Sell side does an abrupt about face on $MYGN - after glowing reviews yesterday - both ML and RBC downgrade - CSFB very negative comments— Ian Estepan (@ianestepan) June 14, 2013
CSFB: we see competitors will offer the test for $995 (less than 1/3 $MYGN's current price) if they do not lower price payors will shift— Ian Estepan (@ianestepan) June 14, 2013With Myriad's patents on the BRCA1 and BRCA2 genes now invalidated, other companies like Quest Diagnostics ( DGX) and Bio-Reference Labs ( BRLI) are moving quickly to launch competitive tests for breast and ovarian cancer risk. Myriad shares actually surged higher within minutes of yesterday's Supreme Court decision on the belief that the company's core gene-testing business would not be adversely affected, at least immediately. But that Wall Street insta-analysis turned out to be incorrect and by the end of Thursday trading, Myriad shares were in the red, down 6% to $32.01. On Friday, analysts followed up with Myriad downgrades and cuts to price targets: Credit Suisse's Vamil Divan: A mixed ruling by the Supreme Court of the United States (SCOTUS) in the Myriad gene patent case was generally in-line with our expectations. What was surprising to us, however, was the speed with which competitors announced that they would be entering the BRCA testing market, in spite of SCOTUS upholding that cDNA is patent eligible. While the near-term MYGN story is still solid, the longer-term concerns that we have had around the name are now accelerated as these competitors will likely cause MYGN to face pricing pressure and/or market share losses over time. RBC Capital's Michael Yee: Our bullish MYGN thesis has played out and risk/reward is less favorable at current levels: the company has met or beat estimates 9 quarters in a row and the Supreme Court case overhang played out in line with our expectations (cDNA upheld but isolated DNA was rejected). Going forward at current levels, 6-12 mo visibility remains more challenging because: 1) 3 competitors including Quest, BRLI, DNATraits, Ambry, announced they plan to launch a new BRCA test which was sooner than consensus expectations and casts uncertainty on real impact to estimates (MYGN is likely to sue them for Sanger sequencing and/or infringing cDNA patents upheld today but this requires resources and time), 2) it is now unclear how much market share these new competitors may garner but there's new risk of possible downside earnings revisions if even 5% market share loss occurs over next year ($20M)... It's worth noting that Yee, on Thursday, defended Myriad and said the Court's ruling would have no impact on its gene-testing business. Some analysts are defending Myiad, like Cantor Fitzgerald's Sung Ji Nam: Despite SCOTUS' only partial reversal of the Federal Circuit decision, two competitors (BRLI and DGX) announced their intentions to provide BRCA1/2 testing by year-end, which is currently exclusively offered by MYGN in the U.S. We believe that MYGN's IP around BRACAnalysis remains strong through 2018, given four of the nine patent claims adjudicated by SCOTUS have been essentially upheld and MYGN's large majority of the patents and claims (~500 claims associated with 24 patents, specifically primers, probes and method-of-use) remain unchallenged, and as such, we think MYGN will aggressively defend its IP going forward. Based on our adjusted estimates (competition still entering in FY:14, higher SG&A from legal expenses, slightly slower share erosion vs. our prior estimates), we reiterate our BUY rating and raise our PT to $41 from $40. -- Reported by Adam Feuerstein in Boston. Follow Adam Feuerstein on Twitter.