Small Cap Myriad Genetics (MYGN): The Shorts Keep Coming Up Short (ROSG, GHDX & DGX)

Small cap cancer diagnostic stock Myriad Genetics, Inc (NASDAQ: MYGN) jumped to a five year high on Wednesday thanks to good news that the government will be paying a heftier reimbursement for its main test than previously feared, meaning its worth taking a closer look at the stock along with small cap cancer diagnostic stocks like Rosetta Genomics Ltd (NASDAQ: ROSG) and Genomic Health, Inc (NASDAQ: GHDX) plus mid cap diagnostic stock Quest Diagnostics Inc (NYSE: DGX). I should also mention that Myriad Genetics has been in our SmallCap Network Elite Opportunity (SCN EO) portfolio since early February and we are now up some 32.5% since then – thanks in part to the shorts being put in a short squeeze.

What is Myriad Genetics?

Small cap Myriad Genetics is a molecular diagnostic company dedicated to making a difference in patient's lives through the discovery and commercialization of transformative tests to assess a person's risk of developing disease, guide treatment decisions and assess risk of disease progression and recurrence. Myriad Genetics's hereditary cancer tests provide vital information to help people with a family history of disease understand their own risk of developing the disease while its prognostic tests are designed to provide information about the level of aggressiveness of a cancer to a healthcare provider and their patient so that they can make more informed treatment decisions. In addition, the company's personalized products provide valuable information for a healthcare provider to customize medical management plans individually for each patient.

As for potential diagnostic stock peers or benchmarks, small cap Rosetta Genomics is a leading developer of microRNA-based diagnostic tests and therapeutic tools addressing critical unmet needs in cancer and other disease areas; small cap Genomic Health, Inc is focused on improving the quality of cancer treatment decisions through the research, development and commercialization of genomic-based clinical laboratory services; and Quest Diagnostics is a Fortune 500 company that calls itself the world's leading provider of diagnostic information services.

What You Need to Know or be Warned About Myriad Genetics, Inc

On Tuesday, the Centers for Medicare & Medicaid Services (CMS) provided new and updated pricing for the sequencing of the BRCA1 and BRCA2 genes with the new pricing resulting in a total reimbursement for Myriad Genetics' integrated BRAC Analysis of $2,767 for a 37% increase from the previous rate of $2,021:

Description and Previous FY14 New FY14 Percent CPT Code CMS Pricing CMS Pricing Change BRCA 1&2 seq & com dup/del (81211) BRACAnalysis $1,438 $2,184 52% BRCA 1&2 uncom dup/del var (81213) BART� $583 $583 No Change Integrated BRACAnalysis $2,021 $2,767 37%

So far, Investment bank Leerink has upped its fiscal 2014 sales estimate for Myriad Genetics while Jefferies increased its earnings forecasts with both raising their share-price targets. Credit Suisse analyst Vamil Divan has commented that the new prices are still a significant reduction from where they had been in 2013, but are nevertheless much better than what CMS had previously proposed and what had been in effect since January 1. However, Cowen's Doug Schenkel is more cautious as he pointed out:

CMS accounts for only ~10% of BRCA testing. Clearly a higher than expected CMS reimbursement rate makes the argument by commercial payers for rapid pricing cuts incrementally harder. That being said, if other BRCA competitors are offering less pricey alternatives that overtime are viewed as equivalent to those of Myriad, we believe pricing pressure will still further intensify over time. However, in the near term we don't expect this to be an issue…BRCA volumes remain quite strong and accordingly, we believe there is an upward bias to our well above consensus FQ3 forecast.

Moreover and in early March, a US court denied Myriad Genetics' motion to temporarily stop rival Ambry Genetics Corp from selling products similar to MYGN's gene-based cancer test while last June the US Supreme Court ruled that the company could not patent naturally occurring human genes - curbing its monopoly power over a type of gene-based cancer testing.

News like that has helped Myriad Genetics top the list of the most heavily shorted Nasdaq stocks on HighShortInterest.com as the company has short interest of 53.63% according to their latest data – meaning much of the good news the stock has managed to deliver since the start of the year has had an outsized impact on share performance as the shorts are sent scrambling to cover their positions.

Share Performance: Myriad Genetics vs. ROSG, GHDX & DGX

On Wednesday, small cap Myriad Genetics jumped 11.47% to $39.18 (MYGN has a 52 week trading range of $20.02 to $40.33 a share) for a market cap of $2.86 billion plus the stock is up 88.5% since the start of the year, up 54.2% over the past year and down 11.3% over the past five years. Here is a look at the performance of Myriad Genetics verses Rosetta Genomics Ltd, Genomic Health and Quest Diagnostics Inc:

As you can see from the above chart, you would have been better off investing in other biotech stocks rather than diagnostic stocks.

Finally, here is a look at the latest technical charts for all four diagnostic stocks:

The Bottom Line. At the very least and because of the high short interest, small cap Myriad Genetics is well worth watching by traders in case of more good news, but investors with a long term time horizon might want to be more cautious.

SmallCap Network Elite Opportunity (SCN EO) has an open position in MYGN. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.