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On July 12, we reaffirmed our long-term Neutral recommendation on Myriad Genetics Inc. (MYGN - Analyst Report). Although solid quarterly results and efforts to revamp product portfolio have worked to boost confidence, the company is plagued by uncertainties such as discontinuation of legacy products and the impact of the landmark Supreme Court ruling. The molecular diagnostic stock carries a Zacks Rank #3 (Hold).

Why the Reiteration?

In the third quarter of fiscal 2013, Myriad reported EPS growth of 34% to 46 cents, reflecting a beat of 17.6% over the Zacks Consensus Estimate. It reported the seventh successive quarter of more than 20% revenue growth to surpass the Zacks Consensus Estimate for top line easily.  

We are encouraged by Myriad’s attempt to renew its portfolio with the launch of myRisk hereditary cancer test in fiscal 2014. This pan-cancer panel test will allow the company to serve a market size of $5 billion in 2018. The long-term plans to foray into the neuroscience and autoimmune market are other upsides.

The company should continue to gain from the largely underpenetrated women’s health and oncology market. Myriad’s focus on the lucrative companion diagnostic market is also expected to yield positive outcomes. We believe that expansion of overseas operations represents another growth driver.

However, the recent Supreme Court ruling that isolated human genes are not patentable is a major downside for Myriad. It might spur competition and lead to pricing erosion for the company’s premium tests. Further, the higher expenses associated with pipeline developments might hurt margins in the upcoming quarters.

Furthermore, the market transformation to the yet-to-be launched myRisk presents a significant uncertainty. Our concern is exacerbated as Myriad discontinues its legacy products, including its flagship Bracanalysis test. To add to the company’s woes, the current economic climate might adversely affect adoption rates for its test. Furthermore, the European macroeconomic conditions might deter Myriad’s expansion plans.

Stocks to Consider

While we remain on the sidelines for Myriad, we are positive about AVEO Pharmaceuticals Inc. (AVEO - Snapshot Report), Array BioPharma Inc. (ARRY - Snapshot Report) and Edwards Lifescience Corp. (EW - Analyst Report). These stocks carry Zacks Rank #2 (Buy).

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