NEW YORK – Investment firm Cowen downgraded Myriad Genetics' stock to a market perform rating from outperform expressing "lower overall conviction" that the firm would be able to meet its revenue expectations for the fiscal year.
The investment bank also trimmed its stock price target for Myriad to $30 per share from the previous target of $37 per share.
In a note to investors, Cowen analyst Doug Schenkel wrote that his prior revenue projections for Myriad were based on the expectation that the company would have stable hereditary cancer testing revenues, continued sales growth from GeneSight pharmacogenetic testing even if Medicare reimbursement didn't increase, mid-single-digit revenue growth from prenatal and carrier screening tests garnered through the Counsyl acquisition, and similar increases in revenues from its other tests.
However, Myriad's performance in the second and third fiscal quarters led to the downgrade, according to Schenkel. In Q3, Myriad's hereditary cancer revenues missed Cowen's forecast by $10 million and the revenues from Counsyl were also "a bit light." In Q2, GeneSight and other molecular testing products fell short of Cowen's forecast. In Q3, Myriad's total revenues were below the consensus Wall Street estimate, while in Q2, the company just exceeded the consensus estimate.
"All this while controversies surrounding GeneSight, hereditary cancer testing reimbursement, and reproductive health competitive positioning intensify [or] linger," Schenkel wrote. "These developments reduced our conviction in our investment thesis … [and] have rendered our already-below-consensus outlook for fiscal 2020 too aggressive."
Cowen expects Myriad will guide below consensus revenue expectations for fiscal year 2020, while likely maintaining Q4 revenue projections. The consensus Wall Street estimate for Myriad's FY2020 revenues is $916.1 million, and for Q4 it is $220.9 million.
In the fourth quarter, the company has said it expects to report $220 million in revenues and adjusted EPS of $.48. For FY2019, the company has projected $856 million in revenue and adjusted EPS of $1.74, below the Wall Street consensus estimate of $857.7 million.
Still, Schenkel left open the chance that the company may rise above the market challenges it has encountered. "There is still the possibility that GeneSight gains broader reimbursement, Counsyl gains more traction, and the pipeline generates a higher growth rate," he wrote to investors. "Additionally, there are continued trading opportunities based on occasionally overly negative reports on some of [Myriad's] 'lightening rod' issues," such as competitive pressures and loss of reimbursement in the hereditary cancer setting and uncertainty around the impact of lab test regulation.