Dive Brief:

• Myriad Genetics shared guidance this week that disappointed investors, resulting in its share price falling 22% despite third quarter earnings beating analyst expectations.

• The genetic testing player expects full year EPS to fall well short of the previously forecast range and warned pricing pressures will affect performance in 2020.

• Those factors overshadowed a third quarter that featured some positives, including an EPS beat and continued volume growth at Myriad’s core hereditary cancer business.

Dive Insight:

Myriad went into fiscal 2019 predicting full year sales of $880 million to $890 million but dialed down its outlook months later. At the time of its second quarter results, Myriad told investors to expect full year revenues to total $855 million to $865 million and diluted EPS in the $0.40 to $0.45 range. Neither of those targets survived the revision of Myriad’s expectations in response to third quarter results.

Now, Myriad expects diluted EPS of $0.28, down 38% on the top-end of the prior forecast, and sales of $856 million. Investors responded by wiping more than one-fifth off Myriad’s value.

Myriad told investors to expect sequential growth of its hereditary cancer tests, which accounted for more than half its sales in the third quarter, and of its GeneSight neuropsychiatric tests in the fourth quarter. However, that still leaves room for sales to fall year over year as both units performed worse in the latest period than in the fourth quarter of fiscal 2018.

Overall, revenue is expected to grow year over year in the fourth quarter, with the forecast $220.3 million in sales well above the $200.9 million achieved over the last three months of 2018. The 2019 results will likely benefit from sales of acquired prenatal tests, which brought in $30.6 million in the third quarter.

The acquisition of the prenatal tests could ensure a quarter of inorganic growth but the jury is still out on the merits of Myriad’s $375 million takeover of Counsyl. When Myriad disclosed the deal, it said Counsyl had recorded sales of $134 million over the previous year. Myriad’s prenatal sales over the first nine months of 2019 total $79.9 million.

Sales of prenatal tests were particularly weak at the start of the year, forcing Myriad to lower its sales guidance, but the unit has continued to face difficulties as 2019 has progressed. Myriad is growing test volumes but suffering from pricing pressures that it expects to continue into the next quarter.

Prenatal is not the only unit facing pricing pressures. In looking ahead to 2020, Myriad warned that sales at its hereditary cancer unit are likely to be flat as price declines offset volume growth.

“We continue to be at a premium relative to other laboratories. The magnitude of the premium has come down since the first time that we initiated these contracts. I think this is very consistent with what we've always expected how this market would continue to evolve,” Myriad CEO Mark Capone said on a third quarter conference call with investors.

Myriad is looking to its GeneSight tests and women’s health unit to offset the headwinds in other parts of its business. GeneSight is currently being assessed by commercial payers, which could lead to more widespread reimbursement.