Myriad Genetics (MYGN) reported EPS of 34 cents for the fourth quarter of fiscal 2012, up 14% year over year and at par with the Zacks Consensus Estimate. For fiscal 2012, EPS increased 18% to $1.30, also in line with the Zacks Consensus Estimate.
Revenues for the quarter came in at $133 million, up 24% year over year and marginally higher than the Zacks Consensus Estimate of $132 million. For fiscal 2012, revenues increased 23% to $496 million, nominally ahead of the Zacks Consensus Estimate of $495 million.
During the quarter, Myriad’s two businesses – Molecular diagnostic testing and Companion diagnostic services – recorded revenues of $127.5 million (up 21% year over year) and $5.5 million (up 4.1%), respectively.
The company has been offering Companion diagnostic services following its acquisition of Rules-Based Medicine in May 2011 which now accounts for 4% of total revenues. Molecular diagnostic testing revenue is derived from both Oncology (up 16% to $87 million) and Women’s Health (up 32% to $40.5 million).
While Myriad markets several molecular diagnostic products, the company's flagship product is Bracanalysis (representing 81.7% of total revenues during the quarter), which studies BRCA1 and BRCA2 genes for assessing a woman's risk of developing hereditary breast and ovarian cancers.
This test recorded a 17% jump in revenues to $108.7 million during the quarter. Moreover, revenues derived from Colaris and Colaris AP, which assess a patient's risk of developing hereditary colorectal and uterine cancers, increased 51% to $11.5 million.
Gross profit increased 22.3% year over year to $116 million. Gross margin, however, declined 110 basis points (bps) to 87.3%. Operating expenses increased 29.4% during the quarter to $68.7 million due to a 28.9% rise in selling, general and administrative expenses ($56.6 million) and a 31.6% increase in research and development (R&D) expenses ($12.1 million).
Higher operating expenses were primarily to support portfolio expansion, Myriad RBM and deeper penetration in the international market. Consequently, operating margin declined 330 bps to 35.6%.
Myriad exited the fiscal with cash, cash equivalents and marketable securities of $454.2 million, an improvement from $417.3 million at the end of fiscal 2011. The company repurchased 2.6 million shares for $61 million during the quarter. The consistent share buyback program had a favorable impact on the company’s bottom line as shares outstanding declined 1.9% year over year.
Guidance
Myriad initiated its guidance for fiscal 2013. The company expects to report revenues of $550−$565 million (representing 11−14% growth) with Molecular and Companion Diagnostics revenues of $525–$537 million and $25–$28 million, respectively. The EPS for the fiscal year is likely to be in a range of $1.44−$1.48.
While revenue guidance is in line with the Zacks Consensus Estimate of $554 million, EPS guidance nominally fell short of the consensus estimate of $1.49. Cash flow from operations is expected to be approximately $150 million.
Recommendation
We consider Myriad’s Bracanalysis as a valuable asset for top-line growth as it has the potential to tap a widely unexplored market. We are encouraged by the company’s various initiatives to achieve this objective. During fiscal 2012, the company had entered into agreements with Cephalon, a subsidiary of Teva Pharmaceutical (TEVA) and Pharma Mar to conduct companion diagnostic testing for their clinical trials.
The company has also entered into a loan and acquisition option agreement with Crescendo Biosciences by making a $25 million debt investment to secure an exclusive, three-year option to acquire it. The completion of the potential acquisition would complement Myriad’s portfolio by adding autoimmune and inflammatory disease products. Moreover, with a strong cash balance, the company is well placed to expand its product portfolio and target new territories.
However, operating expenses are on rise due to the company’s focus on international expansion and product development. As a result, margin remains under pressure, although the bottom line should benefit from the repurchase program.
We currently have a Neutral recommendation on Myriad. The stock retains a Zacks #3 Rank (Hold) in the short term.
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