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The Stock That May Have Saved Angelina Jolie's Life Could Get Another Boost

The stunning revelation that Academy Award-winning actress and iconic symbol of female beauty, Angelina Jolie, has undergone a voluntary and preventive double mastectomy procedure is front page news worldwide. The revered movie star, philanthropist and Mrs. Brad Pitt made the proactive decision to undergo the drastic procedure after learning she was at extreme genetic risk of developing breast cancer.

In a revealing New York Times op-ed she titled, "My Medical Choice," Jolie wrote that her mother fought a near decade-long battle with breast cancer, which resulted in her death at the age of 56. The 37-year-old Jolie then went on to disclose the following: "The truth is I carry a 'faulty' gene, BRCA1, which sharply increases my risk of developing breast cancer and ovarian cancer."

Jolie also wrote that her doctors estimated that she had an 87% risk of breast cancer and a 50% risk of ovarian cancer, an assessment garnered in large part from the information gathered after extensive genetic testing identified the BRCA1 gene.

So, how was Jolie able to identify this ticking genetic time bomb?

She was able to do so thanks to tests developed and provided by Myriad Genetics (NASDAQ: MYGN).

The Salt Lake City-based maker of cancer diagnostic applications saw its shares jump almost 5% in Tuesday trade after Wall Street identified the company's role in the Jolie revelation. It gave back some of its gains midway through the session and closed the day up 3%.

Myriad makes a test called the BRACAnalysis for helping women determine their genetic predisposition to breast and ovarian cancers. The test works by essentially identifying defects, or mutations, in the BRCA1 or BRCA2 genes. According to Myriad's website, people with a mutation in either the BRCA1 or BRCA2 gene have risks of up to 87% for developing breast cancer and up to 44% for developing ovarian cancer by age 70.

The high-profile admission by Jolie, and the subsequent bump in MYGN shares, comes after the stock has already surged nearly 37% during the past three months. As you can see by looking at the chart of MYGN below, it appears the smart money got word of the potential "Jolie effect" early, as it ran up in the days leading up to the actress' big reveal.

MYGN Chart

The theory here, of course, is that more women will follow Jolie's lead and opt to undergo genetic testing in an effort to determine if they are at risk of inheriting these deadly forms of cancer. Certainly, Wall Street is betting on this outcome.

In fact, the options action on this stock has been huge of late. According to tracking service optionMONSTER, as of Monday, May 13, there were "nearly 4,000 August 33 calls traded in a strong buying pattern… led by a print of 3,001 contracts that went for $3.75. These are clearly fresh purchases, as the volume was well above the strike's open interest of 1,656 contracts before the session began."

That bullish options action comes less than a week after Myriad's strong earnings report, which was released on May 7. The company said net income during fiscal Q3 rose 28% to $37.9 million, or $0.46 per share. Revenue in the quarter jumped 21% to $156.5 million. Both metrics easily bested consensus estimates for EPS of $0.39 on revenue of $148.1 million.

The highlight of the company's Q3 release was the increase in total diagnostic testing revenue, which spiked 20% over the same quarter a year ago. That number includes a 9% boost in sales from its BRACAnalysis test, which accounted for revenue of $115.4 million in the three months ended March 31.

The bottom line here for traders is that given the high-profile admission by Angelina Jolie to proactively test for, and even take preventative surgical measures to prevent, breast cancer, we are likely to see more women around the world opt for the same course of action. That means more BRACAnalysis tests, a bigger top- and bottom-line for Myriad, and very likely more upside for MYGN shares over the next several months and beyond.

Recommended Trade Setup:

-- Buy MYGN at the market price
-- Set stop-loss at $31.05, approximately 8% below current prices
-- Set initial price target at $42.25 for a potential 25% gain in 3-6 months