Myriad Genetics (MYGN) has made a debt investment of $25 million (for 6 years at 6% interest rate) in South San Francisco based Crescendo Bioscience and obtained an exclusive 3-year option to acquire it. Myriad has the discretion to exercise its option provided Crescendo attains a minimum revenue milestone during the 3 year period.
In this case, the acquisition price will be based on a pre-determined revenue multiple based on its growth rate. However, if Crescendo fails to achieve the revenue milestone, Myriad will have a one-time right to exercise its option for a fixed purchase price.
With the proposed acquisition of Crescendo, Myriad will be able to further strengthen its molecular diagnostics portfolio to include products for autoimmune disorders, such as rheumatoid arthritis. Consequently, the company’s current focus on Oncology, Preventative Care, Urology, Dermatology, and Neuroscience will also include Rheumatology as the sixth specialty disease.
Vectra DA, Crescendo’s first product, is the only blood-based molecular diagnostic test to determine the level of disease activity in patients with rheumatoid arthritis. The product is able to assess progression of the disease (post diagnosis) helping physicians to take the correct decision.
With a strong balance sheet, Myriad is well placed to expand its product portfolio, targeting new territories and launching new products. The company exited fiscal 2011 with cash, cash equivalents and marketable securities of $417.3 million compared to $488.4 million at the end of fiscal 2010.
During the fiscal, the company repurchased 9.8 million shares for $200.5 million and also acquired Rules Based Medicine for $80 million. Subsequently, Myriad also announced a new $200 million repurchase program. The company also made prudent use of its cash balance by in-licensing technologies from Chronix Biomedical and Melanoma Diagnostics.
Myriad is focused on its research and development initiatives to deliver new molecular diagnostic products. The company has decided to pursue internal developments, in-licensing of technologies and acquisitions to expand its business. With respect to new introductions, Myriad aims to launch at least one new molecular diagnostic product each year. At present, the company has 13 products under development at various stages.
However, the company operates in a highly competitive environment in the presence of players such as Laboratory Corporation of America Holdings (LH) and Quest Diagnostics (DGX). Moreover, a majority of its pipeline products are in the early- to middle- stages of development and are several years away from commercialization.
We are currently Neutral on Myriad, which also corresponds to a Zacks #3 Rank (hold) in the short-term.
