Myriad Genetics' Q4 Earnings Beat Estimates, Revenues Up Y/Y

Utah-based leading molecular diagnostic company Myriad Genetics Inc. (MYGN) reported adjusted earnings per share (EPS) of 48 cents in the fourth quarter of fiscal 2014, registering a 4.3% beat over the Zacks Consensus Estimate. However, adjusted EPS deteriorated 11.1% from the year-ago number of 54 cents. The year-over-year decline was a result of margin contraction, despite an increase in the top line.

Fiscal 2014 adjusted EPS (considering stock based compensation as regular expense) rose 32.6% from the year-ago level to $2.36, but missed the Zacks Consensus Estimate of $2.40. The result was below the company's forecasted EPS range of $2.37−$2.40.

Myriad Genetics, Inc - Earnings Surprise | FindTheBest

Quarter under Review

In the fourth quarter, total revenue climbed 8.4% year over year to $188.8 million, beating the Zacks Consensus Estimate of $187 million by a whisker. Excluding the onetime impact from celebrity publicity in the year-ago quarter, revenue growth was almost 14%. The revenue improvement was primarily driven by further penetration and expansion of core markets, growth in the urology and dermatology business units, portfolio diversification, benefits gained from successful clinical trials and international expansion.

Fiscal 2014 revenues surged a robust 27% year over year to $778.2 million, surpassing the Zacks Consensus Estimate of $775 million. The top line also exceeded Myriad's previously guided range of $770−$775 million.

Myriad derives revenues from sales of Molecular diagnostic tests (contributing 96.9% to total revenue in the fourth quarter) and Companion diagnostic tests (3.1%).

In the fourth quarter, Molecular diagnostic tests recorded revenues of $182.9 million, up 10.1% year over year. Molecular diagnostic testing revenues are derived from Oncology (down 10% to $90.2 million) and Women's Health unit (up 24% to $81.9 million).

While Myriad markets several molecular diagnostic products, its flagship product remains the BracAnalysis test (representing 56.9% of total revenue 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 declined 17.1% on a year-over-year basis to $107.4 million in the quarter. On the other hand, revenue derived from Colaris and Colaris AP tests (representing 7.8% of revenues) – which assess a patient's risk of developing hereditary colorectal and uterine cancers – rose 2.1% to $14.8 million.

Revenues from the BART test (representing 10% of total revenue) inched up 0.5% to $18.9 million in the reported quarter. Revenues from other molecular diagnostic tests (representing 2% of total revenues) came in at $3.6 million, up 16.1% from the year-ago quarter.

Revenue from Myriad's Vectra DA diagnostic test for rheumatoid arthritis, which it acquired in Feb 2014, was $10.8 million in its first full quarter of operation. However, pharmaceutical and clinical service revenues in the fourth quarter was $5.9 million, down 26.3% year over year on account of the timing of research projects with Myriad's pharmaceutical company partners.

Gross profit increased 3.8% year over year to $157.8 million. However, gross margin during the quarter declined 370 basis points (bps) to 83.6%.

Adjusted operating expenses rose 18.2% to $101.6 million due to 14% increase in adjusted selling, general and administrative (SG&A) expenses (to $81.4 million) and a 38.7% jump in research and development (R&D) expenses ($20.1 million). Operating margin contracted a massive 820 bps to 29.8% in the quarter.

Financial Position

Myriad exited fiscal 2014 with cash, cash equivalents and marketable securities of $270.6 million, compared with $531.1 million in fiscal 2013. In the reported quarter, cash flow from operations was $40.9 million, down from the year-ago tally of $63 million.

The company repurchased 1.8 million shares for $65.7 million during the quarter. The share buyback program had a favorable impact on the company's EPS as shares outstanding declined 5.9% year over year.

Guidance

Based on the encouraging growth trends, Myriad provided guidance for fiscal 2015. The company envisages revenues in the range of $800−$820 million, reflecting annualized growth of 2.8%−5.4%. The Zacks Consensus Estimate of $789 million lies below the revenue guidance.

Myriad expects EPS for the fiscal in the range of $1.90−$2.00. The current Zacks Consensus Estimate of $2.43 lies considerably above Myriad's guidance.

Per management, the revenue guidance for fiscal 2015 assumes approximately $700 million to $720 million for Myriad's core products; approximately $65 million for Vectra DA; and pharmaceutical and clinical services revenues of approximately $35 million.

Our View

The company beat the Zacks Consensus Estimate on both the earnings and revenue front for fourth-quarter fiscal 2014. However, on a year-over-year basis, EPS dropped for the reported quarter.

We are impressed with the company's performance in the international market, wherein Myriad delivered outstanding revenue growth of 89% in the fourth quarter and signed several significant BRACAnalysis testing contracts in Spain, Italy and Switzerland. The company's increasing focus on the companion diagnostic market should also work reasonably well to fuel growth over the long haul.

However, we remain on the sidelines to gauge the impact of the landmark Supreme Court ruling, favoring market entry of other players to bolster competition and increase pricing pressure. In our opinion, these uncertainties might bruise the stock to some extent.

Zacks Rank

Currently, Myriad carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Med-Biomed/Generic industry include Actelion Ltd. (ALIOF), Cambrex Corporation. (CBM) and China Biologic Products, Inc. (CBPO). All these stocks hold a Zacks Rank #1 (Strong Buy).

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