2nd Quarter Financial Performance Remained Strong - Way Above Our Expectations

Myriad Genetics (MYGN) relies on its predictive medicine for its revenue generation and is currently seeing solid growth in this business. On February 3, 2009, Myriad reported fiscal 2Q09 financial results ended December 31, 2008.

For the 3-month period ended December 31, 2008, total revenues increased to $84.4 million from $56.7 million in the same 3 months in 2007, an increase of 48.7%. This growth resulted primarily from an increase in molecular diagnostic revenues, which were $84 million this quarter, compared to $53.1 million in the same quarter of the prior year.

This 58% product revenue growth resulted primarily from an increase in the Company's sales and marketing efforts, including expansion of the Company's women's health sales force to 100 sales representatives, and continuation of the direct-to-consumer marketing campaign, which the Company believes has resulted in improved physician acceptance and adoption of its molecular diagnostic products. Sequentially, growth was 20% from the first fiscal quarter of 2008. Sales from molecular diagnostics were way above our estimate of $74.5 million.

Myriad achieved its 2nd quarter of profitability. The company recorded a net profit of $21.2 million, or $0.43 diluted earnings per share, compared to a net loss of $5.1 million or loss per share of $0.11 in the same quarter of the prior year. A major contributor to the Company's profitable quarter was its molecular diagnostics business, which increased its gross profit margin to 87% and its net operating margin to 51%, an improvement over the 86% gross profit margin and 39% net operating margin for the same three-month period in the prior year. These results were achieved even with major expenditures toward Myriad's direct-to-consumer (DTC) marketing campaign in Texas and Florida and the launch of the Company's sixth molecular diagnostic product, Prezeon.

The Company continues to maintain a strong balance sheet, with $497 million in cash, cash equivalents and marketable investment securities. The company has no debt or convertible securities. With profitability in fiscal 2009, we do not see any cash burn problem.

We maintain our optimism on predictive medicine and believe it will keep recording double-digit growth in the coming years. Revenue will grow at a CAGR (compound annual growth rate) of 31% during the 2009-2012 periods, while EPS will maintain a CAGR of 39% during the 2009-2012 periods.

Molecular diagnostics has enjoyed a boom in the past few years and will continue its momentum in the coming years in our view when targeted therapy has become more aware in healthcare community. We believe Myriad Genetics, along with other molecular diagnostics firms, will ride the wave of high growth in molecular diagnostics industry in the coming years.

We upgrade Myriad Genetics' shares to Buy from Hold based on the much-better-than-expected fiscal 2nd quarter of 2009 performance and bright business outlook for the next few quarters. Our price target is $100.