Monday, August 27, 2007

Myriad Genetics (NASDAQ:MYGN): Expect pressure today

Piper Jaffray comments on Myriad Genetics (NASDAQ:MYGN) after its Canadian competitor Neurochem Inc (NASDAQ:NRMX) said on Sunday that a Phase III clinical trial had not demonstrated a statistically significant difference in favor of its tramiprosate treatment for Alzheimer's Disease:

- Piper believes shares of MYGN will likely be under pressure today in sympathy for the Phase III Flurizan program. They recommend purchasing Myriad on weakness to invest in the high-growth, profitable Predictive Medicine business ahead of the Flurizan data in mid-08.

Flurizan is in two pivotal Phase III trials for Alzheimer's disease. Firm believes the North American Phase III trial is sufficiently powered to meet the primary endpoint of a 25% decline in ADAS-Cog in mild AD patients.

The study randomized 1,684 mild AD patients to either placebo or 800mg BID of Flurizan on top of standard of care for 18-months. In fact, the company may be able to split the large North American study to count as two pivotal studies for a late 2008 NDA filing. As a reminder Myriad retains 100% ownership of Flurizan, which PJ believes has blockbuster potential with projected peak sales of $2.3 billion by 2015.

Piper reiterates Outperform rating and $54 price target. They value the Predictive Medicine business at $1.13 billion by applying a 6x multiple to FY08E revenues of $188 million and Flurizan at $1.2 billion by applying a 5x multiple to 2015 sales of $2.3 billion discounted back at 35% through mid-'08.

Notablecalls: MYGN is an analyst darling and I'm sure PJ's defense won't be the last. However, I'm somewhat more inclined to short MYGN here early on as I feel the stock's valuation is very strongly tied to Flurizan, the Alzheimer's drug currently in Phase III testing.

PJ values MYGN's Predictive Medicine business at $1.13 billion, meaning Flurizan accounts for the rest of the $700 million (MYGN's mkt cap stands at 1.84 bln) (yes, I'm excluding cash from my calcs). Paying $700 mln for an AD treatment Flurizan promises to be would be dirt cheap, if there were not for the cracks in Flurizan's story. Without going too much into deets here, there are some big cracks in Flurizan's story. Simply put, I don't think Flurizan will show statistically significant results in H1:2008.

There were several big cracks in Alzhemed (NRMX's drug) trials and it ended badly. I think investors will reevaluate the value of Flurizan following the news.

I suspect MYGN becomes buyable for a bounce 3 bucks below Friday's close.

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