EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Myriad FVE Despite Continued Coverage Issues for GeneSight in 3Q

Myriad Genetics reported third-quarter earnings of $216.6 million, in line with management’s guidance and representing an 18.3% year-over-year increase, while its adjusted operating margin remained flat and slightly below expectations at 17%. Though management is attempting to curtail costs and expand its margin with its Elevate 2020 program, we will have to wait and see if the spend on the program is justified after its full implementation. We are holding our fair value estimate steady at $32.50 per share. GeneSight, Myriad’s genetic analysis tool designed to match patients with neuropsychiatric disorders with the most effective drug treatment, experienced a revenue decrease by 3% year over year despite a 19% increase in volume, as many key payers continued noncoverage. We still think Myriad can meet our sales expectations for GeneSight, however, as we had already modeled continuing GeneSight headwinds for the rest of the fiscal year, with growth turning positive in fiscal 2020 as reimbursement improves. Myriad’s second-largest segment, its newly acquired prenatal screening, is only one quarter as large as its hereditary cancer screen segment, though it has seen impressive out-of-the-gate growth, highlighting a promising integration on the salesforce front. However, in our opinion, since Myriad’s non-cancer segments represent such a small fraction of its revenue, we would need to see significant traction with GeneSight or prenatal screening for the firm to markedly diversify its revenue mix and stabilize its negative moat trend.

Myriad’s core hereditary cancer segment, which still contributes the lion's share of the firm's earnings, grew 4% year over year, which supports our narrow moat status based on its intangible assets associated with the myRisk cancer panel test.

Myriad is still able to command premium pricing, and due to its proprietary database and superior accuracy has been able to grow testing volume for nine consecutive quarters. However, we believe Myriad will continue to face competitive pressures, as whole gene sequencing technologies emerge and become cheaper. We will continue to monitor the space as competitors seek to build up their own databases.