Posted on Friday, February 8th, 2013 | In Stocks to Watch
Myriad Genetics Inc. (MYGN) reported EPS of 42 cents in the second quarter of fiscal 2013, representing a beat of 10.5% over the Zacks Consensus Estimate. This denotes the second consecutive quarterly earnings beat for the company. The result also reflects year-over-year EPS growth of 27% for Myriad.
Revenues climbed 21% year over year to $149.1 million, surpassing the Zacks Consensus Estimate of $144 million in the quarter. Growth was led by further penetration and expansion of end-markets for the company’s portfolio. Myriad derives revenues from sales of Molecular diagnostic tests (contributing 94.3%) and Companion diagnostic tests (contributing 5.7%).
Molecular diagnostic tests recorded revenues of $140.7 million, up 20% year over year. Molecular diagnostic testing revenues are derived from Oncology (up 16% to $90.9 million) and Women’s Health unit (up 27% to $49.8 million). The market penetration for the company’s oncology franchise is over 50% while the same for Women Health is lower than 10%.
While Myriad markets several molecular diagnostic products, its flagship product is Bracanalysis test (representing 74% of total revenues in the quarter), which studies BRCA1 and BRCA2 genes for assessing a woman's risk of developing hereditary breast and ovarian cancers. Revenues from Bracanalysis rose 9% on a year-over-year basis to $110.3 million in the quarter. Moreover, revenues derived from Colaris and Colaris AP tests (representing 8.1% of revenues), which assess a patient's risk of developing hereditary colorectal and uterine cancers, increased 10% to $12.1 million.
Over the recent past, the company has been working on receiving reimbursements for the BART test (representing 10.6% of total revenues) that recorded revenues of $15.8 million in the reported quarter. Revenues from other molecular diagnostic tests (representing 1.7% of total revenues) came in at $2.5 million.
Revenues from Companion diagnostic tests were $8.5 million, up 63% year over year. Growth was primarily driven by the company’s recent alliance with Sanofi (SNY).
Gross profit increased 21.1% year over year to $129.3 million. Gross margin, however, contracted marginally by 20 basis points (bps) to 86.7% in the quarter.
Operating expenses rose 20.3% to $73.7 million due to a 16.8% increase in selling, general and administrative (SG&A) expenses ($59.6 million) and a 37.7% jump in research and development (R&D) expenses ($14.1 million). Higher operating expenses incurred were due to the company’s attempts to support portfolio expansion, sales force expansion and deeper penetration in the international market. However, operating margin expanded 30 basis points to 37.3%.
Myriad exited the quarter with cash, cash equivalents and marketable securities of $468.3 million, an improvement from $454.2 million at the end of fiscal 2012. The company repurchased 1.2 million shares for $33.7 million during the quarter. The consistent share buyback program had a favorable impact on the company’s EPS as shares outstanding declined 2.3% year over year.
In a concerted effort to boost shareholder value, Myriad authorized a new $200 million share repurchase program. Going forward, the reduced share count should have a positive impact on the EPS.
Based on the robust performance in the second quarter, Myriad revised its outlook for fiscal 2013. The company narrowed its guidance for revenues to the range of $575−$585 million (previous guidance was $570−$585 million), reflecting growth of 16%−18% (15−18%). The Zacks Consensus Estimate of $585 million tallied with the higher end of the revenue outlook. Further, the company envisages revenues from Companion diagnostic segment to be below the current level in the second half of fiscal 2013. Nonetheless, segment revenues are expected to hover around the high end of the earlier outlook of $25-$28 million.
Myriad raised its EPS outlook for the ongoing fiscal. It is likely to be in a range of $1.55−$1.58 ($1.50−$1.55 earlier), reflecting 19%-21% growth. The current Zacks Consensus Estimate of $1.58 is at the high end of the company’s guidance range.
Myriad posted another strong quarter which surpassed expectations. While the Bracanalysis test remains the company’s flagship product, the BART test continues to gain traction. Further, the company has progressed well in receiving reimbursements for the BART test. Myriad is optimistic about growth opportunities in the European market, while its domestic market remains largely underpenetrated.
We believe that Myriad is set on a high growth trajectory. The estimate revision trend for the ongoing fiscal reflects a unanimous bullish sentiment towards Myriad. Accordingly, the stock carries a Zacks Rank #2 (Buy). Smith & Nephew (SNN) and ResMed (RMD), carrying a Zacks Rank #1 (Strong Buy), are also expected to do well and warrant a look.
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