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Morningstar | Myriad's Genetic Testing Suite Upholds Its Narrow Moat

Myriad Genetics suffered a blow when the U.S. Supreme Court dissolved its patents on the BRCA1 and BRCA2 genes. Competition in hereditary cancer testing has heated up, eroding pricing power, and the rapid pace of progress in DNA sequencing technology has presented uncertainty. While long-term concerns remain, we now believe the worst of the fallout for Myriad has transpired. Management has a solid strategy focused on stabilizing its core hereditary cancer business, diversifying its product portfolio, and expanding internationally. Furthermore, we believe the diagnostic accuracy afforded by its extensive database of genetic mutations should not be overlooked. Myriad has undergone a seismic shift in its testing menu in the past few years, transitioning its customer base from single-syndrome tests (testing BRCA1 and BRCA2 genes) to its comprehensive panel test, myRisk, which screens 28 genes across multiple cancer indications. Armed with its database of nearly 50,000 unique variants, 17,000 related to BRCA and dwarfing public records, Myriad justifies premium pricing through superior accuracy tests, which are ultimately a value proposition for payers. Myriad has aimed to diversify its revenue streams with burgeoning tests such as GeneSight, Vectra DA, and Prolaris. Industrywide, the burden of proof necessary for diagnostic providers to prove clinical utility and savings to the healthcare system is growing onerous as increasingly complex tests are presented to regulators and payers. While Myriad has experienced snags establishing reimbursement for nascent products, we believe it is well positioned to navigate this landscape, particularly in comparison with smaller independent labs, as it can leverage its breadth of clinical data and validation capabilities.In the longer term, we believe the rapid evolution of whole genome sequencing presents material uncertainty. However, Myriad’s market share has remained durable against new entrants, and the company has commendably diversified its portfolio to hedge against further pricing pressure for the core hereditary cancer business.