Myriad Genetics Inc. MYGN reported adjusted earnings per share (EPS) (considering acquisition-accelerated share-based compensation as a one-time item) of 41 cents in the fourth quarter of fiscal 2015, down 14.6% from the year-ago figure of 48 cents. Earnings were, however, in line with the Zacks Consensus Estimate.
The year-over-year deterioration in adjusted EPS was primarily due to lower gross and operating margins on account of the transition cost associated with the conversion to myRisk and increased product launch costs.
For fiscal 2015, Myriad reported adjusted EPS of $1.45, down 38% from $2.34 in fiscal 2014 and short of the Zacks Consensus Estimate by a penny.
Revenues
In the fourth quarter, total revenue rose 0.6% year over year to $189.9 million, exceeding the company’s guidance of $187 to $189 million. The top line beat the Zacks Consensus Estimate of $188 million by a whisker.
Although total revenue dropped 7.1% to $723.1 million in fiscal 2015, it surpassed the company’s guidance of $720–$722 million as well as the Zacks Consensus Estimate of $720 million.
Revenue growth in the fourth quarter was primarily driven by robust double-digit growth in pharmaceutical and clinical services revenue.
In the reported quarter, Myriad's Molecular diagnostic tests (94.2% of total revenue) recorded total revenue of $178.8 million, down 2.2% year over year primarily derived from sluggish Hereditary cancer testing revenues (down 3% at $163.8 million) and Vectra DA testing revenues (up 9% at $11.8 million).
Pharmaceutical and clinical service revenues (accounting for the rest) in the fourth quarter grossed $11.1 million, up a solid 88% year over year.
Revenues from Myriad's myRisk Hereditary Cancer surged a massive 269.6% to $100.9 million from the year-ago equivalent of $27.3 million. In the reported quarter, myRisk conversion increased to 52% of incoming hereditary cancer samples. In fact, myRisk comprised 62% of total hereditary cancer revenue in the quarter.
Margin Trends
Adjusted gross margin during the quarter contracted 330 basis points (bps) to 80.3%, primarily weighed down by the transition cost associated with converting Myriad’s single cancer syndrome test to myRisk Hereditary Cancer testing and incremental product launch expenses for Prolaris, myPath Melanoma and myPlan Lung Cancer tests.
Adjusted operating expenses spiked 2.7% to $104.2 million due to a 5.3% increase in adjusted selling, general and administrative expenses (to $85.7 million). However, research and development expenses declined 8% (to $16 million) in the fourth quarter.
As a result, adjusted operating margin contracted 440 bps year over year to 25.4% in the quarter, on account of higher investments across Myriad’s portfolio of products and some decline in profits associated with the transition to myRisk in the Hereditary Cancer franchise.
Financial Position
Myriad exited fiscal 2015 with cash, cash equivalents and marketable securities of $144.8 million, down from $186.4 million as of Jun 30, 2014. In fiscal 2015, Myriad reported cash flow from operations of $140.5 million, down 26.1% from the year-ago equivalent of $190.2 million. Consequently, free cash flow from operations was $116.6 million, as against $175.9 million in fiscal 2014.
The company repurchased 1.3 million shares for $45 million during the quarter and was left with an authorization to buy back stock worth another $155 million.
Guidance
Myriad has provided its guidance for fiscal 2016. The company envisages revenues in the range of $750–$770 million, with annualized growth of 4–6%. The Zacks Consensus Estimate of $749 million lies below this guidance.
On the other hand, the company expects adjusted EPS for fiscal 2016 in the range of $1.60–$1.65, reflecting annualized growth of 10–13%. The current Zacks Consensus Estimate of $1.73 lies way above Myriad's guidance.
Management has also provided its outlook for first-quarter fiscal 2016. The company expects adjusted earnings per share of 34–36 cents on total revenue of $176–$178 million. The Zacks Consensus Estimate of adjusted EPS of 40 cents and revenues of $189 million lie above the respective guidance ranges.
Our View
Myriad ended fourth-quarter fiscal 2015 on a more or less satisfactory note as its bottom line met our estimate and the top line closely beat the same. On an encouraging note, Myriad successfully returned to positive top-line growth in the fourth quarter, after witnessing substantial declines in its revenue numbers consecutively since the beginning of fiscal 2015. Going forward, Myriad expects to deliver positive year-over-year revenue growth in each quarter of fiscal 2016. This further bolsters our confidence in the stock.
However, from the profitability standpoint, we are disappointed with the company’s weak gross margin performance in the fourth quarter. As long as Myriad does not receive reimbursement coverage for its new tests, such as myPath melanoma and Prolaris, increased launch costs for these tests will continue to weigh heavily on Myriad’s gross margin. Nevertheless, on a positive note, management currently expects gross margin improvement in fiscal 2016 based upon increased efficiencies in the myRisk laboratory and Medicare reimbursement for Prolaris, which should be in place by Oct 2015.
Moreover, the huge contraction that Myriad witnessed in its operating margin figure also disappoints us. However it is a relief to note that the company expects to generate significant operating leverage in fiscal 2016, wherein it expects to witness a 200 basis points improvement in the operating margin figure.
Zacks Rank
Currently, Myriad carries a Zacks Rank #3 (Hold). Better-ranked med-biomed/generic stocks include AMAG Pharmaceuticals, Inc. AMAG, Gilead Sciences Inc. GILD and Neogenomics Inc. NEO. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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