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Credit Suisse Downgrades Myriad on Concerns Over BRACAnalysis; Piper Jaffray Lowers Price Target

NEW YORK (GenomeWeb News) – Citing concerns over the legal environment surrounding Myriad Genetics' BRACAnalysis test, Credit Suisse today downgraded the Salt Lake City-based firm's stock to Underperform from Neutral.

Separately, Piper Jaffray also sounded uncertainty over the future of the test and lowered Myriad's price target but maintained an Overweight rating on the company's stock.

Credit Suisse analyst Vamil Divan also shaved $8 off his price target on Myriad to $20, and in a research note said that his review of the legal, scientific, and pricing issues surrounding the BRACAnalysis test "leaves us increasingly concerned about the company's growth prospects."

In June, the US Supreme Court ruled that human genes are not patentable, but synthetic DNA is, which appeared to unlock the gate for other firms to offer their own BRCA1 and BRCA2 tests to patients. Several firms either immediately did, or said they soon would, including Ambry Genetics and Gene by Gene.

However, Myriad sued both firms for alleged patent infringement and sought preliminary injunctions against them. Ambry and Gene by Gene countersued Myriad accusing it of antitrust violations.

In his note, Divan said that it is "unlikely" Myriad will be able to get a preliminary injunction, "and as a result, we see [Myriad] losing market share and pricing power as we move into 2014 and beyond." The $20 price target is probability-weighted based on an 80 percent likelihood Myriad fails to get a preliminary injunction, leading to an $18 valuation, and a 20 percent likelihood it will be successful, resulting in a $30 valuation, he added.

If the US District Court for the District of Utah, where Myriad filed its lawsuits against Ambry and Gene by Gene, denies Myriad's request for a preliminary injunction, other firms will likely enter the BRCA1/2 gene testing market, Divan said.

In addition to Ambry and Gene by Gene, Quest Diagnostics last week announced its plans to offer BRCA1/2 testing. It also sued Myriad earlier this month and asked a federal court to declare that its test does not infringe patents held by Myriad Genetics.

Myriad has an advantage over competitors with its extensive database of genotype-phenotype data around BRCA mutations, but Divan said that competitors "will be able to significantly close this gap in the coming months.

"In turn, we see [Myriad] losing much of the pricing power it currently enjoys and expect the company will need to reduce the price of its test as it renegotiates its contracts with payors over the next one to three years," he said.

Similarly, William Quirk of Piper Jaffray said that although Myriad is "well positioned to weather competitive pressures," and he expects BRACAnalysis "will continue to dominate the market," he also believes the test will see share erosion during the coming quarters.

He lowered Myriad's price target to $36 from $49, "reflecting current uncertainty that will take about six months to play out."

In a research note, he said Myriad anticipates an update on its request for preliminary injunctions in about one week, and if the request is rejected, it will pursue other avenues "with the process potentially lasting a couple of years."

The company, he added, is in discussions with private payer clinical specialists and medical directors to differentiate BRACAnalysis' performance from other BRCA1/2 assays.

"Management believes the ultimate outcome will be multiple tests/labs under contract at different rates, although if a performance disparity exists, it will be difficult for payers to dictate which tests are utilized," Quirk said. He believes BRACAnalysis performance will limit share erosion, "although having multiple lower-priced tests on the market introduces pricing risk."

In Monday afternoon trade on the Nasdaq, shares of Myriad were down around 3 percent at $24.29.

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