Myriad impresses with sales past and future
That Myriad Genetics’ tumultuous year, in which the Supreme Court broke its monopoly of the US breast cancer diagnostics market, has ended with its fiscal second-quarter net profit rising 44% is as unlikely as it is impressive. The company’s shareholders were certainly delighted, sending the stock up 10% in early trading today.
The company is aware, though, of the need to diversify, and also announced its second-ever acquisition in the shape of the $270m cash buyout of the autoimmune diagnostics specialist Crescendo Bioscience. Myriad believes that the good times will continue, and increased its sales guidance for 2014, from $700-715m to $740-750m – just as well, as the Crescendo buy is not expected to become accretive until 2016.
Myriad’s second-quarter revenues rose 37% to $204m. The women's health segment was responsible for much of the sales boost, with revenues up 90% year on year and 12% over Q1. The company said this segment benefited from “celebrity publicity” to the tune of around $15-20m – a reference to Angelina Jolie’s decision to have a preventive double mastectomy last year after undergoing genetic assessment with Myriad’s BRACAnalysis test (US Supreme Court ruling on gene patents will have myriad consequences, May 15, 2013).
Sales of BRACAnalysis in the second quarter increased 28% to $141m – 69% of total company revenue. Even excluding the celebrity effect, the women's health revenue would have grown by around 35% year on year, Myriad said.
The company is doubtless making the most of its established market position, but with companies including Quest Diagnostics and Ambry Genetics undercutting it on price this situation surely cannot continue indefinitely, despite Myriad’s attempts to use the courts to quash its competitors (Quest comes out swinging in breast cancer test fight with Myriad, October 17, 2013).
Buying Crescendo moves Myriad into a new area: testing for autoimmune disorders. The California company sells Vectra DA, a diagnostic used for guiding treatment of rheumatoid arthritis, which does around $10m of business each quarter, and Myriad believes the technology could be applied to other autoimmune conditions.
The buy is not completely unexpected. Myriad invested $25m in Crescendo in November, calling it a loan – this will come out of the purchase price, meaning Myriad will hand over $245m when the transaction closes. Myriad said it would still have enough cash left to continue with its ongoing $300m share repurchase.
Analysts at Leerink said that the purchase price for Crescendo was a highly positive NPV transaction, as they had expected it to come in at more than $300m.
One of the main advantages of Vectra DA is that it has already gained reimbursement under Medicare. Myriad itself is set to suffer from reimbursement cuts; in the dying days of last year the Centers for Medicare and Medicaid Services said it would cut BRCA test reimbursement from $2,795 a go to $1,438, owing to increased competition.
The diagnostics arena is set to change fast, with sweeping regulatory changes afoot on both sides of the Atlantic. Myriad is riding the various storms out – so far, at least.