(MYGN) Myriad Inks Deal with Cephalon

The recent agreement with Cephalon is another attempt by Myriad Genetics (MYGN) to establish itself as a strong player in the companion diagnostic market. Cephalon is a subsidiary of Teva Pharmaceuticals (TEVA).  Under the agreement, Myriad will conduct BRCA1 and BRCA2 mutation testing on patients with Bracanalysis before being enrolled in a phase I/II clinical study.

Over the recent past, the company has entered into similar agreements with players such as Abbott (ABT), Astra Zeneca (AZN) and BioMarin Pharmaceuticals (BMRN) to provide companion diagnostic tests for clinical trial enrollment. Bracanalysis is Myriad’s flagship product, which analyzes the BRCA1 and BRCA2 genes to assess a woman’s risk for hereditary breast and ovarian cancer.

Moreover, the acquisition of RBM (Rules-Based Medicine), made in 2011 would better place Myriad in this arena on account of the former’s proprietary protein technology and immunoassays. RBM has provided custom assay development and companion biomarker discovery for several pharmaceutical companies. Through these collaborations, RBM has obtained companion diagnostic rights to many of the drugs under development, which should augur well for the long-term development of the company. During the last reported quarter, Myriad recorded $5.2 million in revenues from companion diagnostic business.

We consider Myriad’s Bracanalysis as a valuable asset for top-line growth as it has the potential to tap a widely unexplored market. Besides, a strong cash balance enables the company to buy back shares, expand into new markets and introduce more products. We are also impressed with the recent in-licensing deals that will bring some promising candidates for growth.

In addition to its focus on companion diagnostic business, Myriad has made commendable progress with respect to its expansion in Europe. The company’s laboratory in Munich, Germany is operational since January and capable of generating $50 million in revenues each year within the next five years. With its headquarters in Switzerland, hiring of country managers for the five major markets of Germany, France, Italy, Spain and Switzerland have been done. While reimbursement for Bracanalysis, Colaris and Colaris AP have already been received in these markets, Myriad is working to receive reimbursement for Prolaris. The stock retains a Zacks # 2 Rank (Buy) in the short term.

However, European expansion and pipeline development have pushed up operating expenses fostering pressure on margins. Over the long term, we are Neutral on Myriad.

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