Monday, May 4, 2009

Myriad Genetics (MYGN) Slight Miss on Revenue; Beats on Earnings

As always, you can tell a lot from the stock price action ahead of earnings because in the nearly SEC free Wild Wild West atmosphere "those in the know" act before you will. Myriad Genetics (MYGN) has been weak for the past two weeks, falling below the 50 day moving average 2 weeks ago on 3 days of high volume selling (see those 3 big red bars in the volume column in late April?). Ding ding - we have a winner; the "important people" were exiting the stage starting in the $44s....

Luckily for us, we know this game is not fair and balanced from years of seeing this same pattern & cleared the exits .. I had taken Myriad exposure down on April 23rd and this is what I wrote
Strange action in Myriad Genetics (MYGN) - I am conflicted over what to do here. The cynic in me says with the company reporting earnings the first week of May, with 3 days in a row of huge volume and terrible price action someone with inside information is getting out. (not that this ever happens on Wall Street).

...with such high volume out of the blue... and knowing how
Wall Street works with the asleep at the wheel SEC - this level of drop on this much volume has me going the 'better safe than sorry' route especially with such an expensive stock. So I'm going to reduce the position from a 1.6% stake to 0.6% with a sale here in the $37.30 range. If I'm wrong, all we lost was some opportunity at profit - with a forward PE >40 and a chart "talking" like this, I will err on the side of caution.

I see an ask now in after hours around $31 so we saved a few bucks by "sizing" the position appropriately, but the important people who got out in the mid $40s are the ones chuckling to themselves right now. But if you see such a weak chart in a market that ramps up day after day - you just have to ask what someone else knows; very similar situation to Sequenom (SQNM) in fact.

There was nothing awful about this report, a slight miss to revenue and a slight beat on the earnings but with this sort of multiple (north of 40) you have to do better than that to hold your own in this market. Or you have to be a consumer discretionary co. with massive amounts of debt, a shrinking customer base, losing money, etc. That too can make you a big winner in today's casino, err stock market. Myriad Genetics is not that company - unfortunately they make money and don't have masses of debt... no soup for them. Ironically, if it's valuation people are complaining about I now have a ton of shrinking businesses in various industries people are bidding up 10, 15% a day at 30, 35, 40x earnings. Ironic. Oh well, time to buy a natural gas company ...

Myriad was expected to make $90.5M in revenue and $0.24 EPS... the results
  • For the third quarter of fiscal 2009, the Company posted a record net profit of $25.3 million, or $0.25 per diluted share, compared with a net loss of $4.6 million, or $0.05 per share, in the third quarter fiscal 2008. The $25.3 million net profit for the third fiscal quarter represented a 19% increase over the prior quarter's net profit of $21.2 million.
  • The Company noted that these results were achieved in a difficult economy and with major expenditures toward Myriad Pharmaceuticals' three on-going phase 2 clinical trials and Myriad Genetics' direct-to-consumer marketing campaign in strategic southern states.
  • Total revenue for the 2009 fiscal third quarter increased to a record $87.5 million, compared with $61.8 million in the prior-year period. Molecular diagnostic revenues rose 47% to $86.5 million from $59.0 million last year. The improvement resulted primarily from an increase in the Company's sales and marketing efforts, including expansion of its women's health sales force, and the continuation of its direct-to-consumer marketing campaign, which the Company believes has resulted in improved physician acceptance and adoption of its molecular diagnostic products.
  • Molecular diagnostic cost of revenue for the third fiscal quarter was $11.2 million, or 13% of product revenue, compared with $8.3 million, or 14% of product revenue, for the comparable period in 2008, resulting from efficiency gains in the operation of the Company's molecular diagnostic laboratory.
  • Research and development expense decreased to $17.9 million for the fiscal third quarter, compared with $31.2 million last year, primarily reflecting discontinuation of the Company's Alzheimer's disease program in June 2008, which was partially offset by increased costs associated with Myriad Pharmaceuticals' drug development programs in metastatic brain cancer and AIDS.
By the end of this quarter the spin off should be complete as well
  • As announced on October 20, 2008, Myriad Genetics plans to spin off its research and drug development businesses from its molecular diagnostics business to form two well-capitalized, highly-focused, independent public companies. The molecular diagnostics business will operate under the name Myriad Genetics, Inc., and the research and drug development businesses will operate under the name Myriad Pharmaceuticals, Inc. Shareholders of Myriad Genetics, Inc. will receive one share of Myriad Pharmaceuticals common stock for every four shares of Myriad Genetics common stock owned. The transaction is expected to be completed by the end of the second calendar quarter of 2009.
Unfortunately the reaction after hours if it holds tomorrow morning will take the stock below the 200 day moving average of $35, at which point the stock could be stuck in purgatory for a long while. We'll assess if we plan to hold in the near term - but we'll revisit later in the year as this is a unique company.

[Mar 2, 2009: Starter Stake in Myriad Genetics]
[Feb 3, 2009: Myriad Genetics - Monster Results]
[Jan 20, 2009: Myriad Genetics - Another Diagnostic Heavy Hitter]
[Aug 25, 2008: Sequenom Flying off a Positive Investor's Business Daily Mention]

Long Myriad Genetics in fund; no personal position

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