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Myriad Genetics' Stock Drops on SCOTUS Decision; Analysts Mixed on Implications

NEW YORK (GenomeWeb News) – Shares of Myriad Genetics slid as much as 18 percent today following the decision by the US Supreme Court invalidating the company's patents covering the BRCA1 and BRCA2 genes.

Shares of Myriad dropped to as low as $26.17 today on the Nasdaq, following the court's decision on Thursday that human genes cannot be patented but that synthetic DNA, or cDNA, can be. Myriad's stock recovered to close at $27.59 but was still down 14 percent.

On Thursday, the Salt Lake City company's share price finished down 6 percent.

The mixed decision by the court had been widely expected, but drew similarly mixed reactions from the investment community. Analyst Dan Leonard at Leerink Swann today downgraded Myriad's shares to Market Perform from Outperform and in a research note said, "we believe focus on Myriad's stock will shift to its long-term competitive positioning in the hereditary cancer testing market, in which we think its share has nowhere to go but down, and pricing could compress over time.

"While we believe Myriad's long-term positioning remains strong and have increased our price target to $39 (removal of SCOTUS distraction a positive, in our view), meaningful upside to [the company's] intraday price of about $36.50 requires more aggressive assumptions on price and share maintenance long-term than we are comfortable with," Leonard said.

However, Mizuho Securities' Peter Lawson maintained a Buy rating on Myriad and increased the 12-month price target on the company's shares to $43 from $38. In a note, he said that the court's decision is a positive for Myriad and removes a "significant overhang for the stock, allowing greater focus onto strong earnings performance and significant new product cycle."

Similarly, William Quirk at Piper Jaffray on Thursday raised his price target to $49 from $39 and reiterated his Overweight rating for Myriad. He called the Supreme Court's ruling "a clear victory for Myriad, and with this overhang now past them, [the] valuation can start to reflect the underlying fundamentals," of the company.

And Sung Ji Nam at Cantor Fitzgerald maintained her Buy rating and raised the target price on Myriad's stock to $41 from $40. She cited the size of Myriad's variant database, as well as its "unmatched sales, marketing, and customer service capabilities targeting hereditary cancer testing."

Immediately after the decision, a host of companies announced their plans to launch tests that include the BRCA1 and BRCA2 genes. They include Bio-Reference Laboratories' subsidiary GeneDx, Pathway Genomics, Quest Diagnostics, and Ambry Genetics. Also, Gene by Gene subsidiary DNATraits, as well as the University of Washington, said they plan to offer BRCA1 and BRCA2 testing.

The new potential competition to Myriad's BRACAnalysis test made some analysts nervous, including Jefferies' Brandon Couillard. In a research note, he said that Myriad has advantages over its competitors that include faster test-to-results time and its "massive proprietary database of variant mutations."

The near-term disruption to the BRACAnalysis franchise is "minimal," he said, but "such headline risks could lead to multiple compression, in our view, as investors assess the likely slope of intermediate-term market share and price pressures arising from such new market entrants."

Vamil Divan of Credit Suisse also said that new tests hitting the market will likely create pricing pressure for Myriad and market share loss over the longer term, though he noted the company has long-term pricing contracts in place with most payers.

Over time, "we believe Myriad will need to reduce their price significantly in order to maintain share," he said in a research note. "Already, we see competitors who will offer the test for $995," which would be less than one-third of what BRACAnalysis costs, Divan said. DNATraits said yesterday that it will offer BRCA1 and BRCA2 testing for $995.

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