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Myriad's Fiscal Q3 Revenues Increase 3 Percent

NEW YORK (GenomeWeb) – Myriad Genetics reported after the close of the market on Tuesday that its fiscal third quarter revenues grew 3 percent year over year, beating Wall Street expectations.

The company also increased its fiscal year revenue expectations by $14 million.

For the three months ended March 31, the firm reported total revenues of $196.9 million, compared to $190.5 million in Q3 2016, and topped the consensus Wall Street estimate of $189.1 million.

Myriad's molecular diagnostic testing revenue increased 4 percent to $185.2 million from $177.4 million in Q3 2016. Within that category, hereditary cancer test sales fell 10 percent, to $140.8 million from $156.3 million a year earlier, while the firm's Vectra DA rheumatoid arthritis test brought in $11.2 million in revenues, a 9 percent decrease from $12.3 million a year earlier.

Myriad CFO Bryan Riggsbee attributed the lower hereditary cancer testing revenues in the quarter to the fact that Myriad Genetics became an out-of-network lab for insurer Anthem starting in February, resulting in revenue recognition delays. Additionally, during a conference call, Myriad Genetics CEO Mark Capone noted that Myriad made some pricing concessions in renegotiating long term contracts for hereditary cancer testing with payors. He further highlighted that hereditary cancer testing volumes grew on a sequential basis for the second consecutive quarter.

Its Prolaris prostate cancer test had revenues of $3.4 million, a 35 percent decrease from $5.2 million in the year-ago period, including retrospective Medicare payments; and the EndoPredict breast cancer test netted $2.3 million in revenues, a 109 percent increase from $1.1 million in Q3 2016.

The GeneSight pharmacogenetic test, which the company garnered recently through its acquisition of Assurex, brought in revenues of $23.9 million in Q3. Test volumes were up 44 percent year over year, with more than 60,000 tests performed. GeneSight is now the company's largest product by volume, Myriad executives noted.

A top strategic goal for Myriad is to diversify its product offerings beyond hereditary cancer testing, and in the last quarter the company continued to make progress toward that end. In Q3, Myriad's non-hereditary cancer tests and services accounted for 68 percent of volume and 28 percent total revenue. In Q2, non-hereditary cancer products and services comprised 67 percent of volume and 27 percent of total revenue.

"This statistic goes a long way toward understanding the disconnect between management’s optimism and investors’ pessimism," Wells Fargo analyst Tim Evans wrote in a note. "Investors see a business where over two-thirds of revenue is in the flat-to-declining hereditary business, while management is more focused on the two-thirds of the volume that is growing (but not yet profitable)."

Myriad executives, meanwhile, highlighted during the call that the firm had finished enrolling a 1,200-patient clinical utility study for GeneSight, and are planning several cost-effectiveness studies. Vectra DA volumes increased 5 percent sequentially and Capone noted that since clarifying an “inappropriate analysis” in a publication, he was optimistic there would be a favorable resolution to an unfavorable draft local coverage determination (LCD) from Medicare. Prolaris volumes also grew 9 percent sequentially, and Myriad is hoping for a favorable final LCD from Medicare that will expand existing coverage for the test by 50 percent.

In order to bridge the chasm between investor reluctance and Myriad's optimism, Evans wrote that the company needs to make "significant headway" in garnering reimbursement for its newer tests. "The challenges Myriad has experienced getting broader Vectra and Prolaris reimbursement lead us to be cautious," he wrote, though he still slightly raised his estimates and valuation for the stock based on strong performance from GeneSight.

During the quarter, Myriad's pharmaceutical and clinical service revenues decreased 11 percent to $11.7 million from $13.1 million in Q3 2016.

The company's revenues from international markets were 5 percent of total product revenue and grew 41 percent year over year.

The firm's Q3 net income was $4.2 million, or $.06 per share, compared to $34.5 million, or $.47 per share, in Q3 2016. On an adjusted basis, its EPS was $.27, beating the average Wall Street estimate of $.23. "The decline in adjusted operating income is based primarily on lower hereditary cancer revenue, the mix of our volume toward products that are not yet fully reimbursed, and dilution associated with the recent Assurex acquisition," Riggsbee said.

Myriad's Q3 R&D expenses inched up 2 percent to $17.6 million from $17.2 million, while its SG&A spending rose 35 percent to $122.1 million from $90.5 million.

Myriad ended the quarter with $123.8 million in cash and cash equivalents, and $48.3 million in marketable investment securities.

For its fiscal fourth quarter, Myriad expects fiscal Q4 revenues of $192 million to $194 million. EPS is expected to be in the range of $.11 and $.13 and adjusted EPS is anticipated to be between $.26 and $.28.

The firm updated its financial guidance for fiscal year 2017 and now expects revenues of $763 million to $765 million. It had previously guided to revenues of between $745 million and $755 million. EPS is estimated at between $.23 to $.25 and adjusted EPS is anticipated to be between $1.01 and $1.03.

There are a number of factors that contributed to the updated guidance, according to Riggsbee. The GeneSight test has beaten the company's revenue forecasts throughout the year, and Assurex has narrowed its operating loss so that Myriad will likely break even for that acquisition by the end of FY 2017. Myriad also expects hereditary cancer testing volumes to increase in the fourth quarter, though the accounting impact from the Anthem out-of-network decision will be larger in Q4 and Riggsbee estimated sequential revenues to be flat or slightly down. Finally, the company also projected continued business growth for Prolaris and Vectra DA.

Myriad's shares were up about 14 percent to $21.25 in early morning trading today on the Nasdaq.

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