Myriad Genetics Inc. MYGN reported adjusted earnings per share (EPS) of 23 cents in the first quarter of fiscal 2017, down 43.9% year over year. Adjusted EPS also missed the Zacks Consensus Estimate by 11.5% and lagged the company’s guided range of 25–27 cents.
Including one-time items, the company reported net loss of $1.2 million or loss of 2 cents per share in the reported quarter, exhibiting a year-over-year deterioration respectively.
Revenues
Total revenue dropped 3.3% year over year to $177.5 million. However, it surpassed the company’s guidance of $168–$170 million. The top line also exceeded the Zacks Consensus Estimate of $170 million.
The year-over-year decline in the top line was primarily due to lower-than-expected revenues garnered by Myriad’s hereditary cancer test.
Segment-wise, Molecular diagnostic tests (93% of total revenue) recorded total revenue of $165.1 million, down 3.9% year over year, mainly on account of Hereditary cancer testing revenues which dropped 11% to $139.3 million. However, Vectra DA testing revenues grew 2% to $11.6 million, Prolaris testing revenues surged 314% to $2.9 million and other testing revenues rose 4% to $2.4 million.
On the other hand, Pharmaceutical and clinical service revenues (accounting for the rest) in the first quarter of 2017 grossed $12.4 million, reflecting year-over-year growth of 7%.
MYRIAD GENETICS Price, Consensus and EPS Surprise
MYRIAD GENETICS Price, Consensus and EPS Surprise | MYRIAD GENETICS Quote
Margin Trends
Gross margin in the quarter contracted 264 basis points (bps) to 77.5%. According to management, this decline was due to unfavorable product mix with more revenues coming in from lower margin segments such as pharmaceutical and clinical services along with reduced fixed cost absorption on lower hereditary cancer revenues. Additionally, the company witnessed an impact from the full implementation of long-term contracts in hereditary cancer.
Operating expenses rose 26.6% to $131 million owing to a 29.3% rise in selling, general and administrative (SG&A) expenses (to $112 million). Research and development (R&D) expenses rose 12.7% (to $19.4 million) in the reported quarter. Consequently, the operating margin declined to 3.5%.
Financial Position
Myriad exited the first quarter of fiscal 2017 with cash, cash equivalents and marketable securities of $148.4 million, compared with $159 million at the end of fiscal 2016. In this quarter, cash used in operations totaled $2.9 million, down 90.2% year over year. Consequently, free cash flow was down to $4.4 million in the quarter compared with $23.9 million year over year. The company repurchased 1.0 million shares for $21 million during the quarter and was left with a buy-back authorization of $171 million under its current share repurchase authorization.
Guidance
Myriad has provided guidance for fiscal 2017. The company currently expects revenues in the range of $740–$760 million. The Zacks Consensus Estimate of $745.8 million lies within the range but close to the lower end.
On the bottom-line front, the company expects to generate adjusted EPS in the band of $1.00–$1.10. The current Zacks Consensus Estimate of $1.04 lies within Myriad's guidance.
Alongside, management has provided its outlook for the second quarter of fiscal 2017. The company estimates adjusted earnings per share at 23–25 cents on total revenue of $188–$190 million. The Zacks Consensus Estimate for adjusted EPS at 27 cents and revenues at $193.8 million exceeds the company’s guided range.
Our View
On a disappointing note, Myriad started the fiscal 2017 on a disappointing note with earnings missing the Zacks Consensus Estimate.
On a brighter note, Myriad made considerable progress in its recently released product line. Particularly, strong growth was observed in both Prolaris and Vectra DA testing revenues. This led to the rise in consolidated revenues, surpassing the company’s revenue guidance and the Zacks Consensus Estimate. Moving on to Genesight with Assurex Health, Myriad’s revenues and volumes exceeded expectations. The integration of Assurex health is also awaited which should help Myriad achieve break-even earnings in the first half of fiscal 2018.
Zacks Rank & Key Picks
Myriad genetics currently carries a Zacks Rank #4 (Sell). Better-ranked medical stocks are GW Pharmaceuticals plc GWPH, Baxter International Inc. BAX and Bovie Medical Corporation BVX. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals surged 67.5% year to date compared to the S&P 500’s 3.3% over the same period. The company’s four-quarter average earnings surprise is 41.6%.
Baxter international rallied 22.91% year to date, above the S&P 500’s 3.3%. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded 20.1% gain in the past one year, above the S&P 500’s 2.4%. The company has a trailing four-quarter average earnings surprise of 6.3%.
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