Myriad Genetics Inc (MYGN) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics second fiscal quarter earnings call. During the presentation all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, January 27, 2011. I would now like to turn the conference over to Mr Peter Meldrum, President and CEO with Myriad Genetics. Please go ahead, sir.

Thank you, operator. I want to welcome you to Myriad's earnings call. But before we get started, I would like to introduce Rebecca Chambers. Rebecca has recently joined the Myriad team as the Director of Investor Relations. Over the next several months, Rebecca will be getting to know most of you, and will be instrumental in leading our IR efforts going forward. With that, I will hand the call over to Rebecca for a few opening comments.

Thank you, Pete. Good afternoon everyone, and welcome to the Myriad Genetics second quarter 2011 earnings call. During the call we will review the financial results we have released today, and offer commentary on future growth drivers, after which we will host a question and answer session. If you have not had a chance to review the earnings release it can be found in the investor relations section of our website at myriad.com.

Presenting for Myriad today will be Pete Meldrum, President and Chief Executive Officer, Mark Capone, President of Myriad Genetic Laboratories, and Jim Evans, our Chief Financial Officer. This call is being recorded and will be archived in the investor section of our website.

Please note that those 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 these 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 report 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.

Before I turn the call over to Pete, I would like to also mention that the Company will be participating in the upcoming Citi Global Healthcare conference in New York on March 2. For those of you unable to attend the conference, we encourage you to listen to the webcast of the presentation, which will be available through the investor relations section of our website. With that I will now turn the call back to Pete.

Thank you, Rebecca. Turning to our results, I am pleased to report that the increase we saw in patient sample volumes during September and October continued in November and December. As a result, revenues for our second fiscal quarter grew 8% to a record $100.4 million. Compared with $92.8 million for the same period of the prior year. And increase 9% on a sequential basis.

Hitting the $100 million per quarter revenue mark is an important milestone, and reflects the hard work and dedication of our employees and the utility of our molecular diagnostic test. We are pleased with the strong revenue growth this quarter and are focused on continuing to deliver solid financial results in the future. Our strategy to accomplish this goal is to execute on four key initiatives, which we believe will draw a future long-term revenue growth. As many of you are aware, these key initiatives are to expand our existing products, launch new products, become a leader in the companion diagnostics market, and expand into Europe. In a few minutes, Mark is going to speak about our strategy to expand the existing product portfolio, and my comments will focus on the other three strategic initiatives.

On the new product front, our goal is to launch at least one new molecular diagnostic product this year, and to continue a similar cadence in the coming years. Last quarter we launched our ninth molecular diagnostic product, PANEXIA, for the genetic predisposition of pancreatic cancer. There were over 43,000 Americans diagnosed with this deadly cancer last year. And 37,000 died of pancreatic cancer in 2010.

We believe PANEXIA will be an important aspect for patients with a family history of pancreatic cancer, and give them the knowledge to manage their risks so they can detect the cancer earlier when it is more treatable. And also guide therapeutic decisions if ultimately diagnosed. As with most of our new product introductions, it will take some time to fully educate the medical community, establish medical society guidelines, and obtain Medicare reimbursement. Therefore, it will be a few years before we see significant revenue contribution from PANEXIA.

We anticipate launching our tenth commercial product during the second half of calendar 2011. This product will assist dermatopathologists in determining whether a patient's mole is benign or a malignant melanoma.

We also have a strong pipeline of potential new products in development. These include molecular diagnostic tests for the early detection of ovarian and colon cancer, prognostic medicine products for melanoma, lung and colon cancer, and several personalized medicine products in oncology .

Our next goal is to be a leader in the companion diagnostics space. Two of the most exciting new oncology drug candidates in development today are PARP inhibitors and PI3K kinase inhibitors. PARP inhibitors are very promising because they have the potential to shrink tumors without harming normal healthy cells. And therefore, may have a favorable safety profile with fewer toxic side effects than current cancer therapies. Patients who have lost BRCA function are likely responders for this new class of drugs. Putting Myriad in a strong position, both in the United States and Europe.

To capitalize on this strong position, we are developing an additional test for BRCA functionality, which we expect to launch in 2012. This will be a tissue based BRCA test. PI3K kinase inhibitors are equally exciting. Because in contrast to traditional chemotherapeutic drugs, which do not differentiate between tumor cells and normal cells, this new class of drugs specifically targets cancer cells.

Similar to the PARP inhibitors story, patients may respond to PI3K kinase inhibitors based on their p10 status. Myriad and its collaborators at the MD Anderson Cancer Center discovered PTEN which subsequently formed the basis of our PREZEON test. Our intellectual property position around the PTEN gene and PREZEON is very strong.

And we are also exploring other biomarkers, which may lead to important additional companion diagnostic products in the future. In an effort to play a key role in the companion diagnostics market.

The last growth strategy I will speak to is the European opportunity. Myriad is moving aggressively towards establishing a presence in Europe before the end of 2012. We have nearly completed our strategic plan, and expect to initially target opportunities in Germany, France, Italy, Spain, and Switzerland . Based on a market survey of 207 key opinion leaders and oncologists across the five target countries, we received strong positive response to the clinical value of the BRACAnalysis, COLARIS, PREZEON, OnDose and PROLARIS products. Regulatory approval in Europe for these products is straightforward and similar to the CLIA approve process here in the United States.

We've also had fruitful discussions on the reimbursement front. And believe we can obtain 2,000 to 2,500 euros for a BRACAnalysis test. Which is very close to our average selling price here in the United States.

We currently anticipate establishing a central laboratory in Germany, that will be able to accept samples from across Europe. With European headquarters located in Switzerland, to take advantage of the favorable business environment. We are encouraged about the European opportunity, and believe we are ahead of schedule with our launch plans. We will continue to update you on our progress as we move closer to achieving our goal .

Before handing it over to Mark, I would like to again acknowledge the outstanding efforts of our nearly 1,000 employees and thank them for making a difference in the lives of so many men and women with a family history of cancer. Now it is my pleasure to turn the call over

Thank you, Pete. I would like to elaborate on the initiatives we are undertaking to further increase penetration into the women's health segment and also outline our approach to further developing the COLARIS market.

As you know, we are firmly committed to the women's health market and believe there is a significant opportunity to increase our penetration in that market. During the second quarter, our women's health segment revenue grew 16% year-over-year, despite lower reported OB/GYN visits. Which were down 3% during the quarter according to Thomson Reuters . Our ability to grow the OB/GYN segment in the face of declining office visits, can be attributed to a number of ongoing initiatives and a seasonally strong period. These initiatives include our Southeast direct to consumer campaign, which continues to perform well.

During the quarter we also benefited from the 50 additional sales territories opened last year, which saw revenue growth on average of approximately 100% year-over-year. At the same time, we have continued sales and marketing initiatives to increase same store sales in existing territories.

Another initiative started in the second quarter involved a pilot study with 750 physicians to explore different segmentation approaches. In this group of physicians, we saw a 50% increase in the percentage of physicians that ordered tests and we saw the ordering frequency double compared to controls. These efforts will be expanded throughout the entire women's health market during our fiscal third quarter. We expect to continue to benefit from these initiatives in the third quarter and are cautiously optimistic that their ongoing success will partially mitigate the historical third fiscal quarter headwind of resetting patient deductibles.

In addition to the initiatives we are working on to further penetrate the OB/GYN market, we are also focused on strategic plans to mitigate the influence deductibles make on a patient's ability to undergo testing.

First we are promoting a program that provides patients with an out-of-pocket cost guarantee before running their test, and offering to finance any out-of-pocket payments interest free for 24 months. The programs have been well received because in practice it removes uncertainty on the out-of-pocket cost per patient and can help a patient spread their deductible over two years rather than a few months.

Second, we are working with a charitable organization that specializes in assisting patients with their out-of-pocket genetic testing costs. This organization successfully implemented a patient assistance program in Massachusetts and is evaluating five additional states.

Lastly, we are proactively communicating with United States Preventive Services Task Force and Health and Human Services to clarify a new policy contained in the affordable care act. We believe the intention of the act was to promote and encourage preventative healthcare through the elimination of patient out-of-pocket costs for preventative services. While the intent was to have BRACAnalysis considered preventative under this statute, there is still some ambiguity as to the final outcome. We're working with several patient advocacy groups who are seeking support from legislators for favorable broad interpretation, and also participating in discussions with an advisory group which is expected to interact with Health and Human Services in establishing the criteria.

In the event BRACAnalysis testing is covered under this new legislation, it would be a significant positive for Myriad and affect all health plans that are not grandfathered. According to the study performed by Hewitt Associates, this would equate to approximately 50% of surveyed company plans in 2011, growing to approximately 70% of plans in 2012.

We are also focused on the further penetration of our colon and endometrial cancer predictive medicine market product COLARIS. In December a landmark health economics study was published in cancer prevention research. The Journal of the American Association for Cancer Research. This is the most extensive model ever developed for a genetic test, and was published by the world experts in hereditary colon cancer, the condition diagnosed by COLARIS. The study concluded it would be cost effective to test unaffected patients with at least a 5% probability of a mutation.

By way of example, an unaffected patient with a single affected family member would likely exceed this threshold. Based upon the estimates in this model, testing would cost, be cost effective for over 2 million Americans. This represents a great opportunity for Myriad and we are implementing plans to capitalize on this opportunity.

We have convened two scientific advisory boards to develop a plan on how to present this new information to the critical standard setting bodies, including NCCN, AGA, ACOG and USPSTF. In addition, our managed care team has been trained on this study, and is working with major private insurers to incorporate the finding in their reimbursement criteria.

The study demonstrated the cost effectiveness of a four gene test priced at up to $4,000. Myriad's current comprehensive COLARIS product includes three genes priced at $3,100, but does not include this fourth gene. Myriad is working to include this gene and other improvements by the end of this fiscal year to provide the most sensitive product available. This additional gene will be priced at $1,400 and we anticipate it will be ordered on a portion of new patients, as well as some of the 46,000 previously tested patients. This additional gene should also improve our market share in the oncology segment where physicians are increasingly asking for this more sensitive test.

In summary, our current penetration in the women's health and COLARIS markets is currently less than 10%. We believe the series of initiatives by about -- highlighted has the potential to positively shift the current trend lines in the future. Coupled with the progress against our other three strategic goals of new product launches, companion diagnostics, and European expansion, we continue to believe Myriad has a long runway for future growth. I would like to turn the call over to Jim Evans for a more detailed financial

Thank you, Mark. And good afternoon everyone. It's my pleasure to present a more detailed look at Myriad's financial results.

Myriad's revenues for the first, for the fiscal second quarter of 2011 were $100.4 million, an increase of 8% over the same period in the prior year. As a reminder, Myriad introduced the 7% price increase across our product lines in April of this last year. Price contributed 2.5% to second quarter revenue growth. While the remaining 5.5% came from an increase in sample volume. Sequentially, revenues grew 9%.

A breakdown of revenue by product shows BRACAnalysis grew 8.5% year-over-year to $89.2 million, or 89% of our total revenues. Of this, approximately $69.4 million, or 69% was generated from the oncology market, an increase of over 5% versus the prior years second quarter. Revenue from the women's health, or OB/GYN segment reached a record level of $31 million, growing 16% year-over-year to account for 31% of BRAC revenue. Revenue from COLARIS and COLARIS AP was $7 million, or 7% of total revenues. The rest of Myriad's portfolio of products grew 13.5% year-over-year and accounted for 4% of revenue, or $4.3 million. As Pete mentioned earlier, we are excited about a number of these products ramping up over the next six to 18 months, including PROLARIS and OnDose.

Moving down the income statement, second quarter gross margin was 88%, in line with the same period last year. Research and development expense was $6.1 million, an increase of 20% year-over-year. This increase is primarily due to investments in accumulating additional clinical data for our marketed products, a one time $1.5 million payment for the technology and license for Melanoma Diagnostics Inc. As well as funding our new product pipeline.

SG&A expense increased 4% year-over-year to $43.7 million or 43.5% of revenue. This 4% increase supported our 8% revenue increase and reflected spending associated with the Southeast DTC campaign, consulting and strategic planning expenses to support our international expansion, and other sales and marketing initiatives.

Operating income for the quarter was $38.6 million, resulting in an operating margin of 38.4%, a 120 basis point improvement year-over-year. This level of operating margin expansion was primarily a result of the leverage we were able to bring to bear on our SG&A as revenues continued to go faster than our investments in sales and marketing.

The second quarter effective tax rate was 38%. On a GAAP basis, we recognized $14.9 million in income tax expense. This tax liability was almost entirely offset with NOLs and tax credits, and therefore had very little impact on Myriad's cash position.

Our diluted share count for the quarter was 93.6 million shares. As you will recall, as of the last earnings call, we had completed the initial $100 million share repurchase program, and announced the authorization of an additional $100 million. I am happy to report that during the second quarter we repurchased approximately 3 million shares for around $62 million and have approximately 38 million of the second authorization left to complete over the remainder of fiscal 2011. The average price per share's repurchase to date under the $200 million program is $18.90 per share.

On a per share basis, Myriad produced a pretax, fully diluted, EPS of $0.42, compared with $0.37 for the same quarter of the prior year. An increase of 13.5% year over year. Earnings-per-share, including book tax, was $0.26 fully diluted for the second quarter of 2011.

Moving on to the balance sheet and cash flow, our ending cash and investments were $494.4 million. This compares to the balance last quarter of $508.4 million. The share repurchase program was a net use of cash during the quarter. Cash from operating activities was $37.1 million, capital expenditures were $1 million, and free cash flow was $36.1 million.

Thanks to our dedicated and highly efficient billing and collections team, Myriad continues to enjoy a very quick turnaround of our accounts receivable. Day sales outstanding for the quarter was reduced to an impressive 37 days. This is a significant improvement over what was already an excellent 48 days sales outstanding as of December 2009.

Additionally, I am happy to report our bad debt as a percentage of revenue has a again decreased and now stands at 4.2%. We will continue to keep a close watch on this metric.

In the first half of fiscal 2011, revenue increased 8%, resulting in a 15% increase in operating income. We are pleased with our results thus far, and are now focussed on delivering further progress in the second half of the fiscal year.

With that in mind, I'll now move on to our expectations for the rest of this fiscal year. We continue to be comfortable with guidance for fiscal year 2011 of revenues of $380 million to $400 million and earnings per share of $0.95 to $1 per share. This guidance includes several items that are important to note. During the third fiscal quarter, we typically encounter headwinds of newly reset and higher deductibles compared to the prior quarter. We continue to project 2011 gross margins of approximately 88%. R&D expense is expected to increase by 10% to 15% year-over-year. As the last two quarters have demonstrated, the level of quarterly increase may fluctuate and be somewhat lumpy as projects are undertaken.

We also anticipate that SG&A expenses will fluctuate quarter to quarter depending on a variety of factors, including the costs associated with our DTC campaign and expenses associated with our planned expansion into Europe. The effective tax rate is expected to be approximately 38% for fiscal 2011. And we expect to complete the remaining share buyback of $38 million by the end of fiscal 2011 by opportunistically buying back shares in the open market. With that, I will hand the call over to Rebecca for the Q&A portion.

Thank you, Jim. We have about 30 minutes for Q&A, so we ask that you please limit questions to one with one follow-up question if necessary. If you have additional questions after that, please return to the queue and we will take your question if time allows. Operator, we are now ready for the Q&A portion of the call.

(Operator Instructions) Our first question comes from the line of Amanda Murphy with William Blair. Please proceed with your question.

Thank you. I just had a quick follow up on the comments you made on the affordable care act. I'm curious, it seems like the payers are interpreting the rules a little differently in terms of whether the test is covered or not. Have you had conversations with some of the payers and what is sort of your sense on whether ultimately they will cover the test itself versus the counseling piece?

Thanks Amanda, this is Mark. We have talked to a number of insurers about their interpretation of the preventative care act. Again, we still think the intention of the act was quite clear in that the idea was to cover any preventive services and remove any obstacles for women in this case to get those preventative services. I think that intention was clear and we also think the USPSTF, who has made recommendations in this regard, was clear in that the evidence supporting the use of BRACAnalysis was extremely strong. We think the underlying tone is all in favor of support for BRACAnalysis in this preventative services.

Right now many of the insurance companies have yet to take an official position on exactly how they will interpret this. We do know some have come out in favor of interpretation that BRACAnalysis is a preventative service. There are others that have not taken that tact and so we are working with each of those insurance companies to help understand their current interpretation. I think most importantly, we are going to work with all of the advocacy groups, we will work with Health and Human Services, USPSTF to make sure that this is clearly included as one of those preventative services.

Okay, thank you.

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

Thanks, two questions. One is regarding Europe. I know you have sort of given some broad brushstrokes. You sort of said you expect that revenue over the next one or two years, can you better quantify patient size, revenue size, opportunities, 10, 20, 50, is it $100 million relative to what you are doing in the US? Can you talk a little bit about that? And then the second question is regarding some of the PARP inhibitor data that is out coincidentally two pieces today. Just thoughts, have you talked AstraZeneca or Sanofi and any thoughts there? Thanks.

Thank you, Michael. The European market is significant. There actually are more patients diagnosed with breast cancer in Europe than in the United States for example. We estimate the European market size to be about 75% of the US market. And given the favorable receptivity that we have seen for our products, and the level of reimbursement we think is achievable, we feel very comfortable that Europe should be some point in time as we penetrate the market, 75% of the revenues we are achieving here in United States.

Moving on to your second question, Sanofi BiPar did announce their Phase 3 results this afternoon, and they were not favorable. They did not meet the primary -- the co-primary clinical end points of survival and progression free survival. It's important to note that the Phase 3 trial undertaken by Sanofi BiPar, the enrollment criteria was in triple negative breast cancer patients. That is an enriched population of BRACA patients, however triple negative only represents about 20% or less BRACA positive patients.

While they did not meet a statistically significant end point in the trial for either survival or progression free survival, they did see improvement in both survival and progression free survival with minimal added side effect to the profile to the control arm. Sanofi BiPar indicated that they would be analyzing that data further, and we would certainly be willing to help them do an analysis to see if BRACA patients in fact did respond, even though the total triple negative pool did not.

Coincidently too, Astrazeneca announced that they were moving forward with a Phase 3 clinical study in ovarian cancer where the enrollment criteria will be BRACA status. They indicated that they would put on hold until they have Phase 3 data in ovarian cancer, their clinical study in breast cancer. Under our contract with Astrazeneca, Myriad is not allowed to comment further concerning the status of the Astrazeneca clinical trial.

Thank you, Mike.

Our next question is from the line of Tycho Peterson with JPMorgan. Please proceed with your question.

Thanks for taking the question. Jim, in your comments, with regard to the outlook, you talked about obviously that Q3 headwind from the reset to higher deductibles. Can you talk of a little bit about how you are thinking about that for this year? Obviously you've got a lot more patients moving to high deductible plans, so as we think about the lumpiness as the year progresses, can you talk about what you're thinking about for this coming quarter?

As we have indicated, there is some seasonality to our business, and we do typically have some of those beneficial factors that help us have such a strong December quarter turn against us and become headwinds in the first calendar quarter. As deductibles are reset and as some of the testing that is driven by cafeteria plans that need to be used are lost, that goes away a people are starting rebuild those programs.

Historically, we have seen a flattening of revenues between the second and third quarter. Although, we are happy with the number of samples that we have seen coming through in January, so we have cause for being optimistic, but we do have that historical seasonality that we have encountered in the past.

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

Hi, good afternoon. This is [Rafael] in for Derik. Quick question for me. Regarding M&A, you talked about in the past, wondering if you made any progress in [evaluating] some of the potential targets out in the landscape? Thanks

Thank you. Myriad is very aggressive at exploring opportunities to grow our business through M&A activity. As we have said in the past however, we have a fairly strict criteria for undergoing an acquisition of another company. First of all, we have been very successful, as shown recently with the acquisition of technology from Melanoma Diagnostics Inc, we've been very successful just at licensing for modest sums of money, new technology, and product opportunities.

So, to acquire an entire company, which is a much more expensive endeavor, we would want that organization to be impact full on our revenues. Say something in the $40 million, North of that range. We would want that acquisition to be accretive, so the company would need to be profitable, and it would have to represent an attractive return on investment for Myriad. While we are aggressively exploring those types of opportunities, as I'm sure the listeners can appreciate, there aren't a lot of companies that would meet that criteria.

Do have a follow-on question Rafael or are you all set? Operator, you can move to our next question.

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

Hi guys, good afternoon. First question is just on the OB trends in the quarter and it would be helpful if you could talk about the same store sales dynamic. If we control for the DTC territory, as well as the new sales chart territories. How did the same store sales dynamic trend relative to that headline backing out price, 14% volume growth rate in NOB?

Sure, thanks Marshall. We have seen, as I discussed, we have worked on some initiatives to increase same-store sales if you will. Recognizing that many physicians, while ordering the test, do not do so at the level that would be recommended by any of the professional society guidelines. We were able to make some headway in the second quarter in increasing same-store sales, and in particular we would attribute that to the new sales and marketing initiative we launched in the quarter. And based on that success, we plan on carrying that over to the rest of the women's health market into the third quarter. So, we have been able to increase same-store sales, which was one of our primary goals.

In addition to that, as I mentioned, that for those new territories, those have been very productive and over 100% increase in sales for the 50 territories that were added last year. If you remember, we added 15 territories this year and typically it takes those new territories six to nine months before they begin to ramp up. So, they are contributing, we would expect them to increase their contribution as this year progresses. And that will allow us to evaluate additions potentially for next year.

Great thanks, and then just a follow-up related. On COLARIS, you mentioned several initiatives you guys have there, but if you look at the numbers in the quarter, it looks like it was down a little bit sequentially and only grew a couple percent year on year. So, if we look at the underlying business there, can you talk about what you're seeing there that's maybe causing the slowdown there? Is it a penetration issue, is it a guidelines issue, what are the challenges you're facing there?

Yes, I think overall as we peel that back, we still continue to see excellent trends in COLARIS as we have since launch. I think what we saw in the second quarter actually happened to be more of a timing issue, more of those samples ended up caught up in the end of quarter holiday season. And so we attribute most of that to really a timing issue that should flush itself out here in the third quarter.

Overall, we still think there is an incredible amount of potential, there is significant interest in the study that we just announced. And we think the addition of this other gene will not only allow us to increase the amount of revenue from each patient that comes in the door, but also stand up as having the most competitive product out there in the marketplace as well.

Great, thanks for taking the questions.

Next question is from the line of Scott Gleason with Stephens. Please proceed with your question.

Hi, guys. Thanks for taking my questions. I guess first Pete and Jim, can you talk a little bit about the European landscape and is there any I guess existing insurance coverage in Europe today in terms of a certain number of covered lives?

Yes, I would be happy to. As you might expect, Europe is dominated by national insurance. On average, each country in Europe approximately 90% is national insurance, there is private insurance, but it represents only about 10% of the total reimbursement package. BRACA testing is done in Europe today, even though Myriad has five patents granted in Europe because we are not physically located in present in Europe, we have chosen not to enforce those patents and interfere with Europeans being tested.

Germany is the largest market. There are about 7,000 BRAC tests done in Europe -- I'm sorry in Germany. The largest group, they are a breast cancer network, which is a coalition of about 15 major hospitals in Germany does those testing. And as I mentioned, they're reimbursed at about the 2,000 to 2,500 euro rate.

So, reimbursement is actually quite positive from national reimbursement standpoint. It's actually higher than that from the private insurers. Again, the national insurance dominates 90% of that business. But we are very comfortable at those reimbursement levels, and as I mentioned, that's very close to our average selling price here in the US.

Great. And Jim, one quick follow-up, can you give us what the DTC spend was this quarter and then I guess that there's been any change in the overall plan for the year in terms of total DTC spend?

It was about $3 million during the quarter.

Okay, thank you for taking my questions.

Our next question is from the line of Peter Lawson with (Inaudible) Securities. Please proceed with your question.

Peter, I just wondered if you would give more color on patient volumes and visits. What you were seeing from your own sales force.

Sure, I think what we saw was, as I mentioned, we have been using Thomson Reuters as -- and we also crossed track with IMS to look at overall patient volumes, we did see about a 3% year-over-year drop in patient volumes in the second quarter according to that data. And that's consistent with what we have heard from the sales force is that patient volumes still continue to be down. Now that trend is slightly better than what we saw in the first quarter, and so the trend through the second quarter seemed to be slightly upward. But it's difficult to tease out any more granularity from data like that.

Let me just add to what Mark said. Remind our listeners that even though we saw physician office visits decline 3% in the second fiscal quarter ending December 31, the Company still enjoyed very strong double digit patient sample volumes from even that smaller patient base. We remain very optimistic about the women's healthcare market and our ability to penetrate that opportunity.

I'm wondering if you could give some color on the scale that BRACAnalysis contributed in the quarter from the clinical trials?

It's very small. Our volumes for BRACAnalysis from commercial patient testing are so large that the clinical studies that the Company does with those companies such as Abbott and Astrazeneca working on PARP inhibitors is tiny. Barely moves the needle.

Okay, thanks so much.

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

Good afternoon. Thanks for taking the question. First, on the European market, is your plan to prosecute your BRACAnalysis patents before entering the market, or will you enter those markets regardless?

That's an interesting question that the Company is weighing. If I had my druthers, I would not want to go into a new market in a heavy-handed fashion , trying to enforce patents. So, the question is does Myriad have other competitive advantage to where it is strong IP protection is duplicative or even not necessary. As I mentioned, there is BRACA testing done in Europe and the reimbursement rate is relatively attractive.

There two challenges though facing the European market. And this has been expressed to us in the survey of the over 207 key opinion leaders and oncologists that we have visited within Europe. The first is turnaround time. The turnaround time in Germany averages six to nine months. France is nine months to a year, and the UK is 12 months to get an answer. Myriad's turnaround time in the United States is seven to 10 days. We have indicated in our survey that we could deliver results within two weeks or less, and 95% of the responders said they would switch to Myriad if we could turn results around that quickly. So, turnaround time gives us a significant competitive advantage.

The other is accuracy of data. According to, again the study, about 30% of the patients who have mutations have a variance of unknown consequence. We don't know or they don't know if those mutations are harmful or benign. Myriad's rate of variance of unknown significance is less than 2%, so over 98% of the time we could give an accurate definitive answer. And so that is, of course, very important to physicians and oncologists as they manage their patients healthcare. So, given those two competitive advantage of rapid turnaround time and vastly superior information about a patient's risk for breast cancer based on our database, I don't believe that trying to enforce the patents is either a good idea or warranted at this

Just to follow up, have you set any rough goals in terms of timeline to profitability in Europe? Would it be in two to three years or have you not gotten to that point?

We have actually established a five-year plan for Europe that sets goals for not only profitability, but revenue. But we are not prepared at this time to share those with our investors.

Thank you.

Our next question is from the line of Charles Duncan with JMP Securities. Please proceed with your question.

Hi thanks for taking my question this is Jason in for Charles. I was just wondering if you could give us little bit more color around the SG&A line and you said that there were be some choppiness as it were around SG&A going forward. But could you help us to understand whether this recent quarter was a new base that we should think about or whether it was more like a peak level that we may not see quite as high a level in the future?

Yes, on the SG&A side, it does tend to bounce around a little bit. A lot of that is driven by the timing of the DTC campaign. The campaign started in September and will run through the end of March. And so I think you will see similar type spends on that in the March quarter as you saw in the December quarter. So, you could expect to see that. We're not adding any new additional headcount in our sales force at the current time. We typically do that over the Summer months, and then we will wait until the beginning of next fiscal year before those people are added. So, that really won't be changing significantly.

The main drivers that move as revenue moves with the commissions for our sales force and bad debt expense. So, those will obviously be impacted by future sales and revenue levels. But the other major drivers of DTC and additions to the sales force are much as I have just described.

Okay, great thank you very much.

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

Congrats on a good quarter guys.

Thank you

My question is regarding the melanoma diagnostic deal. First off, the $1.5 million that you said you spent, that is all the amount that you have spent on the deal, or there is more to it?

No, that's the up front payment. We will be paying milestone like loyalties based on product sales in the future.

Okay. Now in terms of the interesting melanoma marker and gene expression profile they have, first of all, do they have IP on it or how are you guys are going to deal with it? Are you going to get IP or do they are ready have it? And secondly, the gene expression profile, is the goal long-term not maybe short-term is to replace the staging of melanoma or it's more would be kept to the diagnosis part?

Thank you for the question. As far as intellectual property, part of the acquisition of technology included the intellectual property that Melanoma Diagnostics has, so we have a patent that covers 12 different genes , five of which are involved in this initial diagnosis product. So, we think we have a very strong intellectual property around the products that will come out as a result of this acquisition.

Secondly, as far as the profile of the product, I think in general what we anticipate -- there's about 3 million biopsies done every year in the United States. A number of those, we think about 85% of those according to dermatopathologists, are very clear calls for a dermatopathologist to make and these products would not necessarily make sense in that application. For those 15% where it's very difficult to decide whether or not this is actually cancer, we think that's where this product ultimately will make sense. So, that's 450,000 biopsies every year where -- that are uncertain, and certainly this initial product would make sense.

Now in addition to the diagnostic product that we are contemplating as the initial launch, we are also looking at prognostic products that were part of this intellectual property. And in that case, you would try to determine whether or not this is an aggressive melanoma and that would certainly apply to those 450,000, but could extend beyond those 450,000 to some other biopsies as

In the future, considering this goes well with MELARIS, would you guys even consider having a sales force dedicated to dermatologists?

Yes, we think to reach dermatopathologists and potentially critical dermatologists, that would require an additional sales force. So, those are plans that we are actively looking to put together now.

Thanks guys.

Operator we have time for one more question.

Next question is from the line of Kevin DeGeeter with Ladenburg Thalmann. Please proceed with your question.

Thank you for my question. One and then maybe one follow-up. Can you provide a little more additional clarity of how the addition of the PMS2 gene to COLARIS will work?Will the bass COLARIS product now be a four gene panel or will the three gene panel still be the primary product that is promoted with the option to add the fourth gene?

Thanks for the question. The primary product for now will still be the three gene product. PMS2 is really a relatively new entrant into this market, and so we are working with insurers to ensure that reimbursement will be included for all COLARIS patients. Until we finalize reimbursement, we will just have that PMS2 gene as a separate product. And generally what we expect to happen is for some of the newly tested patients, those positions will reflex any negative COLARIS over to the PMS2 gene. And also we do expect for patients we have tested historically, which were about 46,000, we would expect a number of those patients to also be submitted separately for that PMS2 gene.

As we lineup reimbursement for the four gene product, our intention would ultimately be to make that the comprehensive COLARIS product, so that all four genes would be run and reimbursed at one time.

Okay, terrific. Then maybe one for Jim here. Really impressive progress on knocking down DSOs in the quarter, really to a level of receivables we haven't seen from the Company in several quarters. Can you talk little bit about some of the steps you took to move DSOs down to that level, and is this a sustainable level or do you anticipate a little creep back upwards again?

Yes, thank you for the compliment. It is something that we are very proud of, that we have been able to achieve. A lot of it is good old hard fashioned work and getting these receivables collected. There is always some timing that is involved when you get large payments from insurance carriers if it happens to come and right before the end of the quarter, or at the beginning of the next quarter, and I think we benefited a little bit from that.

So, I won't be surprised if we were to see that number move around a little bit from its current number of days outstanding, but I would not expected it to retrench materially. I think we have great systems in place, and we have superb individuals in the group that are working hard to continue to bring in those receivables in a timely fashion. So, I can't really point to any one specific program, just a lot of blocking and tackling and getting those receivables collected.

Terrific. Congratulations on the progress.

Thank you.

Ms Chambers, I will now turn the call back to you. Please continue with your presentation or closing remarks.

This concludes our second-quarter earnings conference call. A replay will be available for the webcast on our website for one week. Thank you all again for joining us this afternoon.

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