Recently, we downgraded Myriad Genetics (MYGN) to Neutral with a target price of $20.00.
Myriad reported an EPS of 30 cents for the fourth quarter of fiscal 2011, beating the Zacks Consensus Estimate of 28 cents, but lower than the year-ago quarter’s adjusted EPS of 39 cents (after taking into account a one-time income tax benefit of $11.5 million). For fiscal 2011, the EPS came in at $1.10, surpassing the Zacks Consensus Estimate by a penny, although lower than the previous year’s adjusted EPS of $1.41.
Revenues were $107.4 million, up 14% compared with the year-ago quarter and higher than the Zacks Consensus Estimate of $104.0 million. For fiscal 2011, revenues increased 11% to $402.1 million, beating the Zacks Consensus Estimate of $399 million.
Myriad has decided on some strategic methods for long-term revenue growth. These include growing the existing products portfolio and markets, developing an international presence, investment in new products and making the most of the companion diagnostic opportunity.
Myriad is focused on its research and development initiatives to deliver new molecular diagnostic products. The company has decided to pursue internal developments, in-licensing of technologies and acquisitions to expand its business. Over the recent past, the company has acquired molecular diagnostics company, Rules-Based Medicine (RBM) and in-licensed technologies from Chronix Biomedical and Melanoma Diagnostics.
At present, the company has 13 products under development at various stages. The company’s tenth product, slated for launch in the second half of 2011, will assist dermatopathologists in determining whether a patient’s mole is benign or a malignant melanoma.
Based on the RMB deal, Myriad would gain access to the latter’s pipeline that includes tests for anti-psychotic drug safety, hepatitis C drug response and detection of kidney damage in diabetes patients. Successful commercialization of the pipeline candidates should lead to higher revenues going ahead.
Due to the company’s focus on international expansion and pipeline development, expenses have increased and will maintain this uptrend in the coming quarters. Spending on R&D is expected to amount to nearly 9% of revenues in 2012 from 7% in 2011.
Moreover, R&D expenses in the first quarter will increase on a sequential basis due to the full quarter impact of RBM and new clinical trials. As a result, margin will remain under pressure.
Given the modest guidance for 2012, we revert to a Neutral recommendation. The company also faces tough competition from players like Laboratory Corporation of America Holdings (LH) and Quest Diagnostics (DGX).
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
MYRIAD GENETICS (MYGN): Free Stock Analysis Report
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