Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Myriad Genetics -  Morgan Stanley Wrapped This Short With A Bow

|Includes: Myriad Genetics, Inc. (MYGN)
Summary

Last week MS upgraded MYGN on the basis of the BRCA business showing stabilization and the newly acquired Counsyl Business being attractive.

Neither of these assumptions are safe.

The legacy BRCA business has received a subpoena about aggressive billing tactics in the Medicare.

The New acquisition (Counsyl) that is supposed to create all this new growth has JUST been kicked out of network by United Health.

Myriad Genetics offers multiple genetic tests, some of which have questionable value, all of which have pricing headwinds. The company is so hard pressed to stave off revenue hits that they have been accused of defrauding to government by a former employee and received a subpoena from the OIG at HHS on the issue. They have made two acquisitions to “plug the whole” (Assurex and Counsyl) – both of which are disasters in the making.

THE BOTTOM LINE: The legacy BRCA business is likely overbilling Medicare and thus over earning… bad business development is unlikely to plug the hole.

Why Now?

We got more involved after an upgrade form Morgan Stanley sent the stock soaring 15% last week. The analyst actually published a false price target of $55/share (he was forced to recant that target to $47 on Friday after realizing he had miss-read his own model). Perhaps more important than the air pocket created by a woefully bad editing job was the rationale behind the upgrade in the first place.

The analyst boldly claims: “Raising estimates 20%+ driven by Counsyl integration and HCT stability. PT to $55 and upgrade to OW on: 1) improving hereditary cancer test pricing trend, 2) Genesight psychiatric test uptake, reimbursement, 3) entry into fast growing prenatal testing via Counsyl, 4) $40mn of opex cuts next 2 years.”

Lets start with the first point regarding how robust the contribution from Counsyl will be… (LINK)

That seems bad…

And it wasn’t just me who thought this was a good entry point to sell shares MANAGEMENT JUMPED RIGHT IN WITH US.

On to the Potential Billing Fraud!

According to a 3/12/18 8K

The Company recently received a Subpoena from the Department of Health and Human Services, Office of Inspector General, in connection with an investigation into possible false or otherwise improper claims submitted for payment under Medicare and Medicaid. The Subpoena requested that the Company produce documents relating primarily to the Company’s billing to government-funded healthcare programs for the Company’s hereditary cancer testing. The time period covered by the Subpoena is January 1, 2014 through the date of issuance of the Subpoena. The Company is cooperating with the government’s request and is in the process of responding to the Subpoena. The Company is unable to predict what action, if any, might be taken in the future by the Department of Health and Human Services, Office of Inspector General, or any other governmental authority as a result of the matters related to this Subpoena. No claims have been made against the Company at this time.

Former CMS employee AND FORMER MYGN BILLING CONSULTANT Dr. Bruce Quinn has been blogging about the ways one might fraudulently bill Medicare for BRCA testing for a few years now…

In one particularly poignant post from October 13, 2017 he posts the graphic below of how one MIGHT code stack BRCA testing in an effort to over bill Medicare.

The graphic above lays out specifically why the government is issuing subpoenas for Myriad’s billing records from 2014 to now. The Medicare codes for BRCA testing have been walked down since the 2014 peak rate of $2,780 to the current rate of $931 (which has been stepped down to $838 in 2018)

Conclusion

Invest in MYGN at your own risk, but know that the mainstay of their business (BRCA testing) is under extreme scrutiny form the federal government.  And that the new acquisition has just been moved out of network by United Health, making the recient 15% move up very questionable.

Disclosure: I am/we are short MYGN.

Additional disclosure: I am/we are short MYGN. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. Additional disclosure: This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain "forward-looking statements," which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "outlook," "forecast," "plan" and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence.