Myriad Genetics Inc (MYGN) 2007 Q2 法說會逐字稿

Good morning. My name Bradley, and I will be your conference operator today. At this time I would like to welcome everyone to the Myriad Genetics' second quarter results conference call. (OPERATOR INSTRUCTIONS). Mr. Peter Meldrum, President and CEO of Myriad Genetics, you may begin your conference.

Good morning. Welcome to the Myriad Genetics' earnings conference call for our second fiscal quarter ending December 31, 2006. My name is Peter Meldrum, and I'm the President and Chief Executive Officer. I'm joined today by Jay Moyes, our Chief Financial Officer; Gregory Critchfield, President of Myriad Genetic Laboratories; and Adrian Hobden, President of Myriad Pharmaceuticals.

I will begin the discussion this morning with a brief review of the past quarter, and will be followed by Mr. Moyes who will discuss our financial results. Now Dr. Critchfield will review the Company's molecular diagnostics business, and Dr. Hobden will discuss the drug development activities. At the end of the presentation I will turn the call over to the operator for the question-and-answer period.

Please note that there are some information presented here today that may contain projections or other forward-looking statements regarding the future events or future financial performance of the Company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from those expectations for a variety of reasons.

We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

Thanks to the hard work and talented efforts of all of our 740 employees, Myriad turned in its best quarter yet. The second quarter ended December 31, 2006 was an exceptionally strong quarter as we once again achieved record molecular diagnostic revenues of $34.2 million, record gross profit margins of 78%, and record operating profit margins of 44%.

We enjoyed particularly strong customer demand this past quarter, which I'm pleased to report has continued into this current quarter. Our molecular diagnostic business experienced increased market penetration across all four of our molecular diagnostic products. Specifically, COLARIS revenues during the first half of this fiscal year were 90% higher as compared to the same period last year. And MELARIS revenues were double those of last year.

This strong performance by our molecular diagnostics group enabled us to maintain a modest net loss and loss per share of only $8.8 million and $0.22 per share for the second quarter, as compared to the $8 million and $0.22 per share for the same period last year.

This roughly equivalent cash burn was achieved even with a substantial increase in research and development expenditures. Our R&D costs for the second fiscal quarter ended December 31, 2006 were 30% greater than the R&D costs for the same quarter last year.

Myriad's strategy focuses on creating shareholder value by exploiting two important opportunities, molecular diagnostics and therapeutics. The first element of our vision is to become a leader in the emerging field of molecular diagnostics. We are already one of the leading molecular diagnostic companies in the world, and we're committed to expanding our role in this exciting industry. We plan on accomplishing this goal by aggressively growing our existing products, and by introducing new, high-value products to the marketplace.

Myriad plans on launching its direct-to-customer marketing campaign in September of this year in the Northeast region of the United States. The campaign will target women with a family history of breast cancer or ovarian cancer in the area from Boston to Washington D.C. and from New York to Pittsburgh. The campaign will initially run for three months, September, October, which is Breast Cancer Awareness Month, and November, before taking a one month hiatus in December for the holidays. We will then continue the campaign for another three months in January, February and March.

The majority of the advertising will focus on television spots, such as Oprah and Dr. Phil, and on magazine ads in publications such as Redbook, Good Housekeeping and Self.

We are also prepared to launch two additional molecular diagnostic products this year. Our primary focus is on predictive medicine products that assess an individual's risk for disease later in life, and also on personalized medicine products that assess a patient's risk of disease progression, disease recurrence, and the efficacy and toxicity of specific drugs. We will be providing additional insight into these products as we approach the product launch dates.

The second element of our vision is to become a leader in the development and marketing of pharmaceutical products. We have focused our research efforts on major diseases with critical unmet medical needs. Flurizan, our drug candidate for the treatment of Alzheimer's disease, has the potential of becoming the first disease modifying therapy for this devastating disease.

Flurizan has demonstrated in a well-controlled double-blind Phase II clinical study the ability to slow the pathogenesis of Alzheimer's disease in mild patients from 34 to 60% by four different measures over a 12 month period.

One of our greatest challenges facing oncology today is the treatment of cancer in patients with metastatic brain tumors. Since there are no FDA approved drugs for the treatment of brain mets, options for patients are extremely limited, and patients are faced with a 4 to 6 month life expectancy. Azixa, our drug candidate for the treatment of brain tumors, has demonstrated promising activity against brain tumors in patients enrolled in our recently completed Phase I clinical studies.

We have seen activity against brain tumors from non-small cell lung cancer, melanoma, breast cancer, testicular cancer, and cancer of the thymus. Azixa will soon be enrolling patients in two large Phase II studies as we move Azixa towards submission of an NDA.

We believe that these two exciting opportunities complement each other and leverage not only our strong research capabilities, but also our existing sales and marketing activities. We hope that this will provide investors with substantial upside, while providing protection against the downside risk inherent with drug development.

Now it is my pleasure to turn the call over to our Chief Financial Officer, Jay Moyes.

It certainly is a pleasure to present a more detailed look at Myriad's exceptional financial results for our second fiscal quarter ending December 31, 2006.

As Pete mentioned, we're very pleased to report that molecular diagnostic revenues this quarter are the strongest we have ever seen. Molecular diagnostic revenues for the quarter ended December 31, 2006 were $34.2 million. This represents an 11% sequential increase over the prior quarter ended September 30, 2006, and a 46% increase over the same quarter in the prior year. The record $34.2 million in molecular diagnostic revenues also exceeded the analyst average molecular diagnostic revenue forecast for the quarter.

As many of you know, we have been expanding our women's health salesforce. Revenues generated from this segment in our second fiscal quarter increased substantially over the same quarter in the prior year. Our 32 person women's sales health salesforce, combined with our 110 person oncology salesforce, has provided a strong start to fiscal 2007. Our molecular diagnostic revenues for the 6 months ended December 31, 2006 are up 45% over the same 6 month period of fiscal 2006. This compares favorably to the 41% growth rate experienced in the first 6 months of fiscal 2005. As Pete indicated earlier, sample flows to date indicate that we should continue to grow in our third fiscal quarter.

Total revenues for the quarter ending December 31, 2006, which include both molecular diagnostic and research revenues, were $37.1 million. This compares to $27.3 million in the same quarter of the prior year. Our total revenue result exceeded the Thomson First Call Consensus revenue estimate by $1.6 million. Our gross profit margin on molecular diagnostic revenue this quarter was 78%, an increase of 4% over the 74% margin in the previous quarter. As I mentioned last quarter, we expect to see continued growth in our gross margins as the year progresses due to the implementation of new technologies in our laboratory.

The investments we made last year, including improved informatics that reduce analyst review time, and process enhancements that lead to lower rework rates and faster turnaround times, coupled with the new high throughput capillary sequencers introduced last quarter, have contributed to the gross margin improvement.

The significant earnings contribution of our molecular diagnostic business for the quarter ended December 31 2006, amounting to $15.5 million before taxes, depreciation and amortization continues to improve. This result represents a 101% increase over the same quarter in the prior year. Further, the net operating margin of our molecular diagnostic business was 44% for the quarter, which is a significant improvement over the 31% operating margin generated in the same quarter of the prior year.

Continuing healthy productivity gains in sales and customer service facilitated much of this operating margin improvement. Once again, these costs grew at about half the rate of our molecular diagnostic revenue growth as a result of the CRM improvements we made last year.

Accounts receivable collections, as measured by the number of days sales outstanding, was 63 days for the quarter ending December 31, 2006, compared to 73 days for the same quarter in the prior year. This substantial improvement is the direct result of the continued dedication and expertise of our talented internal billing and collections team.

Research and development expenses for the quarter ended December 31, 2006 were $24.8 million. This represents a 30% increase over the same quarter in the prior year, and was primarily comprised of the costs associated with our six ongoing clinical studies. Much of these costs were associated with our two Alzheimer's disease clinical trials, including our 1,684 patient U.S. Alzheimer's disease trial, which is the largest Alzheimer's clinical trial ever undertaken, as well as the 800 patient global trial, which commenced enrollment in the prior fiscal year, and is now nearing completion.

We have also made significant expenditures in the late stage pre-clinical development of our other drug candidates, including HIV. Additionally, we have invested heavily in developing new molecular diagnostic products and plan on launching two of them during this calendar year.

Since we expect to move additional drug candidates into the clinic and advance our current clinical drug programs, as well as develop new molecular diagnostic products, we believe our research and development expenses will continue to grow modestly over the next several quarters.

Selling, general and administrative expenses for the quarter ended December 31, 2006 were $16.2 million compared to $11.6 million for the same quarter in the prior year. The 39% increase over the second quarter of fiscal 2006 was primarily attributable to expenses incurred to support the 46% growth in our molecular diagnostic revenues, including the addition of several OB-GYN sales representatives, our therapeutic development efforts, and a substantial amount of non-cash stock option expense.

We expect our selling, general and administrative expenses will continue to increase depending on a variety of factors, including the number and scope of new product launches, our drug discovery and development efforts, growth in molecular diagnostic revenue, and future stock option grants.

Our net loss for the second quarter ending December 31 2006, which includes stock option expanse, was $8.8 million, or $0.22 per share. This compares with $8 million, or $0.22 per share, in the same quarter of the prior year. Stock option expanse attributable to the second quarter of fiscal 2007 was $0.04 per share compared to $0.01 per share for the second quarter of the prior year.

The research analyst consensus for a loss per share is a blended average that currently includes some estimates incorporating stock option expanse, and others that do not. So we have included estimates of loss per share both with estimate -- both with equity compensation expense and without the expense.

Cash, cash equivalents and marketable investment securities were a healthy $203.5 million at December 31, 2006. This compares to $235.1 million at December 31, 2006. We again point out that Myriad has no debt and no convertible securities, and that the total number of shares outstanding at December 31, 2006 was a modest 39.9 million shares.

Thank you for your attention. I will now turn the conference call ever to Dr. Gregory Critchfield.

It is a great pleasure to speak with you today about our molecular diagnostic business. As Pete and Jay have discussed, our second fiscal quarter revenue for our molecular diagnostics business was $34.2 million, a 46% increase over the same quarter of last year, and an 11% quarter to quarter increase during this fiscal year. The growth of this business has been accompanied by a steady improvement in profitability, with the operating profit margin reaching 44% during the last quarter, an increase of 108% compared to the same quarter last year.

We are contributing an increasingly significant amount of cash to help fund our clinical trials and programs within Myriad. Indeed, we are currently generating approximately $5 million in monthly operating profit from our molecular diagnostics products.

We continue to see excellent incoming sample flow, the major contributor to the topline growth of our business. Our profitability increases as we continue our drive for operational excellence. We have discussed improvements that allow us to analyze increased numbers of samples. Even with the 46% increase in revenue, we achieved improvement in our gross profit margin. Two major factors drove these results. First, the installation of improved technology in our operations, and second implementation of world-class manufacturing management philosophies.

On the technology side we have installed DNA sequencers that generate a fourfold increase in run size, thereby decreasing labor and depreciation costs, while increasing throughput. Improvements in the way we review data have doubled the productivity of our data analysts. Our operations groups have integrated lean systems and Six Sigma philosophies to improve quality, efficiency and productivity.

The adoption of these world-class manufacturing paradigms in our laboratory setting have begun to achieve dramatic results. For example, we have seen a striking reduction in the average turnaround time for tests. Another area of increased productivity is in our customer service's operation, where the 46% increase in revenue was accompanied by only a 12% increase in costs. We also continue to benefit from the price increases for our product announced last April.

All these efforts are contributing to the 108% increase in the operating margin for our business compared to that of the previous year. And we believe that the margins will continue to improve as we make progress on all of these fronts.

The increase in testing volume has been driven by sales and marketing efforts to convince customers of the clinical value of our products, and to broaden utilization among current customers. All four of our molecular diagnostics products are growing strongly. There are three groups of individuals who benefit from our products.

First are those individuals newly diagnosed with cancer. These newly diagnosed patients are generally seen by medical oncologists and surgeons. For this group, penetration has accelerated due to the recently published favorable American Society of Breast Surgeon guidelines, and improvements in our turnaround times. These lower turnaround times are now allowing physicians to incorporate our molecular diagnostics information into real-time surgical decision-making. We are also seeing medical oncologists increasingly ordering products from our entire productline.

The second group of patients that benefits from our molecular diagnostic tests are those who were diagnosed with cancer many years ago, and who have seen their cancer recur. They have returned to the care of their oncologist. The oncologist uses the information in our test to determine strategies for treatment.

The third group are individuals who have not yet developed cancer, but who are at high risk based on family history. The number of candidates for testing in this category is the largest of our three market segments, and therefore represents further opportunity for growth in our molecular diagnostics business.

These individuals will generally see their primary care physician, and for women it is usually an OB-GYN physician. We are aggressively implementing our plan to increase our sales force and penetrate this market opportunity. We are now beginning to see excellent growth in the OB-GYN market. Our sales representatives in this area are generating significant revenue increases as we address this very large market opportunity.

To further accelerate growth in this market segment, we have launched the physician portion of our direct-to-customer campaign. This involves educating OB-GYN doctors and nurses on how to identify, counsel and test candidates in their practices. The physician phase of these marketing efforts lays the groundwork for direct advertising to consumers. That, as Pete has mentioned, will take place in September of this year.

We anticipate that the greater consumer demand for testing will allow the prevention of cancer in individuals who have not yet been diagnosed with it, yet who belong to high-risk families. This is an important goal with enormous public health implications.

All of our sales and marketing efforts are expected to increase the number of physician practices who routinely identity candidates for testing, and the number of patients seeking testing services in those practices, giving patients greater access to these vital services.

Our molecular diagnostics business continues to grow as more physicians incorporate testing into their practices. Myriad's molecular diagnostics business is succeeding because testing information is pivotal in managing the high risks individuals have for cancer. We feel that our increased efforts -- our increased focus on the OB-GYN market is -- market segment -- is generating success and offers excellent potential growth.

Our molecular diagnostics products make a significant difference in the lives of individuals and families at high risk for cancer. We are pleased to be helping more individuals as this business continues to grow.

Thank you. I would like now to pass the microphone to Dr. Adrian Hobden, President of Myriad Pharmaceuticals Inc.

Good morning. As you'll recall, we announced at our last earnings conference call that we had completed enrollment in the U.S. Phase III Flurizan trial. We enrolled 1,684 patients in the study, which is twice the size of our 18 month global Phase III study.

Our rationale for the size of the U.S. study was that it should be powered to show a statistical significance at 12 months, giving us an opportunity for an earlier interim look. The full study period was 18 months.

Last week we had the opportunity to meet with the FDA and discuss our clinical trial plans for Flurizan, the potential of receiving a disease modification label for Flurizan and the interim analysis of our U.S. Phase III study. The FDA indicated that our U.S. Phase III study was, without the interim analysis, twice the size of our global Phase III and could, if the results were compelling, be used for an NDA filing without the need for a second Phase III trial. Furthermore, they indicated that it might be possible with the full-length 18 month study to show an effect on the underlying disease process. That is, modify the disease process.

Finally, some concern was expressed about the difficulty of performing an interim analysis without creating the opportunity for bias to enter the data, should the study not terminate after the interim. Obviously, the opportunity to get NDA approval off a single Phase III study, and with language in the label suggesting disease modification, is too great for Myriad to ignore.

Therefore, we have decided to eliminate the interim analysis, and allow the study to continue until the last patient completes 18 months on drug. The U.S. Phase III study is now powered with over 95% confidence to detect a 30% slowing in the rate of decline of cognition, with a p value of 0.01.

To remind you, in our Phase II study the effect size on both behavior and cognition endpoints at 18 months was in excess of 40%. Although elimination of the interim analysis means a few months delay before we will see the results of the U.S. Phase III study, we believe this decision will increase the potential for the U.S. Phase III to be overwhelmingly successful, and therefore result in acceleration in timelines for NDA submission.

The possibility of getting a disease modification label for Flurizan is also extremely valuable. Subject to a positive U.S. Phase III study we believe that Flurizan would be the first disease modifying treatment for Alzheimer's disease to reach the market.

We shall also use the increased power of the full 18 month trial to do sub-analyses on the effect of combining Flurizan with other Alzheimer's medicines. Most of our patients were already taking a cholinesterase inhibitor at enrollment, and have continued to use those drugs.

In addition, a significant group were also taking Memantine, despite this drug not being approved for mild Alzheimer's patients. We shall examine both of these subgroups.

However, of greatest interest are the effects of Flurizan as monotherapy. About 20% of our patients are not taking any Alzheimer's medicines. We shall be analyzing our data to see whether a claim for monotherapy is possible in addition to combinations with other Alzheimer's medicines.

I'm also very pleased to announce the approval, both by the U.S. Nomenclature Committee and the International Nomenclature Committee of a generic name for Flurizan. The generic name will be tarenflurbil. And henceforth we will use tarenflurbil in all scientific publications.

Nomenclature Committees accepted the new name with the unique flurbil stem in recognition of the novel biological activity of Flurizan as a selective lowering agent of Abeta42, the primary culprit in the initiation and progression of Alzheimer's disease. All future selective Abeta lowering agents, or SALAs, will be expected to use the flurbil stem as part of their generic name.

We believe the new name brings significant commercial benefits to Flurizan, since it eliminates any possible confusion of Flurizan with nonsteroidal anti-inflammatory drugs, or NSAIDs.

It has been shown that Flurizan lacks COX inhibitory activity, and that it works by selectively lowering Abeta42 production. Furthermore, we now have over 1,200 patient years of clinical experience with Flurizan, with maximum exposure of almost four years. And there is no suggestion of either GI toxicity or cardio toxicity, which typically includes for NSAIDs a higher incidence of myocardial infarction and stroke.

The safety data includes results from the recently completed prostate trial where men with a mean age of 71 at enrollment took Flurizan daily at the highest dose for almost four years. The Nomenclature Committees accepted that Flurizan had a distinct biological activity. Furthermore, they acknowledged that there was a significant risk to the safety of patients if a profen was prescribed by accident, rather than prescribing Flurizan. This risk has now been eliminated by the adoption of tarenflurbil as the generic name.

Finally, I want to provide you with an update on the progress of our Alzheimer's trials. The U.S. Phase III study is fully enrolled, and the study is progressing smoothly. The dropout rate is in line with the Phase II study, which was 20%, and is unlikely to approach the 40% rate that we used for our power calculations.

The global Phase III study has investigator sites in 10 West European countries, Canada and the United States. It is enrolling extremely well. And we're confident that it will be fully enrolled in the first half of this year.

Each trial is monitored by an independent data monitoring committee which meets quarterly. Neither committee has expressed any safety concerns to Myriad.

Thank you for your attention. I will now hand back to Pete.

And I will turn it over to the operator for the question and answer portion of the conference call.

(OPERATOR INSTRUCTIONS). Geoff Meacham, JPMorgan.

A question for you on the Flurizan program. You mentioned in the press release that you also had done a reanalysis of the Phase II. That was part of your decision to wait for the 18 months and not do the interim analysis. Can you talk a little bit about that? What you have seen post, say, the 24-month period?

And then the second part of that is, given the lower-than-expected dropout rate can you just review what the power calculation -- what changes you have to that? Thanks.

Let me start out off with answering that question, then I will have Adrian add to the answer. Yes, in looking at the Phase II data, we had 12 months as a double-blind placebo-controlled study. And then at the end of the 12 months we actually had the placebo patients cross over to the drug treated group, and we randomized those patients to high and low dose and then followed them for an additional 12 months.

Then we compared those patients who had been on drug for the full 24-month period versus those who had been on drug for the 12-month period. We noticed, as would be expected with a disease modification activity, that those patients that were on drug for the shorter period of time could never quite catch up to those that had been on drug for the longer period of time, strengthening our belief that the drug in fact did modify the disease, actually slowed the progression of the disease.

But we also noticed in analyzing that data that at about the 18-month period there tended to be a flattening, really a halting, in the progression of the disease. And we felt based on that data that the 18-month period was a much stronger indication for the length of the study to maximize efficacy than we would get at the 12-month interim look. So that certainly played into the factor.

As Adrian mentioned today, we are already looking at a 95 -- well, greater than a 95% confidence interval for seeing a 30% effect with a p value of 0.01. If the dropout rate is less, then it is even more powerful. But we are already up so high that it is greater than 95%. It is a very well powered study.

I don't know if I have much to add to that. Just a little observation on the power calculations. Until we actually see the power, the dropout rate, we can't really be too specific about what the power would be for that. But certainly our projections are much less than 40% currently.

I can add that if you look at the p value of 0.001 as opposed to 0.01, we're already about 90% confident for a 30% effect for 0.001. So it is an extraordinarily well powered study. But most importantly I think from our point of view is the opportunity to do the sub-analysis that we discussed, and get our ability to look at monotherapy as well as combination therapies as part of the analysis.

Thanks. That is really helpful. Just a real quick follow-up on the predictive medicine front with regard to the pancreatic cancer -- potential pancreatic cancer indication. Maybe for Greg. Can you give us a sense for the timelines for completion of the Hopkins trial? And then would any other trials be needed to really demonstrate the role of BRCA1 in this? And then what would you view from a regulatory standpoint, how would you leverage this into your current franchise?

As everyone knows, the Hopkins trial we announced about three months ago. The trial is underway. Patients are currently being tested. The idea is that individuals that have BRCA2 mutations, which by the way are very prevalent in pancreas cancer, would be assigned treatment to a cross-linking agent. Cross-linking agents have been shown to be very effective in tissue culture inhibiting the growth of tumor cells that lack BRCA2 function. This trial we anticipate will last somewhere between 18 months and two years. That is the timeframe that we're looking at.

With regard to the regulatory questions, I think that this is a very simple test whereby a mutation is found, and then the presence or absence of the mutation is associated with information in the literature. And people can decide whether, with other information, they want to go ahead and treat patients.

So I think that this is a very, very simple way of looking at it. Our anticipation is that physicians will immediately, if successful, begin thinking about this. Undoubtedly additional trials will be performed, but we think this is a very important foray and entry into the area of personalized medicine.

Let me add to that. The FDA has recently come out with guidelines concerning tests that rely on a multivariant analysis and algorithm, indicating that they feel that falls under their purview. And even though this is a personalized medicine test, a test that would assess a patient's ability to respond to a particular class of drugs, type of medication, it is like Myriad's existing test, it is not a multivariant analysis. We have no algorithms involved. It is the analysis specifically of a disease-causing gene looking for mutations in that gene that cause the gene to produce an incorrect or nonfunctioning protein.

This would be regulated under CLIA, as all of our existing products are. It would not be subject to FDA regulation under the new guidance that the FDA has provided.

Ted Tenthoff, Piper Jaffray.

Congratulations on a fantastic quarter. Three quick questions, if I may. Starting out with predictive medicine. I'm not sure if I missed this on the call, but what is the net profitability, or how do you look at profitability year-to-date in predictive medicine? And then two quick questions on the therapeutic pipeline.

Let me start off with that, and then I will let Jay add to my comments. The way we calculate the profitability of the predictive medicine subsidiary, which is a wholly-owned subsidiary, is by accumulating all the costs associated with the testing and analysis of the products that we offer. And then we fully burden that with research expense and SG&A associated to that activity. And that breakdown is outlined in the 10-Qs that the Company files quarterly. And through that then we get, as Jay mentioned, a net operating profit this quarter of 44%.

Exactly. There is not really much to add to that other than it is clearly laid out in the 10-Q under segment information.

I will point out, as Jay mentioned as well, that that does include 123R expense, the equity compensation component, which of course is a non-cash expense to the Company.

Just quickly on the therapeutic pipeline. First for Adrian, I guess on the disease modifying label, in your discussions with the FDA what was the hurdle that was set, or what really needs to be shown -- would it simply be an ADAScog improvement statistically significant in terms of a delta of 30%?

And then the second question would be on Azixa. What should we be looking for for the design or enrollment for those Phase II studies?

Firstly, with the disease modification question and the FDA. That is a very, as you're probably aware, a very complex issue. And there are two aspects to it. One is a demonstration of an effect on the underlying pathology of the disease. And the other one is an effect on the clinical progression of the disease.

The problem, of course with the former, the pathology, is that there's no good way of looking at the plaque in the brain except in autosy. So trying to follow it through the course of a clinical trial is currently not possible. Pet scanning with the Pittsburgh agent is something which is coming up, but it is not yet approved by the FDA, and is not definitively demonstrated to show changes over the progression of the disease.

We are in the realm of surrogates here, the clinical surrogates, or the imaging surrogates. Where we wanted to talk to -- what we wanted to talk to the FDA about is the relative value of those. I think Dr. Katz, the Neurology Divisional Director, has stated publicly in conferences that he is uncertain as to the utility of bio markers, and certainly none have yet been proven to be effective in demonstrating progression of Alzheimer's disease.

He is much more interested in clinical progression and the type of clinical progression that can happen. For example, he has advocated the use of a randomized start design and stated publicly that he believes that to be definitive in the context of an effect on --- of the underlying pathology of the disease. He is really focused on clinical progression rather than on imaging or other bio markers.

The nature of our discussion was the length of our study, 18 months. The fact that we would expect to see as a minimum slope divergence -- that assumes that the slopes are linear -- we actually believe -- and I think Pete said this in his talk earlier on rather in answering another question -- that we actually don't believe the slopes are linear. In fact that the placebo group the rate of decline accelerates, whereas on treatment with Flurizan, the rate of decline actually decelerates. And so by 18 months it looks like you have flattened out, and the patients are no longer deteriorating. And so the discussion we had was in terms of the nature of the slopes, and what that would indicate for disease modification. And we reached a good meeting of minds on that point with the FDA.

Moving on to --.

That is very helpful. Thanks.

Moving on to Azixa, I think we said that we would be initiating two Phase IIs the first-half of this year. We're very interested in brain tumors where the primary brain tumors, for example, like glioblastoma or brain metastases secondary to a primary brain -- a primary tumor, peripheral tumor. And we're looking at the diseases which have a large incidence of brain metastases, such as melanoma. As Pete indicated, we saw very distinct effects on melanomas in our Phase I study.

So we're looking to initiate Phase II studies where, for example, we would have as our inclusion criteria just melanoma patients, but who have a brain -- a proven brain metastases. And as Pete has already indicated, there's no approved medication for brain metastases, and so there is really no standard of care for us. And so we're looking at designs. We will certainly have trials where we have a control arm as well as a treatment arm as a minimum.

We're looking to do these studies under the new guidelines in new discussion with the FDA about how to do cancer trials, where these would be open label. They really have to be open label because of the nature of the treatment. But also where we would continue to increase the enrollment of patients as we saw utility of the drug. So with the expectation that we could file these for NDA. These are Phase II studies which would effectively be for NDA filing.

Charles Duncan, JMP Securities.

Let me add my congratulations on a very strong quarter. I had a couple of questions on PM business, and then a couple on the therapeutic business. First, with regard to the PM business directed at Greg. Can you give a little bit of additional color on the actual nominal number of samples that you are seeing perhaps on a monthly basis or so from the different tests?

Thank you for the question. We really don't break down the individual sample flow numbers. What have said -- and people -- Pete and I emphasized it in this conference call -- and Jay -- that we are seeing strong flow as we go into this quarter. And that is the sum of it all.

Our predictive medicine products are all growing. And I think it is very important for everyone to understand that we are seeing excellent growth, whether we talk about MELARIS, either of the COLARIS products or BRACAnalysis, they are all growing.

You spent a fair amount of time, Greg, outlining where the potential growth could be for BRACAnalysis. That makes a great deal of sense. Can you give us some color as to the drivers behind COLARIS and MELARIS?

Certainly. Let me first speak about COLARIS. One of the things that I mentioned is the decrease in our turnaround time now places the test in the realm where a physician can make real-time surgical decisions. We believe that is one of the important elements in the COLARIS market to addressing it.

As you know, patients are diagnosed with colon cancer. They see the surgeon. The surgeon has to make a decision as to what surgery is done. There are guidelines out there currently that dictate different kinds of surgery based on whether they are mutation positive or mutation negative. So we see that as a driver and an important element in addressing the COLARIS market.

In MELARIS continued studies are generating greater clinical utility in identifying patients who are at risk for melanoma. And we see the continued development of clinical guidelines based on those data as a driver of that market as well.

Bouncing back to BRACAnalysis, with regard to the OB-GYN efforts, do you plan any, for example, symposia sponsorship, any clinical meetings at which we could get some increased visibility on those efforts?

We will be attending the meetings, the ACOG meeting coming up. We're always present at that meeting. The one point that I will mention that we have talked about before is that the professional societies are in the process of formulating guidelines.

We mentioned in the last conference call that SGO, the group of gynecological oncologists, was nearly completing its guideline development. We expect that those will be released quite soon. The society will be publishing those. And it is our understanding that they are very close to being finished. Those are a predicate for the work that will be done by ACOG, which is the largest professional society group addressing that market segment. And we look forward to that as well. As those guidelines come out, there will be a lot that we will make of those as we discuss things with physicians and as we attend the professional society meetings.

Pete, a quick last question on PM. You mentioned growth coming from current products as well as new products. A point of strategy, would you consider M&A for that business, or do you feel like you have a unique and defensible and, call it, a differentiated platform for driving competitive advantage?

No, we definitely have a very strong focus within the Company to look at discoveries made by other companies and at universities throughout the country, and are looking at in licensing products to augment our molecular diagnostic business.

We do feel we have a very strong research team. We think we have very strong research capabilities. But we're not going to discover everything, and so I think the Company needs a strong focus on in licensing products in the future. And we certainly are aggressively pursuing those.

Just one quick question on drugs with regard to Azixa. Adrian, I am just wondering if you can give us a little bit more color on the Phase IIs/Phase IIIs that you plan with regard to numbers of patients' end points? And then patient selection, you mentioned skin cancer, but what about breast cancer?

Yes. The concept is that these are an adaptive trial, so that you continue to enroll patients in the study into more than one arm study, looking for an effect on disease progression. Disease progression is the -- time to disease progression is the primary outcome, but there are other secondary outcomes as well, survival for example. But that is the easiest and most accepted outcome in this sort of cancer.

So although in the protocols we would anticipate a maximum number, we would expect in fact that the -- we would see an effect way before the maximum number, so we would continue to do it. It was hard to project, for example, how long it would take to reach a statistically significant result. But certainly we would be not expecting it to take a huge amount of time, considering the unmet medical need that we are talking about here.

In terms of the nature of the cancers, melanoma obviously is attractive to us for two reasons. Firstly, because 50% of melanoma patients will develop brain metastases, a very high percentage. And secondly, because of the effect that we clearly saw in our Phase I clinical trials on that cancer.

But we are also looking at the possibility of others in the future. Breast cancer, we saw an effect in breast cancer. It is about 20, I think, 20% of breast cancer patients will get brain metastases. Lung cancer has a 70 to 80%. That is obviously in that respect encouraging to us, although we are aware of the issues with lung cancer and the effect of others. We're considering those other diseases very carefully. We also think that glioblastoma is a very attractive option for us for a Phase II study.

So not survival. So that probably lowers the clinical risk of the program if you're just counting on disease progression, if they are relatively hard end points, doesn't it?

That would be our perspective.

Annabel Samimy, UBS.

Not to sound like a broken record, but great quarter. Just back on the Azixa trials for a second. You mentioned that survival is not going to be the primary endpoint, but can you give us a sense in these patients exactly how long -- once they have brain mets how long do they tend to survive, just to help us frame what timeframe disease progression might occur in?

It depends on the primary tumor and the treatment they have had before. Typically it is 4 to 6 months, would be the survival expectation of the patients. If you took a glioblastoma patient who has failed the previous treatment, the median survival is actually 12 weeks. So it is a remarkably short period of time, an unfortunately short period of time.

Certainly we wouldn't expect the patients to be in the treatment for very long, unless of course the drug is successful, in which case we would hope they would be on the drug for a long time. That is a different perspective. But I think typically no more than 6 months is the survival for a patient once they develop brain metastases.

Then technically disease progression should occur before that.

That's correct.

With the adaptive trials, obviously you're going to be adding more patients on. At what point will you stop adding patients and say, okay this is an effective or not effective drug?

You're talking about a futility analysis as well as a utility analysis, I guess. And what we are going to have to go by is the historical rates of time to disease progression. We think that you should have seen an effect by about 40 patients per arm.

I'm sorry. Say that again?

One should have seen an effect by about 40 patients per arm. But that wouldn't -- we were not anticipating that is the maximum number of patients in the trial. That is just really for a more futility analysis.

Okay. So that is a minimum at least. Great. Thanks for that. Just really quickly on Flurizan, you had mentioned that you had a meeting of the minds with the FDA with regard to disease progression. But has that definition of disease progression actually been laid out? So if you actually hit the change in slow progression will that be considered disease progression, or is it still sort of being under negotiation?

It is definitely under negotiation. It is not the FDA's manner to give you definitive answers at this stage. It is obviously subject to what we actually see in the Phase III study. What we laid out to them is what we were proposing by way of an analysis. They were very interested in that analysis, and asked for continuing dialogue with us about it.

But you cannot at this stage when you don't have the results of the Phase III trial go into what the label will actually say, for example. That is not something that they will entertain at this stage for discussion. But whether the words, disease modification, or some equivalent to those words actually enter the label is something which we will have to have a negotiation discussion with at the time when we have the Phase III results.

Let me just switch really quickly to predictive medicine. In terms of the results this quarter, I know that you had just added some new salespeople for the primary care. To what extent was some of the growth in the BRACAnalysis due to penetration of asymptomatic population? Did you still get more -- did you still have more volumes from the oncologists? Are you starting to see headway in the asymptomatic population, despite not having the guidelines yet?

We saw -- as we mentioned in the call, we saw significant revenues being generated by our OB-GYN salesforce. Remember that that group now is comprised of 35 individuals. We are planning on filling that group out over the rest of the year. As those people come on board, they are able to meet the demand that is clearly there. So we're very pleased with it. Still, however, the majority of our revenues currently are from the oncology side.

We are seeing very good growth on the oncology side. Not only in BRACAnalysis, but as I mentioned, MELARIS revenues doubled over the first 6 months of this year compared to last year. And COLARIS revenues were up about 90%. I think the Company is making good progress on all fronts.

One last question for [predictive], on COLARIS and MELARIS is there an opportunity for you to move into, not just the oncology patients, but also other patients who are asymptomatic who have a high risk because of family history?

Yes. That is definitely part of our focus, and certainly part of the market that we're attempting to address.

Has it been addressed or is it just becoming thinking about addressing?

No actually -- I can jump in on that. It is interesting that as we train physicians as part of our direct to consumer activities, the physician phase involves training physicians on all four of our major products. So the OB-GYNs that we're meeting with are being trained on MELARIS, on both COLARIS products, and on the BRACAnalysis product.

As Greg mentioned, this really is for an asymptomatic patient a primary care market. And for women, about 80% of the women use an OB-GYN as their primary care physician. So whether they have a family history of skin cancer or colon cancer, uterine cancer, ovarian cancer or breast cancer, it is that same OB-GYN that they would go to. And as Greg mentioned, we are educating them across all four of our productlines, not just breast cancer.

At this time there are no further questions. Mr. Meldrum, are there any closing remarks?

No, I would like to thank everybody for attending the Myriad earnings conference call. We thank you very much for your participation this morning. And that does conclude our second quarter conference call. Thank you.

This does conclude today's conference. You may now disconnect.