Is Myriad Genetics, Inc. a Buy?

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Personalized medicine has become one of the hottest areas of focus in healthcare. So you'd think that a company that touts itself as "the global leader in personalized medicine" would be pretty hot itself. And, at least to some degree, you'd be right.

The company in question is Myriad Genetics (NASDAQ: MYGN). Over the last 12 months, the stock has been on fire, with Myriad's share price soaring more than 50%. So far in 2018, though, the sizzle has fizzled considerably. Is Myriad Genetics a buy now? Let's look at the pros and cons for this molecular diagnostics stock.

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Pros

Probably the biggest reason to buy Myriad Genetics stock is the enormous potential for personalized medicine. The company likes to tell investors that a "golden age for personalized medicine" is beginning. That statement could very well be true.

Myriad has nine products that enable the company to compete in multiple areas of personalized medicine. The most promising of the group in terms of potential market size is GeneSight, a genetic test that helps determine the most appropriate antidepressant for patients. Myriad picked up GeneSight with its 2016 acquisition of Assurex Health. The global market size for the diagnostic test is estimated to be around $10 billion.

Another major positive for Myriad is its BRACAnalysis CDx companion diagnostic for Lynparza, a cancer drug co-marketed by AstraZeneca and Merck. Myriad won Food and Drug Administration (FDA) approval for the companion diagnostic for use in ovarian cancer patients in 2014. The FDA granted approval for BRACAnalysis CDx in breast cancer patients earlier this year.

The patient population for both Lynparza and BRACAnalysis CDx could expand in the future. AstraZeneca and Merck are evaluating Lynparza in late-stage studies targeting treatment of prostate cancer and pancreatic cancer, and are pursuing additional indications for breast cancer and ovarian cancer. Myriad estimates that the global market size for the companion diagnostic could be $6 billion.

While Myriad's hereditary cancer business hasn't grown much in recent years, better days could lie ahead. The company launched its riskScore product on Aug. 31, 2017. RiskScore helps predict a woman's risk of developing breast cancer using clinical risk factors and genetic markers. The addition of riskScore to Myriad's established myRisk cancer test could position the company to gain more market share in what the company believes is a $4 billion opportunity.

Myriad's other products target markets that combine for potential annual revenue of around $6 billion. One of those products is EndoPredict, a test that helps doctors determine how aggressively to treat breast cancer. Myriad scored a couple of major wins last August, with two big insurers deciding to cover EndoPredict.

Cons

What's the main reason to stay away from Myriad Genetics stock? Potential isn't necessarily easy to achieve.

Myriad faces several formidable rivals in the molecular diagnostics market that didn't exist just a few years ago. Lower costs of gene sequencing have made entering the market much easier for newer companies. Even if Myriad's estimates of its potential markets are on target, there's a significant risk that the company won't capture as great of a market share as it hopes.

And although Myriad's acquisitions -- particularly the buyout of Assurex -- have given it great new products, they have come at a heavy cost. The company now is saddled with much higher interest expenses and selling, general, and administrative costs. As a result, Myriad's operating margin has deteriorated significantly.

Even with the addition of newer products, Myriad still generates 65% of its total revenue from its hereditary cancer testing business. Sales for Myriad's hereditary cancer test continue to decline.

The company also now operates under a dark cloud associated with a federal investigation. In March, Myriad disclosed that it had received a subpoena from the Office of Inspector General (OIG) with the Department of Health and Human Services (HHS). The OIG is investigating Myriad's billing to Medicare and Medicaid. Myriad stated that it is cooperating with the OIG investigation. It's too early to know what will happen, but Myriad could have to pay steep fines if any wrongdoing is found.

Final verdict

My view is that Myriad has made smart moves to diversify its revenue. However, it's going to take a while to wean itself from relying on hereditary cancer tests. Although Myriad should be able to grow its business, especially with GeneSight and other newer products, I'm not sure it will be able to do so quickly enough to make buying the stock now a great choice for investors. The recent disclosure of an OIG investigation muddies the waters even more.

Is Myriad Genetics a buy? I think the answer for now is no.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.