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Recently, Myriad Genetics Inc. (MYGN - Analyst Report) inked an agreement with PharmaMar, a leading developer of marine-derived drugs, for the first publicly acknowledged commercial partnership for its homologous recombination deficiency (HRD) tests.

Under this new partnership, Myriad will collaborate with PharmaMar’s development program for its latest drug candidate. As per the agreement, Myriad will carry out HRD testing on patients enrolled in PharmaMar’s Phase II clinical study of a novel drug candidate dubbed PM1183, which induces double-stranded DNA breaks to lead to cell death.

The company’s HRD test can identify when a tumor has lost the capability to repair DNA damage. This makes it more prone to DNA-damaging classes of drugs. Irrespective of the genomic causation, the HRD test can estimate the impact of the loss of the DNA repair function. According to management, HRD status is the most effective tool for determining patient response to DNA-damaging drugs.

The accuracy of Myriad’s HRD test to predict drug response in patients suffering from ovarian cancer and triple negative breast cancer has been proven on the basis of clinical data. Based on estimates, about 490,000 individuals in the U.S. are diagnosed with cancer annually. The eligibility of these patients to be treated with DNA damaging classes of drugs reflects a $1 -$2 billion market opportunity for the particular HRD test in the domestic market.

The partnership underlines Myriad’s focus on its companion diagnostic business. The company has agreements with several pharmaceutical companies like Sanofi (SNY - Analyst Report) as it works to establish itself as a strong player in the companion diagnostic market.

Although the revenues from the companion diagnostic franchise represents less than 6% of Myriad’s revenues, we are optimistic about increasing contributions from the segment going forward. Management expects segment revenues to hover around the high end of the earlier outlook of $25-$28 million in the ongoing fiscal.

Despite the several upsides, the ongoing patent litigation and reimbursement cuts for its leading test keep us on the sidelines. As a result, the stock carries a Zacks Rank #3 (Hold). Nonetheless, other medical stocks such as Conceptus and Covidien (COV - Analyst Report) are likely to do well. Both these stocks carry a Zacks Rank #2 (Buy).

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