Myriad Genetics 2008 - A Retrospective

(RTTNews) - As we look ahead with hope and reflect upon the year gone by, we can conclude with certainty that 2008 has been a tumultuous year in economic terms. No sector -- not even the so-called recession resistant sectors like health care have been spared by the fallout from financial crisis.

Amid a string of stock disasters, there have been a few bright spots and one such standout is healthcare company Myriad Genetics Inc. (MYGN | Quote | Chart | News | PowerRating). Not that everything has been rosy for Myriad this year, as it has had its own share of troubles too. Yet, Myriad stock managed to post gains in the current economic landscape when most of its peers faltered.

Molecular Diagnostics - Gaining Momentum

Genetics plays an important role in health care. Molecular diagnostics helps to determine how genes and proteins interact in different types of cells. This knowledge helps to diagnose an existing condition such as cancer, or predict the possibility of contracting a particular disease in the future. Myriad's core business is Molecular Diagnostics.

Molecular diagnostics, which is gaining acceptance as a mainstream health care tool, is an exciting industry that has the potential to save lives, guide the healthcare management of patients and reduce overall healthcare costs.

For the year ended June 30, 2008, Myriad Genetics' molecular diagnostic revenue was $222.9 million, an increase of 53% over the prior fiscal year. The company firmly believes that its molecular diagnostics business will exceed the consensus revenue projection of $309 million for fiscal 2009. Thus far, the company has launched five commercial molecular diagnostic products, including both predictive medicine and personalized medicine products.

Predictive medicine involves analysis of genes and their alterations to assess an individual's risk for developing disease later in life, while personalized medicine helps to better manage a patient's disease or predisposition towards a disease.

Being in high growth business like molecular diagnostics, works to Myriad's advantage. Molecular diagnostics industry is estimated to grow to $7 billion in 2012 from $3 billion in 2007, according to industry experts.

Roster Of Products

Myriad Genetics' molecular diagnostic products include:

a) BRACAnalysis, a genetic test for hereditary breast and ovarian cancer
b) COLARIS, a genetic test for hereditary nonpolyposis colorectal cancer
c) COLARIS AP, a genetic test for adenomatous polyposis syndromes (inherited colorectal cancer)
d) MELARIS, a genetic test for hereditary melanoma and
e) TheraGuide 5-FU, a test to predict toxicity to 5-FU/capecitabine-based chemotherapy. 5-FU is widely prescribed for the treatment of colon, breast, skin, and head and neck cancers.

The company's products are covered by all major health maintenance organizations and health insurance providers in the United States.

Increasing Awareness

Mutations in genes lead to cancer. For example, BRCA1 and BRCA2 are two genes that normally work to prevent breast and ovarian cancer. Any alteration in a BRCA1 or BRCA2 gene, may make a person more susceptible to breast and ovarian cancer. A person may inherit such altered genes from either parent.

According to estimates, women with an altered BRCA1 or BRCA2 gene have a 56% to 87% risk to develop breast cancer by age 70, whereas the risk for women without any alteration in the two genes is only about 7%. Additionally, women with an altered BRCA1 or BRCA2 gene have a 27% to 44% risk to develop ovarian cancer by age 70, compared to 2% for women in the general population.

According to the American Cancer Society, an estimated one in ten of the 200,000 women in the U.S. who will be diagnosed with breast or ovarian cancer will be due to an inherited mutation in the BRCA1 or BRCA2 gene.

The awareness about hereditary risk assessment will encourage more women to undergo BRACAnalysis. The increasing awareness has resulted in significant increase in customer demand for Myriad's molecular diagnostic products, despite the current economic environment.

First-ever Profits

Myriad reported its first-ever annual profit in fiscal year ended June 30, 2008 - the first since its inception in 1991. Net income for the year was $47.84 million or $1.02 per share, compared to a net loss of $34.96 million or $0.85 per share a year before. Total revenues for the year increased an impressive 112% to $333.63 million from $157 million last year, driven by molecular diagnostic revenue.

For the first-quarter ended September 30, 2008 Myriad registered a profit of $14.45 million or $0.30 per share, reversing a year-ago quarterly loss of $7.99 million or $0.18 per share. Quarterly revenue rose to $73.65 million from $48.26 million in the comparable period last year, driven by 52% growth in molecular diagnostic revenue. The company's molecular diagnostic products have gained wider acceptance, resulting in increased testing volume. Molecular diagnostic revenues, for the quarter were $70.0 million compared to $46.1 million in the same quarter of the prior year.

The Flurizan Flop

June was quite a disappointment for Myriad as its closely watched Alzheimer's drug, Flurizan flunked a late-stage trial. Myriad had licensed the drug candidate to Copenhagen-based Lundbeck in May.

Alzheimer's is a degenerative fatal brain disorder caused due to build up of plaques containing a protein called beta amyloid in patients' brains. The disease results in a gradual loss of memory leading to intellectual, psychological and behavioral disorders, finally proving fatal. The end stage of Alzheimer's disease is often referred to as "the long goodbye".

Till date, there has been no cure for Alzheimer's. The FDA-approved drugs, which are currently in the market, can temporarily relieve only some symptoms of the disease like, memory loss, difficulty in communicating, impaired judgment and a loss of initiative.

Forest Laboratories Inc.s' (FRX | Quote | Chart | News | PowerRating) Namenda, Sciele Pharma Inc.'s (SCRX | Quote | Chart | News | PowerRating) Cognex, Pfizer/Eisai's Aricept, Novartis AG's (NVS | Quote | Chart | News | PowerRating) Exelon, and Janssen-Ortho Inc.'s Razadyne can alleviate the symptoms of Alzheimer's like memory deterioration.

Myriad's Flurizan was widely touted to be a breakthrough in the treatment of Alzheimer's as a preventative indication, unlike the existing treatments, which ease the symptoms. While some analysts had predicted blockbuster status for Flurizan if approved by the FDA, many analysts had a conservative estimate, putting sales at $500 million to $750 million due to its side effects profile.

Though Flurizan had shown promise in mid-stage trials, it failed to improve the memory loss of Alzheimer's patients or their ability to perform daily activities in a crucial phase III trial.

The search for a drug that has the potential to prevent or halt the progression of Alzheimer's has thus far been futile. In August, Neurochem Inc.'s (NRMX | Quote | Chart | News | PowerRating) Alzhemed, which was considered a potentially disease-modifying treatment for Alzheimer's, failed to meet its primary end point in a late-stage trial.

The Proposed Spin-off

In late October, Myriad officially declared its plans to spin off its research and drug development businesses from its core molecular diagnostics business, which would lead to the creation of two independent public companies.

The molecular diagnostics business operates under the name Myriad Genetics, Inc., and the research and drug development businesses operates under the name Myriad Pharmaceuticals, Inc. The company formed the subsidiary, Myriad Pharmaceuticals, Inc. in 1999 to develop therapeutic lead compounds.

It is currently anticipated that Myriad Genetics, Inc. stock will be traded on the New York Stock Exchange under the ticker symbol "MGX", and Myriad Pharmaceuticals, Inc., as a new publicly traded company, will be listed on the NASDAQ Global Market under the company's current ticker symbol "MYGN".

The transaction is intended to inject sufficient cash into the spun-off Myriad Pharmaceuticals to help it through the completion of its two lead programs. Myriad Pharmaceuticals thus far has not brought a drug to market but has several cancer and HIV/AIDS drugs under clinical testing like:

Azixa, which is in Phase 2 trials for non-small cell lung cancer, brain cancer, and melanoma,

Vivecon, an HIV drug, MPC-2130 for advanced metastatic tumors or blood cancers and MPC-0920 for thrombosis, which are under Phase I testing.

Holds Up Well Despite Economic Downturn

Myriad has been able to withstand the current economic downturn and its strong financial metrics stand proof to it.

Gross profit margin for the past twelve-month period is an eye-popping 90.31%, compared to industry average of 59.50%. The company believes that the attractive gross profit margin is sustainable and that there is room for further improvement.

Cash, cash equivalents and marketable investment securities for the first-quarter ended September 30, 2008 were $443 million, up from $420 million as of June 30, 2008.

The company has no debt and no convertible securities. Myriad's key ratios like Return on Equity and Current ratio remain strong.

Myriad has a current ratio of 6.75. The current ratio is a measure of a company's short-term financial strength to meet its current liabilities. The higher the current ratio, the more the liquidity.

The Return on Equity or ROE for Myriad is 17.17, compared to sector average of 15.39. An ROE of 17 implies that 17 cents of earnings are created for each dollar invested in the company.

Closing Thoughts

Since the beginning of the year, Myriad Genetics stock price has risen 53%, despite the broad-market pressure. The clinical value of the company's molecular diagnostic products and the low out-of-pocket cost to its customers continue to drive the demand for its products and the stock mirrors the prospects. Myriad, which reported its first-ever profit this year, remains confident of sustaining its profitability and that's one more reason to keep an eye on this stock.

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