Crescendo Bioscience, Inc. (NASDAQ:MYGN)

CAPS Rating: 3 out of 5

Myriad Genetics is focused on developing and marketing novel molecular diagnostic products.

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4
Player Avatar zzlangerhans (99.80) Submitted: 2/9/2013 3:06:42 AM : Outperform Start Price: $27.05 MYGN Score: +10.32

I just looked in my database and saw that Myriad's genetic testing revenues were 48M and loss was 8M in Q3 2007. The market cap then was 2130M. In the quarter just reported, revenues were 149M and profit was 35M. The market cap? 2210M.

Why is the market cap in February 2013 practically the same as the cap in December 2007 despite a tripling of revenue and a swing from an 8M loss to a 35M profit? Is it because Myriad has Alzheimer's candidate Flurizan to pump up their cap in 2007? I doubt it. No one expected Flurizan to succeed and the share price actually went up when the phase III trial failed and Myriad ditched the albatross. The company hasn't diluted like most growing biopharmas either. In fact, they've been buying back shares aggressively. I've heard positive and negative sentiment about buybacks, but I look at it as the opposite of dilutive financing. It's a vote of self-confidence in the company's future ability to finance their own operations and in the future growth of the stock.

Myriad seems to be having success broadening their offerings beyond the core BRACAnalysis. In fact, their most recent CC presents a dizzying array of collaborations and tests in development. It's hard to tell how much is blowing smoke, but Myriad has definitely delivered groundbreaking technology in the past.

I've profited on Myriad in the past, but recently I've been reluctant to play as the stock hasn't been able to maintain any upward momentum despite the steady growth in revenues. It's clear that there's an overhang, and I'm virtually certain that the overhang is due to the upcoming Supreme Court decision on the legitimacy of the BRCA gene patents that Myriad has utilized to defend their BRACAnalysis IP from competitors. In August 2012, a federal appeals court ruled 2-1 in Myriad's favor but the stock was pressured when the Supreme Court agreed to hear the case. Oral arguments will take place in late April and a final decision will be rendered by the end of June.

I'm hardly a constitutional scholar, but I think the Supreme Court decision is a toss-up. I see two ways to play Myriad - a run-up ahead of the decision, or for a rebound after a ruling against Myriad. I do think at a certain point the current anxiety dragging the share price down will peak and be replaced by a more balanced sentiment. The question, of course, is when that will happen. I can't name a price I would buy at but I will say there's a good chance I'll buy. I don't want to be holding for the Supreme Court ruling, but I think that if the decision goes against Myriad there may be an overreaction as traders assume that BRACAnalysis will immediately become wide open to competition. Myriad does have extensive patents outside of the gene patents that can be used to protect their IP and their profits will likely continue to grow for years after a negative ruling.

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Member Avatar TMFBlacknGold (98.71) Submitted: 2/9/2013 6:37:53 PM
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Good analysis zz. I wrote about Myriad's patent case for the Blogging Network before jumping over to TMF full-time in January. For the post listed below I interviewed Karen Deak, who heads up the Master of Patent Law program at Notre Dame (I was accepted into the inaugural class). I'm no constitutional scholar either, but the feeling I get from patent attorneys/agents is that the Supreme Court has virtually no decision to make and that the BRCA patents are safe. There are too many other cases to point to that would uphold the patents. Not to mention, the patents are quite old and will expire in the next few years anyway.

http://beta.fool.com/blackngold/2012/09/12/repeat-after-me-my-genes-are-patentable-and-s-alri/11673/

Member Avatar zzlangerhans (99.80) Submitted: 2/10/2013 2:47:02 AM
Recs: 1

Read your article and generally agree. Precedent seems to be in Myriad's favor, but isn't part of the role of the SCOTUS to reverse precedent? If the decision is practically a foregone conclusion, why the negative pressure on Myriad stock? I generally respect share price trends, especially in a high volume heavily followed stock like Myriad. Some big players are not seeing a rosy future here.

On the other hand, I do think there's such thing as overreaction and right now Myriad could be like a shaken soda can waiting to explode when the tab gets pulled. This is one of those green thumbs that I pray will go negative at least 10 points to give me a good entry in real life. Are you in?

Member Avatar TMFBlacknGold (98.71) Submitted: 2/10/2013 10:32:25 PM
Recs: 1

Well, we both know the market isn't necessarily rational. But I do think part of the negative pressure on the stock has to do with the perception that the Supreme Court likes to rule on things that it doesn't always understand. Like biology. Several patent attorneys I have spoken with didn't think the case should have proceeded to that level in the first place and are at least a little nervous about the potential for things to get screwed up.

However, any negative decision would have a cascade of consequences for future and current therapies. So rather than create chaos in a "stable" environment (thousands of existing gene patents, biosimilar patents, etc) SCOTUS will likely skirt any major decision and focus on silly things like the method claims made for BRCA. I think the market would see even this as a huge win.

I haven't played this in CAPS, but you brought it back to my attention. Green thumb going in tomorrow. I can see myself getting into a real position as well. As you have noted, the company has grown tremendously in the past 3 years with little reflection in the share price. I also see some potential in their pipeline, although I'm still configuring my smoke and mirrors detector for the industry.

Member Avatar zzlangerhans (99.80) Submitted: 2/11/2013 4:12:18 PM
Recs: 2

Just opened a starter position for the GBMB with 1000 shares at 24.96. I want to have more, but there's a little too much falling knife left in the stub right now. I'll see if I can work up to 1000 shares over the next couple of weeks.

Member Avatar TMFBlacknGold (98.71) Submitted: 2/11/2013 7:36:57 PM
Recs: 1

After doing more research I'm getting in too. It should be noted that BRCA tests made up 88% of FY 2011 revenues and 82% in FY 2012. So there is some growth in other tests, but the company is still too dependent on BRCA. Thus Mr. Market's dismal outlook.

Per the 2012 Annual Report, page 13 of the PDF: "We own or have exclusive license rights to 525 claims in 24 issued U.S. patents relating to BRACAnalysis testing. These U.S. patents have terms that are expected to expire commencing in 2014, with the last patent expected to expire in 2029."

The Supreme court is only reviewing 15 of the claims in a total of up to 4 patents. Individual claims can be invalidated in a patent while upholding the other claims as long as they are not cross-referenced. The company says that in a worst case scenario it will still own 500 claims in 24 patents for BRCA.

Seems like market overreaction to me, although I think you may be right to phase in. Not sure how low it can go, but it seems to me that there is plenty of value waiting to be unlocked after this passes.

Member Avatar TMFBlacknGold (98.71) Submitted: 2/11/2013 7:38:23 PM
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Also, I don't want to mislead anyone. I did not enter the Master in Patent Law Program this year due to personal reasons.

Member Avatar zzlangerhans (99.80) Submitted: 2/12/2013 2:32:54 AM
Recs: 1

I should have written 400 shares at 24.96, with plans to expand to 1000 shares.

Member Avatar TMFBlacknGold (98.71) Submitted: 2/17/2013 9:29:05 PM
Recs: 2

I have an article rolling out this week on the issue. Looks like we were both wrong in that the Supreme Court is not hearing the case, and instead deferred the case back to the Court of Appeals. The Court of Appeals originally reversed a decision by the District Court of New York and basically sided with Myriad in 10 of the 15 claims in question (9 composition, 1 method).

The Plaintiffs, aka Association for Molecular Pathology, filed a Petition for a Writ of Certiorari (appealed the first decision by the Court of Appeals) with the Supreme Court in late 2011. Myriad appealed to the Writ of Certiorari, but the Supreme Court granted the petition. However, the Supreme Court threw the case down a level and back to the Court of Appeals to reconsider the case with new knowledge from the Supreme Court's decision in "Mayo v. Prometheus Laboratories".

It took me a while to wrap my head around which court ruled what and where the case got bounced around in the last three years, but I have finally figured it out. Another talk with Dr. Karen Deak helped too.

Essentially everything remains the same. There not much harm pending for Myriad even in the worst case scenario. The only thing I was wrong about was which court was hearing the case. Maybe tomorrow another court will pick it up.

Member Avatar TMFBlacknGold (98.71) Submitted: 2/17/2013 10:30:26 PM
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Nevermind. The Supreme Court IS hearing the second petition for a writ of certiorari. Damn you, Latin.

Member Avatar zzlangerhans (99.80) Submitted: 2/20/2013 11:52:35 PM
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Forgot to update, added another 600 shares of $MYGN at 24.38 on 2/19/13 for a total of 1000 shares at cost basis of 24.62.

Member Avatar zzlangerhans (99.80) Submitted: 4/15/2013 3:03:59 PM
Recs: 1

Just sold 500 shares at 26.7 for a GBMB profit of $1000. 500 shares left in position with cost basis 24.62.

Member Avatar DrGoldin (99.69) Submitted: 6/20/2013 2:48:15 PM
Recs: 0

You still have this trade open?

Member Avatar zzlangerhans (99.80) Submitted: 7/15/2013 7:36:27 PM
Recs: 1

Nope, sold my last 500 on 5/29/13 at 31.5 for a GBMB profit of $3400. I forget to update on CAPS sometimes but never on Twitter.

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