drug industry, that's pretty good.
Despite the increasing product revenue, the losses are mounting. Of course that won't surprise anyone that follows small drug companies as drug development is a cash-intensive business model. Even with solid growth of product revenue, losses could continue to increase as Myriad moves more drugs into clinical development while it transitions into a drug developer.
To read more by Charly on the biotech industry, check out his recent articles:
- What's a Drug Worth?
- Biotech's Full Monte
- Unraveling Biotech Potential
- Don't Be a Biotech Gambler
- Avoiding Biotech Landmines
Fool contributor Charly Travers owns shares of Myriad Genetics.
