On Apr 17, we downgraded our recommendation on Myriad Genetics Inc. (MYGN - Free Report) to Neutral from Outperform. Despite the recent healthy growth, the stock is presently out of favor on account of imminent headwinds.
Presently, there is a lot of uncertainty surrounding Myriad. While the company started fiscal 2013 on a solid note, several downsides such as reimbursement issues and ongoing patent litigation weigh on the stock.
The Noridian reimbursement price cut for the integrated Bracanalysis test is a major cause of concern. We are wary that if private insurance payors follow suit, the reimbursement cut might adversely impact Myriad.
Further, Myriad continues to face legal claims that challenge its patent landscape. The ongoing patent litigation (to decide whether isolated human genes can be patented) might drag the stock. We are concerned that an adverse outcome might affect the patent landscape for the company’s flagship product, which in turn might impact the Myriad’s growth over the long haul.
We also keep an eye on the product development timelines. With several tests under early-stage development, Myriad continues to face higher costs. Consequently, gross margin pressure is another cause of concern. Also, uncertainties in Europe remain an overhang.
Although Myriad still expects fiscal revenues and EPS to come in at the high end of the guidance, the issue surrounding the stock leads to a somewhat pessimistic view that the company might not be able to keep the recent momentum going over the long haul.
We await Myriad’s recovery from the ongoing challenges. Myriad presently carries a Zacks Rank #4 (Sell). However, other medical sector stocks such as Cyberonics Inc. and Cepheid , carrying a Zacks Rank #1 (Strong Buy) are expected to do well. Abiomed Inc. (ABMD - Free Report) , carrying a Zacks Rank #2 (Buy) is also worth considering.