Dive Brief:

• Analysts at Cowen have downgraded Myriad Genetics, cutting their price target by almost 20% in the process, according to a note to investors Tuesday.

• The analysts took the action following two quarters in which sales of key products fell short of expectations, leaving them skeptical that the company can live up to its 2020 forecast.

• While the analysts see scenarios in which Myriad performs better, they add that giving the company "some credit for these possibilities likely requires a decent degree of conviction" in its leadership.

Dive Insight:

Cowen upgraded Myriad to outperform in January 2019. Back then, the analysts thought Myriad could achieve low-to-mid single digit revenue growth. 

Cowen predicted the hereditary cancer testing unit would post stable revenues and other products would drive growth. The analysts tipped sales of depression test GeneSight to continue to increase, albeit it at a slowing rate, and forecast mid single digit growth at women's health acquisition Counsyl, the genetic screening firm Myriad bought for $375 million.

Recent events have shaken Cowen’s confidence in its predictions. While the analysts think many of the key drivers of their earlier upgrade are still "somewhat intact," the overall picture is no longer strong enough to justify an outperform rating. Myriad is now back at market perform.

Cowen cited Myriad’s second and third quarter results to explain its decision. In the most recent quarter, sales at the hereditary cancer testing unit came in $10 million below Cowen’s expectations and Counsyl revenue "was a bit light." The quarter before that, GeneSight and other molecular diagnostics underperformed against Cowen’s expectations. 

"Beyond reducing conviction, we believe these developments have rendered our already below consensus outlook for F2020 too aggressive. We believe [Myriad] is likely to guide below current consensus revenue expectations for F2020," the analysts wrote.

The Cowen analysts acknowledge Myriad could perform better than they expect, particularly if GeneSight is more widely reimbursed or if Counsyl gains traction. However, they lack confidence that Myriad can activate these growth drivers, leading them to forecast low single digit increases in sales.   

Shares in Myriad closed down about 2% following news of the downgrade. The stock now trades at $26.70, a little below Cowen’s revised $30 target. Myriad’s stock is down almost 30% over the past year.