Myriad Genetics Inc (MYGN) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics, Inc. fiscal 2010 financial results conference call. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded Tuesday, August 10th, 2010. I would now like to turn the conference over to Peter Meldrum, President and Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon and welcome to the Myriad Genetics earnings call for our fourth fiscal quarter and year ended June 30, 2010.

My name is Peter Meldrum, and I'm the President and Chief Executive Officer. I am joined today by Jim Evans, our Chief Financial Officer, Mark Capone, President of Myriad Genetic Laboratories, and I am pleased to introduce our newest member of the Myriad management team, Gary King, our Executive Vice President of International Operations. I will begin the discussion this afternoon with a brief review of the past quarter, and will be followed by Jim Evans who will discuss our financial results. Mark Capone will review the company's molecular diagnostic business, and Gary King will conclude our formal presentation with an update on our European strategy. At the end of his presentation, I will turn the conference call back 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 management's current expectations and the actual events or results may differ materially and adversely from those expectations for a variety of reasons. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

Myriad completed its 2010 fiscal year with record revenues of approximately $363 million, an 11% increase over the prior year. The company also recorded record net profits of approximately $152 million, an 80% increase over last year. Jim will provide additional details on our financial results later on in the call.

Importantly, we are generating significant amounts of cash flow through the sale of our molecular diagnostic products. We began the fourth fiscal quarter with $511 million in cash and investments. Even though we repurchased 4% of Myriad common stock for $71 million, we maintained a cash and investment balance of over $500 million at July 31, 2010. This demonstrates our ability to generate cash and highlights the fact that our stock repurchase program is not reducing our cash balance, but is only utilizing the significant cash flow that the company is currently generating.

As the company thinks about the potential uses of its cash, our first priority is to reinvest it in our business to foster future growth. This will be accomplished through increased research and development in support of our internal product pipeline, and through end licensing of exciting novel products and technologies from other companies. For example, during fiscal 2010 we increased our R&D spending by 22% over the prior fiscal year. We will also continue to invest heavily in the launch of new products, like PROLARIS, and the marketing of our existing products as shown by the 16% increase in SG&A expense over the prior year.

Additionally, the company is committed to becoming a global leader in molecular diagnostics, and as Gary will discuss later on in the call, is moving forward toward establishing a European presence by the end of 2012. We are also exploring aggressively M&A opportunities in the molecular diagnostic field that would expand our product offerings, leverage our existing sales and marketing strengths, and create other operational synergies. However, we will add here to two strict investment criteria, as we consider a potential acquisition. First, a candidate company should have significant revenues, large enough to impact Myriad's current revenues. And second, the acquisition should be accretive to our earnings per share and represent an attractive return on investment.

Still, with this substantial focus on building and expanding our business, we are generating significant cash flow from operations, more than $46 million just last quarter. As a result, we have the opportunity to return cash back to our shareholders, either through payment of a cash dividend or a stock buyback program. The Myriad board is seriously considering both of these options for the future. We understand the value of paying a sustainable cash dividend, particularly if there is no unfavorable change in the current tax laws, as it pertains to dividends. However, we also believe that Myriad is substantially undervalued, and that purchasing our stock represents a very attractive investment opportunity.

Turning to our financial guidance, the Company's revenue projection for the fiscal year ending June 30, 2011 is between $380 million and $400 million. And the fully taxed earnings per share guidance is between $0.95 and $1. Based on the midpoint of our guidance range, this represents 8% top-line revenue growth. We are also transitioning from the 2010 fiscal year, where we did not record an income tax provision, to the 2011 fiscal year, where we will record income tax expense, even though we won't be required to pay income taxes.

Therefore, in order to provide a consistent comparison with our fiscal 2010 operating results and our estimates for 2011, we have provided a cash flow from operations estimate of $170 million, which represents a 10% increase over the $155 million that we generated in the fiscal 2010 year. I believe it's important to remind investors that we have net operating loss carryforwards and research and development tax credit sufficient to offset the federal income tax on approximately $256 million of future income.

Our earnings calls are focused on the financial performance of the company, and appropriately so. However, occasionally it's important to consider the positive impact our employees and products are making on the lives of the patients we serve. So I would like to take a moment to read two brief letters from the hundreds of letters we receive each year. And I quote, " 'This test allowed me to recognize my increased risk for breast cancer, and in turn alert my family members to the dangers of the genetic mutation. I truly believe what I have gone through with BRACAnalysis has helped to save my life and possibly some of my family members.' Meg Savage, St. Louis, Missouri."

The second letter is from a patient who didn't have insurance and participated in Myriad's financial assistance program. And I quote, " 'I truly appreciate all that you have done to find solutions to some of the ills that plague humankind. I also want to thank you for paying for this test for me. It is a very important test and it would have been next to impossible for me to pay for it. It is a big blessing to me, and especially important to the lives of my three children. God bless you.' Melanie Smith, Albuquerque, New Mexico."

Researchers at Myriad are continually advancing the development of new technologies and strengthening our product pipeline. I believe these new technologies will provide with us a significant competitive advantage and Myriad product opportunities in the future. Additionally, we have attracted a talented and dedicated team of individuals across the spectrum of sales, operational, and managerial disciplines who are leading the way to a new age of medicine, one that is proactive and focused on prevention of disease, not just treatment of disease. Now it is my pleasure to turn the call over to our CFO, Jim Evans.

Thank you, Pete, and good afternoon, everyone. It is my pleasure to present a more detailed look at Myriad's financial results for our fourth fiscal quarter and fiscal year ended June 30, 2010.

Myriad's total revenue for the 2010 fourth fiscal quarter was $93.9 million, or 9% greater than revenues for the same quarter of the prior year. The revenue results for the fourth quarter of fiscal 2010 exceeded the Thomson First Call consensus revenue expectation of $93.5 million. A closer look at the revenues show BRACAnalysis, our product that provide a comprehensive analysis to the BRCA1 and BRCA2 genes for assessing a woman's risk of developing hereditary breast and ovarian cancer, accounted for $82.5 million of our total revenues for the fourth quarter.

COLARIS and COLARIS AP are products that provide a comprehensive analysis of MLH1, MSH2, MSH6, APC and MYH genes for assessing a person's risk for colorectal cancer or uterine cancer, accounted for $7.3 million of our fourth quarter revenue. The remaining $4.1 million of our quarterly revenue is generated from our other products, which include MELARIS, THERAGUIDE 5-FU, OnDose, Prezeon, PROLARIS, single site testing, as well as a small amount of license revenue.

Revenue for the 2010 fiscal year was $362.6 million. This compares to total revenue of $326.5 million for fiscal 2009, or an increase of 11%. This double-digit year-over-year growth during a difficult economic environment continues to demonstrate the critical nature of the information Myriad's tests provide. Cost of goods sold of $44.3 million for fiscal 2010 resulted in gross profit margins of 88%. This is a 100 basis points improvement over the 87% gross profit margins for fiscal 2009. This was accomplished by increasing cost of goods sold by only 2% while revenues increased 11%. We project that our gross margin for fiscal 2011 is sustainable at current levels.

Selling, general, and administrative expenses for the 2010 fiscal fourth quarter was $39.8 million, a decrease of 4% from $40.8 million in the third quarter ended March 31, 2010. SG&A for fiscal 2010 increased 13% to $161.4 million compared with $138.9 million for the fiscal 2009, reflecting the increased number of sales reps in the field, costs associated with the two direct-to-consumer campaigns that we ran in the South and the Midwest, the costs associated with the launch of PROLARIS, and additional expenses to support Myriad's revenue growth. We expect that our SG&A expenses will continue to fluctuate depending on a variety of factors, including the initiation of our planned DTC campaign in the fall, the number and scope of new product launches, the hiring of additional sales reps, and future non-cash stock option expense.

Operating income for the quarter ended June 30, 2010, was $37.6 million, resulting in an operating margin of 40%. This is an improvement over the 37% operating margins we experienced in the second and third fiscal quarters. Net income before tax for the quarter ended June 30, 2010, was $38.6 million, or 12% greater than the preceding quarter.

Even though Myriad actually pays very little in federal and state income taxes, the income tax calculations for book purposes during this transition year are very complex. As many of you will recall, during last quarter's earnings call, I projected that our earning -- that our income tax expense for the fourth fiscal quarter would be approximately $5 million, reflecting the impact of GAAP taxes offset by the removal of our deferred tax valuation allowance. However, during the quarter, our tax consultant and my staff were able to identify additional sources of R&D tax credits. As you are aware these credits result in a dollar for dollar savings in future cash outlays to the government. Due to these added R&D credits, we were able to book a one-time tax benefit rather than the interest paid in tax expense. For fiscal 2011, our projection is a tax rate of approximately 38% for GAAP purposes.

On a per share basis, Myriad produced fully diluted earnings of $0.54 for the fourth quarter, and $1.54 for the 2010 fiscal year. Even if we ignore the income tax impact, the fully dilutive earnings per share for the fiscal fourth quarter and 2010 fiscal year substantially exceeded the analysts' First Call consensus number of $0.33 and $1.32 per share respectively.

Cash, cash equivalents and marketable investment securities continue to be very strong. As of June 30, 2010, Myriad's cash, cash equivalents, and marketable investment securities were $488 million. As Pete mentioned, during the quarter ended June 30, 2010, Myriad generated over $46 million in cash flow from operations, and for the fiscal year generated $155 million. During the same periods, we spent only $800,000 and $7.9 million on capital expenditures respectively.

Given the strong cash generation in May of this year, Myriad initiated a $100 million stock repurchase program. Today we have purchased $71 million of MYGN stock and canceled approximately 4 million shares. Our trading window is currently closed but we will begin repurchasing our stock again within the next few days now that our financial results have been publicly released.

I do look forward to fiscal 2011 and the guidance that Peter has provided. I do want to point out to those investors who are newer to Myriad that we do experience seasonality in our business. Historically, the current quarter ending December -- or September 30 is our weakest quarter for revenue growth. We typically see a slowdown of doctor-patient interactions during the summer months, as both doctors and patients are distracted by vacations and other family responsibilities. In fact, you may recall that last year Myriad experienced declining revenues from the June to September quarter. This is followed by our strongest revenue growth quarter ending December 31, as deductibles are met and we work through the summer backlog as doctors and patients get back to a more standard schedule.

Now to conclude, it is again my pleasure to state that Myriad has absolutely no debt and no convertible securities. With that financial review, I will now turn the call over Mark Capone.

Thank you, Jim. I am pleased to provide some additional insights into progress with our predictive, personalized and prognostic molecular diagnostic business.

In fiscal year 2010, we continued to grow the predictive medicine business in both of our market segments. The oncology segment grew by 7% over the prior fiscal year and the woman's health segment grew by 22% compared with fiscal year 2009. We were successful in further penetrating the women's health segment with over 12,700 OB/GYNs having ordered predictive medicine tests in fiscal year 2010. This represents approximately 30% of all OB/GYNs in the United States, which is consistent with the level of coverage we have with our current 150-person sales force.

However, most of these ordering physicians continue to test only a small fraction of their appropriate patients, generally focusing on those patients with severe risks or those requesting the test. We believe there are significant opportunities to increase ordering frequency, and we launched an initiative this quarter to take advantage of these opportunities based upon extensive market research. This research has shown that the women's health market has distinct market segments, each of which requires different sales and marketing tactics. For example, one segment that is underpenetrated and represents about 40% of the country's OB/GYNs believes in the value of predictive medicine testing. However, they need tools to help them efficiently integrate the testing process into their practice. Our goal is to develop and provide the tools that will convert them into frequent-ordering customers.

In addition, our direct-to-consumer campaign in the southeastern portion of the United States is well under way. Direct-to-physician efforts have already started and we anticipate advertising will begin in early September and continue through March of 2011. This campaign will cover about 15% of our revenue base. Lastly, to increase penetration into the OB-GYN segment we currently do not reach, we will be adding additional sales representatives. After evaluating the performance of the territories that were split last year, we are adding 15 territories this year, which will bring the total number of women's health sales representatives to 165.

In our personalized medicine portfolio, we have completed our first full year of marketing OnDose, which helps physicians ensure optimal dosing of 5-FU. During the first year, approximately 6% of oncologists ordered OnDose. To increase the penetration we are focused on two major initiatives; publishing additional clinical data and expanding reimbursement. Two papers supporting OnDose have been submitted for publication, one of which is a prospective outcomes-based study. One additional study is under way, and four more are being planned for this year. We also continue to have productive discussions with Medicare regarding a coverage decision after publication of additional data. All of the data continues to demonstrate that the increased survival and decreased toxicity associated with OnDose is extremely meaningful for physicians and patients.

There have also been continued developments in the area of companion diagnostics. Recent studies have suggested that more than 50% of oncology drugs developed in the future will have some form of a companion diagnostic. Myriad's goal is to be a leading companion diagnostic company and we have two major companion diagnostic programs; BRACAnalysis for PARP inhibitors and PREZEON for PTEN pathway inhibitors. For PARP inhibitors, Myriad has signed definitive agreements with AstraZeneca and Abbott and is in discussions with three additional major pharmaceutical companies to assess the BRAC status in either blood and/or tissue samples from clinical trial patients. The importance of tumor tissue analysis was highlighted in a paper that Myriad published on July in the Journal of Clinical Oncology, that showed that 39% of ovarian cancer patients had BRAC mutation status that could only be detected in tumor tissue rather than blood. This data demonstrates the importance of a tissue-based BRACAnalysis to expanding the market of potential PARP inhibitors A proprietory tissue-based research product has been developed and Myriad is currently developing a commercial product. Myriad has also seen increasing interest in our PREZEON product for assessing PTEN status. We're already collaborating with one major biotechnology company and are in discussion with two other major pharmaceutical companies. In addition, we have reached agreement for nine additional clinical studies with individual collaborators.

In our prognostic medicine segment we have successfully launched our first product, PROLARIS, which promises to assess the aggressiveness of prostate cancer to aid in decisions concerning prostatectomy. Two outcomes-based clinical papers have been submitted for publication and three additional studies are under way. Interest among urologists remains high and the sales team has identified a number of additional collaborators for significant retrospective sample sets that would like to utilize PROLARIS for supporting validation studies. However, as with most molecular diagnostic tests, significant physician education and societal guidelines will be required before we see mainstream adoption.

At Myriad our goal is to use predictive, personalized and prognostic molecular diagnostic products to change the way that medicine is practiced, and to dramatically improve the lives of our patients. While this revolution in medicine will take some time, we believe that we are taking the necessary steps to continue to lead these advances.

I'm now pleased to turn the call over to the newest member of our senior management team, our Executive Vice President of International Operations, Gary King.

Thank you, Mark. I'm extremely excited to join the experienced management team at Myriad to lead our international expansion initiatives. Myriad has been a pioneer in helping US physicians improve the lives of their patients through innovative, cost-effective, and life-saving services. We are fully committed to make these tests more widely available to patients in Europe and throughout the world.

By way of introduction, I bring 25 years medical advice and diagnostic sales, marketing, business development, and general management experience to this position, and have spent 20 years living and working outside the United States. My relevant international experience includes establishing operating companies throughout the major countries in Europe and developing a distribution network in Asia.

During my time as Vice President of International Operations at Biosite, we established operating companies in France, Germany, Italy, the UK, Belgium, Netherlands, Switzerland, Spain and Hong Kong, grew the international team from two to 74, and revenue from $10 million to $60 million in four years. In the final year before the acquisition by Inverness Medical, the international division accounted for more than 80% of worldwide revenue growth. We introduced novel diagnostics, such as a panel of biomarkers to diagnose acute stroke and sepsis, and built the international market for the heart failure diagnostic BNP.

Before Biosite, I led the transition from a distributor to a direct organization for Guidant Corporation in Japan, building a 100-person sales marketing and clinical organization and growing revenue from $20 million to more than $100 million. Most recently, I was CEO of a start-up company focused on developing novel protein and transcriptomic biomarkers of cardiovascular and neurovascular diseases and cancer, working with the medical board of physicians from seven countries.

These experiences give me insight into how to establish our businesses in Europe, how to develop clinical acceptance of new diagnostics, and the regulatory and reimbursement processes that help drive adoption of those new products. Myriad is strongly committed to this initiative, and has already begun developing a strategy to expand into Europe. We will invest more than $2 million this year to gather the information we need to completely develop that strategy.

Recently, we engaged an international consulting firm, [Syanchee] Advisors, to work with us to provide extensive market research and to help us develop our detailed implementation strategy and tactics for establishing and building a significant presence in Europe. During this process, we will identify the most attractive growth opportunities for Myriad's current portfolio and pipeline products, examine the size and growth of each market, current and predicted competitive activities, any barriers to entry, and overall fit with Myriad's core capabilities. Using a network of Europe-based experts, we'll develop a pricing and reimbursement strategy for each product in each target country and region.

We will consider the full range of entry-strategy options from developing kits that can be run on existing platforms, partnering with local laboratories, acquiring local laboratories, or acquiring a major pan-European laboratory or diagnostic company. And then develop a detailed action plan for implementation. Part of this strategy, we'll also consider how we can leverage potential pharma alliances with our companion diagnostics, such as BRACAnalysis for PARP inhibitors and PREZEON for PTEN pathway inhibitors. An especially interesting option internationally is Europe has led the US in adopting companion diagnostic testing. Our substantial financial resources, as Jim has just described in this call, give us the full range of strategic options, including a major pan-European acquisition. The market analysis phase of the process is now underway. We have completed thought leader, regulatory and reimbursement interviews in France and the UK, with market surveys of our remaining target countries of Germany, Italy, Spain, Switzerland, and Benelux to be completed in the coming two weeks.

This is an ideal time to expand our business internationally as we can leverage our success in the US to enter Europe. Our tests are increasingly accepted in the US and are becoming well-known internationally through clinical opinion leaders and validated in over 100 peer-reviewed publications. Myriad currently provides testing for patients in over 40 countries around the world. We are represented through distributors in Europe, Asia, and South America, but we will not to have unwind complex, potentially blocking exclusive commercial agreements to develop our direct international presence. The molecular diagnostics market in Europe is approximately 70% the size of the US, with oncology and pharma co-genomics growing most rapidly as adoption begins to approach US levels.

As a benchmark, international subsidiaries provide many diagnostic companies 30% to 50% of overall revenue and profit. Our current international sales comprise less than 5% of our worldwide revenue, so there is potential for international expansion to contribute significantly to future revenue and profit growth.

Following our successful entry in Europe, we will strategically approach the rapidly growing markets in Asia-Pacific, Latin America, Eastern Europe, and the Middle East. As Pete has stated, our goal is to establish a significant international presence by December 31, 2012. I'm truly excited by the number of patients who can benefit from our products and improved diagnosis, prognosis, and therapy guidance, and help save lives around the world as Myriad becomes a truly global leader in molecular diagnostics.

Now I will turn the call back over to Pete. Thank you.

Thank you, Gary. And I will turn it over to the operator for the question-and-answer period.

Thank you. (Operator Instructions) One moment, please, for the first question. And our first question comes from the line of Marshall Urist with Morgan Stanley. Please proceed with your question.

Hey, guys, good afternoon. So I just wanted to actually ask a question about guidance and the moving parts there. Obviously you guys are going to have some price -- the benefit of a price increase there this year, so maybe if you could talk about the assumptions that went into the revenue range for this year, particularly around sort of volume versus price. If we make some assumptions about price, you could argue this is sort of low to mid single-digit volume growth that's kind of built into the revenue guidance for the year.

Thank you, Marshall. As Marshall has pointed out, we did have a price increase on April 1, 2010, but because Myriad has a large number of contracts with our major insurers, we guarantee the old price until the anniversary of the contract. So it really does take about an entire year until April 1 of 2011 for that 7% price increase to take full effect. So we won't see the full effect of that for several more quarters.

In terms of putting guidance together for the fiscal 2011 year, we considered a number of factors, including obviously the price increase and how we think that will be phased in over the course of the year, current weekly sample volumes, feedback from our sales force, numerous economic factors that we monitor on a weekly basis, such as consumer confidence levels, unemployment rates, et cetera, and IMS prescription data.

Our guidance assumes that the economic conditions neither deteriorate materially nor improve significantly over the course of our fiscal 2011 year. Our guidance ranges were established based on management's confidence that our actual 2011 fiscal year results have a high probability of landing within those ranges.

Okay, thanks for the detail. As a follow-up, would it be possible for you guys to give us the basis of comparison in the -- in last year's quarter for the various product groupings? Between BRAC, COLARIS, and then the other products?

I think what we're going do, we'll break down the revenues by major product, as we did this quarter for each quarter, and give you comparisons for the prior year and obviously you will already have the prior quarter. So we will be providing that as we go forward in the future, and we will give you last year's as well as the current quarter's breakdown by major products.

Okay, thanks for the questions, guys.

Thank you. And our next question comes from the line of Kim Lee with Global Hunter Securities. Please proceed with your question. And Kim Lee, your line is open. Please proceed with your question.

Good afternoon. First question is what do you think accounts for the decrease in revenues year-over-year from the 47% to the 11%? Do you think it's not only the economy, but do you think that BRACAnalysis is almost penetrated oncology setting? What are your thoughts on that?

Thank you, Kim. The revenue growth this year, as you pointed out, was 11% so we did actually grow revenues this year in the low double-digit range. But our seven-year compound annual growth rate is 40% and so that is down from our historical growth rate. As we have indicated in past earnings calls, we are impacted by the current economic environment.

National surveys that were conducted a little over a year ago show that physician office visits were down significantly and compliance among women who have preventive type measures such as mammograms, pap smears, colonoscopies was down about 25% over what historical compliance rates have been. We have not seen, as the recovery has struggled, a significant rebound in physician office visits, and as we reported last quarter, physician office visits were down 20% over the prior year. Since that is the point at which a physician would actually order a Myriad test, that decline in physician office visits certainly has impacted the Company.

We are impacted to a lesser extent but nonetheless are impacted by the unemployment rate which is still hovering just under 10%. And as we pointed out on our last earnings call, because of the rising cost of healthcare, we've seen an increase in the number of high deductible plans. In fact, as of January 1, 2010, about 12% of all employer plans were classified as high deductible plans, and that certainly has a negative impact on our revenue growth.

So I think those are the primary factors I would attribute. I would also like to point out, however, that we're not immune to the law of large numbers. And it's easier to grow as a percent of revenue growth on $100 million than it is on $300 million, so that factor needs to be taken into account as well.

Great. And on the international front, can you tell us what the price difference is between US and Europe, and given the pricing pressure for therapeutics in Europe, how do you see this playing out for diagnostic tests in Europe?

Thank you, Kim. We've just begun doing our regulatory reimbursement and key opinion leader surveys in Europe, but we've been pleasantly surprised by the value already appreciated in many of these assays, both savings to the clinical outcome of the patient, but also savings to the healthcare system.

Locally performed commercial laboratory testing is very similar for products such as BRACAnalysis, and physicians in Europe are sending samples to the US to be tested with oncotype DX or [agendium] paying the full freight. So, again, we will continue to do our analysis of pricing and reimbursement, but for now, we don't anticipate that we'll be significantly reducing prices to penetrate that market.

Great, and one last question. Thanks for the clarity on that. One last question on when do you expect the DTC campaign for BRACAnalysis to end, and what do you expect to add all the sales reps? Thanks.

Thank you, Kim. The DTC campaign, the actual advertising -- TV advertising portion will kick off in the second week of September and should run through the end of March, and that will be in the southeastern portion of the United States, which covers about 15% of our revenue base. The additional sales representatives, essentially all of those are hired or will be and should be out in the field by the September time frame, by the end of September.

Great. So all the hires are already reflected in SG&A?

Well, they -- most of those will be reflected in Q1 SG&A. Many of those were hired in the latter stages of Q4, the beginning of Q1, So you should begin to see that reflected in your Q1 SG&A.

Great, thanks a lot.

Thank you, and our next question comes from the line of Amanda Murphy with William Blair. Please proceed with your question.

Hi, thanks. Just a couple -- actually one follow-up on something you already mentioned. In terms of the ability to get physicians to order the appropriate patients, I'm curious, I know that you got an initiative to work on that going forward, but did that get -- did that change over the past quarter? And then also just the idea of ob-gyns performing the test in office versus referring out, did that change over the past quarter?

Thanks, Amanda. I don't think that changed over the past quarter. The research that we've been doing has been underway for the last four months to try to identify those segments, and identify what were the appropriate sales and marketing tactics.

We just rolled that out at the begin -- at the end of July, at the national sales meeting, and so we would begin to see any results of that at the earliest in Q1, although most likely that would begin to affect us in Q2.

Okay. Thanks. How about the -- just the referral patterns of ob-gyns? Has that improved over time? I know that you've been working on that as well in the past.

I don't know that we've seen any fundamental change in referral patterns. Typically what happens is, as we begin to work with an ob-gyn, they will recognize that much of the counseling activity that is required for this testing is similar to the counseling activities they do for other types of testing, whether that's prenatal type testing or other things.

And so because of that, they will begin to look through their patients and determine which of those seems straightforward, and which of those might be more complex and still require referral to genetic counselor. And so that's been traditionally what we've seen over the last three to four years, and I don't think we've seen any change in referral patterns in Q4 certainly.

Okay. And then given the recent FDA meeting around lab-developed tests, I'm curious if you have a perspective on the direction they might take, and if you are involved in discussions with them or how it might sort of impact your business going forward.

Yes. Through our industry organization, the American Clinical Laboratory Association, of which Mark is on the board, we have quite a bit of input in terms of conversations with the FDA. We didn't really see any surprises come out of the FDA's public hearings on the oversight of laboratory developed tests.

I believe that the FDA is aware of the importance of not disrupting patient access to existing laboratory tests, and not restricting that patient access. I think they also appear to be supportive of not duplicating surveillance and inspection, but will coordinate with CLEA and CAP inspectors, or utilize those inspectors. The FDA seems particularly concerned about test results that are given directly to a patient without physician involvement, and you may have seen a recent GAO report.

I would point out that all of Myriad's tests require a physician to order the test and the results are never given directly to a patient. They're always given to the physician, so the physician can provide adequate interpretation and counseling to the patient. I believe that the FDA will take a risk-based approach to the regulation of laboratory developed tests, similar to would they've done with the in vitro diagnostic devices.

I also believe that future FDA regulation will create a barrier to market entry. That will be to the detriment to smaller venture capital backed diagnostic companies, but very much to the benefit of larger, more experienced better capitalized companies, excuse me, like Myriad. Where not being able to understand how to maneuver through the regulatory maze and not having the financial resources to do it, the smaller companies will look to larger companies like Myriad to have those products approved and marketed.

I also believe that this will be a very carefully thought out, slow, phased-in process that could take a number of years to fully implement. And I finally do not believe that FDA regulation will have a negative impact on our revenues or future operations of the Company.

Okay, that's helpful. Then just lastly, Gary or Pete, could you maybe just give us an overview briefly of what the international competitive landscape looks like? I know you have quite a few tests, but just at a high level.

We haven't completed our competitive analysis right now. Just based on the initial surveys we've done, it's a very fragmented market, a lot of home-brew testing with no really good competitors that we need to focus on. So in the positive case then, it would be a market that would be a good for consolidation and good for entry of someone who could offer full-service testing.

I would just add to what Gary said by noting that most of Myriad's production have very strong intellectual property protection, not only here in the United States but also in Europe.

And so for many of our products, for example, PTEN, as companion diagnostic for the PTEN pathway inhibitors, that would be our PREZEON product, and BRACAnalysis as a companion diagnostic for the PARP inhibitors, all have very strong international and European patent protection. So I believe we will have a strong competitive advantage in Europe similar to what we have here in the US.

Okay, thank you very much.

Thank you. And our next question comes from the line of Ashim Anand of Natixis Bleichroeder. Please proceed with your question.

Thanks for the questions, guys. Pete, you have obviously pointed out the M&A strategy, and you have given us very good financial measures, you would look into significant revenue, accretive (inaudible) investment.

I was wondering, I know this is still at the drawing board, if you can comment on what kind of business model you look at, like service model, FDA-approved kind of model, or anything about the indications you would kind of focus on cancer or you would go beyond that in terms of diagnostics, anything at all you can kind of tell us in terms of thought process?

Thank you. Yes, I would be pleased to. Myriad views itself as a molecular diagnostic company, not an oncology company. So we very much are interested in other opportunities outside of the oncology sector, particularly CNS disorders, anti-psychotics for companion diagnostics, rheumatoid arthritis. Any of the major disorders where drugs that address those disorders are very expensive and don't work in the majority of patients, I think is a ripe opportunity for the companion diagnostic area.

So we definitely on the M&A front are looking beyond oncology and will look at a variety of major disease indications. The company right now is very aggressively looking at the potential of acquisitions, in part because we see good opportunities, and we see some companies that we believe are under-valued, much like we believe our on stock is under-valued. So that is a very high priority for the company and one that we are certainly aggressively pursuing internally.

Thanks. And this is a general question, if you can paint a picture, you might not be able to give specifics, but in terms of utilization by oncologists for BRACAnalysis, if you can tell us where it stands in terms of people who are firm believers, they are offering more, that's how it's going, or it is more like there is more distribution, it's increasing. Anything on that front if you can point out in terms of BRACAnalysis.

Sure. I think as you know we've been in the oncology market for quite some time. And I think BRACAnalysis is widely accepted as the standard of care in the oncology segment.

That being said, there are still opportunities. Most oncologists have experience either having ordered the test or referring patients to genetic counselors that ordered the test. And so from an awareness standpoint, I think we're probably as high as could you possibly get on this type of product. So I think most of the progress we're making with oncologists are generally getting them to identify the complete range of patients that might be appropriate for utilization with BRACAnalysis. So in our language that would be increasing same-store sales.

In addition, you will find oncologists that, as they become more comfortable with this test, oftentimes they will begin to test the more straightforward patients themselves, and because of that, you see less of a drop-out rate than you would when those patients are referred to multiple other healthcare providers, whether those are genetic counselors or geneticists or others. And so that's the other way we see increased penetration, is that we have a lower drop-out rate for patients referred through more complex systems.

I might add that the oncology segment is a more mature segment for the Company. We believe we are about 50% penetrant in the oncology market. We do believe we can get to about 70% or maybe even 75% penetration. So we certainly see up side in that market opportunity, and as Jim mentioned, that business grew 7% last quarter. So we're excited about that opportunity, but it is a more mature market for us.

Thank you, guys.

Thank you, and our next question comes from the line of Bruce Cranna with Jefferies. Please proceed with your question.

Thank you, good afternoon everyone. Pete, I wonder if you can just -- I want to talk about 2011 guidance for my first question, just to maybe push a little bit on it. But do you think it's fair for us to think of BRACA growth as a segment in 2011 \as being below the corporate average, your expectations of 8% revenue growth?

BRACAnalysis, now that we've started providing actual revenue breakouts for our major products, is obviously the lion's share of our product. So I think that the BRACA growth is going to mirror very closely the Company growth. COLARIS is our fastest-growing product but it's small compared to BRACAnalysis. The other products are also growing faster, but they also are smaller. So I think pretty much as BRAC goes, so the Company will go in terms of revenue growth.

Okay. And also thinking about the two channels, ob-gyns versus oncologist. Obviously as you've pointed out, you're more mature on the oncologist side that in women's health. If you think about growth rates between those two segments this quarter, thinking about 2011 I assume that maybe we see better growth out of the women's health channel over the course of the year and really what I'm trying to get at is, have you guys seen any volume growth yet specific to the new guidelines? They're now I guess over a year old, related to asymptomatic high-risk women.

I'll let Mark comment on the ASCO guidelines that are now just over a year old. But as we reported, during the quarter we saw is about a 7% growth in the oncology market, which is more mature, and a 16% growth in the ob-gyn market.

We are less than 10% penetrated in the ob-gyn market so that is a market with a tremendous up side. However, it is a more challenging market to penetrate. Ob-gyns are very busy and slower to adopt new technologies as compared to oncologists. So I think that we'll continue to see the ob-gyn market probably double the growth rate in the more highly penetrated oncology market.

Okay. And have you guys seen any signs yet of ob-gyns perhaps getting a little more aggressive on ordering the test amongst high-risk women that are asymptomatic?

Yes, thanks, Bruce. I think there's -- I think the impact from the ACOG guidelines have probably been felt in a couple of ways. They came out in April 2009 so you have guidelines that have been out about 18 months. And I think what it has clearly done is raise the awareness among ob-gyns that this is a test that they need to consider integrating into their practice.

I think a good manifestation of that is the fact that we had 12,700 ob-gyns actually order the tests this past year, which is exactly the penetration level we have with our current sales representatives. So when we get an opportunity to interact with an ob-gyn, we see that these ob-gyns will in fact order the test, and if you had gone back two years ago, that level of awareness would not have been there.

So we certainly see that as opening the door. I think to Pete's point, that's not enough to get them to order exclusively, but it's certainly allows us to get into the conversation to begin to impress upon them the importance and the value of this test and what this can mean for their patients.

Okay. So maybe some signs of life there, if I could paraphrase.

Yes, I would -- I think we were pleased at the number of ob-gyns that ordered. That's a very substantial number. And as I mentioned that gives us an excellent beach head from which to grow. If we could just get those 12,700 to order at the frequency that ACOG guidelines would suggest, there's significant market opportunity.

Absolutely. And then last from me, and maybe I can put Gary in the hot seat a little bit, too, in this one, just philosophically, thinking about EU expansion and investing in European business and what it means to return on investment for Myriad. Obviously you guys would be going into an environment where your IP position is arguably even more tenuous than it is in the US, so how do you think about that type of proposition and return on investment for the company?

Well, as Pete mentioned earlier, we don't intend to compete sole on intellectual property. The market is extremely fragmented. It can take a year to get BRAC results back from major testing centers in France. So there's a lot of dissatisfiers in the market which makes for a lot of opportunities, Not only with our current product line, but with our competitor -- or with our companion diagnostics.

And we will invest wisely in the market. We will, again, doing this nine-month process of strategy development and market understanding thoroughly vet our opportunities and the most appropriate way to enter those opportunities.

Thank you very much. And ladies and gentlemen, at this time I would like to turn the conference back over to Peter Meldrum for closing remarks.

Well, I would like to thank everyone for participating and listening in on the Myriad Genetics earnings call for our fourth fiscal quarter and year end 2010, and this does conclude the call. Thank you very much.

And ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.