Myriad Genetics Inc (MYGN) 2008 Q1 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference operator today. At this time I'd like to welcome everyone to the Myriad Genetics first quarter fiscal year 2008 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn the call over to Mr. Peter Meldrum. Sir, you may begin.

Thank you. Good morning, and welcome to the Myriad Genetics earnings conference call for our first fiscal quarter ending September 30th, 2007. My name is Peter Meldrum. I am the President and Chief Executive Officer. I'm joined today by my dear friend and colleague Jay Moyes; Jim Evans, our Chief Financial Officer, Greg Critchfield, President of Myriad Genetics 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 and Mr. Evans, who will discuss our financial results. Dr. Critchfield will review the company's molecular diagnostic business, and Dr. Hobden will discuss our drug development activities. At the end of the presentation, I will turn the call back to the operator for the question-and-answer period.

Please note that some of the information presented here today may contain projections or other forward-looking statements regarding future events or the 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 actual results to differ materially from those contained in our projections or forward-looking statements.

I have had the pleasure of knowing Jay for over 20 years and he's been my CFO here at Myriad for over 14 years. Through the years, I have developed a great admiration for Jay's financial acumen combined with his uncanny common sense and good judgment. But most of all, he's a man of great integrity and a loyal friend. I know he will be missed by all of us here at Myriad. But I am comforted by the fact that Jim Evans will be carrying on Myriad's tradition in the financial excellence and fiscal conservatism. Jim has been at Myriad for the past 12 years, and Jay will be the first to admit that his and Myriad's success would not have been possible without Jim's constant input and thoughtful guidance. Jim has the perfect skill set to steer Myriad's financial course into the future.

Our first fiscal quarter was outstanding as once again we achieved record product revenues. Our molecular diagnostic revenues grew to $46 million for the first three months ended September 30th, 2007 as compared to $31 million for the same period in the prior year, a 49% revenue increase. This accomplishment is even more remarkable since our first quarter is typically our weakest quarter. We experienced strong growth across all five of our molecular diagnostic products, including a better than expected showing from our newest product TheraGuide 5-FU. The growth in our molecular diagnostic business can largely be attributed to an increase there our sales and marketing efforts and the continued physician acceptance and adoption of our products, particularly among OB-GYNs. It is too early in our direct to consumer campaign to assess any impact of that marketing effort on our revenues. Given the approximate 60-day response cycle for ordering BRACAnalysis, we don't anticipate seeing the effect of the DTC campaign until after the first of the year. Based upon our present growth rate, we believe our molecular diagnostic business should approach $200 million this year. In our present facility, without any additional expansion, we believe that we have the capacity to process sufficient patient samples to generate $400 million in product revenues per year. Of course we are already planning future facilities, which will allow us to expand our molecular diagnostic business beyond that level.

During the quarter ended September 30th, 2007, we made excellent strides in advancing our drug candidates toward commercialization. Both of our Phase III Alzheimer's trials for Flurizan are proceeding on schedule. Over two-thirds of the patients in the U.S. trial have now finished the study, and I am pleased to report that there have been no safety issues or concerns expressed by the data safety monitoring board. The U.S. Phase III study will conclude at the end of March 2008. Since it takes several months for us to collect the data from the 120 sites, clean the data, lock the database and analyze the data, we anticipate releasing top-line results for the U.S. study by the end of June 2008. The global Phase III study is approximately six months behind the U.S. study. So we expect to report the top-line results of that trial before the end of the next calendar year. Additionally, this quarter we initiated a third pivotal Phase II clinical trial for Azixa, our metastatic brain cancer drug in patients with non-small cell lung cancer that has spread to the brain. Like the other two trials in metastatic melanoma and glioblastoma, this trial is an adaptive design study with no set number of patients to be enrolled and no set time period. This new adapted design study is being encouraged by the oncology division of the FDA, and we consider it to be a very favorable trial design for the development of new cancer therapies. We anticipate submitting an IND to the FDA before the end of December on Vivecon for the treatment of HIV infected individuals. Vivecon is a novel maturation inhibitor that is shown to be effective against drug-resistant strains of HIV, and exhibits a favorable safety profile in animal toxicology studies. As Adrian will discuss further, our plan for Vivecon is to move it rapidly through a series of accelerated clinical trials toward drug approval. We believe that Myriad represents a unique investment opportunity. Our rapidly growing molecular diagnostic business complements the promise of our therapeutic opportunities for Flurizan, Azixa, and Vivecon. Our goal is to provide our shareholders significant upside on the therapeutic front while maintaining our leadership position in the exciting emerging field of molecular diagnostics. Now it is my great pleasure to turn the call over to Jay Moyes.

Thank you, Pete. You're a great friend, and your kind words mean a great deal to me. It is now a pleasure to present a more detailed look at Myriad's financial results for our first fiscal quarter ending September 30, 2007. One year ago, I reported that Myriad's first quarter performance was the strongest first quarter performance in the history of the company, with molecular diagnostic revenues of $30.9 million, year-over-year growth of 43%, and sequential growth of 7%. Today I am delighted to report that the results for the first fiscal quarter of 2008 are even better. Molecular diagnostic revenues for the quarter ending September 30, 2007, were $46.1 million, year-over-year growth was 49%, and sequential growth was 9%. As many of you know, the first quarter is historically our weakest quarter. So this result, which handily beat the analysts' consensus molecular diagnostic revenue forecast for the quarter of $45.3 million was very satisfying.

Our consumer awareness for hereditary breast and ovarian cancer was launched in the northeast region in mid September and has generated significant interest surrounding BRACAnalysis. Further we have increased the number of our sales representatives from 148 at the end of last quarter to 195 as of September 30, 2007. Sufficient time has not passed for these initiatives to impact our first quarter record revenues, and we expect they will have minimal impact in our second fiscal quarter. We do expect, however, that the initiatives will contribute to growth after the first of the calendar year. That said, sample flows continue to look strong during the current quarter.

I would like to take this opportunity to thank Myriad and all of its employees for 14 wonderful years. It is truly been a once in a lifetime opportunity. One analyst compared my job to the canary in the mine shaft. I want to assure you that this canary is healthy and strong and he will be spending a lot of time in a race car. The new canary, Jim Evans, will be a great replacement. Many of you know Jim as he has participated in several conferences and has been an integral member of the road show team during the marketing -- marketed follow-on offering two years ago. Jim and I have worked together at Myriad for over 12 years, and I have known Jim since he started his career at KPMG nearly 20 years ago. His integrity is above reproach and his financial skills have enabled Myriad to be one of the few companies in the Sarbanes-Oxley era with no material weaknesses and no significant deficiencies in internal controls. I am pleased to leave Myriad in such capable hands. So for the last time I again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at September 30, 2007, was a modest 43.6 million shares. Thank you for your attention. I will now turn the conference call over to Jim, who will finish the discussion of our first quarter financial results.

Thank you, Jay. First let me say that in my professional career of almost 20 years, I estimate that I have worked all but two of those years with Jay. I believe that we have made a great team, and I hope that over that time I have been able to learn enough from his keen financial insight and dedication to accuracy and integrity that I will be able to carry on in my new responsibilities in his outstanding tradition. Jay, I mean it when I say you will be truly missed by everyone here at Myriad.

Now to continue with our overview of Myriad's financial results. Total revenues for the quarter ended September 30, 2007, which includes both molecular diagnostic and research revenues, were $48.3 million. This revenue result exceeded the Thomson First Call consensus revenue estimate. Continued technology improvements and efficiency gains in the operation of our molecular diagnostic laboratory helped us to achieve a net operating margin of 40% or $18.5 million. This compares favorably to the 37% net operating margin generated in our first quarter ended June 30, 2007 -- I'm sorry -- in our last quarter ended June 30, 2007. The company's EBITDA for the first quarter ended September 30, 2007, of $19.3 million, was up 42% over the same period in the prior year, and 18% over our quarter into June 30. Although we expect to see continuing productivity gains, the company is making significant investments in sales and marketing such as the cost associated with our consumer awareness campaign and the expansion of our OB-GYN sales force. As Jay mentioned, we believe these investments will begin to have a positive impact on our long-term growth in revenue and operating profits commencing in our third fiscal quarter. Accounts receivable collections as measured by the number of days sales outstanding, was 65 days for the quarter ended September 30, 2007, compared to 66 days for the quarter ended June 30, 2007, reflecting the high quality of our accounts receivable. The slight improvement was coupled with a slight increase in bad debt expense, which remains in the 4% of molecular diagnostic revenues range.

Research and development expenses for the quarter ended September 30, 2007, were $26 million compared to $26.2 million in the same quarter of the prior year. Research and development was primarily comprised of the costs associated with our seven human clinical studies. The largest component of our research and development spend was for costs arising from our two Alzheimer's disease clinical trials. We have also made significant expenditures in the late-stage pre-clinical development of other drug candidates, including our novel HIV drug candidate Vivecon, which should be submitted to the FDA later this quarter. Additionally, we continue to invest heavily in developing new molecular diagnostic products and plan on launching at least one additional new product in this fiscal 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 fluctuate over the next several quarters.

Selling, general and administrative expenses for the quarter ended September 30, 2007, were $26.5 million compared to $24 million for the prior quarter ended June 30, 2007. The 11% increase over the prior quarter was attributable to expenses incurred to support the 9% growth in our molecular diagnostic revenues, including sales commissions, the commencement of our consumer awareness campaign, the expansion of our OB-GYN sales force and the launch of our fifth molecular diagnostic product TheraGuide 5-FU. Additional costs include $2.4 million of noncash stock option expense, the additional rent associated with the 70,000 square foot addition to our facility, and the commercialization and planning costs associated with Flurizan. 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 drug development efforts, and our growth in molecular diagnostic revenue and future stock option grants.

Our net loss for the first quarter ended September 30, 2007, was $8 million or $0.18 per share. This favorable result represents a 36% improvement over the same quarter in the prior year, which was $12.4 million or $0.31 per share and also beat the Thomson First Call consensus loss of $10 million or $0.24 per share. Stock option expense for the quarter ended September 30, 2007, was $0.06 per share compared to $0.03 per share for the prior year. Cash, cash equivalents and marketable investment securities were a healthy $299.3 million at September 30, 2007. This compares to $212.1 million as of September 30, 2006. Thank you. It is now my pleasure to turn the call over to Dr. Greg Critchfield.

Thank you, Jim. It is a great pleasure to speak to you today about our molecular diagnostics business. As Jim mentioned earlier, quarter one fiscal year '08 revenues for our molecular diagnostics business were $41.6 million, a new record representing a 49% increase over our previous year's quarter one revenues of $30.9 million. This was achieved with a 9% quarter to quarter increase in revenue during our historically weakest quarter. We are constantly making improvements in our laboratories to improve the sample turnaround time and quality of our testing procedures. This quarter, we've made a number of process improvements through continued lean systems quality training and implementation. We've also installed a new database platform that provides us greater reliability, maximizing total system hardware availability and massive scalability of our systems as we continue to grow our testing volumes. We've also completed a [Hardin] test environment to develop future improvements in our systems. We continue to feel that all these operational efforts, both in our laboratory operations and our information technology architecture, position us well to experience the exceptional growth we are experiencing.

During the past quarter, we completed a substantial expansion of both our oncology and women's health sales forces to raise awareness of our products among these types of physicians. As of September 30th, 2007, the number of individuals in our sales organization now exceeds 195. This large sales force expansion will allow us to substantially increase our visibility among medical oncologists, surgeons and OB-GYN physicians. New specialty guidelines have been recently published by the Society of Gynecologic Oncologists -- SGO, an organization whose members are very much involved in the surgical management of patients with gynecologic cancers. SGO guidelines were developed by conducting a comprehensive literature review and through discussions with gynecological oncologists, medical oncologists, genetic counselors, and other gynecologic cancer professionals. The guidelines were approved by the review panel membership and the executive committee of the society of gynecological oncologists. SGO guidelines are important to OB-GYN physicians, the specialists we are reaching as we expand the availability of our testing into women's primary care medicine.

The new SGO guidelines highlight the importance of two of Myriad's products, BRACAnalysis and Colaris, for patients affected with cancer as well as individuals not yet diagnosed with cancer who have a strong family history of breast, ovarian, colorectal or uterine cancer. The guidelines help practitioners identify patients at risk with hereditary factors who should be tested, for example, individuals with a personal history of breast and ovarian cancer, women with ovarian cancer who have a close relative with breast cancer before below age 50 or ovarian cancer at any age should be tested, any individual unaffected with cancer who has a parent, child, sibling, grandparent, grandchild, uncle, nephew or niece or half sibling carrying a cancer pre-disposition mutation should be tested. The guidelines specified for individuals diagnosed with endometrial or colorectal cancer before age 50 or women diagnosed with bilateral breast cancer can benefit from testing. The guidelines further discuss rationale for testing individuals who do not have a particularly strong history of breast or ovarian cancer or colorectal or uterine cancer because their history may be influenced by adoptions in the family, small numbers of individuals in the family tree or small numbers of females in the family. Finally, the guidelines emphasize the importance of uterine cancer in evaluating women for the hereditary non-polyposis colorectal cancer syndrome, otherwise known as the Lynch syndrome. In summary, the guidelines give practitioners the assistance they need to properly identify individuals in their practices who are good candidates for testing.

I would like to give you an update on our BRACAnalysis direct to consumer campaign that was launched in the northeast United States on September 10th. The purpose of the campaign is to increase awareness among individuals who have breast or ovarian cancer that runs in their families. The campaign encourages these individuals to visit their doctors to be evaluated as candidates for predictive medicine testing in order to better guide their health-care management. As part of the campaign, we have put considerable effort into educating physicians on the appropriate use of our products. We've also worked with professional organizations including groups like ASCO, AMA, ACOG, SGO and others to educate their members about hereditary cancer testing.

With the launch of the consumer ads that began running in September, there has been a great deal of media interest when a campaign launched their articles about it that appeared in the New York Times, the Wall Street Journal, the L.A. Times and many other places. Compelling patient focused stories on the utility of testing and what it means to families and individuals affected by hereditary breast-ovarian cancer syndrome have also appeared on national television news programs, including "Good Morning, America," the Today Show, ABC World News and other national outlets. Articles containing information on hereditary cancer testing and stories of women who have been tested by BRACAnalysis and have been empowered by this information have also appeared on the front page of the New York Times and a variety of women's magazines. For example, Better Homes & Gardens, Ladies' Home Journal, More Magazine, O Magazine -- Oprah's magazine, Redbook, Woman's Day, Women's Health Magazine and Vogue. More than 25 online news outlets on hereditary breast and ovarian cancer testing. All this media attention is gratifying, because the important public health goal of the campaign is to raise public awareness so that individuals at risk for hereditary breast and ovarian cancer syndrome can discuss the appropriateness of the test with their physician and then make an informed decision that is best for their personal situation. The number of mutation carriers who have not yet been identified far outnumbers those who have. And helping those individuals lower their risk for cancer makes this an important public health priority. Our molecular diagnostics products make a significant difference in the lives of individuals at high risk for cancer and in treating cancers. We are pleased to be helping more individuals as our business continues to grow. Thank you. I'd like now to pass the microphone to Dr. Adrian Hobden. Adrian?

Thank you, Greg, and good morning. As Peter's already told you, we have made excellent progress this last quarter in our drug development activities. It is becoming clear that the drop-out rates in our two Phase III trials of Flurizan and Alzheimer's disease will be significantly lower than the 40% we allowed for when the studies were designed. This, along with the absence of any expressed concerns from the two data monitoring committees, is a clear indication of the apparent good safety profile of Flurizan. Additionally, approximately 80% of patients who have completed the full 18 months of the study have elected to go into the open label portions of the trials. The lower drop-out rates also serve to strength the statistical power of the studies. We are collecting and cleaning data from the studies as they progress, and expect to be able to fully clean, lock and unblind the database from the U.S. Phase III trial in the second calendar quarter of 2008. Our plan is then to submit an NDA before the end of 2008 with possible U.S. approval by mid 2009. By that time, we intend to have sufficient supplies of finished drug product for commercial launch together with a specialist sales force to promote Flurizan in the United States.

At the same time that our clinical development group has been busy with our four drugs currently in clinical studies, namely Flurizan, Azixa, MPC-2130, and MPC-0920, we have been equally busy with earlier programs to identify new candidates. The first product from that work is expected to be Vivecon, a novel drug candidate for the treatment of HIV, which works by inhibiting maturation of the HIV virus. We expect to submit an IND for Vivecon before the end of this calendar year. Vivecon is a small molecule orally available drug, which is being tested extensively in both in vitro and in vivo toxicology studies and shows a very benign safety profile. In anti-viral studies, it inhibits viral replication with an IC-50 of less than 10 nanomolar and is active against viral strains that are resistant to the currently marketed anti-HIV drugs, including nucleoside reverse transcriptase inhibitors such as AZT, non-nucleoside reverse transcriptase inhibitors such as [effoverins], protease inhibitors such as Retonovir, and fusion inhibitors such as T20.

As you are probably aware, recent studies have suggested that the HIV virus is rapidly mutating to become resistant to many of the current generation of anti-HIV drugs. Indeed, one study from California reported that within the next few years, about 40% of newly diagnosed and treatment-naive patients would be infected with resistant viruses. This leads to the constant need for new compounds targeting novel parts of the HIV life cycle. We anticipate that Vivecon will be a very welcome addition to the range of drugs currently required to treat HIV infection.

Over the next few months, we intend to initiate two clinical trials of Vivecon. The first study will be a straightforward Phase I single ascending dose study in healthy volunteers. However, we expect to follow that rapidly with a Phase IIa multiple-dose ascending study in individuals infected with HIV. In that way, we can combine a PK and tolerability study with a dose-finding study for anti-HIV activity. It should allow us then to bypass a conventional Phase II study and move directly to Phase III trials. We are currently projecting a three to four year development time from IND to NDA.

Today, I'm very excited to announce that we are also working on a second class of anti-HIV drugs. This second class of compounds target HIV fusion. We have identified a very potent and orally available small molecule, MPI 4613159, which selectively targets this step. The target is a viral protein making this compound distinct from the newly approved fusion inhibitor Maraviroc, which targets the human receptor the CCR5. MPI 451936 could complement Maraviroc, since our compound is most potent against HIV virus that uses the other coreceptor CXCR4. It is widely anticipated that Maraviroc use will result in viral switching from CCR5 coreceptor to CRCX4 coreceptor. HIV viruses that utilize the CXCR4 coreceptor are most often associated with more progressive disease in the patient. The compound also does not appear to inhibit the activity of T20, the peptide inhibitor of fusion. We expect to move MPI 451936 into pre-clinical developments soon, with a projected date for IND in our next fiscal year. In addition to these two novel programs for anti-HIV compounds, our very active discovery programs have also identified a potential second generation selective amyloid lowering agent for the treatment of Alzheimer's disease. However, we would not anticipate moving a follow-on compound for the treatment of Alzheimer's disease into clinical development until after our Phase III studies of Flurizan are completed. Finally, we are studying two distinct classes of small molecule compounds that are potent inhibitors of novel anti-cancer agent targets. We are finalizing the choice of candidates for pre-clinical development programs, and I expect to be able to tell you more about them in the near future.

On a personal note, I would also -- I will also miss Jay. Drive safely, Jay. And thank you for your attention. I will now hand it back to Pete.

Thank you, Adrian. And I'll turn it back to the operator for the Q&A portion of the call.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Geoffrey Meacham with JPMorgan.

Hi, guys, this is Terry actually calling in for Jeff today. Congratulations on a great quarter and also congrats to Jay on a great career period. I'd just like to actually talk about -- or I was wondering if you could go back to a comment earlier. You said that there's a better than expected showing on TheraGuide 5-FU and I was wondering if you could expand on that a little bit.

Thank you. Yes. We've been very pleased with the launch of TheraGuide 5-FU. I think our sales team has done an outstanding job in discussing and conveying to physicians and clinicians the importance of the test. And based upon the in-house company projections, that test is doing remarkably well, and as I mentioned in my call, all five of our molecular diagnostic products experienced a substantial growth this quarter, and so we're very pleased with all of our products across the board.

Okay. Thanks. And then just another question on the gross margin. I guess we've seen consistent improvement over the last couple of quarters, and I was just wondering to what extent that improvement could be sustainable going forward, with the process improvements, et cetera.

As both Greg and Jay mentioned, we have made considerable improvements in the laboratory that has resulted in a gross profit increase from 82% in our June 30 quarter to 84% in this quarter. Likely said that our last conference call, we do believe these gross profit margins are sustainable, and the company anticipates that with future additions and laboratory improvements, we could see additional growth in the gross profit margin as well.

Okay. Great. Thanks a lot.

Your next question comes from the line of Ted Tenthoff with Piper Jeffrey.

Great. Thank you. Can you hear me okay?

Yes. Coming through loud and clear, Ted.

Okay. Good to hear. I would also like to wish my very best to Jay. It's been an absolute pleasure working with you and you've done a fantastic job communicating the story to us. Just real quickly, a little more detail on the predictive medicine business. I know you don't typically break out between tests, but is there a point where we're getting to where you can give us a little more color on the contribution from the newer tests, whether that's a growth rate, whether it's a kind of general percentage, just a little bit more detail there. And I know you had previously said that your goal was to initiate a new test, and that you probably wanted to do that next year due to the -- so that it doesn't interfere with the launch of the 5-FU test. Could you give us a little more color on how that test is proceeding, and when we may expect a launch?

Certainly, Ted. The company does intend to launch at least one new molecular diagnostic test each year. You correctly pointed out that we'd like to have at least six months between launch of products to make sure we've given the sales team adequate time to work with the physicians and make sure that we give a full and adequate launch for that test. We do intend to launch a sixth molecular diagnostic product in the first half of 2008, so probably in the spring of next year. We're very excited about the pipeline and as a future earnings conference call, we will be giving a little more color on the product pipeline at Myriad to give you a little better feel for the test, and that will be launching over the next three to four years. BRACAnalysis is our largest selling test. It's also the oldest test. There was the first test we launched. It comprises a majority of our sales. But Colaris is our fastest growing test, and I think the clinical utility of being able to prevent colon cancer in individuals who have a strong family history and a genetic predisposition to colon cancer is the primary reason that Colaris is our fastest growing test. But as I mentioned, we've seen dramatic growth, double digit growth across all of our five products and all five are important to Myriad in contributing both the top and the bottom line.

Great. That's helpful. Thanks.

Your next question comes from the line of Ashley Milanic with JMP Securities.

Good morning, folks. It's actually Charles calling in. Can you folks hear me?

Yes. You're loud and clear, Charles.

Excellent. First of all, I wanted to congratulate the team on a great quarter, and add my congratulations on a great career for you, Jay. I also had a couple of questions, one, on the PM business as well as one on the pipeline. The first on the PM business, could you give us a little additional color on how you define strong sample flow going in -- or the current momentum in sample flow as well as perhaps have Greg address whether or not your additional updated guidelines that could come out of ASCO and if you're getting any traction with the early or shallow -- or late or shallow adopters with those new SGO guideline?

Thanks, Charles. We're averaging well over 2,200 samples so far this quarter, and that's pretty strong, I think.

Okay. With regard to the guidelines that have been recently published, the SGO guidelines we believe are a very important event. They give strong guidance to OB-GYN physician to be looking for patients that have the hallmarks of the hereditary breast-ovarian cancer syndrome or the Lynch syndrome, the colorectal and uterine cancer syndrome. They give specific guidance to these individuals, and we are -- we are seeing a great deal of interest in these guidelines as they have just come out quite recently. In addition, these guidelines and others give organizations a chance to make their opinions known. ACOG, we believe, is an organization that will be publishing guidelines at some in the future. We don't know absolutely when, but there's no doubt as individuals in ACOG watch closely the activities of sister organizations and are likely to issue guidelines that are commensurate with those that are out there. So we think this is all very favorable.

That makes sense to me. Now if I could jump over to the drug side. Adrian, quick question with regard to the AD trials. Can you give us some sense as to how you might deal with some of the potential compounding variables that have been a challenge for other trials recently done, for example, changing medications or changing behaviors such as nutritional status or exercise over the course of the 12-month period of the trial?

Charles, certainly. We've certainly heard those comments suggested about the problem of doing an 18-month Alzheimer's trial. It's hard to know exactly what issues we're seeing in other trials, since they haven't actually been revealed to us or as far as I know, to anybody else. However, it did cause us to go back and look at the patients in our study and the medications that they're using or may have switched to. One of the things that we learned from the Phase II study was the great importance of educating our investigators and their staff about educating the patients with respect to compliance with the study. And we emphasized at the very beginning of the Phase III trials that patients should stay on their current medication, and if the physician was not certain that he would keep the patients on that medication, then they were not really suitable patients for the protocol. So we have actually gone back and looked very carefully at the data in our Phase III trials, and I know, for example, in the phase -- the U.S. Phase III where we have 1,684 patients who have actually only had two patients where there was a request made to change their medication. In fact, it was to switch from one cholinesterase inhibitor to a different cholinesterase inhibitor, which we would think would have no effect whatsoever on the outcome of the trial. Whatever problems we're seeing in other trials, we don't think we're having them in ours. One other issue, of course, is we know from our Phase II trial that the most -- least powerful outcome measure is A-COG because of the variance that you get within that trial, and that is exactly the reason that we have 1,600 patients in our study in order to take account of the loss of statistical power from the variance. And so that we've already anticipated. So we are not anticipating that that's going to be an issue for us.

As you mentioned, you have a very strong retention rate in this trial.

Yes. That's right. Well -- over 80% of the patients go on the open label, and the drop-out rates are significantly less than the 40%. So, with the statistical powers that we've been -- we've given out previously in the two trials will increase because of the lower drop-out rates.

Okay. Thanks for that added color. I'll jump back in the queue.

Your next question comes from the line of William Ho with BOA Securities.

Thanks, guys, for taking my call. Jim, welcome. Congratulations on the promotion, and, Jay, congratulations, and I hope you have a lot of fun and stay safe racing those cars. A couple of questions. One, is it possible for you to give us an update on the number of samples you are running per week?

Yes. As I mentioned we're running well over 2,200 samples so far this quarter compared to, if you remember back in the third quarter that we had, we averaged for the whole quarter about 1,850. And last quarter, we've had disclosed that we had 2,000 samples per week up through the time of the call, which is around six weeks' worth of data. So the fact that we're running well over 2,200 right now is, I think, a pretty strong sign for the quarter coming up, the quarter that we're in.

Great. And then a question for Greg and one for Adrian. Greg, can you please remind us about the position, the patents that you hold and what kind of protection that you have relative to other tests in particular with respect to BRACA.

The BRACAnalysis patents have very strong patent protection extending through 2016 and even protection beyond that, into the early 20s. We are working very hard to extend our patent protection as well as our database. We have a proprietary database. We can interpret the mutations that are found better than anyone in the world. We use that database very extensively to provide the best information, and that is a source of ongoing competitive advantage for the company as well.

What exactly does the patent protect? Does it protect anyone else from using the BRACA gene?

Yes. This is Pete. We have composition on the patent protection on both BRACA-1 and BRACA-2. We have patents on any mutation in the gene, any fragment of the gene, the protein encoded by the gene, and monoclonal antibodies that bind to the protein. We also have method of use patents for genetic predisposition for diagnostic and for guiding therapy. In all total, we have 22 issued U.S. patents covering BRACA-1 and BRACA-2, and as Greg mentioned, those patents would go out in I would say very strong patent position to about 2018, but we do have patents that go into the low 2020s. So I think the company has got a very strong intellectual property base around its tests.

Thank you. And then one for Adrian. Can you provide us with an update on, I guess, how you're going to approach the FDA towards disease modification and labels for the Flurizan?

Yes. I think we've seen a lot of speculation with respect to the Natural History Staggered Start analysis that we discussed in the last earnings conference call, and I think that I should start by saying that we don't see that there are two levels of label that we can get from the FDA. That is to say it's not a black and white situation where you have a symptomatic claim or a disease modifying claim. There's a range of language in between those from -- from the best I would say, which is Flurizan is a disease-modifying agent for the treatment of Alzheimer's disease to something like Flurizan slowed the clinical progression of the cognitive decline in Alzheimer's patients and various languages like that. All of which will be far superior in label use than the disease -- than the symptomatic labels that the current generations of drugs have. When we've talked to the FDA about the Natural History Staggered Start, something which they express great interest in, we were anticipating we might be able to move the label even further to the side toward disease modification to get the ultimate disease modification claim in the label. However, we don't actually believe that there's a huge advantage over something like slows the rate of clinical decline over 18 months, something which we have pressure tested with a number of physicians now, and all of whom understand that to mean that it's equivalent to disease modification. So that's kind of where we're looking at. We're looking at maybe we can slightly improve the label with another analysis. And just to update on that, we will be sending that analysis to the FDA probably within the next month for their comment.

Great, thank you.

Your next question comes from the line of Annabel Samimy with UBS.

Thanks for taking my call, and Jay, congratulations. We're all just a little bit jealous of you. I don't know about the race car driving, but definitely about the retirement part. So anyway, quick question. First, can you give us some idea about how much further growth you got this quarter from not your typical challenge, but the new challenge that you're moving into in the primary care setting or even from the new tests, how much traction are you getting there?

Yes. The addition of our sales reps to address OB-GYN physicians is starting to contribute significantly to our revenues. We see that OB-GYN reps become profitable every bit as fast or faster than the new oncology reps, and we believe that we are positioned very well to use that fact in the deployment of our expansion of the OB-GYN sales force. So we're starting to see revenues that are generated by those folks that are contributing to the growth that the company is exhibiting.

In the past, you guys have said that you had something like single digit penetration into that. Is that primary care setting, or into the (inaudible) population, do you have a better sense of the percentage you're penetrated now?

We're penetrated slightly more, because we've only been three months further along, but we are starting to see more and more interest in that group, and the number -- the number of new physicians that we add -- one of the things that we monitor closely is how many physicians are ordering our tests. Back in 2002, somewhere near 2,000 individuals were ordering our tests. Today more than 111,000 physicians are ordering our tests, and we continue to grow that number. One of the goals of the expansion is to get new physicians to identify patients in their practices. That number continues to mount.

Okay. And then just separately on TheraGuide 5-FU. I know you stated in the past that is a multivariable analysis, but is there any sort of chance that it could sort of fall into the same argument that you're making a prognostic claim about something and would the FDA ever have issue with that, that you can make a prognostic claim with TheraGuide 5-FU? Would that fall under some kind of category they would have to review?

We should all remember that the FDA has actually -- for (inaudible) the FDA has actually included a mention of 5-FU, of the analysis of the DPG gene for patients receiving this drug. So the FDA has already put this in some of the labels. The way that we characterize mutations is to say that people with mutations have a higher risk of experiencing toxicity, and that actually is an area that the FDA does allow people to opine on. We're not giving specific dosage recommendations. That would be beyond the claims of the product at this point in time.

I think it's important to understand, with a multivariant analysis test, those are a large panel of 20 or 40 or 50 genes, none of which may be actually disease causing or affect a patient's ability to tolerate a drug, but are through an association and through some sort of mathematical algorithm and software program linked to an outcome. All of Myriad's tests are actual disease causing genes or in the case of TheraGuide 5-FU, genes that affect the metabolism of the drug or are actual genes that the 5-FU drug targets. So these have a direct effect or indication on either the prediction of cancer or the prediction of an individual's toxicity to a particular drug. You don't need a mathematical algorithm or a piece of software. Any clinician can look at the raw data and quickly arrive at the correct answer or conclusion. And so this is clearly outside of the FDA guidelines, and it really is the software component of the other tests that the FDA so keen on regulating. So, no, we don't anticipate that any of our tests, including TheraGuide 5-FU would be subject to FDA approval here now or in the future.

Okay. Thanks for that. And just one more quick question, if I may. Based on some of the early evidence you're seeing of TheraGuide 5-FU, do you have any sense of when you might see an inflection point in that product, and when we can maybe look to your revenue line having more meaningful sales for that product?

With all products, when we introduce them, there's extensive physician education that takes place. We are first alerting physicians about the availability of the product. Physicians order the tests. They become more accustomed to interpreting the tests, and it takes time for them to -- to be able to use it extensively in their practices. We're very pleased with the progress thus far on the TheraGuide 5-FU product, and as we continue to educate physicians, there does come a time when you see an inflection point. At this point in time, we can't predict exactly when that will come, but we're making every effort to make it happen.

Okay. Thank you.

We have reached the end of the allotted time for Q&A. Gentlemen, do you have any closing remarks?

Well, I'd like to thank everyone for participating on the Myriad Genetics earnings call, and again conclude by giving Jay my thanks, and for 14 great years, and my best wishes for an exciting and fun future. And this does conclude then the earnings call for our September 30th, 2007 quarter. Thank you.

Thank you for participating in today's conference. You may now disconnect.