Is Myriad Innovative Enough To Survive The Competition?

| About: Myriad Genetics, (MYGN)

Biotechnology company Myriad Genetics (NASDAQ:MYGN) underperformed in comparison to the benchmark index, Nasdaq. Nasdaq grew nearly 18% year-to-date compared to Myriad Genetics' around 3% stock growth. Myriad Genetics faced strong headwinds from Genomic Health (NASDAQ:GHDX). Its prostate cancer test Prolaris competes against Genomic Health's Oncotype DX test. However, Myriad Genetics hopes to grow in the long term with its legacy product, BRACanalysis. Myriad Genetics presents BRACanalysis as a standalone as well as a "companion" test for other cancer treatment products. It will be interesting to see how this legacy product will affect the revenue generation capabilities of Myriad Genetics.

Expanding growth from BRACanalysis test

The BRACanalysis test has grown in the U.S due to the absence of strong competitors. It is a "one of its kind" test, which checks for hereditary breast and ovarian cancer and accounts for 74% of the company's total revenue. Even though the BRACanalysis test is reaching saturation, it will continue to grow with a new hereditary cancer test, "myRisk," expected to launch by the end of this year. By the middle of 2015, its myRisk test is expected to completely replace the existing BRACanalysis test.

BRACanalysis is able to detect the presence of hereditary cancer in 10% of cancer patients. To enhance the detection rate in patients, myRisk is equipped with additional genes to increase the detection rate of hereditary cancer to 30% of patients. The list price of a myRisk test panel is expected to be around $4,000 - $4,500, compared to $3,680 for BRACanalysis. Better detection rate and list price is expected to enhance the gross margin of the myRisk test panel to nearly 87%. BRACanalysis supported the momentum of Myriad Genetics' stock price in the last decade. Its legacy will be carried forward by myRisk, which is expected to increase the stock price in the future due to its above mentioned additional features.

In addition to myRisk, in June 2013 Myriad Genetics announced an agreement with Tesaro (NASDAQ:TSRO) to conduct clinical tests on cancer patients using Tesaro's cancer treatment product niraparib, which is used to slow down the effect of cancer on a patient's body. As per the agreement, Tesaro used the BRACanalysis test as a companion test for niraparib to identify the severity of cancer in patients. Tesaro is also expected to conduct additional clinical studies with niraparib using BRACanalysis as a companion test. A new clinical study using niraparib, for ovarian cancer and breast cancer, is expected to begin in the later part of this year. The clinical studies for niraparib increased Tesaro's research and development expenses 58%, year over year, to $18.2 million for the second quarter of 2013. With the integration of the BRACanalysis test, Tesaro will be able to capitalize on the legacy of this test, thereby attracting a significant portion of the current 250,000 patients per annum who rely on BRACanalysis testing.

Bolstering growth from prostate cancer

In the U.S., prostate cancer is the second most common type of cancer, with around 200,000 patients annually. Out of these patients, approximately 85% are treated aggressively using chemotherapy. This leaves 30% of these patients suffering from side effects like impotence. With the large number of prostate cancer patients in the U.S., this market is valued at around $900 million.

The above described side-effect risk and huge market potential from this cancer market led Myriad Genetics to expect growth opportunities from its Prolaris test. This test helps physicians predict the aggressiveness of prostate cancer and tailor the treatment accordingly. Doctors can pinpoint the minority patients with the highest risk of prostate cancer and treat them aggressively, and they can treat the majority of patients with less worrying symptoms, conservatively. Myriad Genetics launched Prolaris globally in March 2013, and it expects to provide Prolaris for clinical utility by the end of this year.

The company has received approximately 3,000 Prolaris orders from 350 urologists, which supports our firm belief in Prolaris as a growing catalyst for Myriad Genetics. The test is expected to grow because Prolaris prevents approximately 50% of unnecessary aggressive treatment, benefiting both patients and urologists. Thanks to the growth prospects, revenue from Prolaris is expected to grow 127% year-over-year to reach $6.51 million in fiscal year 2014.

Prolaris faces direct competition from Oncotype DX, the test provided by Genomic Health. In addition to checking the severity of prostate cancer, Oncotype DX is also approved for checking the severity of breast and colon cancer in the patient. Genomic introduced this test in May 2013, so Prolaris will have the first mover advantage. However, the additional features of Oncotype DX will bring in better returns for Genomic Health compared to Prolaris for Myriad Genetics.

To develop the Oncotype DX prostate cancer test further, Genomic Health conducted research studies on more than 700 patients. In these studies, scientists analyzed genes in prostate cancer samples of these 700 patients. The development studies resulted in discovery of 81 genes from prostate cancer samples. These genes will go through additional research before moving on to clinical usage, which will help improve the Oncotype DX test in the future. These developments are enough to present strong headwinds for Prolaris. The additional features and developmental studies are popularity factors for the Oncotype DX test, and more than 19,000 physicians in over 70 countries ordered 375,000 Oncotype DX tests as of June 30, 2013.


The flagship program BRACanalysis maintained the company's dominance for past ten years, and its legacy is expected to continue with myRisk. BRACanalysis is also being used currently as a companion test with Tesaro's niraparib. Prolaris is another key factor for Myriad Genetics, but the competitive pressure from Genomic Health is a headwind for Prolaris. These factors hint at a "hold" until Myriad Genetics makes any substantial moves.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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