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Myriad Genetics Inc. (MYGN - Analyst Report) reported earnings per share (EPS) of 46 cents in the third quarter of fiscal 2013, representing a beat of 17.9% over the Zacks Consensus Estimate and EPS growth of 34% for the company. This denotes the third consecutive quarterly earnings beat for the company. Apart from strong top-line growth, the EPS upside was led by lower share count and margin expansion.

Revenue

Revenues climbed 21% year over year to $156.5 million, surpassing the Zacks Consensus Estimate of $149 million in the quarter. Growth was led by further penetration and expansion of core markets, portfolio diversification and international expansion. Myriad derives revenues from sales of Molecular diagnostic tests (contributing 95%) and Companion diagnostic tests (contributing 5%).

Molecular diagnostic tests recorded revenues of $148.4 million, up 20% year over year. Molecular diagnostic testing revenues are derived from Oncology (up 13% to $95.8 million) and Women’s Health unit (up 35% to $52.6 million).

While Myriad markets several molecular diagnostic products, its flagship product is Bracanalysis test (representing 74% of total revenues in the quarter), which studies BRCA1 and BRCA2 genes for assessing a woman's risk of developing hereditary breast and ovarian cancers. Revenues from Bracanalysis rose 9% on a year-over-year basis to $115.4 million in the quarter.

Moreover, revenues derived from Colaris and Colaris AP tests (representing 9% of revenues), which assess a patient's risk of developing hereditary colorectal and uterine cancers, shot up 19% to $13.3 million.

Over the recent past, the company has been working on receiving reimbursements for the BART test (representing 11% of total revenues). Revenues from BART test soared 392% to $16.9 million in the reported quarter. Revenues from other molecular diagnostic tests (representing 2% of total revenues) came in at $2.8 million.

Revenues from Companion diagnostic tests were $8.1 million, up 25% year over year. Growth was primarily driven by the company’s recent alliance with Sanofi (SNY - Analyst Report).

Margins

Gross profit increased 21% year over year to $136.1 million. As a result, gross margin expanded 30 bps to 87% in the quarter.

Operating expenses rose 17.7% to $78.2 million due to 18.1% increase in selling, general and administrative (SG&A) expenses (to $64.6 million) and a 15.9% jump in research and development (R&D) expenses ($13.6 million). Higher operating expenses incurred were due to the company’s attempts to support portfolio expansion, sales force expansion and deeper penetration in the international market. However, operating margin expanded 250 bps to 37%.

Balance Sheet

Myriad exited the quarter with cash, cash equivalents and marketable securities of $462.3 million, compared with $466.7 million in the year-ago quarter. The company repurchased 1.7 million shares for $44.8 million during the quarter. The consistent share buyback program had a favorable impact on the company’s EPS as shares outstanding declined 4.7% year over year.

Guidance

Following another quarter of robust growth, Myriad revised its outlook for fiscal 2013. The company increased its guidance for revenues to the range of $595−$600 million (previous guidance was $575−$585 million), reflecting growth of 20%−21% (earlier 16%−18%). The Zacks Consensus Estimate of $582 million lies below the revised revenue outlook.

Myriad also raised its EPS outlook for the ongoing fiscal. It is likely to be in a range of $1.65−$1.67 ($1.55−$1.58 earlier), reflecting annualized growth of 27%-28% (earlier 19%-21%). The current Zacks Consensus Estimate of $1.58 trails the updated guidance range.

Our View

Myriad reported another quarter of solid growth to surpass the Zacks Consensus Estimates. The upward revision of guidance is another positive. We consider Myriad’s Bracanalysis as a valuable asset for top-line growth as it has the potential to tap a widely unexplored market.

On the other hand, BART test has the latent ability to accelerate growth in the long-term. Meanwhile, the company’s share buyback program continues to boost shareholder value.

Despite compelling growth drivers, we remain on the sidelines for Myriad due to looming headwinds such as reimbursement price cut for Bracanalysis test and ongoing patent litigation for its lead product.

Accordingly, the stock carries a Zacks Rank #3 (Hold). Other medical stocks such as Intuitive Surgical Inc. (ISRG - Analyst Report) and Accuray Inc. (ARAY - Analyst Report), carrying a Zacks Rank #2 (Buy) are expected to do well.

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