Myriad Genetics (NASDAQ:MYGN) released earnings yesterday, and they're losing more money than ever before!
But I guess that could be the headline for pretty much any development-stage biotech. The interesting thing is that a look at Myriad's chart shows a fairly steady and pretty dramatic climb over the past two years (and a nice near-double for me in about 18 months), a time during which their testing revenue has certainly climbed significantly, but they've failed to have any breakthrough drugs or deals.
So why is the stock going up?
Well, it's important not to discount the genetic testing division -- their sales of BracAnalysis and Colaris and other genetic tests that are used to determine risk factors for breast cancer and colon cancer and other maladies are on a tear. Sales, which are almost entirely from this division, have climbed 36% in the past year ... and their profit margin on the testing side is pretty impressive at better than 75%.
So now, although they're still losing about 8-9 million dollars a year, they've upped the inflow significantly.
But this is a company with a market cap of $1.5 billion now -- even with good growth of 30-50% in their diagnostics revenue, you'd still be looking at a money-losing company that's trading at about 40 times sales. So there must be something else, even with those great margins.
And of course, there is -- and it's the place they've been spending all their hard-earned cash flow from the diagnostics business: Flurizan, their lead drug in the clinic.
I've mentioned Flurizan in the past, back when I first filled out my position about a year and a half ago, and last January when I did an annual checkup ... despite the fact that it doesn't really garner any headlines for outstanding results or get much attention from investors, it continues to bull its way through the FDA approval process.
The news this week is good but non-specific: Flurizan is going to continue through it's full 18 month clinical trial, without a 12-month interim review. And I guess the reason that's good is because this decision was made in consultation with the FDA, which probably means there's no compelling bad safety news from the early trial results.
When the company was priced at about half a billion dollars, it seemed a pretty safe assumption that investors were discounting the fact that Flurizan wouldn't be approved ... but now that we've gotten further through the approval process, and problems still haven't been found with the drug (at least as far as I know), maybe there is a nice boost to the bottom line coming on the horizon. I'm guessing that's the core reason for the shares climbing to the impressive levels we see today.
What's that? Moving just because a drug that might be only mildly effective hasn't shown any safety problems? Oh, I didn't mention, did I, that Flurizan is aimed at possibly the largest underserved market in medicine: Alzheimer's disease.
Flurizan is the first of a new class of drugs called Selective Amyloid Lowering Agents, which reduce the level of "toxic amyloid beta" (the ones that initiate plaque deposits) without harming the standard, non-toxic amyloids.
And the fact that they're going after Alzheimer's seems to significantly alter the playing field. If you look at the results Flurizan has seen, which have been positive but, to a layman, fairly tepid all along the path through the clinic, you would definitely hesitate to count on this drug making any serious money. So far, all you can really say about Flurizan is that it seems to offer some benefit for people with very mild early-stage Alzheimer's. An explanation of the drug and the basic results from the Phase II trials is available from the Alzheimer Research Forum.
Which doesn't really make your fingers itch on the "buy" trigger.
But if you consider the fact that there aren't really any drugs that seem to be effective at delaying or curing Alzheimer's (there are a few approved drugs that are commonly prescribed, though they generally help with symptoms without slowing or preventing the disease) -- despite hundreds of millions of research dollars spent by the feds and private researchers over the past couple decades -- and you consider the size of the market, that finger may start to get just a little itchy after all.
There are about 4.5 million people with Alzheimer's today. That number is expected to triple over the next 40-50 years, and I expect everyone's favorite generational cohort, the baby boomers, will alone bring a big bump to the numbers of people suffering from this disease. The biggest risk factor, after all, is simply advancing age.
And Alzheimer's health care costs about $25 billion dollars a year right now (not including caregivers). That's without any prominent drug treatments.
So, in case you needed convincing, there's certainly a big market there if any drug is shown to be effective -- and lots of drugs have been tested and will be tested, but the past history of drug development for Alzheimer's is littered with expensive failures that had debilitating side effects or very risky profiles. This is, after all, the chemistry of the brain we're talking about.
So even if your drug might not be all that effective, if it's at least not harmful or packed with negative side effects there may well be millions of people that would want to try any possible solution that promises to deliver, with low risk, even a relatively brief delay in the onset of the disease. From my perspective, that's the Flurizan story that's beginning to get baked in to Myriad's results, though I think it's probably all conjecture until we actually hear more about the current Phase III trials (there's one currently underway in the US, another one now enrolling internationally) .
The story could easily change for Myriad Genetics -- I bought shares because they have an interesting pipeline of very early stage cancer drugs and a nice revenue stream from testing that can help pay for research. I found the argument compelling that if they're the ones building the genetic tests, they also may be able to more effectively develop promising treatments for those same diseases (most of their other clinical trial candidates are for cancer, though they're all well behind Flurizan in development).
That story still holds, but at the current market cap it's clear to me that investors are now also counting on Flurizan having a much better chance of making some serious money in a few years. For the sake of my portfolio as well as the future prospects for fighting this awful disease, I hope they're right.
Disclosure: I currently own shares of Myriad Genetics and do not plan to buy or sell in the near future.
MYGN 1-yr chart: