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Recently molecular diagnostic company Myriad Genetics Inc. (MYGN - Analyst Report) entered into a companion diagnostics research collaboration with pharmaceutical major Tesaro, Inc. (TSRO - Snapshot Report). After the announcement on Mar 24, Myriad Genetics’ shares went up 2.3% to close the trading session at $34.41. However, this bullish sentiment did not last, thanks to the biotech selloff at the end of last week. This was followed by additional speculation about a possible biotech bubble. Accordingly, the share price of Myriad Genetics, similar to many other players in this niche, dropped more than 4.8% yesterday.

This alliance marks Myriad Genetics’ fifth such collaboration with a major pharmaceutical company based on its homologous recombination deficiency (HRD) test. Per the agreement, Tesaro will use this HRD test to evaluate and identify tumor types that may react to a PARP (poly-ADP ribose polymerase) inhibitor like niraparib, currenty in phase III for the treatment of ovarian and breast cancer. The financial terms of the deal were not disclosed.

With an estimated market opportunity of $3 billion for the HRD test, management at Myriad Genetics is confident that the collaboration with Tesaro will seamlessly strengthen its foothold in the companion diagnostics market. While only a subset of patients respond to PARP inhibitors, the HRD test has established itself successfully as the most comprehensive test to identify these patients who are likely to respond to treatment.

According to Myriad Genetics, high HRD scores are predominant in all breast cancer subtypes and in most of the major cancer types. An earlier published data had revealed that the HRD test predicted drug response to platinum therapy in triple-negative breast cancer type.

Myriad Genetics is emerging as a strong player in the companion diagnostic market as evident from its strategic deals with several pharmaceutical majors.The company has PARP collaborations with majors like AstraZeneca plc (AZN - Analyst Report) and AbbVie Inc. (ABBV - Analyst Report) among others. We believe that these developments should augur well for the long-term development of the company. The stock currently carries a Zacks Rank #2 (Buy).

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