On Wednesday, Scotiabank (TSX:BNS) made adjustments to its outlook on Myriad Genetics (NASDAQ:MYGN), reducing the price target on the shares to $24.00 from the previous target of $34.00. Despite the price target cut, the firm maintained its Sector Outperform rating on the stock. The price adjustment comes in response to a recent policy change by UnitedHealth Group (NYSE:UNH) that will stop covering pharmacogenomics (PGx) panel testing, including Myriad Genetics' GeneSight, starting January 1, 2025.
The analyst from Scotiabank expressed surprise at the decision by UNH and the opaque process leading up to it. Myriad Genetics is currently in discussions with UNH to seek a resolution to this issue. GeneSight is considered a significant contributor to Myriad Genetics' growth and profitability in the coming years, alongside the Women’s Health and Hereditary Cancer Testing (HCT) segments, and as the company strengthens its Oncology product portfolio.
The policy change by UNH is expected to have a material impact on Myriad Genetics' financials. It is estimated that the decision could result in an approximately $40 million annualized revenue impact, which represents about 23% of the GeneSight segment and roughly 5% of the total projected revenues for 2024. The gross profit could see an impact of around $30 million, although it is anticipated that about $10 million of this could be mitigated.
Despite these challenges, Myriad Genetics' focus on achieving approximately 12% revenue compound annual growth rate (CAGR) through 2026 for its base business remains steadfast. Scotiabank's revised price target of $24 implies a significant upside potential, as it is based on roughly 2.5 times the company's estimated 2025 sales, which is about a 62% discount compared to the peer group.
The firm's outlook is contingent on Myriad Genetics' ability to continue delivering double-digit top-line growth, meeting profitability targets, and making progress in its product pipeline.
In other recent news, Myriad Genetics reported an 11% year-over-year revenue growth and a positive adjusted earnings per share (EPS) in its third-quarter 2024 earnings call. The company has adjusted its revenue target for 2024 to approximately $840 million and increased its EPS target to $0.12-$0.14.
Despite a potential policy change by UnitedHealthcare that could impact revenue by $40 million, Myriad Genetics is maintaining its focus on product expansion and digital integration.
The company is also set to launch the Precise MRD test for breast cancer in the first half of 2026 and has made significant investments in lab technologies, including EMR system integrations. However, the anticipated policy change by UnitedHealthcare may result in a loss of approximately $40 million in revenue and $30 million in gross profits.
These are among the recent developments for the company. CEO Paul Diaz and Senior VP Matt Scalo are actively engaging with UnitedHealthcare and other stakeholders to address this policy change. The company is also making substantial investments in clinical evidence across products to drive future growth.
InvestingPro Insights
Recent InvestingPro data provides additional context to Myriad Genetics' current situation. The company's stock has experienced significant volatility, with a 42.62% price decline over the past three months and a 32.85% drop in the last month. This aligns with the challenges mentioned in the article, particularly the UnitedHealth Group policy change affecting GeneSight.
Despite these setbacks, InvestingPro Tips highlight that analysts predict Myriad Genetics will be profitable this year. This projection is noteworthy given the company's current unprofitability over the last twelve months and the potential $40 million revenue impact from UNH's decision. The company's ability to navigate these challenges while aiming for profitability will be crucial for investors to monitor.
Additionally, Myriad Genetics operates with a moderate level of debt, which could provide some financial flexibility as it adapts to the changing landscape. The stock's current trading near its 52-week low, coupled with an RSI suggesting oversold territory, may present an opportunity for investors who believe in the company's long-term strategy and ability to overcome current obstacles.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Myriad Genetics, providing deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.