Myriad Genetics: I Told You So

On May 13, 2008, I wrote about the likelihood of Myriad Genetics’ (MYGN) Flurizan failing its phase III clinical studies for Alzheimer's disease.  I don’t want to revisit the rationale for my skepticism again, but those interested can view the article and comments that describe it in some detail. 

Well, Myriad released the results yesterday (June 30, 2008) and as I predicted, the trials were negative.  The drug failed its primary endpoint and the company announced it was discontinuing further development.  The stock is down modestly (around 6% as I write) on heavy volume.  There is some relief that since the burn rate due to clinical trials will go down, the company will become profitable earlier. 

I am skeptical of that rationale – most of the costs of developing Flurizan have already occurred (more than $60 million in 2008, with about $8 million per quarter over the next two quarters).  And Myriad still has drugs in the pipeline that will continue to drain resources.  However, the diagnostic business is rather solid, and the company is now predicting profitability in 2009.

Lundbeck, who had just paid Myriad $100  million for Flurizan looks very foolish.  Its stock was down 11%. 

From my point of view, I’m covering my shorts (puts) today.  A 300% return is never bad.  I am now looking at Elan (ELN) and Epix (EPIX) for investing opportunities in the Alzheimers disease space.   

Disclosure: none

Comments

[Dan Jacome:]

nice call

2008 Jul 01 06:35 AM

[razoroccam:]

Good call - congratulations

2008 Jul 01 09:15 AM

[DJDX:]

As also noted in your previous post, now MYGN can get back to what it does really well. It won't even hit the $44 mark again so it's good they were puts instead of shorts...they would have sucked after it rebounded this morning. Even more to the point, it is a $52+ stock once again. There may be resistance at the $50 number in 3Q08 but it will finish the year in incredible shape and in FY09 (they report FY in end-Jun), they might just be profitable.

And to your point about Lundbeck, that was a serious mistake and someone on top will likely be there no longer for it.

Buy more...while it's still cheap...and while they still have incredible growth in their predictive medicine business.

[Disclosures: I own the stock, have relationships with thier management team, and am in executive management at another (not competing) personalized medicine diagnostics company.]

2008 Jul 01 12:42 PM

[DJDX:]

Forgot to ask: What was the break-even on your puts? The stock surged after the incredibly short-sighted shorts had to cover. Hedgies and banks probably manufactured half of that. Look at the longs...they get it.

2008 Jul 01 04:28 PM

[Ketan Desai:]

Send me an email - I'll let you know if I can verify your identity. But, I agree that this is the time to go long on MYGN.

2008 Jul 01 05:06 PM

[mopgcw:]

Ketan--NOW is the time to go long??? Nonsense, you could have bought the stock in the low '40's the week prior to announcement and owned the diagnostic business with a FREE option on Flurizan. The "call" on the P3 results was hardly brave as it was widely reported and expected to fail given prior results. Why on earth is now the time to buy it? What happened to "I will go long when it hits $25"...

2008 Jul 02 05:58 AM

[Ketan Desai:]

In investing, you have to go where the data leads you. The stock did not do as poorly as I thought when the results came out - so my target for going long went up from the twenties to the upper forties. Regarding my call - I don't recall saying I was brave. But at least braver than anonymous posters who hide behind pseudonyms.

2008 Jul 02 10:43 AM

[Seadog:]

Being right or making money. On May 13th (when you told us so) the stock closed at $41.25. After the negative news it never broke below $45. How exactly did you make money on this put trade again? And you doubt the rationale that they will be profitable in FY09? They are roughly break even right now and have substantial net outstanding losses. The diagnostics business is hugely profitable (45% operating margins when not spending on their DTC campaign, 40% when they are) and growing rapidly. When you have sustainable revenue, cut spending on dead programs and pay no taxes, that falls to the bottom line. $60mm/45mm shares = $1.33 from cutting that program alone. Nothing in their pipeline warrants a trial near the scale that they undertook with Flurizan - that spend level is not coming back. Stick with collecting degrees, Doc. Maybe try English next - one datum leads but many data lead.

2008 Jul 02 05:17 PM

[Ketan Desai:]

Here is a comparison between RS Investments Emerging Growth Fund and Nasdaq:

finance.yahoo.com/q/bc...

2008 Jul 04 12:55 PM

[razoroccam:]

Seadog - you are the one who should read English. The author shorted MYGN when it was 55, not 41.

2008 Jul 10 05:10 PM

[Sachin Mittal:]

Hi Ketan
Now as MYGN board decided to Separating Diagnostic and Pharmaceutical Businesses, whats your take now and how will it affect share prices?
are you still bullish about it( $ 65 on 25th sep)...
I know this is a childish question to ask but i am new to investing, so learning..
thanks in advance

2008 Sep 25 06:33 AM