Buy Myriad Genetics, Post-Results

Fiscal 2009 third quarter financial performance remains strong

Myriad Genetics, Inc. (MYGN - Analyst Report) relies on its molecular diagnostic products for its revenue generation and is currently seeing solid growth in this business. On May 4, 2009, the company reported fiscal 3Q09 financial results ended March 31, 2009.

Total revenue for the 2009 fiscal third quarter increased to a record $87.5 million, compared with $61.8 million in the prior-year period. Molecular diagnostic revenues rose 47% to $86.5 million from $59.0 million last year. The improvement resulted primarily from an increase in the Company's sales and marketing efforts, including expansion of its women's health sales force. It was also due to the continuation of its direct-to-consumer marketing campaign, which the company believes has resulted in improved physician acceptance and adoption of its molecular diagnostic products. Molecular diagnostic revenue of $86.5 million in 3Q09 was slightly lower than our estimate of $90 million.

For the third quarter of fiscal 2009, the company posted a record net profit of $25.3 million, or $0.25 per diluted share, compared with a net loss of $4.6 million, or $0.05 per share, in the third quarter fiscal 2008. The $25.3 million net profit for the third fiscal quarter represented a 19% increase over the prior quarter's net profit of $21.2 million. Net profit in 3Q09 was in line with our expectations.

The company maintains a strong balance sheet, with $535 million in cash, cash equivalents and marketable investment securities. The company has no debt or convertible securities. With profitability in fiscal 2009, we do not see any cash-burn problem.

Outlook is bright for the rest of fiscal 2009 and the next few years

We are impressed by the company, since these results were achieved in a difficult economy. The outlook for the rest of fiscal 2009 and the next a few years is bright. We maintain our optimism about Myriad’s predictive medicine. We expect continued double-digit growth in this business in the coming years. We estimate total revenue from predictive medicine to approach $340 million in fiscal 2009. Sales from predictive medicine are expected to grow at an annual growth rate of 31% in the 2009-12 periods.

In April 2009, Myriad Genetics launched its seventh molecular diagnostic product, OnDose. OnDose utilizes a unique, proprietary technology to measure a patient's exposure to chemotherapy drug 5-Fluorouracil (5-FU), to help oncologists adjust and optimize dosing to maximize efficacy and reduce toxicity.

In the United States, approximately 175,000 patients are candidates for OnDose optimization of 5-FU infusion therapy for colorectal cancer. It is estimated that for most cancer patients, an average of eight OnDose measurements would occur during a full course of 5-FU treatment. The price of OnDose is $300 for each AUC determination. OnDose will be sold through Myriad's 150-person oncology sales force. Revenue from OnDose will make a meaningful contribution to the company’s top line from fiscal 2009 fourth quarter onward.

A recent recommendation by the American College of Obstetricians and Gynecologists (ACOG) that routine screening for Hereditary Breast and Ovarian Cancer should be performed ought to have a very positive impact on the company’s top line growth in the coming quarters. The new guideline will raise physician awareness of the importance of routine hereditary breast and ovarian cancer assessment. The routine screening could double or even triple the number of patients screened by MYGN’s BRACAnalysis, which will translate into top-line growth in the coming quarters.

Molecular diagnostics has enjoyed a boom in the past few years and will continue its momentum in the coming years, in our view, when targeted therapy has become more accepted in the healthcare community. We believe Myriad Genetics, along with other molecular diagnostics firms, will ride the wave of high growth in this industry in the coming years.

We maintain our Buy rating for Myriad Genetics. Our price target is $50.