Shares of gene-testing pioneer Myriad Genetics (NASDAQ: MYGN) rose 29% last month, according to data provided by S&P Global Market Intelligence. There were numerous positive announcements for investors to track, although the stock chart of the last several months summarizes Wall Street’s thoughts about all the moving parts. The genetics stock entered the month down over 17% from the beginning of 2018, but is now up 14% year to date.
The business started off on the right foot with relatively strong fiscal third-quarter 2018 earnings results, especially on the bottom line. Myriad Genetics also announced a huge acquisition of Counsyl, one of the most promising gene-testing companies in the industry, to provide an immediate injection of growth and compete more readily with challenger Invitae.
The main story for the business continues to be that the hereditary cancer test segment, by far the largest part of the business, is shrinking in the face of fierce competition. Revenue in the fiscal third quarter fell over 12% from the year-ago period, which more than offset increases from the most promising products. Total revenue slipped 2% between the comparison periods, but gross margin was roughly identical at over 77%. More importantly, adjusted EPS grew 15%.
Myriad Genetics once hoped that new products would replace sales and profits lost from its legacy business, but they haven’t had as big an impact as expected. That explains why management moved to acquired Counsyl for $375 million in cash and stock. The genetic test provider focuses on prenatal screening, which has proven to be a lucrative niche in the industry. Despite only coming into existence in 2007, the upstart collected $137 million in revenue and sold 280,000 tests in the last 12 months.
The acquisition will boost total revenue by about 20% and immediately makes Myriad Genetics a leader in the prenatal screening arena. It’s a direct shot at Invitae, which recently acquired two prenatal testing companies and has been a thorn in the side of the industry pioneer, playing a major role in the slide of its hereditary cancer test business. Now they’ll be going head-to-head in another important and fast-growing niche.
That wasn’t even all the news Myriad Genetics dropped on investors in May. The company also announced new insurance coverage for one of its growth products, presented more data on the value provided by its second leading genetic test, and reminded investors that its products are increasingly being used in clinical settings by biopharma companies.
Long story short: Shareholders have endured a volatile ride the last several years, but it appears as if the company is finally taking steps to respond to the new realities of the genetic testing markets. Whether that makes the stock a buy is a difficult question to answer, but the acquisition of Counsyl could change the calculus in the company’s favor in the coming quarters.
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