“Personalized medicine” is likely to revolutionize healthcare in the 21st century. Already, DNA-based testing is being used to predict which patients are likely to develop serious diseases, and which are likely to benefit from specific drugs.

One of the pioneers in gene-based diagnostics is Myriad Genetics (NSDQ: MYGN). In the 1990s, Myriad helped launch the gene-testing revolution by pinpointing the mutation in two genes that make breast cancer more likely. A positive result on Myriad’s “BRACAnalysis” test means a woman has an 87 percent chance of developing breast cancer in her lifetime.

Myriad’s BRACAnalysis, which costs around $3,000, is now covered by most insurance plans (for women with family histories of breast cancer), and it has gross profit margins close to 90 percent. It is by far the company’s top product, bringing in close to 80 percent of revenue and growing strongly.

In fact, Myriad’s revenue was up 23 percent in fiscal 2012, ended in June, and earnings rose 18 percent, to $1.30 per share. Another 15 percent to 18 percent rise in earnings is expected for fiscal 2013. BART, a supplement to BRACAnalysis, has the potential to add another $100 million to US annual sales.

So why is Myriad priced at just 20 times earnings vs. 22.5 times for its peer group? A major concern is Myriad’s dependence on BRACAnalysis, especially since the US Supreme Court is expected to rule in 2013 whether companies such as Myriad can in fact patent genes. Myriad currently holds two patents on the breast-cancer gene mutations it discovered.

We think Myriad’s future will not be greatly compromised by an adverse Supreme Court decision. The company holds several other key patents on its BRACAnalysis tests, and it’s expanding in ways that will create an even larger moat for future competitors.

New diagnostics. Myriad has 13 products in development, including predictive tests for skin, lung and bladder cancer. It’s also developing neuroscience products for differentiating between depression and bipolar disease that may also be able to identify which patients with mild cognitive impairment are likely to advance to Alzheimer’s.

In 2013, Myriad is preparing to launch Melapath, targeting the 275,000 skin biopsies each year that are inconclusive. Melapath has been able to predict 95 percent of the time which suspicious skin lesions are malignant. Priced at $1,500, the potential market for Melapath is some $400 million annually.

Companion diagnostics. In what’s known as “Dx/Rx,” drugmakers can add diagnostic tests to their products so doctors can tailor treatment more effectively.

Myriad is working with five major drugmakers that are developing cancer treatments based on so-called PARP inhibitors: Abbott, AstraZeneca, BioMarin, Cephalon and PharmaMar. Additionally, the company is pursuing clinical trials that will show if its BRACAnalysis can determine which breast-cancer patients are likely to benefit from new platinum-based treatments.

Expansion overseas. Myriad has opened a Munich testing lab, as well as sales offices in Paris, Milan, Madrid and Zurich. The goal is to reach $50 million in non-US sales by fiscal 2015.

In 2012, Myriad repurchased $125 million of its stock; it has $466 million in cash and no long-term debt.

Myriad’s stock jumped 30 percent in 2012, but we think further gains are ahead. In the next five years, Myriad is likely to average 12 percent annual growth, and it’s a potential takeover candidate. The only similar US company is Genomic Health (NSDQ: GHDX), but its products are not direct competitors.