Also scheduled to be launched in 2013 is a lung cancer test following the anticipated release of a peer-reviewed study. Myriad is also working on tests in diabetes, depression and rheumatoid arthritis (RA).
Management has made a few important acquisitions in recent years to boost growth. One year ago, on May 31, 2011, the company bought privately held Rules Based Medicine (RBM) for approximately $80 million. This acquisition greatly expanded Myriad’s pipeline, and RBM brought strategic collaborations with over 20 major pharmaceutical and biotechnology firms.
The entity operates as a wholly owned subsidiary known as Myriad RBM. Myriad also made a $25 million investment last September in Crescendo Bioscience, which develops diagnostic tests for autoimmune disorders. Myriad has exclusive rights to acquire Crescendo within three years.
One important area for cutting-edge healthcare companies is patent protection, and Myriad’s is strong. Patents covering its BRACAnalysis are good through as late as 2028, and protection for Colaris patents continue as late as 2026.
A related development we need to be aware of is a lawsuit brought by Molecular Pathology, which is challenging 15 of Myriad’s 23 patents related to BRACAnalysis. Myriad won this case in the U.S. Court of appeals last year, but the Supreme Court remanded the case back to an appellate court in March. The stock did not react negatively to the ruling; in fact, it was up the day the decision was announced.
MYGN did drop over 10% in three days the week before when the Supreme Court ruled unanimously in an unrelated case. The judges said that a blood test developed by Prometheus Technology was not eligible for patent protection as it merely reflected a law of nature. While we need to keep an eye on the suit challenging Myriad’s patents, I believe the courts understand the importance of protection – without it, innovation and the development of future tests would suffer because of a lack of a profit motive – and will uphold patent protection when warranted. It’s also worth nothing that MYGN subsequently recovered all of its lost ground after the initial drop following the Supreme Court’s ruling.
Myriad Genetics’ growth has been impressive as more patients and physicians look to genetic testing. Sales soared 175% from $145.3 million in the fiscal year ended June 30, 2007 to $402 million in the year ended last June 30. Operating income increased 388% over that same time, jumping from $32.3 million to $157.8 million as the company leveraged the costs of the tests while also keeping up investments in research and future growth.
Earnings more than doubled from 52 cents to $1.10 per share. They were actually as high as $1.54 per share in the 2010 fiscal year but fell back to $1.10 per share last year as the company recognized a full tax rate for the first time.
Through the first nine months of the current fiscal year, strong sales growth continued. Revenues increased 23% to $363 million, with BRACAnalysis sales growing 17% and Colaris revenues jumping 51%. Profitability was limited by increased R&D expenses and the acquisition of Rules Based Medicine, which contributed little in the way of revenue growth but added to expenses.
Still, operating income increased 15% to $133 million, and earnings were up 20% to 96 cents a share. Comparisons from the prior year were helped by the company’s stock repurchase program, which I like to see, that resulted in a 6.8% decline in the number of shares on the market. At the end of the last quarter, management raised earnings guidance for the current fiscal year to $1.29 per share to $1.31, up from $1.20 per share to $1.25 per share.
I also like the strong balance sheet. MYGN has cash and short- and long-term marketable securities of nearly $467 million, or $5.55 a share, and no long-term debt. This should enable the company to easily finance future acquisitions or share buybacks.
Myriad Genetics has a solid record of success with its current products on the market and the best pipeline in the growing genetics-testing industry. I look for continued solid growth from this unique franchise that helps prevent terrible diseases. It’s also a good stock for the current environment. Investors often turn to healthcare stocks in times of uncertainty, as people never stop needing healthcare. In addition, MYGN has little current exposure to Europe. Buy MYGN under $27 for an initial target of $36.