Myriad Genetics (MYGN) reported an EPS of 24 cents for the first quarter of fiscal 2011, beating the Zacks Consensus Estimate by a penny. However, the EPS was 22.6% lower compared to 31 cents in the year-ago period.

Revenues were $91.9 million, up 7.9% compared with the year-ago quarter’s $85.1 million, but missed the Zacks Consensus Estimate of $93.0 million. The company derives a majority of its revenues from Oncology, which increased 4.3% year over year to $66 million. Revenues derived from woman’s health grew 18.4% to $25.8 million. Despite a 7.9% growth in revenues, Myriad’s EPS was lower compared to the year-ago quarter due to a decline in interest and other income and $13.6 million of income tax provision, partially offset by a 4.5% decline in share count.

While Myriad markets several molecular diagnostic products, the company’s flagship product, Bracanalysis testanalyzes BRCA1 and BRCA2 genes for assessing woman’s risk of developing hereditary breast and ovarian cancers. This test recorded a 7.2% growth in annualized revenues to $80.7 million. Moreover, revenues derived from Colaris and Colaris AP, which assess a patient’s risk of developing hereditary colorectal and uterine cancers, increased 13.9% to $7.13 million.

Gross profit (representing 88% of revenue) increased 9.0% year over year to $80.8 million. Operating expenses increased marginally by 2.1% during the quarter, due to a 2.1% rise in selling, general and administrative expenses ($39.5 million) while research and development (R&D) expenses remained unchanged ($5.7 million). Consequently, operating margin increased 380 bps to reach 38.7%.

Myriad exited the quarter with cash and cash equivalents of $508.4 million, up 4% from $488.4 million at the end of June 2010. The company repurchased 1.8 million shares amounting to $28.6 million. 

Guidance

Myriad did not update its outlook for fiscal 2011. Per the guidance provided along with fiscal 2010 results, the company expects total revenue and EPS of $380-$400 million and $0.95-$1.00, respectively. Gross profit margin and tax rate are expected to be 88% and 38%, respectively. For fiscal 2011, the company also expects to generate cash flow from operations of $170 million, up 10% from $155 million generated in fiscal 2010.

Recommendation

We view the Bracanalysis test as a valuable asset for top line growth of Myriad as a larger part of the market for this product remains untapped. Although the company’s molecular diagnostics business is performing well, we remain concerned about the overall weakness in the economy and the tough competitive scenario in the biotechnology and genetics-testing field. 

We have a Neutral recommendation for the long term for the stock, which also retains a Zacks #3 Rank (Hold) for the short term.

 
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