Myriad Genetics Inc (MYGN) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics 2011 first quarter financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Tuesday, November 2, 2010. I would like to now turn the conference over to Mr. Peter Meldrum, President and CEO of Myriad Genetics. Please go ahead, sir.

Thank you. Good afternoon and welcome to the Myriad Genetics earnings call for our first quarter, ended September 30, 2010. My name is Peter Meldrum, I am the President and Chief Executive Officer. I am joined today by Jim Evans, our Chief Financial Officer, and Mark Capone, President of Myriad Genetic Laboratories. 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. At the end of the presentation, I will turn the conference back over to the operator for a 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. 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.

Revenues for our first fiscal quarter rose 7.9% to $91.9 million, from $85.1 million for the same period of the prior year. This 7.9% revenue increase is in line with our revenue guidance for the year of $380 million to $400 million, the mid point of which calls for a 7.6% increase in revenue over our prior fiscal year. We continue generating strong operating profits of $35.6 million, a 20% increase over the first quarter of last year. We also grew our cash and marketable securities balance to $508 million, as of September 30, 2010, a 22% increase over the $417 million balance on the same date a year ago. Jim will provide additional details on our financial results later on in the call.

I would like to take a moment to discuss four important issues that are currently impacting Myriad as well as the entire molecular diagnostic industry. These include the macroeconomic environment and its impact on revenue growth, FDA plans for regulating laboratory-developed tests. the AMA's focus on modernizing the reimburse codes for all molecular diagnostic tests, and the current litigation surrounding the patenting of genes.

In discussions with our sales force, and after analyzing a number of other metrics that is we track closely, it appears that economic conditions and their impact on the medical care in the United States are not yet improving, which continues to weigh on our industry. Based on data we received from Thomson Reuters. OB-GYN office visits were down 7% in July and 4% in August, when compared to the same period last year.

Additionally, the Thomson Reuters Consumer Healthcare Sentiment Index, which tracks how patients feel about their ability to pay for health care hit a new low in July. A report published by Deutsche Bank Securities on August 31, 2010 found the number of patient visits to physician offices has declined as the economy has faltered, with eight out of the last ten months recording year-over-year drops in office visits. Our own sales force confirms that physician office visits remain soft. While revenue growth remains challenging in this difficult economy, we did factor that into our fiscal 2011 revenue guidance numbers. Therefore, I remain confident that we will achieve our 2011 revenue projections of $380 million to $400 million.

On a more positive note, as Jim Evans mentioned in our last earnings call, our second fiscal quarter, ending December 31, 2010 is typically the strongest quarter of the year. At the end of the calendar year, patients have typically met their deductibles and are more likely to have medical procedures or tests such as those offered by Myriad. Beginning in mid-September and continuing through the month of October, we saw the strong historical uptick in patient sample flows. Therefore, we believe that our second fiscal quarter will show quarter over quarter and year-over-year growth. But again, against the back drop of a very weak economy.

On a regulatory front, the FDA's Office On In Vitro Diagnostics held public meetings. On July 19th and 20th to discuss the possibility of FDA oversight of laboratory developed tests. Based on the information that came out of the meetings and further discussions with the FDA, the American Clinical Laboratory Association and the Coalition for 21st Century Medicine, we believe that it is likely that the FDA will regulate all laboratory-developed tests in the future. The FDA has indicated that it will not disrupt patient care or patient access to the currently marketed laboratory tests. And that existing products will remain on the market.

We believe that the FDA will likely take a risk based approach to regulation, similar to the class one, two, and three designations used in regulating in vitro diagnostics and medical devices. Importantly, it appears that the FDA will accept retrospective studies and not require prospective clinical trials for approval. We believe that the FDA will take a careful measured approach to regulation, and it will take several years before oversight is fully implemented. We also believe that FDA regulation will delay the launch of new products and increase the cost of developing new products. This likely will have the greatest impact on smaller start up companies and will create a barrier to market entry, potentially benefiting the larger well capitalized more established laboratories like Myriad.

The American Medical Association is considering modernizing the reimbursement codes for more than 1,000 molecular diagnostic tests currently on the market, and the AMA CPT editorial panel has formed a molecular pathology coding group to study this issue. The AMA CPT editorial panel met recently on October 14th through 16th to hear and consider the recommendations from the work group. The AMA CPT editorial panel is expected to make a final decision on any molecular diagnostic code changes by the end of of calendar 2011, with the goal in implementing the new coding structure end 2012.

Based on various reports, we believe that the editorial panel is developing a two-tiered approach. The first tier of products would be those that were widely utilized laboratory tests and would be signed a specific procedural code. The second tier products will likely be assigned codes under a structure based on the complexity of the genetic test. It is yet to be determined exactly in which tier Myriad products would fall, if this approach were taken.

It is important to note that the AMA's goal in modernizing the coding system for molecular diagnostic tests is to provide better analyzed, disease-specific information for healthcare payors. Therefore, the AMA process is focused solely on the coding methodology. The AMA does not set reimbursement prices on the CPT or any other diagnostic codes and not establish the new molecular diagnostic coding structure. That will be determined by CMS after the new codes are put in place. While there remains some uncertainty around the new coding structure, we are confident that the current reimbursement levels for our products will not be adversely affected as a rule of the AMA's efforts to modernize the codes for all molecular diagnostic products.

Finally, on March 30, 2010, Judge Sweet of the Southern District Court of New York ruled to invalidate 15 claims in seven patents held by Myriad, relating to the breast cancer susceptibility genes. The Company has said on numerous occasions that this action by the lower Court will have no material impact on the protection of our lead product, BRACAnalysis, or our future medical products. After Judge Sweet's decisions, Myriad still maintained in full force and effect 23 issued US patents covering the BRCA one and BRCA2 genes and the BRACAnalysis test. Thus, we continue to have very strong intellectual property protection.

Nevertheless, because Judge Sweet's ruling could have far reaching negative consequences on the pharmaceutical, biotechnology, agricultural and diagnostic industries, we appealed the lower court decision to the US Federal Circuit Court of Appeals on June 16, 2010. On October 29th, 2010, the US Department of Justice filed an amicus brief with the Federal Circuit Court of Appeals. Myriad is generally pleased with the amicus brief, in that the DOJ agrees with Myriad that Judge Sweet and I quote, "erred in implying that any isolated DNA molecule, whose value derives from the information and coding capacity of DNA, must be deemed an unpatentable product of nature" end quote.

In this regard, the DOJ supports three of Myriad's composition of matter patent claims on the C-DNA sequences of the BRCA1 and BRCA2 genes. And even commented in support of additional patent claims not involved in the litigation as being patent eligible. Additionally, the DOJ appears to also agree with Myriad that Judge Sweet erred in invalidating six of Myriad's method patent claims by indicating that it and I quote "methods of identifying, isolating and using such DNA molecules may be patented, as may any new and useful alteration to the molecules through human intervention." end quote.

We were however, disappointed that the DOJ also espoused a position contrary to decades of prior policy as well as to the current US Patent and Trademark guidelines which clearly state because an isolated DNA molecule does not occur in that isolated form in nature and has new utilities, it can be the basis of a patent. In this regard, Myriad strongly disagrees with the rationale of the DOJ. The existing law in this regard has been clearly enumerated and enunciated by the Supreme Court in Diamond versus Chakrabarty.

It is interesting to note that the US Patent and Trademark Office is apparently not changing their long-standing policies, regarding applications for gene-related patents. At a healthcare conference at the Cleveland Clinic last evening, David Kappos, Under Secretary of Commerce for Intellectual Property and the Director for the Patent Office, when asked about the DOJ legal brief, stated and I quote "we are continuing with continuing procedures as they are," end quote.

In conclusion at the Federal circuit Court of Appeals accepts the DOJ's arguments we would anticipate that at least nine of the fifteen claims initially invalidated by the lower court would be fully restored to Myriad. Again, given that the legal proceedings do not it effect the validity or the enforceability of our 23 issued US patents, regardless of the final outcome, we believe that Myriad's operations and revenues will not be adversely affected. Myriad's products provide patients and caregivers with critical information about their risk of cancer and how best to treat their cancer. They help make them long term healthcare choices and decisions, and it is gratifying that our physician customers share our view of the clinical value of the products.

The following quote is from a noted cancer researcher, Dr. [William Adu]. And I quote, "many, many patients have been prevented from developing cancer or were found to have very early and entirely curable cancers as a result of interventions which were triggered by genetic testing information from Myriad." Similarly Dr. Teresa Knight, a practicing OB/GYN physician, talks about Myriad, noting, " through genetic testing offered by Myriad, risks can be managed and the right decisions can be made."

We appreciate the dedication of the employees who are making a positive impact on the lives of the patients we test. Whether it is through our researchers who seek to understand the role genes play in human disease, our physician, educational efforts of the field personnel. Our marketing team who creates customer awareness of hereditary breast cancer. Our managed care team, who work closely with insurers, our customer service and billing groups who are advocates for and assist patients with their insurance claims, the laboratory technicians who actually generate a patient's DNA sequence, our data reviewers who use the data to determine whether the patient has a deleterious mutation, and if so, determine their risk of cancer, or an an administration team who supports the rest the Company so admirably. 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 measure to present a more detailed look at Myriad's results for our first fiscal quarter ended September 30, 2010. Myriad's revenues for the 2011 first fiscal quarter were $91.9 million, or 8% greater than revenues for the same quarter of the prior year.

A breakdown of revenues by product shows BRACAnalysis, our products that provide a comprehensive analysis of the BRCA1 and BRCA2 gene, for assessing a woman's risk of developing hereditary breast and ovarian cancer, grew 7.2% to $80.7 million, or 87.8% of our total revenues. For the same quarter of fiscal 2010, BRACAnalysis revenues were $75.3 million, which represented 88.4% of total revenues.

COLARIS and COLARIS AP are products that provide a comprehensive analysis of MLH-1, MSH-2, MSH-6, APC and MYH genes for assessing a person's risk for colorectal cancer or uterine cancer, accounted for $7.1 million, or 7.8% of total revenues. In the first fiscal quarter of fiscal 2010, the revenue from these products was $6.3 million or 7.4% of total revenues. COLARIS and COLARIS AP were once again our fastest growing product group, with a year-over-year revenue growth of 13.9%. The remaining $4.1 million or 4.4% of our quarterly revenue was generated from our other products. This compares to 4.2% of total revenue in the prior year from our other products, which collectively grew 13.5% year-over-year.

As a reminder, Myriad introduced a 7% price increase across our product lines in April of this year. During the September 2010 quarter, we attributed 6% of our revenue growth over the same quarter of last year to an increased number of samples. In 2% of the revenue growth to the price increase. We have not experienced push back to the price increase, and we continue to anticipate that the price increase will be incorporated into our contracted payer population fairly ratably throughout this fiscal year as those contracts renew.

An analysis of our revenues by market segment for the quarter ended September 30, 2010, reveals that $66 million was generated from the oncology market, an increase of 4.3% over that segment's contribution during the same quarter of the prior year. The women's health or OB/GYN segment accounted for $25.8 million in the first fiscal quarter. This is an 18.4% increase over revenues realized from the women's health market in the September 2009 quarter.

We continue to make significant inroads into both markets, with our emphasis on increasing utilization in the oncology market, and in growing our customer base and stretching guideline compliance in the less mature OB/GYN segment. Sequentially, revenues dipped 2% from the June, 2010 quarter. On last quarter's earnings call, we discussed the seasonality of our business and the impact during the summer months of vacations and other distractions to both physicians and patients.

Additionally, as Pete reported, there was a reduction in physician office visits during the quarter. Given the up tick in sample flow at the beginning of the second fiscal quarter, this year's revenues appear to be following the same seasonality pattern that we have experienced in previous years. Our gross profit margin increased to an impressive 88%, compared with 87% in the same period last year, and we continue to project that our gross margin for fiscal 2011 will be sustainable at the current levels.

Research and development spending at $5.8 million and selling, general, and administrative expenses of $39.5 million for the 2011 fiscal first quarter were relatively flat when compared to the first fiscal quarter of 2010. We expect R&D to increase in the future by 10% to 15% year-over-year, as we continue to invest in accumulating additional clinical data for all our marketed products as well as funding our new product pipeline. We also anticipate that our SG&A expenses will fluctuate quarter to quarter, depending on a variety of factors, including the costs associated with our DTC campaign, the launch of new products, and future non-cash stock option expense.

The cost associated with the hiring of 15 additional OB/GYN sales reps is fully reflected in this quarter's SG&A expense number. Costs associated with our DTC campaign during the September 2010 quarter, were approximately $1.6 million. We typically start to see returns on our campaigns as evidenced by increased sample flows in the November/December months. Operating income for the quarter ended September 30, 2010, were $35.6 million, resulting in an operating margin of 39%.

This is a 400 basis point improvement over the 35% operating margin we experienced in the first quarter of fiscal 2007. This result demonstrates Myriad's ability to leverage its operating expenses and realize an impressive 20% increase in operating income on a 8% increase in revenue. We have talked extensively about the impact of taxes on Myriad's books, beginning this first quarter, fiscal 2011. We recognized according to Generally Accepted Accounting Principles $13.6 million in income tax expense at a 38% effective tax rate. This tax liability was almost entirely offset with NOLs and tax credits and therefore had very little impact on Myriad's cash position. In comparison, in order to get a full impact of the accounting change, for the same quarter of fiscal 2010, Myriad recognized an income tax expense of less than $1 million, equivalent to 1.1% effective tax rate, which was attributable to alternative minimum tax in certain state income state taxes.

On a per share basis, Myriad produced a pretax fully-diluted EPS of $0.38 for the quarter ended September 30, 2010. Which compares very favorably to a pre-tax fully diluted earnings per share of $0.32 for the same quarter of the prior year. Earnings per share, including book tax was $0.24, fully diluted for the first quarter of fiscal 2011, which exceeded the Thomson FirstCall consensus number of $0.23. Myriad continues to enjoy a very strong cash, cash equivalents and marketable investment securities position. As of September 30, 2010, Myriad's cash, and cash equivalents and marketable investment securities were $508 million. This increase from $488 million as of June 30, 2010 was achieved even as the Company spent over $28.6 million to repurchase its own stock during the quarter. Myriad has not yet tapped into the second $100 million that has been authorized for additional stock repurchases, but we continue to anticipate that we will complete the second $100 million repurchase by the end of fiscal 2011.

Thanks to our dedicated and highly efficient billing and collection team, Myriad continues to enjoy a very quick turn-around of our accounts receivable. Days sales outstanding for the quarter ending September 30, 2010 were 43.9 days. This is an impressive improvement over what was already an excellent 47 days sales outstanding as of September 30, 2009. In the face of the recession, Myriad instituted a payment program that allowed for patients to pay in the out of pocket expenses associated with their Myriad tests over an extended period of time. We promised at that time that we would keep a close watch on our bad debt experience as a result of this policy change.

Fortunately I can report that the program has been well received, and that Myriad's bad debt as a percent of revenue has actually decreased since the implementation of this program, and now stands at just 4.7% as compared to just over 5% upon adoption of the program. 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 to Mark Capone.

Thanks, Jim. There have been a number of exciting developments in the predictive medicine business in the past quarter. I would like to focus my detailed comments on this particular segment. For the oncology market, revenues grew 4% from Q1 fiscal year 2010 to Q1 fiscal year 2011. This is a more mature for BRACAnalysis, and we believe we have penetrated about 50% of the cancer segment, however, we are focused on four initiatives that can increase both the market size and penetration for BRACAnalysis.

The first initiative is designed to increase penetration with ovarian cancer patients. Guidelines recommend that all ovarian cancer patients be tested with BRACAnalysis. There are approximately 40,000 new and recurrent ovarian cancers per year, and unlike breast cancer, we have only penetrated about 25% of this segment.

There are two reasons to test an ovarian patient. The first, to change the patient's treatment and the second is to provide information for the family that could prevent cancer in additional family members. The potential to treat ovarian cancer patients with PARP inhibitors has raised the importance of understanding a patient's BRCA status. Also, the impact of knowing mutations status for family members has been elevated with information provided in a September publication of 2,482 patient study in JAMA.

This article showed that unaffected patients over a three year timeframe electing prophylactic oophorectomy, saw a 46% reduction in breast cancer, a 72% reduction in ovarian cancer, and a 55% decrease in all-caused mortality. Based upon these developments, we launched an ovarian cancer initiative starting in October, to address the additional $90 million of unrealized annual revenue.

The second initiative is designed to increase penetration with triple negative breast cancer patients. There are approximately 35,000 triple negative breast cancers per year and less than half of those meet current testing criteria. A recent MD Anderson study showed that the positive rate in those patients not meeting current testing criteria was significant to justify expanding criteria to all triple negative patients if confirmed in additional studies. To that end, Myriad completed an additional 199 patient triple negative study in the first quarter, and is in the process of analyzing that data and submitting it for publication. If all triple negative patients were eligible for testing, it would increase the annual market potential for BRACAnalysis by $50 million.

The third initiative is focused on carcinoma in situ, or CIS. This is a non-invasive form of breast cancer that occurs in almost 62,000 patients per year. Historically, there was some question as to whether CIS was associated with hereditary breast cancer. During the first quarter, a 65,000-patient retrospective CIS study was completed and submitted for publication that clearly shows an increased prevalence of BRCA mutations in CIS patients. We believe this data will be instrumental in updating future testing criteria guidelines to include CIS as a component of hereditary breast and ovarian cancer, which would increase the potential BRACAnalysis market by another $50 million per year.

Lastly, we continued to look for opportunities for BRACAnalysis as a companion diagnostic for PARP inhibitors, having just announced another collaboration with Abbott. Since roughly only one-third of breast cancer patients meet current testing criteria, a companion diagnostic to PARP inhibitors would provide significant new market potential. Additionally, we have continued to make significant progress in the women's health segment. Revenue in this segment grew 18% from Q1 in fiscal year 2010 to Q1 fiscal year 2011, despite the fact that OB/GYN office visits were reported to be 5% lower during the first quarter.

We have completed the addition and training of 15 new sales representatives in Q1. The early trends are promising, with territories tracking towards break even in six to nine months. Second, we have started the DCT campaign in the southeastern section of the country, during second week of September. It typically takes four weeks before we see the impact from a campaign, but the early indicators show that internet traffic and sample volume increases are consistent with previous successful campaigns.

Lastly, we continued to find that the ACOG guidelines published in April of 2009 have raised awareness among OB/GYNs in our initiative to increase testing frequency for existing customers is showing early signs of progress. Finally, I am pleased to announce the launch plans for our ninth molecular diagnostic product. It is a predictive medicine product for hereditary pancreatic cancer, and will be branded as PANEXIA. The PANEXIA launch is part of a comprehensive pancreatic cancer strategy. There are approximately 43,000 pancreatic cancer patients diagnosed each year and it is the fourth leading cause of cancer-related death in the United States, behind lung, colon and breast cancer.

It is believed that up to 20% of pancreatic cancer can be caused by inherited factors. This comprehensive pancreatic cancer strategy has the objective of identifying all patients that might benefit from genetic testing. PANEXIA will be positioned for those patients that are part of the exclusively pancreatic cancer family, and will include the BRCA2 and PAL B2 gene, with a list price $3,025.

We are on schedule to launch PANEXIA by the end of this calendar year. If a patient has additional family history beyond pancreatic cancer, it would be appropriate to analyze additional genes. For example, a pancreatic cancer patient that also has breast or ovarian cancer in the family would likely add a BRCA1 test to the PANEXIA test. The clinical importance of this test is that the hereditary condition that led to the pancreatic cancer may significantly increase the risk for preventable cancers, that might otherwise be unknown to family members.

For example, a father who died of pancreatic cancer might unexpectedly have a daughter who is at high risk for breast or ovarian cancer. The initial pancreatic cancer strategy will be targeted towards identifying affected patients in the oncology market and on educating OB/GYNs that pancreatic cancers are part of the constellation of cancers in the hereditary breast and ovarian cancer family. This past quarter we also advanced our clinical programs for the our personalized medicine and prognostic medicine programs. We anticipate multiple publications for these products at the end of the fiscal year, and we will have more details on those studies during later calls.

We continue to believe that predictive, personalized and prognostic medicine products will revolutionize the practice of medicine in coming years, and our goal is to be the global leader in this exciting new field. Our efforts to increase penetration in the predictive medicine market and the exciting new products we have launched continue to offer significant future growth opportunities. I would now like to turn the call back over to Pete.

Thank you, Mark, and I will turn the call over to the operator for the question and answer portion.

Thank you. (Operator Instructions). In order to give the participants the opportunity to participate in our question-and-answer session, we kindly ask that you limit yourself to one question. Should you have further questions, you may reregister. One moment please for the first question. And the first question from the line of Michael Yee with RBC Capital Markets. Please proceed with your question.

Thanks for the question. I will keep it to one question. You just did the deal with Abbot. Can you talk about the opportunity for PARP, near term for you in terms of what you're doing with Abbott and AstraZeneca, and then longer term, just give us some color on either what you think testing volumes can be increased by or revenue opportunities, sort of over a one, two, three year, timeframe roughly. Thanks.

Thank you, Michael. As we announced recently, thE Company has entered into an agreement with Abbott where we will be stratifying the enrollment of all their patients in the Phase II clinical study. I am sorry phase III clinical study using their PARP inhibitor for treatment of women with metastatic breast cancer.

This followed a similar collaboration with AstraZeneca on their PARP inhibitor. There are four other companies that we're aware of that have PARP inhibitors and we are in discussion with all four of those and Myriad is very excited about the potential of the BRCA genes with regards to a companion diagnostic to this very exciting new class of drugs, PARP inhibitors. It is up to others to assess when those drugs will be on the market. We've heard reports that the drugs could be on the market as early as 2012 or 2013 and at the ESMO meetings in Europe, a number of research has indicated it could be earlier than that.

This would have a huge impact on Myriad's revenues. Currently under professional society guidelines, we would test about a third of newly diagnosed and recurrent cases of breast cancer. Looking of course at family history and age of onset of disease as we think of this as hereditary cancer. We think of BRCA genes as diagnostic and any woman being considered for a PARP inhibitor would be tested for the presence of BRCA mutations to see if she would likely respond or not to this exciting new class of drugs, and as we grow the market from essentially a third of all newly diagnosed and recurring cases of cancer to all women who would be appropriate for chemotherapy. That would effectively triple the size of our oncology market.

Thanks.

Our next question is from the line of Ian Sanderson with Cowen and Company. Please proceed with your question.

Thanks for taking the question. Peter, in response to some of the economic factors you outlined, have you changed in any way, your return assumptions for DTC investment and link to that, some of these new initiatives, what the potential incremental cost might be for those, if any.

It is interesting that our direct to consumer marketing campaign last year, which was also in a challenging economic environment had essentially the same return. We saw a positive impact on that campaign. So, it is not being affected significantly by the overall economy. And the return on the direct to consumer marketing campaign remains one of our most attractive returns on assessment.

We are excited that for growing and expanding our entry into the asymptomatic population or OB/GYN market, and we plan on doing the DTC initiatives. I will reiterate what Mark Capone said in that the early returns from this year's DTC campaign are very positive and it looks like it is off to a very attractive start as have the other campaigns that we initiated.

The other projects were initiating with regards to expanding in both the oncology and OB/GYN markets. They are mostly initiatives focused at education and understanding greater utility of the BRACAnalysis products, and changing the way we approach, particularly in the OB/GYN segment, the sales message, and how we stratify that based on specific physician customers. None of that really has a significant cost impact on the company. It is just an educational and sales message stratification plan that we are using. So, outside of the new 15 sales reps and the DTC campaign in the southeast, we don't anticipate significant additional costs associated with the other initiatives.

Thank you.

Our next question is from the line of Kevin Degeeter with Ladenburg Thalmann. Please proceed with your question.

Yes. Good afternoon. Thanks for taking my question. The growth in the OB/GYN it channel looks particularly strong in light of what has been, as you referenced, a difficult environment in terms of office visits. I mean, can you tease out for a little, Pete, how much of that is the impact of the additional sales people and for the territories where you have more established reps, are you able to continue to grow that on a year to year basis in those established territories, and if so, how in this challenging environment?

We are definitely continuing to see growth in the more established territories and with the OB/GYN market which has not near the penetration that we have been able to achieve in the oncology market, we are increasing same-store tests, as well as educating physicians to order tests according to the ACOG guidelines. We have seen improvement even in the more established territories.

With regard to the new sales force, As Jim pointed out, we brought out 15 new sales reps and those costs are fully reflected in the quarters and that would be consistent on the quarters going forward. It takes six to nine months for those sales reps to come up to speed, so they're making very little contribution to revenue growth at the present time. I will point out, however, that we brought on 15 new sales reps last year and they have all been with the company for a year. And are making positive impact towards revenue growth, having gone past that six to nine month learning curve that all the sales reps go through.

Thank you, very helpful.

Our next question is from the line of Derik De Bruin with UBS. Please proceed with your question.

Hi, good afternoon. You are rolling out this new pancreatic test and given that you do have the LDT regulatory tests coming, I guess, when we start thinking about your ability to roll out one test a year. How do you look at what is going to change in terms of the product development line once these new things start to go into effect. Are you going to have to spend lot more money in terms of R&D to get it out the door?

Thanks, Derik. I think what, as Pete mentioned, one of the things the FDA has commented on is that they continue to believe it's important to submit retrospective studies, which is really what we have typically done for the new products we developed. For example the PROLARIS test, we've announced two retrospective studies that have already been conducted and we are conducting an additional one. And so, the FDA has said that type of data is acceptable to them, so we would continue to expect even though the FDA may require submissions and pre-market approval, the types of data we've collected in the past will be acceptable in the future. And we wouldn't expect necessarily that there would be additional costs relative to what we have seen historically. To the extent a prospective study is required, depending on which test that may be. I think in those cases, you would expect some delays in getting that approved and some additional costs. But that would be based on particular products that would require prospective studies.

It is also important to note, Derik, that the FDA is very cognizant of the importance of not seeing patients access to these potentially life-saving tests. Once a test is on the market, it will remain on the market. We may have to spend an additional costs and supporting studies that the FDA may want, but it won't affect our ability to market that product or remaining on the market.

Right, I was more interested in terms of your ability to launch new tests as rapidly as you have. You say you can do one about every year. And if that flows, you will have the burden of more clinical data before you launch.

Certainly, we think. When the FDA has fully implemented their oversight regulation of the laboratory-developed tests, that will slow a new product launch. We are not going to change our one product per year goal, however, because we have been doing better than that. We launched OnDose a little over a year ago. Followed that up with PROLARIS about six or eight months ago. By the end of this calendar year, we will launch PANEXIA. So in 18 months, that's three commercial products, so we are actually doing quite a bit better than one product per year. As the regulations become better understood. And the FDA regulations are firmed up, we will reassess the position. At the present time, we are going to stick with the goal to launch one new product each year.

Great. Thank you.

Our next question is from the line of Charles Duncan with JMP Securities. Please go ahead.

That is Jason in for Charles. You talked about seeing an up tick in office visits in October. Could you maybe talk about whether these are -- where you're seeing an uptick, whether these are already offices where you have a high penetration in terms of market share. Or whether these are new offices.

We are seeing a strong up tick in sample flow across the nation and across all the territories. Again, this is primarily driven by the seasonality of this December 31st quarter, where patients have pretty much met their deductibles and they tend to have procedures and tests like Myriad's products in this quarter, before the deductibles are reset at the first of the year. This is a seasonality historical trend. And we have seen throughout the Company's history. And it does appear to be in the well established territories as well as in new territories pretty much across the nation.

I will, point out, however, that the strongest up tick is coming from a couple of interesting territories. One is the southeast territory where we have initiated the DTC campaign, so clearly there is a DTC benefit beyond the historical up tick. And then we piloted some of the initiatives that is Mark talked about in a territory. And one of the reasons we are excited about some of these new initiatives and now rolling it out nationally is, we have seen a very positive response beyond what is the national average was in that pilot territory as well. Generally, it is pretty much across all territories.

Great, thank you very much.

Our next question is from the line of Bill Quirk with Piper Jaffray.

Hi, good afternoon. It is Dave Clair here for Bill. I had a quick question on the sales force size. Given the 50 new reps we saw last year and 15 that were recently added. I mean, what do you expect to exit the year with in terms of sales force and if you can give us color on long term plans there, that would be great.

We intend to exit the fiscal year, ending June 30, 2011, with exactly the same 315 sales reps, so we won't grow the sales force through the course of the rest of the year. Oncology sales force which stands at 150 sales reps is fully capable of addressing all the oncologists and all the major cancer centers in the United States, and we don't see expanding that sales force in the near future. The OB/GYN sales force, which stands at 165 account executives. We probably will want to grow over the next three years to around 250. We did add 15 this year. We will reassess based upon the macroeconomic environment and trends we are seeing in our industry. How many, we would bring on next summer. But we won't add any additional sales reps until next summer.

Thank you.

Our next question is from the line of Marshall Urist with Morgan Stanley. Please proceed with your question.

Thanks for taking the question. I appreciate all the comments about patient and office volumes and OB/GYN. But maybe it would be interesting to get your thoughts on how it is impacting oncology, obviously it is more penetrating and larger and growing 4% with the benefit of the price increase. So, just curious what is the impact there. And as we go over the year, how do you expect. Should we expect to see acceleration in that. In that part of the business as well.

Thanks, Marshall. We have continued to see impact in the oncology space as well to office visits. That surprised us 18 months ago and now we continue to see that. And so, there is impact to that. And in some cases, what happens are the patients that are under insured end up going to different channels for their oncology care. Some of those are larger hospital settings. And it is less efficient for to say access them in the larger centers. So, overall visits are down. And even the path that they have chosen, and in some cases, affect our ability to see test from that it channel. And I think roughly what we have seen as Jim mentioned, is 2% of the volume increase or 2% of the revenue increase was due to pricing and about 6% was of that growth was due to volume, I think that percentage applied equally to both women's health and through oncology.

Thanks.

Our next question is from the line of Kim Lee with Global Hunter Securities. Please go ahead with your question.

Two questions. First, what are your thoughts concerning why the slower penetration into the OB/GYN segment. And two, what are your plans to initiate DTC campaigns for other products like COLARIS or is your main focus still on BRACAnalysis and the OB/GYN market.

Let me address the second question first. We are excited about the possibility of direct to consumer marketing for the COLARIS product and identifying individuals who have a heightened risk through their it hereditary genetics of contracting colon cancer. Our DTC campaign is focused on the asymptomatic population, individuals who do not it have col lop cancer and might get colon cancer in the future.

Until we have stronger ACOG guidelines around COLARIS, and remember we just got ACOG guidelines on BRAC 18 months ago, the DTC campaign is going to be less effective absent those guidelines. We are working with members within SGO and ACOG to try to improve the guidelines and when we do have stronger guidelines around colorectal cancer and uterine cancer. Susceptibility, you are likely to see a direct to consumer marketing campaign.

With regard to the first part of your question, we saw a dramatic growth in the OB/GYN market this quarter. Year-over-year. And that was as we mentioned primarily due to some of the new initiatives. And the DTC campaign. Although the DTC is just now starting to click in. And that is in light of physician office visits being down year-over-year. According to the Deutsche Bank study, eight of the last ten months, they have been down year-over-year.

I think we are not, being impacted maybe as much as some other companies in the sector am and we clearly are being impacted by the economy. And the fact that women are canceling or postponing the office visits and concerned about expenses and their annual physicals have been delayed. So, clearly, I think that's the biggest factor in the OB/GYN market. And I wouldn't call it it, slow growth when you have healthy double-digit growth in the OB/GYN market.

I appreciate the clarity.

Our next question is from the line of Ashim Anand with Natixis. Please proceed with your question.

Thank you for taking the question. In terms of your deal with Abbott in the Phase II initially and the Phase III, would there be any during clinical trials and if you have seen some revenue out of that and how do you see it going forward it until the product is released?

With regards to stratifying enrollment in Abbot's Phase III clinical study, and this is true also with the AstraZeneca Phase III clinical study. We are not allowed either by Abbott or AstraZeneca to comment on the timing or the enrollment status of the Phase III studies. We do charge them the full $3,340 BRACAnalysis list rate for each patient that is tested prior to enrollment in the study. That does have an impact on the revenues. Given the size of the study, it is small compared to the number of women we test on the commercial side of the company. That certainly will be reflected in our revenues as those studies progress.

Thank you.

We have come to the end of our scheduled time, Mr. Meldrum. Please continue with your presentation or closing remarks.

Thank you very much and I want to thank everybody for listening in and participating in the Myriad Genetics first quarter earnings call. This does conclude the call, 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.