Shares in diagnostic company Myriad Genetics (MYGN) were trading up sharply on Wednesday after a surprise announcement from the Centers for Medicare and Medicaid Services (CMS) announced that it was increasing the national limitation amounts (NLA) for testing for BRCA1 and BRCA2 gene mutations.
Shares gapped up 13.3 percent to $39.81 apiece and reached as high as $40.33 in early trading, but they appeared to be held there. A rising resistance line drawn from a mid-July peak at just under $32 a share to another late January peak at just over $38 a share would appear to be putting a cap on gains at the $40 a share level. The peak, though, represented a new 52-week high for Myriad. Volume was strong, with over 3 million shares moving before 11:30 am ET.
The news from CMS also prompted a slight upgrade from Jeffries analyst Brandon Couillard.
"In a surprise move, CMS revised the final NLA for BRCA testing to ~$2,200 (+52% from prior interim price) following a public comment period,” said Couillard. “We are raising our FY14 EPS forecast to $2.17 (from $2.12) to account for the new CMS reality in 4Q14. Our PT moves to $33 (from $30) on higher intermediate-term cash flow forecasts."
Increasing the price target to $33 can hardly be seen as a ringing endorsement given that it’s still below the level shares were trading at prior to the CMS news, however it does tend to reflect a relatively neutral outlook on the stock from analysts. In total, of the 22 firms currently covering the stock, 16 have neutral ratings to 5 buy ratings and 1 sell rating. The move, though, does come just two days after JP Morgan resumed coverage with an “underweight” rating.
The BRCA1 and BRCA2 gene mutation is cited as the cause for 7 percent of breast cancer diagnoses and 11-15 percent of ovarian cancer diagnoses nationwide, and carriers of the gene mutations, whose condition is referred to as hereditary breast and ovarian cancer (HBOC) syndrome, have an 87 percent risk for breast cancer and a 44 percent risk for ovarian cancer by age 70. The mutations recently received a great deal of news coverage from popular outlets after film star Angelina Jolie underwent a preventive double-mastectomy after testing positive for the mutation.
Myriad currently holds patents that make its BRACAnalysis® testing the only available on the market, but that should be due to change after a June Supreme Court ruling held that DNA sequences could not be patented. The stock recently reached a 52-week low in October prior to beginning to regain ground after announcing the development of a successful test for melanoma.
A look at Myriad’s chart could reveal some interesting technical factors that may result in future price moves. Wednesday’s gains were likely bolstered by the fact that the stock appeared to have bounced off of a rising support line that can be traced back to the start of the year when shares bottomed out at just under $21 a share before running up to the previously mentioned peak near $38 in late February. An established support level is likely to boost the confidence of investors and traders looking to get in.
However, if the rising resistance level ultimately holds, it could mean that Myriad’s entering the early stages of an upward wedge pattern, which is typically the sign of a pending reversal and downward breakout. It’s too early, though, to place much emphasis on this pattern without more data available.
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