Paul Mampilly is out with a teaser pitch for his Profits Unlimited newsletter from Banyan Hill, which is the entry-level ($97/yr) stock picking letter for that publisher (which used to be called the Sovereign Society). I first covered this for the Irregulars last summer, but we’re still getting a lot of questions so we opened the article up for everyone.

Most of what follows originally appeared in the Friday File on August 18, 2017, though I’ve added a few updates.

So… what’s he using as bait to fish for our subscription dollars? He says he has identified “The Company Leading the Precision Medicine Revolution” … and that this will be a huge winner as it captures more and more of the health care market.

Let’s check our clues… this is how Mampilly gets our attention:

“The Greatest Medical Breakthrough In History

“More Important Than Every Drug, Vaccination and Medical Device … COMBINED!

“Experts Declare This Is ‘A Revolutionary Approach to Tackling Disease’ That Will Completely ‘Change the Game’ and Ignite ‘A Health Revolution.'”

And these are the hints he throws out to tantalize us:

“A mid-Western company is on the precipice of the greatest medical breakthrough in the history of mankind….

“In fact, this new method will make diseases that were once considered “untreatable” or perhaps even “death sentences” … things of the past.”

OK, so it’s “mid-Western” … what else?

We’re told that it is a $1.5 billion company. And that it is involved in “precision medicine” … so what is it that he means by “precision medicine?” Here’s some more from the ad:

“Imagine looking at a person’s DNA, that person’s blueprint, and being able to design a medicine to fit that person’s specific genetic makeup … the same way you can custom tailor a suit to fit an individual … to prevent a disease from ever developing.

“If that were possible … chronic diseases like arthritis, Alzheimer’s, diabetes, heart disease, Parkinson’s … could be wiped out simply by looking at a person’s DNA.

“Well, this is where we are in history.

“The impossible is now possible, thanks in part to this $1.5 billion Mid-Western company….

“In simple terms, precision medicine allows doctors to accurately identify which medicines and treatments will work best to prevent a patient from getting a particular disease … and which medicines and treatments will work best for a patient to overcome an existing disease … all based on a person’s genes.”

OK, but there are lots of companies that are involved with what they would call “precision medicine,” whether that means doing the actual genetic testing or building machines that enable that testing, or marketing specific tests, or customizing treatments. It’s a broad area. Anything else about this specific company?

Not much… there are lots of stories of success of “precision medicine,” none of which have much in common when it comes to the actual treatment or drug that the person received, and none of which are publicly associated with a particular testing regimen or company that I’ve seen. At least one of the stories is pulled from the (Obama) White House’s “precision medicine initiative” page, another comes from the City of Hope National Medical Center folks. They’re great stories, and they buttress the powerful pitch for precision medicine just fine… but they’re not about one company.

So what else do we get that hints at this company? Here are our other hints:

“Formed in the early 1990s, this Mid-Western-based company’s CEO is a 25-year biotech pioneer, and he’s using his industry contacts to bring some of the top scientific minds in the world to work in these hilltop facilities…”

And they include a photo of the headquarters… which will be key in a moment in confirming the Thinkolator’s work…

“It is leading the industry in molecular diagnostic DNA sequencing to assess whether a person will develop a disease and to determine which drug therapy a person will best respond to.

“More specifically, this company’s sequencing targets various forms of cancer, from ovarian to breast to lung to uterine to prostate, and rheumatoid arthritis.”

So who is it? Well, thanks to good ol’ Google Earth I can confirm with certainty that this “mid-western hilltop” is actually in Utah, on the outer fringe of Salt Lake City, and the company is Myriad Genetis (MYGN). Here’s my picture that I grabbed from Google, in case you’re looking for confirmation as you compare it to the photo in Mampilly’s ad:

Myriad Genetics is indeed a “personalized medicine” and diagnostics company, they make their money by selling and processing tests that check for cancer risk, or that identify specific cancer variants and predict disease progressions and treatment efficacy. They do have non-cancer testing programs as well, but it’s largely cancer testing that drives revenue now… and, indeed, the vast majority of their revenue still comes from what they call “hereditary cancer screening,” mostly in breast and colon cancer so far, where their tests help to identify people who have mutations that dramatically increase their risk (and, importantly, where there are early-stage interventions that can reduce that risk if people are tested… which can make the tests much more appealing to insurers because they present prevention possibilities).

Myriad’s stock has performed pretty well since the original teaser back in August of last year… Mampilly’s teaser ad was originally dated July (it no longer carries a date), so that means he likely started recommending it when the stock was somewhere in the $24-25 range, before that good earnings report boosted the shares a bit in September, but after a series of good news events had helped the stock recover from the recent lows. It was a $1.5 billion stock in the Summer, it is currently a $2.2 billion stock.

My read of the situation is that shares bottomed out around $15 in February after falling sales due to competitive pressure for some of their hereditary cancer risk tests (the Supreme Court disallowed their patents on the BRCA1 and BRCA2 genes a few years ago, opening the market for competitors to offer similar tests in what had been, and still is, their core business), but recovered as clinical trials helped to prove the power of some of their screening tests, and as insurers started to cover some of those newer tests.

Myriad still seems to be the leader in this kind of hereditary cancer screening, probably partly because their monopoly position for a few years gave them a huge library of data on cancer variants and mutations that their competitors don’t have (there’s been controversy about their monopoly control of that data as well), but they’re still facing more competition than they would like, and insurers who continue to demand pretty strict efficacy before paying for tests, and it seems like pricing has been a little softer than expected.

It’s hard to draw any clear lines for Myriad’s success based just on their financials — the past four years have seen revenues pretty much flat, and there has been no particular trend of earnings growth (though they have bought back a bunch of shares), and the analyst growth estimates are not particularly compelling. Earnings per share took a big hit in 2017, but analysts expect them to rise about 15-20% annually over the next few years and get back to those 2016 levels by 2020. So from here, that’s a reasonably attractive growth rate but not necessarily a compelling one for what is supposed to be a high-growth “hot sector” biotech stock. The valuation right now is certainly reasonable for a 15% grower, the shares trade hands at about 24X forward adjusted earnings estimates, but it’s not a clear bargain. And, of course, MYGN’s GAAP earnings are far, far lower than their reported “adjusted” earnings that most analysts still stick with — if you use GAAP earnings they’re trading at 38X forward earnings.

Which means you can’t find your prognosis in the numbers — you’ll have to make an argument about their particular testing products being more successful than analysts expect, or becoming foundational to the industry over time and growing beyond this current “recovery” period as new tests come online and get adopted by doctors and patients.

If everyone’s going to use Myriad tests in five years, and everyone will have health insurance that cheerfully pays retail prices for genotyping cancers or screening patients, then it almost doesn’t matter what you pay for MYGN shares today — but that, of course, is a tough projection to make in a competitive world. Even if, as Mampilly argues, the market for precision medicine is going to grow at an “exponential rate.”

I don’t know enough to make that prognosis for you, I’m afraid — you can check out their latest investor presentation here, in which they make the case for their growth prospects, and judge for yourself. The diversification into new segments seems appealing, including the GeneSight test for assessing which antidepressant has the best chance of success for a particular patient and the Vectra DA test for assessing rheumatoid arthritis treatment, each of which has become roughly a third of testing volume now (the core business of hereditary cancer testing has not growth much in volume, but it used to be almost 100% of the business and now it’s only about a third of the business by volume) … but I don’t have any real wisdom to build on in those areas, so I’ll stick with the financials.

On consensus estimates about earnings for the next few years, the stock is probably priced about right with a PEG ratio of about 2 (meaning the forward PE ratio is about twice the expected long-term growth rate). Paying more means you think the company’s market-leading position is worth paying a premium for, or that the analysts are being too conservative in judging the growth of the overall market for these types of genetic tests, insisting on a lower price probably means you’re a bit worried about competitive pressures (or insurance companies) keeping pricing down. I’m not particularly interested in buying this one, but it’s not ridiculous.

And in case this whole thing sounds a bit familiar, that might be because Mampilly pitched a different “personalized medicine” stock for his much pricier Extreme Fortunes letter starting back in February of 2017 — the broad “personalized medicine” pitch was similar that time around, though the company specifics that time pointed directly at Foundation Medicine (FMI), which has done very well so far (and which is much less established than Myriad — FMI is almost as large as Myriad, with a market cap of about $1.3 billion, and is currently growing top-line revenues much more quickly, from a much smaller base, but is nowhere close to making a profit). As a reflex, looking briefly at FMI just now made me like MYGN more… but that might just be because I’m feeling cheap and skeptical today.

Since this teaser solution was first released, Myriad has had some news in the breast cancer business — they launched their “riskScore” algorithm that improves assessments of breast cancer risk (basically, by combining family history data with Myriad’s myRisk hereditary cancer genetic test), and they also released data supporting that test at the 2017 San Antonio Breast Cancer Symposium. They have a presentation up on their website explaining the value of the riskScore program that can provide some perspective — essentially, what riskScore provides is an assessment of your “at risk” probability if you don’t have the obvious “high risk” flag of a positive BRCA test, so it can say that your genetic test result is negative but that you also have a 30% or 50% (or whatever) lifetime risk for breast cancer. Higher risk individuals can be funneled into more aggressive monitoring, like MRI’s instead of just annual mammograms.

I don’t know whether this will be embraced by insurers and providers, or what the cost will be or whether it will increase usage of the myRisk genetic tests (which presumably are more expensive than the riskScore program), but it’s clearly good news that the test and assessment appears to be useful, and investors have reacted to that. Analysts have not changed their outlook at the moment, so the financials above are still accurate, and I still don’t have any opinion other than that the stock doesn’t seem particularly over- or under-priced.

My call isn’t the important one here, though, not when it comes to your money — for that, we turn the microphone over to you… what do you think? Is Myriad Genetics going to be a barn-burner again? Are analysts being too optimistic or pessimistic? Let us know with a comment below. We’ve kept all the original comments from the first version of this article appended below, in case those insights from readers prove to be helpful… thanks for reading!