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Myriad Reports 10 Percent Drop in Q2 Revenues, Lowers Guidance; CEO Retiring

NEW YORK (GenomeWeb) – Myriad Genetics reported after the close of the market Tuesday that its second quarter revenues for fiscal year 2015 declined 10 percent year over year.

Myriad also substantially lowered its guidance for Fiscal Year 2015, leading to a drop in its stock on Wednesday morning.

For the three months ended Dec. 31, the Salt Lake City-based molecular diagnostics firm had total revenues of $184.4 million compared to revenues of $204.1 million in Q2 2014. The revenues beat the consensus Wall Street estimate of $183.4 million.

Myriad's revenues in the second quarter of 2014 were bolstered by the "Jolie effect" — news that actress Angelina Jolie had gotten BRCA testing and decided to get a double mastectomy based on the test results.

The company's molecular diagnostic testing revenues decreased 8 percent year over year to $179.1 million from $196.2 in the second quarter of 2014.

Revenue from its hereditary cancer tests fell 15 percent to $165.0 million from $193.0 million in the year ago quarter. Revenue from the company's oncology segment decreased to $83.7 million from $101.6 million, while the preventative care segment declined to $84.6 million from $94.6 million.

The rheumatology segment brought in $10.8 million based on sales of the rheumatoid arthritis test Vectra DA. The firm reported no revenues for that segment a year ago.

In hereditary cancer testing, Integrated BRACAnalysis tests contributed $72.5 million in revenue, compared to $165.9 million from the year-ago period. Myriad noted that the revenue drop was the result of a large percentage of Integrated BRACAnalysis tests being transitioned to the NGS-based myRisk Hereditary Cancer test.

Revenues for the myRisk test increased 640 percent to $85.1 million in the second quarter compared to $11.5 million in Q2 2014.

The firm noted that it also transitioned around one half of its Colaris and Colaris AP tests to myRisk. Revenues for these two tests were $7.4 million during the second quarter compared to $15.6 million in the same period in fiscal 2014.

Myriad is hoping to transition all its hereditary testing business to myRisk by this summer. Myriad President and CEO Peter Meldrum said during a call to discuss the quarterly results that the transition effort is ahead of schedule.

Myriad's collaborations with pharmaceutical companies and its clinical services offerings netted $5.2 million in the second quarter compared to $7.9 million in the same period of the prior year.

During the second quarter, Myriad received FDA approval for BRACAnalysis as a companion diagnostic for AstraZeneca's PARP inhibitor Lynparza (olaparib), a treatment for advanced ovarian cancer patients who have BRCA mutated tumors. "The approval of BRACAnalysis CDx represents the first and only complex sequencing-based laboratory developed test approved by the FDA," the company said.

Myriad's net income for the quarter was $24.0 million, or $.32 per share, compared to $50.4 million, or $.66 per share, in the second quarter a year ago. On a non-GAAP basis, EPS was $.40, higher than analysts' consensus estimate of $.35.

Research and development expenses were $17.5 million for the second quarter compared to $17.1 million in the year-ago quarter. Meantime, SG&A expenses rose 19 percent to $92.7 million from $77.8 million year over year.

During the quarter, Myriad repurchased 1.7 million shares, or $58 million, of common stock under its stock repurchase program. Myriad ended the quarter with $207.4 million in cash, cash equivalents, and marketable investment securities. It also held $22.1 million in restricted cash.

For the third quarter, Myriad anticipates reporting revenues between $180 million and $185 million. It expects adjusted EPS of $.38 to $.40.

Myriad sharply decreased its 2015 revenue guidance to a range of $730 million to $740 million from a previous range of $800 million to $820 million. Meldrum noted the adjustment was due to a delay in receiving private insurance coverage for Vectra DA, a delay in Medicare reimbursement for the Prolaris prostate cancer test, and the timing of certain contracts with pharma and for clinical services. These issues are temporary and can be resolved, Meldrum said on the call. 

The firm expects to report adjusted EPS of $1.50 to $1.55 for FY 2015, down from its previous guidance of $1.90 to $2.00.

Meldrum explained during the call that $20 million of the $70 million reduction in the fiscal year revenue guidance was due to slower private insurance coverage for Vectra DA, the rheumatoid arthritis test Myriad gained when it acquired Crescendo Bioscience last year. In addition, "We had to delay on a contract in the pharmaceutical and clinical services sector," Meldrum said, noting that accounted for $15 million of the guidance reduction.

Other factors included a delay in reimbursement for Prolaris, which Meldrum said was outside of Myriad's control. Medicare contractor Palmetto, which runs the MolDx program for the Centers for Medicare & Medicaid Services, issued a final local coverage determination (LCD) in January for Prolaris as a tool that can determine which early-stage, low-risk and very low-risk prostate cancer patients can be conservatively managed rather than receive surgery or radiation therapy.

Myriad's Medicare contractor Noridian recently issued a draft LCD similar to Palmetto's. However, the company will have to wait for a final coverage determination before it can begin submitting Medicare claims and recognizing revenue from the test, Myriad said. Noridian will issue a final LCD once the comment period on the draft LCD expires on March 30.

Meldrum also noted that Myriad is experiencing delays for its tissue-based Tumor BRACAnalysis CDx, which it launched in Europe recently. That delay is due to the fact that AstraZenea has withdrawn its application for Lynparza to the UK's Cancer Drugs Fund. The drug firm is now awaiting a recommendation from the National Institute for Health and Care Excellence to the UK's NHS. "That certainly had an impact both on our international revenues and our guidance," Meldrum said. But he assured analysts that the company is not seeing erosion from competition in the hereditary cancer space, and said that market is growing.

The firm also announced that Meldrum would retire as president and CEO on June 30, 2015, the end of the firm's fiscal year. The firm's board of directors has already unanimously elected Mark Capone, currently president of Myriad Genetic Laboratories, as Meldrum's successor.

Following the release of Myriad's results and forecast, Mizuho Securities analyst Peter Lawson cut Myriad's stock from a Buy rating to Neutral and lowered his price target on the firm's shares to $32 from $50. Meanwhile, Piper Jaffray's William Quirk maintained his Overweight rating on the stock but trimmed his price target for Myriad's stock to $42 from $43.

Credit Suisse's Vamil Divan downgraded Myriad to Underperform from Neutral and lowered his price target on the stock to $30 from $35. "We do see areas for potential longer-term upside for [Myriad] but it is difficult to see these efforts making a significant impact in the next few quarters as the company attempts to transition to its more diversified business model."

In Wednesday morning trade on the Nasdaq, shares of Myriad were down nearly 10 percent at $34.47.