Myriad Genetics Inc (MYGN) 2009 Q2 法說會逐字稿

Ladies and Gentlemen, thank you for standing by. Welcome to the Myriad Genetics Second Quarter 2009 financial earnings results Conference Call. . (Operator Instructions). I would now like to turn the conference over to Mr. Peter Meldrum, President and CEO. Please go ahead,

Good Morning and welcome to the Myriad Genetics earnings call for the second fiscal quarter ending December 31, 2008. My name is Peter Meldrum, and I'm the President and Chief Executive Officer. I'm joined today by James Evans, 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. Evans who will discuss our financial results. Dr. Critchfield who will review the companies Molecular Diagnostics Business and Dr. Hobden will discuss Myriad's pharmaceutical drug development programs. At the end of the presentation I will turn the conference call over 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 Managements 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 Companies 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.

Myriad was formed with the goal of understanding the role that genes play in human disease and the vision to use this knowledge to change the practice of medicine by developing new molecular diagnostic products and best-in-class therapies. Over the years our two businesses have grown and flourished, but as these businesses have matured, it has become apparent that the needs of our profitable rapidly growing diagnostic business differs significantly from those of our research and development stage pharmaceutical business. As a result, the Management and Board of Directors have addressed this issue by announcing last October that we will spinoff the pharmaceutical business from the parent molecular diagnostic Company, to create two highly focused, well capitalized independent publicly traded companies. I'm pleased to report that we are proceeding on schedule with the implementation of this spinoff and we believe that it will be completed during the second calendar quarter this year.

In order to effect the spinoff the Board of Directors of Myriad Genetics will declare a dividend payable to our shareholders in the form of stock in Myriad Pharmaceuticals, Inc. For each share of Myriad Genetics stock our shareholders will receive an additional one half share in Myriad Pharmaceuticals. Myriad Genetics, Inc. will not retain any ownership position in the new pharmaceutical company. It is anticipated that this stock distribution will be tax-free to both our shareholders and the Company. Importantly, shares in the new pharmaceutical Company will be immediately and freely tradeable by our shareholders on NASDAQ. We also believe that following the spinoff transaction, the parent diagnostic company will retain a majority of our consolidated R & D tax credits and net operating loss carry-forwards, which approximate $400 million in offsets to our future taxable income.

Myriad is a team of compassionate, hard working, talented individuals dedicated to saving lives, improving patient healthcare, and lowering the overall healthcare costs. Our employees are also committed to insuring that Myriad maintains its leadership position in this exciting new molecular diagnostic field. So it gives me great pleasure to report that for our Second Quarter of Fiscal 2009, we achieved a record net profit of $21.2 million or $0.43 per share fully diluted earnings per share. These results compare favorably with a loss of $5 million and a loss per share of $0.11 in the same period a year ago. The severe economic recession that currently grips the country appears to be affecting most companies but not Myriad. For the three-month period ending December 31, 2008, our product revenues rose to $84 million from $53.1 million in the same three-month period of the prior year. This 58% product revenue growth resulted primarily from an increase in the company's sales and marketing efforts, including the expansion of the company's women's health sales force to 100 sales representatives, our direct-to-consumer marketing campaign and other activities.

I'm also pleased to report that through the month of January, we have continued to see strong demand for our products and have yet to experience any negative impact as a result of the current severe recession. We remain confident that our molecular diagnostic business will exceed the consensus revenue projection of $325 million for fiscal 2009. As Greg will discuss in more detail, Myriad successfully launched its sixth molecular diagnostic product, Prezeon in December. Prezeon is based on the PTEN gene, a critically important anti-oncogenic gene that was discovered by Myriad and our collaborators at M. D. Anderson Cancer Center. PTEN has been associated with aggressive disease progression and poor survival in lung cancer, breast cancer, and leukemia, and has been shown to increase the immune resistance of glioblastoma tumors. In prostate cancer the gene is also linked with disease progression and the onset of androgen independent tumor growth. PTEN is a key regulator of cell signaling pathways that are the target of several classes of pharmaceutical drugs and as a result correlates with patient response to such drugs as Urbitux, Tarceva, Doxorubicen, and the taxanes. Obviously we are very excited about the future of Prezeon. Finally, I am pleased to report that we are on schedule to launch our seventh molecular diagnostic product this Summer.

I believe this quarters accomplishments underscore the strength of Myriad's position in this exciting new field of molecular biology. We were an early pioneer in this field and our goal is to become the dominant player in predictive medicine, prognostic medicine, and personalized medicine. Now it is my pleasure to turn the call over to our CFO, Jim Evans.

Thank you, Pete. It is my pleasure to present a more detailed look at Myriad's financial results for our second fiscal quarter ended December 31, 2008. Myriad's total revenues for the quarter were a record $84.4 million as compared to $56.7 million for the same period of the prior year. This significant growth can be traced directly to the 58% increase year-over-year of molecular diagnostic revenues. As Pete mentioned, molecular diagnostic revenues for the quarter were $84 million which is an increase of $30.9 million over the same quarter of our previous fiscal year and a 20% growth over the quarter ended September 30, 2008. We can attribute this strong growth in the fourth calendar quarter to a number of factors, including the 50 person increase in our OB-GYN sales force that took place in our first fiscal quarter, the initial returns from our direct-to-consumer campaign in the south, patients having met their insurance deductibles for the year, patients having money set alive in a 125c cafeteria plan that needed to be used on medical expenses by year end. Finally what we see as the biggest driver, an overall increase in the acceptance of the importance of Myriad's tests in managing patient care decisions. Actual product revenues of $84 million for the second fiscal quarter comfortably exceeded the average analyst projection of $75.1 million. We again experienced improvements to our gross profit margins that have now climbed to 87%. We continue to see efficiencies in our laboratory processes, together with the ongoing implementation of recent price increases. We believe that these current margin levels are sustainable.

Net operating margins for the molecular diagnostics segment increased to an impressive 51% for the quarter ended December 31, 2008. This result was possible even with a spend of $2.8 million during the second fiscal quarter on the Southern DTC campaign. Research and Development expenses for the second fiscal quarter ended December 31, 2008, were $20 million compared to $17.1 million in the previous quarter ended September 30, 2008, and $27.3 million in the same quarter of the prior year-ended December 31, 2007. The year-over-year reduction in Research and Development expense was directly a result of Myriad's discontinuation of our Alzheimers drug development program while the 16% increase over the first fiscal quarter reflects added expenses as we advance our lead drug candidates through clinical trials. We continue to invest in developing new molecular diagnostic products and in the advancement of our drug pipeline.

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

Selling, general and Administrative expenses for the quarter ended December 31, 2008 were $35.6 million compared to $30.5 million for the quarter ended December 31, 2007. The increase over the prior year quarter was primarily attributable to the increased number of sales reps in the field and the costs associated with Myriad's explosive revenue growth. SG&A line items that are directly tied to sales growth include sales commissions and bad debt expense. We expect our selling, general and administrative expenses will continue to fluctuate depending on a variety of factors including the number and scope of new product launches, growth in molecular diagnostic revenue, expenses related to the spinoff of Myriad Pharmaceuticals, Inc, and future non-cash stock option expense. The result of all this as Pete previously discussed is that our net income for the quarter ended December 31, 2008, improved to $21.2 million or $0.43 per share fully diluted. Net income of $21.2 million well exceeded the Thompson First Call consensus income of $16 million.

Taking a look at the Balance Sheet, cash, cash equivalents and marketable investment securities continued to be very robust. As of December 31, 2008, Myriad's cash, cash equivalents and marketable investment securities were $497 million, as compared to $443 million as of September 30, 2008. Our accounts receivable are of a high quality and reimbursement continues to be strong with our average day sales outstanding dropping to just 45 days.

Before concluding, I am pleased to give a report on our analysis of the sustainability of the end roads we were able to achieve as a result of our DTC campaign in the Northeast. In performing our analysis, we first projected using past trends in the Northeast as well as growth rates in the other regions of the country our best estimate of what the revenues in the Northeast would have been without a DTC campaign. We then compared actual activity in the Northeast to this baseline number to determine incremental revenue for the target region. The profit contribution stream from these incremental revenues was determined and return on our $8 million investment for the DTC campaign was calculated. While we found that the Northeast region as a whole experienced significant incremental revenue, we noted that the New York/New Jersey areas comprising a majority of individuals in the campaign region, enjoy dramatic growth during the campaign with an ROI well in excess of our double digit hurdle rate and have seen very little degradation of incremental revenue since the conclusion of the campaign. These results are consistent with the objective of the campaign to convert Physicians into repeat prescribers of Myriad's tests, even after the advertisements stop. From our analysis of the numbers it appears the DTC campaign is an effective, cost efficient marketing tool for our molecular diagnostic products.

Now to conclude it is my pleasure to state that Myriad has absolutely no debt and no convertible securities and that the weighted average number of shares outstanding at December 31, 2008 was a modest 46.6 million shares or 48.9 million fully diluted shares. With that I will now turn the call over to Dr. Gregory Critchfield.

Thank you, Jim. It's a great pleasure to speak with you today about our molecular diagnostics business, as Pete and Jim mentioned, our fiscal '09 second quarter molecular diagnostic revenues were $84 million, a new record representing a 20% quarter to quarter increase and a 58% increase over the same quarters revenues last year. The operating margin of our molecular diagnostics segment for quarter two, fiscal year '09 was a record 51%. This growth is evidence of our strategy to increase the penetration in the oncology market, expand further into women's health market segment, and develop new molecular diagnostic products. We continue to make good progress in all these areas.

One of the factors contributing to the growth is our ongoing DTC campaign. The campaign has the goal of convincing physicians of the need to routinely identify patients in their practices that benefit from molecular diagnostic testing. Jim mentioned the positive ROI in the analysis of the DTC campaign that Myriad launched in the Northeast more than a year ago. We've built on information from the Northeast experience in designing the campaign in Texas and Florida where the consumer DTC phase was launched in September 2008. In some campaign areas, physician practice groups and other healthcare delivery systems are conducting their own independent advertising following Myriad's ads to let consumers know where they could have their hereditary cancer risk evaluated. To date we are seeing a positive impact on revenues from both Florida and Texas. Because it will take several months to see the full impact of the campaign, we will conduct a formal ROI analysis for the south as we have done for the northeast.

Given the positive results of both DTC campaigns in the northeast and the south, I am pleased to announce that Myriad plans on launching a third campaign of similar size in the midwest region. The Physician education phase of the campaign will take place this spring with the DTC phase launching in September 2009. We have discussed the large market potential for our current molecular diagnostic products, approximately $1.4 billion per year, and the fact that our current products make a real difference in what physicians do for patients. We are excited about the further growth of our business from these current products.

During the previous conference call, we outlined some important statistics regarding insurance reimbursement for our products. 96% of our molecular diagnostic revenues were paid by third party payers, the average out of pocket patient co-pay was a modest $54.45. This excellent reimbursement, coupled with the value of our products provides the physicians and their patients, explains the very strong growth in our business in todays challenging economy. To further grow our business, Myriad must also aggressively pursue new product development and commercialization. In December 2008, we announced the launch of Myriad's sixth molecular diagnostic test, Prezeon. Normal and tumor cells use activated protein pathways to send signals that control biochemical events that are involved in growth, differentiation, proliferation and survival of cells. In the Prezeon test we analyzed the expression of PTEN, an important gene discovered by Myriad in collaboration with researchers at M. D. Anderson Cancer Center. Myriad holds four U.S. patents on the PTEN gene, protein and antibodies and methods for commercial clinical testing.

The importance of PTEN is indicated by several lines of evidence. First, PTEN aberrations has been shown to cause rare inherited cancer syndromes resulting in breast, thyroid and endometrial cancer. Second, lots of PTEN function from non-hereditary mutations occurring in tumor tissue have been found in a large number of cancers including colon, lung, breast, ovary, prostrate, melanoma and endometrial, bladder and lymphatic cancers. Third, a large number of reports in the literature have indicated important correlations of PTEN status with disease progression and androgen independent response in prostrate cancer, resistance to Herceptin in HER2 -positive breast cancer, the response of tumors to mTOR inhibitors, prognosis independent of drug response in breast cancer, response to EGFR inhibitors in glioblastoma, Herbotex (ph) response in colorectal cancer and aggressive disease in lung cancer among a large number of others.

Clearly, the literature strongly illustrates that PTEN is a key element in cancer progression and that the assessment of PTEN is a very promising area for guiding cancer treatment. Myriad's Prezeon provides a means to assess PTEN status, a significant step forward in this exciting direction. Clinical evidence continues to be published on the utility of hereditary cancer testing. Grenadier, et al (ph) conducted an evidence-based approach on the value of MRI and mammography surveillance in BRCA mutation carriers and I quote, " The data support an essential role for screening MRI in women with increased risk for breast cancer. " With regard to Colaris's testing for hereditary colon and uterine cancer, a very recent publication by the CDC, E-gap working group at the evaluation of genomic application in practice and prevention found strong evidence to recommend offering testing to all individuals with newly diagnosed colorectal cancer to reduce morbidity and mortality in relatives. This implies that every colon cancer patient needs to be tested for hereditary cancer risks. Recently, South, et al (ph) concluded that hereditary colon cancer should be considered when evaluating patients with suspected hereditary ovarian cancer who have had negative BRCA mutation testing given their high remaining risk of ovarian cancer, illustrating the importance of both BRACAnalysis and COLARIS testing.

To summarize, clinical and scientific data continue to strongly support the role of our products in managing a patient's healthcare. Our molecular diagnostics product make a significant difference in helping to achieve better outcomes and lowering healthcare costs. We look forward to future growth of our current products and launching new innovative products that make a difference for patients. We are pleased to be helping more individuals as our business continues to grow. Thank you. I would like now to pass the microphone to Dr. Adrian Hobden.

Thank you, Greg and good morning. Recently, we announced the acquisition of Bevirimat from Panacos Pharmaceuticals. Bevirimat, which is the non-proprietary name for this molecule and not a trade name is scheduled to enter Phase 2b testing for the treatment of HIV infection later this year. Following the experimental medicine naming conventions of Myriad Pharmaceuticals, we have recently given the compound the code MPC-4326.

In exchange for the payment of $7 million, Myriad received all the IP covering Bevirimat, all of the pre-clinical and clinical data, the regulatory filings, all of the active pharmaceutical ingredients for its tablet formulation and finally, the 100-milligram tablets and placebo tablets that had been manufactured for the Phase 2b study. Myriad has no further obligations to Panacos, including no milestones, no royalties, no success fees and no payments, should we partner the program in the future. The clinical data on this maturation inhibitor is outstanding and bodes well for the potential success of this experimental medicine; however, as many people are aware, Bevirimat has presented several challenges in development.

I'm excited to announce that we believe those challenges have been overcome, and the future of this molecule looks very promising. Two major challenges with this molecule have been identified. The first dealt with the physical properties and formulation of Bevirimat. The molecule has a tendency to aggregate unless formulated with an excipient which prevents this aggregation. It took a long time to identify the correct mixture of excipients, and as a result early studies were complicated by variable patient to patient bio-availability and loss of oral bio-availability with time. Identification of an acceptable tablet formulation was particularly challenging for this reason. Recently, however, a 100-milligram tablet has been designed which has excellent dissolution characteristics and very good bio-availability with little patient- to- patient variability. We believe that these tablets appear suitable for commercial use.

The second challenge was that while the majority of patients showed excellent viral load reduction following treatment with the Bevirimat, a minority of patients did not have their viral load reduced by Bevirimat. The reason for this lack of response has now been a elucidated. About 30-35% of HIV positive patients are infected with genetic variance of HIV which have specific polymorphisms which make them naturally resistant to Bevirimat. These variants have now been identified and we anticipate that a simple and inexpensive companion diagnostic will be used in order to identify these patients. Thus, we expect to be able to reduce the size of our clinical trials by concentrating the studies on these 65-70% of patients without the polymorphisms who would likely be responders. It is current standard of practice in treatment of HIV patients to do viral genotyping for drug sensitivity prior to prescribing an HIV drug regime, so we do not expect this type of test to be an issue with physicians or patients. We believe that the two major concerns with Bevirimat have been solved and we see great potential with this experimental medicine.

Bevirimat has been tested in approximately 650 patients and appears to be very well tolerated since there were few adverse events. The adverse events were primarily GI, and were mild transitory in nature. Several Phase II studies have explored daily dosing with Bevirimat for two weeks. These studies have revealed significant reductions in viral load regardless of whether the patients were treatment naive or treatment experienced. Indeed, Bevirimat appears to work effectively against reverse transcriptate (ph) and protease resistant strains of HIV . In a follow on to one of the Phase II studies, four patients have continued in an open label extension for between three and six months. All four patients have undetectable viral loads.

There are a number of other advantages to Bevirimat. It has a low probability for causing drug-drug interactions,since it is not a sub-straight for people metabolizing enzymes. This is of particular importance given the polypharmacy that is currently associated with the treatment of HIV infections. All the long term toxicity and genetic toxicity studies have been performed without any findings of note. And finally, Myriad Pharmaceuticals has a proprioritary process for the manufacture of Bevirimat which enables the production of large quantities of API inexpensively. In final commercial production, we believe that the margins on this product will be in accordance with industry standards for small molecule drugs. We will utilize Myriad manufactured API for the Phase III studies, but are using existing supplies for the Phase 2b.

In future earnings calls, I will brief you on our progress with other clinical programs in Myriad Pharmaceuticals; however, I can confirm that the trials for Azixa are proceeding well. We do not yet have sufficient data to be able to talk about survival of patients in the studies; however I am pleased to say that we have been able to see some tumor shrinkage in patients which has been accompanied by improvements in the patients symptoms. For example, one patient who has had several rounds of treatment with Azixa has seen his tumor shrink. He is not only able to walk again but has gone back to his job as a general contractor. We expect to submit an IND this spring for an exciting anti-cancer molecule MPC-3100 and I will provide a complete update on this molecule at the next earnings conference call.

Thank you for your attention. I'll now hand the call back to

Thank you, Adrian and I'll turn it back to the Operator for the question and answer portion of the call.

Thank you. Ladies and Gentlemen, (Operator Instructions). Our first question comes from the line of Charles Duncan of JMP Securities. Please proceed with your question.

Hi, guys. Good morning and congratulations on a very good quarter. My question is regarding perhaps the breadth of potential use of BRACAnalysis. If you look at some of the recent literature suggest that BRCA mutations may convey therapeutic benefit or prognostic intervention beyond breast cancer including perhaps prostate cancer. Do you have a sense of the timing of some of the clinical data that could come out including that from the PARP inhibitor studies that could help us better understand the breadth of utility for BRCAnalysis, Pete?

Thank you, Charles. You're absolutely correct. In addition to being the major causes of hereditary cancer, the BRCA 1 and BRCA 2 genes have been linked to pancreatic cancer and prostate cancer and colon cancer. We're very excited about these findings and the Company is certainly going to pursue those in the future. You also pointed out that we do have a collaboration with AstraZeneca to stratify their patient population for their clinical trials for PARP inhibitors. Being DNA repair genes, the BRCA-1 and BRCA-2 function when it's lost, makes the tumors particularly susceptible to DNA damaging agents like the PARP inhibitors and we're very excited about the potential of BRCAnalysis becoming a companion diagnostic. So while we continue to exploit our existing markets in breast and ovarian cancer, I think the future looks very good for BRCAnalysis to expand to other applications of both personalized medicine and predictive medicine in other types of cancers.

Thanks, Pete.

Our next question comes from the line of Ted Pentoff of Piper Jaffrey.

Great. Thank you very much and congratulations on really a phenomenal quarter. Digging in a little bit on to the performance in this quarter, can you give us a sense of what or how much of this was benefit from the DTC campaign, how much of this was still continued strength through the Northeast, that analysis on the last direct-to-consumer ad campaign was very helpful, how much of this was growth from some of the other tests beyond BRCA? Give us a little bit more color on what lead to this really record growth?

Thank you, Ted. All of the items you mentioned of course contributed to the 58% revenue growth this past quarter. The largest contributor was related to growth in all regions across the country, so while the direct-to-consumer campaign definitely benefited, it's important to remember that the Northeast campaign which last year saw a 78% growth in new physician customers, and as Jim has mentioned we've been able to sustain that customer base substantially through this past year since the campaign ended. This represents only about 12% of our total revenue base, so the majority of the growth really has occurred throughout the country and represents growth across all five of our current product lines, leaving out of course Prezeon which was just launched in December.

So we've seen a very positive response from all of our products and very strong growth through all of the products that the Company offers. We've also seen particularly strong growth in the South region which represents about 18% of our revenue base as a result of the current direct-to-consumer Marketing campaign there. I think as Greg pointed out, the better than anticipated growth in the South, in part is probably due to the companion ads being run by the major breast cancer centers and OB-GYN clinics in combination with Myriad's ads. We're seeing very strong contribution from all of the factors that you mentioned.

Great. That's very helpful and maybe just as a quick follow-up, do you get the sense if there might have been any pull through or pull forward from the March quarter where physicians wanted to take advantage of something before year-end or do you get any sense on f whether or not there may have been any pull forward from March?

As we mentioned in January, we've seen very strong sample growth, so we haven't yet identified any negative impact of the current recession on the Company. Now, it is important to note that our second fiscal quarter which ends December 31 is historically one of our strongest quarters and that is because it's the end of the year and people have met their deductibles. They tend to have medical procedures at that time and for any employees who have a cafeteria plan, again, at the end of the year, they use the money they've set aside in that plan. We certainly see a lot of year-end positive impact on our revenues but we don't see any acceleration of revenues that would typically occur in the March 31 quarter being pushed into the December 31 quarter. We're seeing right now very strong third fiscal quarter as well.

That's fantastic. Keep up the great work. Thanks.

Thank you, Ted.

Our next question comes from the line of Michael Yee of RBC Capital Markets. Please proceed with your question.

Great, thanks. Congratulations on a good quarter as well. A couple questions on the DTC. Can you characterize the growth rates that you're seeing with the order flow in the Northeast and how does that compare with what you're seeing in the south and how does the launch in the South compare with what you saw in the Northeast when the Northeast launched?

Thank you, Michael. The launch in the South particularly in the states of Texas and Florida compare very favorably to what we saw in the Northeast. As Greg mentioned, New Jersey and New York in particular were extremely strong in the Northeast and Texas and Florida are much more New York, New Jersey-like. We're very pleased with the initial launch in the South and the initial returns and are going to watch it very closely to see if we have the same sustainability that we've been able to achieve in the Northeast. Of course as we mentioned, that is the key to a successful direct-to-consumer Marketing campaign, because we want to have continued benefit even after the ads stop running.

When you think about the other regions, are you seeing sales from the OB-GYN's in other regions outside of where you've done DTC and if so how much. And then when you're going to the Midwest, how much, of what, percent of revenues does that region represent?

We're definitely seeing strong sales from the OB-GYN group outside of the DTC campaign regions. As we mentioned we now have 100 sales reps on the ground calling specifically on women's health physicians primarily OB-GYN's. This has been a very strong sales force. We've mentioned in the past that a new sales rep in the OB-GYN area comes up to speed every bit as fast as a sales rep in the oncology area, so it's been a very strong positive impact. The Midwest region represents about 12% to 13% of our total revenue base, so we will launch that direct-to-consumer campaign next September, 2009, and once that campaign is under way, we will have launch campaigns in approximately 45% of the total revenue base of the Company.

And just a quick financial question. Have you had any sort of update on feedback from the IRS and discussions there regarding NOL's is it a majority of the NOLs or do you think you can take all of the NOLs to diagnostics?

Mike, we haven't had an update yet from the IRS. We have made an initial request for their impressions, we're actually going back with a formal letter to ask for their thoughts on the way we're structuring the spinoff and to confirm that it will be a tax free transaction as well as being able to retain those NOLs. In consultation with our Advisors, they currently are very optimistic that we will be able to retain the NOLs and the R & D tax credits but obviously, it will be up to the final determination of the IRS as to which way that will go.

Okay, great. Thanks. Thanks, guys.

Our next question comes from the line of Ian Sanderson of Cowen & Co. Please proceed with your question.

Good morning. Thanks for taking the question and congratulations on a terrific quarter. Have you provided some guidance on how much of the cash will be spun off to Myriad Pharmaceuticals. Secondly in a follow-up to the previous question, do you have an idea of what percent of the BRCA prescriptions are being written OB/GYN's at this point on a national basis. Third, you referenced $2.8 million of spending on the Southern DTC campaign in the December quarter and should we assume that that campaign is also going to run around $8 million by the time it's complete in March?

Thank you, Ian. Yes, even though the South campaign represents an 18% of our revenue base compared to the Northeast of 12%, it will cost roughly the same as the Northeast campaign which is $8 million. Given the current recession and the fact that the airtime in Florida time and Texas is less expensive than the New York/Boston area, that campaign should come in just slightly under the Northeast campaign.

With regards to break down between our OB-GYN and oncology sales forces, there's no question that the largest market potential and the greatest utility of our products are for women and men who have a hereditary predisposition to cancer, a family history of cancer but don't yet have the disease, so our focus on the women's healthcare sales force really represents a huge opportunity for the Company; however Oncologists tend to be earlier adopters so at the present time about 20% of our total revenues come from the OB-GYN sector and about 80% of our total revenues come from the oncology sector but again with the greatest potential and the most rapid uptake currently occurring in the OB-GYN area.

Finally, with regards to the spinoff of Myriad Pharmaceuticals, it is anticipated that and our goal is to give enough cash to Myriad Pharmaceuticals to allow them to complete the clinical and regulatory development of their two lead compounds, Azixa and Vivecon without having to go back to the market and raise more money. The Board right now is in the process of analyzing the data and projections for the spinoff Myriad Pharmaceuticals but we have stated in the past that we anticipate that the amount of cash that would be given to Myriad Pharmaceuticals is between $150 and $200 million. We currently have approximately $500 million in cash so that would leave between $300 and $350 million back with the diagnostic Company.

Thank you very much.

Our next question comes from the line of Kevin De Geeter of Oppenheimer. Please proceed with your question.

Yes good morning. I want to add my congratulations on a very strong quarter here. Most of my questions have been answered but perhaps a bit more granularity. Can you just give us a sense as to what the strategy is for example, in the Northeast and what the P & L impact, if there is any, will be in terms of follow-on to a DTC campaign and should we think about the cost functions largely rolling from sort of region to region or will there be built in kind of incremental impact to that sales and marketing due to follow-on activities.

I think it's appropriate to view this as rolling from region to region. The whole strategy around our direct-to-consumer marketing campaign is to not necessarily drive women to the physician as long as the ads are running, but to really focus on building our customer base and our customer is the physician, not the patient. We do not do any tests at Myriad without a physician prescription, so we use the direct-to-consumer campaign to get into the OB-GYN in the direct to physician portion of the campaign, convince them of the benefit and utility of the test, and then the campaign itself creates demand with women asking for the test with their OB-GYN. Hopefully reinforcing the value and utility of the test. If we've been successful with that strategy, once a physician is won over as a customer, that physician should continue to use the test in his or her practice for the rest of the life of the practice.

Any time a woman comes in for an annual physical, the physician should think to ask about her family history for cancers. So if the campaign is successful as I mentioned in the Northeast, we saw over 70% increase in new physician customers. If the campaign is successful, we should retain those and we should not have to go back to the Northeast with additional advertising and direct-to-consumer campaigns so I really think you'll see this roll from region to region once we build the region. Of course we will continue to grow the sales force and put additional salespeople on board. We wouldn't go back, for example, with BRCAnalysis and do another DTC campaign in the Northeast region. We certainly may see Colaris or some of the other products have their own DTC campaigns in the future but we wouldn't go back with the same BRCA ads, but instead we go to a new region.

Terrific, thank you and one follow-up question if I may. You provided the average or the median co-pay on BRCA analysis at a little North of $54.00. This seems to be an interesting point with our clients. Can you just give us a sense of what portion of folks have a co-pay of say more than $100 if we cut the threshold a bit differently? I'm trying to understand the range in the outliers there.

Well as Greg mentioned, 96% of our revenues in the September 30 quarter were paid by insurance so roughly 96% of our folks have insurance coverage. Of the 4% that was paid by private individuals, the majority of that was the co-pay but some individuals do order the test. There are individuals who do not have a strong family history that would not qualify for insurance reimbursement. And there are some individuals who do not have insurance and pay for the tests out of pocket but that is a tiny tiny minority. The vast majority of over 96% are paid by insurance. I think that it's also important to note that Myriad has a medical reimbursement assistance program where if an individual lacks insurance and can't afford the tests, we do offer BRACAnalysis testing at no cost to the patient for those individuals that need that assistance but there's no question that 98% I would guess or even greater of the individuals who have the test are paid by insurance.

Terrific. Thank you so much.

Our next question comes from the line of Hahn Lee of Stanford Group.

Yes, good morning. A couple questions. One on the DTC. What's your decision process in determining which territory, you go to, like in the next one you'll be at Midwest, why not California West Coast?

Thank you, Hahn. Obviously, we're looking at a number of regions when we look at a direct-to-consumer campaign and there are a number of factors that go into looking at which region we move into next. One is the strength of the insurance coverage and the types of physician groups that occur in the region. A second factor we look at is how many OB-GYN sales reps do we have on board in the region and how long have they been in the region. Obviously the greater number of sales reps who have been on a longer period of time as we saw in New York and New Jersey, we saw much better results than for those areas that maybe are newer, so there is a variety of things that we look at when we investigate regions for direct-to-consumer Marketing. The West Coast California region is an important region for us. I think that will definitely be one that we'll look at in the future but given the factors that we study, we felt that the timing was right for the Midwest as our next DTC campaign region.

I see, on the price of BRCA, any price increase or price adjustments?

The BRACAnalysis test sells for $3120 and there have not been any recent price adjustments to that number.

Okay. And you plan to stay that way?

The Company does have price increases about every 18 months or so and so our last price increase was September of 2008, so we wouldn't anticipate another price increase probably until Spring of 2010.

I see. And quickly on the spinoff in the form of stock dividend. Can you remind us of what's the ratio of the dividend?

Yes. It is a stock dividend. It will be declared by the Board of Directors at an appropriate time and a record date for the shareholders that own the stock will be determined. The ratio is one half share of Myriad Pharmaceuticals will be given to each shareholder of record on the record date for each one share of Myriad Genetics so if you had 10,000 shares of Myriad Genetics you'd receive 5,000 shares of Myriad Pharmaceuticals and we do anticipate that that would be a tax-free spinoff and the dividend would not be taxable to the shareholder.

Okay, so the shares outstanding for the new entity of the pharmaceutical part will half of the current share outstanding?

Yes. That's exactly correct. We do anticipate that the total number of shares outstanding for Myriad Pharmaceuticals will be about 23 million and Myriad Genetics currently has approximately 46 million.

Okay, and we expect that transaction to complete in the next quarter?

Yes. We anticipate it to be completed before June 30th of our current Fiscal Year.

Thank you very much.

Thank you, Hahn.

Our next question comes from the line of Jeff Meacham of JP Morgan. Please proceed with your question.

Hi, guys, congrats' on a great quarter. Jim I'm not sure if you covered this but can you give us the percent of R&D and SG&A spend attributable to the pharma business during the quarter?

No, we didn't break that out specifically. I can tell you as we have talked about historically that on the R & D side, we anticipate that the molecular diagnostics side of the business is going to spend about $20 million in the year and they are on target to do that, so I guess the excess above the $5 million that would have been for the molecular diagnostics side would have been associated with the drug development Research and Development for the quarter. For the SG&A, the bulk of that is going to be associated with molecular diagnostics. Obviously all of the selling and marketing efforts are theirs. There's a little bit of the G & A that's associated with the pharmaceutical side of the business but that is a small percentage, the bulk of it is the parent company and the diagnostics.

And just to follow-up on the predictive medicine business. What's your sense about any formal guidelines from say ACOG or other groups that could come potentially in the near term? I know we've been talking about ACOG for maybe a year or two.

Yes, great question. ACOG is a professional organization that does tend to move cautiously and a little slowly. We are working with the folks at ACOG to establish stronger guidelines for genetic predisposition testing. We were pleased to note though that SGO, the Society of Gynecologic Oncologists adopted very strong guidelines not only supporting the BRCAnalysis test for breast and ovarian cancer pre-disposition testing but also very strong guidelines for Colaris, in colon cancer, uterine cancer predisposition testing. Typically ACOG does follow the SGO lead and so we are optimistic that down the road we will see better guidelines from our friends at ACOG.

Okay, thank-you

Our next question comes from the line of Alastair Mackay of Garp Research.

Yes, a question about Prezeon. I wonder if you could mention the price that it's being sold at and if you could talk a little bit about how the test is run? In other words, is it a test where normal tissue is sampled or where tumor tissue is sampled and is it a test where the sequence is run and looked; and if it is a sequencing test how many kilo bases of sequence go into the analysis? ,

Thank you, Alastair. The test does sell for $500.00 Unlike our other tests which are full sequence analysis of the gene, this is actually an immuno histo chemistry test based upon the antibody that binds to the PTEN gene. So it is a quicker, less expensive test than the other products we offer that are full sequence based tests. So even at the $500.00, it has very attractive gross profit margin potential, and generally we work with the tumor tissue from the patients.

Okay, thanks. And then a question about Bevirimat. You mentioned about 30%to 35% of patients have a a genotype that is non-responsive to Bevirimat. Is there a concern with the remaining 60% or 70% where because of the genomic instability of HIV that often these types, patients will develop that sort of resistance and response to Bevirimat therapy?

The virus is very prone to mutations and if you look at the sequences of HIV in the genetic databases and there's a lot of sequences in the genetic databases now, you'll see polymorphisms throughout the entire HIV virus. The intriguing thing is that the mutations that lead to resistance to Bevirimat seem to be naturally occurring polymorphisms that possibly have more to do with immunological response than with the drug, and the actual region that the drug binds to on the virus and which leads to this where the resistance occurs is actually fairly genetically stable suggesting that there are immunological reasons why the virus cannot have many genetic variance. To date, we have not been able to see any mutations arising in the virus which can be directly attributed to the treatment with the drug. That doesn't mean to say that we won't see those in the future but we certainly don't have any reason to think that viral resistance is going to be rapidly evolving to this drug, unlike for example, in the non-nuke Leo site of the inhibitors where it happens within a couple weeks of treatment so we're actually relatively optimistic that we'll be staying in the 65-70% of patients responsive to this drug and that the drug will have long term effect on the patients without resistance arising.

Great. Just to clarify, when you say we, you're referring to Myriad and Panacos' experience?

Clearly we're using their data but analyzing it internally in Myriad and have analyzed it in great detail, yes.

Okay, great. Thanks.

Our next question comes from the line of Lucy Lu Please proceed with your question.

Great, thank you, congratulations as well. I guess on the diagnostic side, it sounds like the physicians of the drivers of BRCA sales after DTC campaign. I'm just wondering can you comment on the reimbursement side? Do third party payers require pre-approval and only provide reimbursement if a patient needs the guidelines or do reimbursement like for other lab tests which mean patients only have to pay a co-pay. Thanks.

This is Greg. The majority of patients meet the guidelines and Companies reimburse the guidelines. There are very few insurers that have pre-authorization required. Most of them understand that physicians are following professional society guidelines of which there are many and those selection criteria are what are used to determine who is an appropriate candidate for genetic testing and the Companies follow suit and do reimburse to those. How about for your other tests for Colaris? It's a very similar situation. Again, professional societies have issued guidelines. Pete mentioned the SGO guidelines that were issued covering both BRCAnalysis and Colaris. These kind of guidelines are read by practicing physicians. They serve as guidance for them to know how to identify patients and the criteria that are articulated in the guidelines are the ones that companies reimburse to. Again very few companies require pre-authorization. Many of them are moving away from it because of the expense and as they do reviews, their conclusion is that physicians are appropriately identifying patients and there for, they oftentimes will drop the pre-authorization requirements.

Great. Thank you.

We have reached the end of the time allotted. Mr. Meldrum, I'll now turn the call back over to you.

Thank you and I would like to thank everybody on the call for participating on Myriad's second fiscal quarter ending December 31 earnings conference call and this does conclude our Conference Call. Again, thank you.

Ladies and Gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.