Myriad Genetics Inc (MYGN) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics 2011 third quarter results 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 Tuesday, May 3, 2011. I would now like to turn the conference over to Ms. Rebecca Chambers, Director of Investor Relations for Myriad Genetics. Please go ahead, ma'am.

Thank you very much, Susan. Good afternoon, everyone, and welcome to the Myriad Genetics third quarter 2011 earnings call. During the call, we will review the financial results we've released today, offer commentary on our recently announced acquisition of Rules-Based Medicine, and provide an update on our entry into Europe, after which we will host a question-and-answer session. If you have not had the chance to review our press 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, Gary King, Executive Vice President of International Operations, and Jim Evans, our Chief Financial Officer. This call can be hear live via webcast along with the slide presentation at Myriad.com. We encourage you to view the slides during this call or at a later date, as they will be available on the website under the Events and Presentations tab. Lastly, this call is being recorded and also will be archived in the Investors section of our website.

Please note that some of the information presented here today may contain projections or other forward-looking statements regarding future events, or the future financial performance of the Company. These statements are based on managements current expectations, and actual results or events 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 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 and forward-looking statements.

Before I turn the call over to Pete, I'd also like to mention that the Company will be participating in the upcoming Jefferies Global Healthcare Conference in New York on June 7. 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 over to Pete.

Thank you, Rebecca. To begin with, I would like to provide highlights of our third quarter results before moving on to our recently announced agreement to acquire Rules-Based Medicine. I am pleased to report that third quarter revenues grew 13% year-over-year to a record $102.4 million. This increase was a result of the continued success we are experiencing with ourselves and marketing programs. Our oncology initiatives in particular continue to be productive, as we further penetrated the ovarian cancer and triple negative breast cancer markets.

Myriad's profitability demonstrated an impressive year-over-year increase as operating profits grew 26% to $41.8 million, compared to $33.2 million in the third fiscal quarter last year. As this webcast slide shows, our operating profits have steadily improved over the past seven quarters, growing from $29.7 million in the first fiscal quarter of 2010 to $41.8 million in our most recent quarter. Additionally, we are well into our third $100 million stock repurchase program. And as of March 31, 2011, the total common shares issued and outstanding were 85.7 million, which is a 14% decrease from the 97.8 million shares outstanding as of March 31, 2010. Our improved profitability, coupled with a reduced share count, resulted in a fully diluted earnings per share of $0.31.

As I previously shared with you, two important components of our plan for future growth are to expand beyond our core oncology products into new disease indications and to build a major companion diagnostic franchise. As such, I would like to discuss the strategy behind our decision to acquire Rules-Based Medicine. We believe this acquisition represents an attractive opportunity for Myriad for three strategic reasons.

First, RBM has a strong product pipeline in neuroscience disorders, infectious diseases, and inflammatory diseases, which will facilitate the extension of Myriad's commercial focus beyond oncology. Second, they have collaborated with over 20 major pharmaceutical and biotechnology companies, providing them with critical biomarker information that can improve their clients' clinical trials outcomes. Third, their proprietary, multiplex immunoassay technology and access to patient samples enhances Myriad's already strong capabilities in nucleic acid biomarker discovery.

Under the terms of the agreement, RBM will be acquired for $80 million in an all-cash deal that is expected to close on or before May 31, 2011. RBM had revenues of approximately $25 million for the year ended December 31, 2010, and was approaching breakeven operations after adjustments for certain nonrecurring items. We believe this acquisition represents a very attractive return on investment and expect the deal to be accretive within two years. RBM's multiplex immunoassay technology will enable us to efficiently screen large sets of patient samples from both diseased and non diseased populations against RBM's exclusive portfolio of biomarker assays. The combination of this powerful protein-based biomarker discovery platform, coupled with Myriad's leadership in DNA and RNA biomarker discovery, is expected to accelerate our discovery and development of new molecular diagnostic products. Myriad now has the complete complement of molecular biomarker technologies needed to lead the paradigm shift towards individualized medicine, whether it is assessing risk for disease or selecting the most appropriate therapy for a given patient.

In addition, of RBMs proprietary protein technology and its 550 immunoassays also positions Myriad as a leader in the companion diagnostics arena. RBM has provided custom assay development and companion biomarker discovery for a number of pharmaceutical companies, including Allergan, Amgen, Bayer, Biogen Idec, Boehringer Ingelheim, GlaxoSmithKline, Johnson & Johnson, Eli Lilly, Merck, Novartis, Pfizer, and Roche. Importantly, through these collaborations RBM has obtained companion diagnostic rights to many of the drugs under development. In addition to diagnostic rights, RBM gives us access to patient samples with outcome datas from multiple disease indications. These pharmaceutical collaborations complement Myriad's existing collaborations with Abbott, AstraZeneca and Biomarin.

RBM also strengthens our diagnostic product pipeline, particularly outside our primary area of expertise in oncology. RBM has discovered a number of proprietary protein biomarkers, which form the basis of an exciting molecular diagnostic product pipeline. Their most recent and advanced products under development are in the neuroscience area. RBM's mental health product, VeriPsych, assists physicians in identifying schizophrenics from normal individuals. And, the United States military has also shown a strong interest in using this test.

Separately, RBM is developing a psychiatric differential diagnostic candidate that helps psychiatrists categorize patients between schizophrenia, bipolar disorder, and major depression, to ensure that the patient receives the most appropriate therapy. These conditions are currently diagnosed by psychiatrists using subjective measures, and are frequently misdiagnosed upon initial evaluation, when the disease can be more effectively treated. We believe this product may be ready for commercial launch within the next two years.

Additionally, product candidates are being developed for the early detection of kidney damage in diabetic patients, and early detection of kidney transplant rejection. In the infectious disease area, RBM has early exciting data that may be used to predict a hepatitis C patient's response to the interferon alpha class of drugs.

In conclusion, the RBM acquisition expands Myriad's diagnostic product portfolio into other major diseases, including neuroscience disorders, infectious diseases, and inflammatory diseases. It creates the leading franchise in companion diagnostics, with over 20 strategic alliances. The acquisition furthers our molecular diagnostic product discovery program, providing us with access to a substantial collection of patient samples in multiple disease indications, with outcome measures that may assist us in the clinical validation of these products. Finally, it enhances Myriad's industry-leading DNA and RNA technology, with unparalleled strength in protein biomarker discovery and analysis.

In terms of the integration of the RBM into Myriad, we intend to continue to operate RBM from its facilities in Austin, Texas, as a wholly owned subsidiary under the name of name Myriad RBM, Inc. Myriad RBM will perform companion diagnostic discovery and development in collaboration with its pharmaceutical partners, and on Myriad's own research projects. RBM's commercial diagnostic operations will be moved our other wholly owned subsidiary in Salt Lake, Myriad Genetic Laboratories. We are excited to welcome the over 160 talented and dedicated RBM employees to the Myriad team, and believe this strategic combination will further Myriad's goal of marketing transformative molecular diagnostic products that save lives and reduce healthcare costs. Now, is my pleasure to turn the call over to Gary King, to provide an update on Myriad's strategy to expand internationally.

Thank you, Pete. I am pleased to provide an update on Myriad's international expansion strategy. As background, the molecular diagnostics market in Europe is approximately three-quarters the size of the US market, with oncology and pharmacogenomics growing most rapidly as adoption begins to approach US levels. Many US-based diagnostic companies drive 30% to 50% of overall revenue and profits from international operations. These facts from the base of our initial desire to learn more about the region, as we believe there is significant potential for international expansion to contribute to Myriad's future growth.

We began the process of assessing the international and European opportunity last July with an initial goal of completing a thorough survey of the European market, developing an entry strategy, and then executing on that strategy. I am pleased to report that we are now finished with the market research and entry plan development phases. The market research gathered was very informative and focused on analyzing the most attractive growth opportunities for Myriad's current portfolio and pipeline products, the size and growth of each market in the region, current and predicted competitive activities, barriers to entry, and the overall fit with Myriad's core capabilities. From these findings, we have developed a detailed strategy and implementation plan. As part of the process, we completed key opinion leader interviews and market research surveys in France, the UK, Germany, Italy, Spain, Switzerland, Belgium, the Netherlands, and Luxembourg. Based on our analysis of market attractiveness and accessibility, we narrowed our focus on five target countries, Germany, France, Italy, Spain, and Switzerland.

Our research has revealed promising information about the European opportunity and the potential for Myriad to compete on the strength of our product offering. Genetic predisposition and personalized testing is accepted clinically, and reimbursed at high levels in most of our target countries. However, there is great dissatisfaction about the current turnaround time and quality of results. As part of our market research, we performed a survey of over 200 practitioners that are currently using a BRAC test. Feedback from this survey showed that it takes on average six months, and often as long as 12 months, to obtain results from current providers of BRAC testing. Due perhaps to this long turnaround time, results of the BRAC test are not able to be incorporated into initial surgical decision-making as they are in the US. Additionally, the quality of results is lower than that delivered by Myriad is the US, as the variance of unknown significance reported ranged from 20% to 40%, depending on the European laboratory doing the testing.

Finally, due to the low volume and the resulting inefficiencies of laboratories running these tests, the cost to perform the test range between EUR1,500 and EUR2,500, an average of nearly $3000. Myriad's turnaround time of less than two weeks, unknown variant rate of 2% to 3%, at a similar selling price compare favorably to these metrics. Additionally, we determined the current utilization of genetic predisposition testing is significantly lower than that in the US. This may be driven by the lack of any organization or large company. such as Myriad, supporting local clinical education, or the inability of local laboratories to provide quality testing within a reasonable turnaround time. Myriad has extensive experience building the US market from scratch, and we will leverage this experience, including investing in clinical education resources locally to build awareness and drive adoption in the European market.

We carefully considered the full range of entry strategy options, from developing kits that could be run on existing platforms, partnering with local laboratories, acquiring local laboratories, or acquiring a major pan-European laboratory or diagnostic company. We evaluated over 150 potential distributor or laboratory companies in Europe, but did not find a potential partner or acquisition that could provide broad coverage, clinical expertise, or significant near-term revenue. Therefore, we've decided to build our own European reference laboratory and build direct education and sales and marketing organizations in our target countries. We've chosen to build our laboratory in Munich, due to the central location, ability to recruit good, local technical staff, and because Germany requires in-country testing in order to receive insurance reimbursement. We will locate our headquarters, management, and administrative team in Switzerland and build sales, marketing and clinical organizations in Germany, France, Italy, Spain, and Switzerland, to begin aggressive market development.

We have made good progress and are on track to have a European presence in early 2012, a full year ahead of our originally stated goal for market entry. Our laboratory building is nearing completion and will be ready for final build out and equipment installation this year. With the goal of ISO and [DAC] certification in the third fiscal quarter of 2012. We've nearly completed the incorporation process for our Switzerland headquarters company and many of our subsidiaries, and have begun recruiting key management, technical, and clinical staff. We anticipate investing approximately $5 million in fiscal 2012 to build out the laboratory, incorporate our subsidiaries, recruit and train our initial organization, begin market development, fund local clinical studies, and operate Myriad GmbH through the fiscal year.

Profits generated by European operations will largely fund subsequent organization expansion and market development activities in Europe. We will continue to look for ways to leverage this growing direct presence, including continuing to screen potential acquisitions, to build customer access and local capabilities. And we are in discussions with potential public and private partners in some regions to provide broader coverage and to address certain customer segments. We are seeking potential pharma alliances with our companion diagnostics, such as BRACAnalysis for PARP inhibitors, PREZEON for PTEN pathway inhibitors, an especially interesting option internationally as Europe has led the US in adopting companion diagnostic testing.

This is an ideal time to expand our business internationally, as we can build on success in the US to enter Europe. Our tests are well-accepted in the US, are becoming well-known internationally through global clinical opinion leaders, and validated with over 8,000 peer review publications on BRAC. 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 have to unwind complex, potentially blocking exclusive commercial agreements to develop our direct European presence. Our initial expansion in our five target countries in Europe will provide a platform on which we can build for growth in neighboring countries and launch our future products.

Myriad has an extensive pipeline, and we are excited about the new prognostic, predictive, and personalized products we will introduce every year. Building our laboratory and commercial presence now will enable us to develop the infrastructure, relationships, and experience to develop awareness and drive adoption of these new products. 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 in the 2014 to 2016 timeframe.

I am very excited by the number of patients who can benefit from our products that improve 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 over to Jim Evans for a detailed review of our third fiscal quarter results. Thank you.

Thank you, Gary, and good afternoon, everyone. It is my pleasure to present a more detailed look at Myriad's financial results. Myriad's revenues for the fiscal third quarter of 2011 were $102.4 million, an increase of 13% over the same period in the prior year. Of the 13% year-over-year growth reported for the third quarter, price contributed 5% to growth, while the remaining 8% came from an increase in sample volumes.

A breakdown of revenue by product shows BRACAnalysis revenues were $90.3 million, compared to $79.8 million in the same period last year, and represented 88% of total revenues. Revenue from COLARIS and COLARIS AP grew 7% year-over-year to $7.4 million, or 7% of total revenues. The rest of Myriad's portfolio products grew 14% year-over-year and accounted for 5% of revenue, or $4.7 million. By segment, $73 million or 71% of revenue was generated from the oncology market, an increase of over 13.5% versus the prior year's third quarter. Revenue from the women's health or OB/GYN segment was $29.3 million, growing 11% year-over-year to account for 29% of revenue.

Moving down the income statement, gross margin expanded 110 basis points year-over-year, to 89.1%. The expansion was primarily due to an increase in ongoing efficiency improvements in price realization. Third quarter SG&A expense decreased 310 basis points as a percentage of sales to $42.8 million. This decrease was primarily a result of lower expenses associated with the DTC campaign year-over-year. Research and development expense was 6.5% of sales, or $6.7 million, an increase of 13% year-over-year. This increase was primarily due to costs associated with clinical studies to support our products and pipeline.

Operating income for the quarter was a record $41.8 million, resulting in an operating margin of 40.9%, a 430 basis point improvement year-over-year. This level of operating margin expansion was primarily a result of gross margin expansion, lower DTC expenses, and the leverage we are able to bring to bear on our SG&A as revenues continue to grow faster than our investments in sales and marketing. The third quarter effective tax rate was 34%, down from 38% for the first half of the year.

As a result of the filing of our fiscal 2010 tax returns during the third quarter, we realized a nonrecurring tax benefit, primarily due to a decrease in the state tax apportionment factor for one of our filing jurisdictions. This resulted in a one-time impact recorded to the third fiscal quarter, which lowered the effective tax rate for this quarter to 34%. On a GAAP basis, we recorded $14.4 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 90.1 million shares. During the third quarter we repurchased approximately 4.5 million shares for $88 million, and had $50 million of the second stock repurchase authorization left to complete. We continue to project that this remaining authorization will be completed by the end of the calendar year. On a per-share basis, Myriad produced a non-GAAP, pretax diluted EPS of $0.47, compared with $0.35 for the same quarter of the prior year, an increase of 34% year-over-year. Earnings per share, including booked tax, were $0.31 fully diluted for the third quarter of 2011.

Moving on to the balance sheet and cash flow, our ending cash and investments were $451.5 million. This compares to the balance last quarter of $494.4 million as a share repurchase program was a net use of cash during the quarter. For the first nine months, cash from operating activities equaled $94.5 million, capital expenditures were $3.2 million, and the excess tax benefit from share-based compensation equaled $44.2 million. Total cash generated year-to-date equaled $135.5 million.

Myriad continues to enjoy a very quick turnaround of our accounts receivable. Day sales outstanding for the quarter were reduced to an impressive 41 days. This is a significant improvement over what was already an excellent 48 days sales outstanding as of March 2010. Additionally, I am happy to report our bad debt as a percentage of revenue has again decreased to a mere 3.7% of revenue. Highlights of the first three quarters of fiscal 2011 include an increase in revenue of 10% year-over-year, and 310 basis points of operating margin expansion, resulting in a 19% increase in operating income. We are pleased with our results thus far, and are now focused on delivering fourth quarter results.

I'd like to take a quick moment to provide you an update on recent changes to the NCCN guidelines that we believe may have significant positive influence on the markets that we address. The updates, announced in the NCCN Clinical Practice Guidelines in Oncology, Version 1.2011 released April 11, include two additional qualifying criteria for patients diagnosed with breast or ovarian cancer. Which are, individuals diagnosed with triple negative breast cancer before the age of 60 would be candidates for BRACAnalysis testing. Individuals diagnosed with breast cancer before the age of 50 with a limited family history would be candidates for BRACAnalysis. This criterion previously was set to an age of 45. Additionally, two criteria specific to pancreatic cancer were added. Individuals with a personal history of breast or ovarian cancer at any age with two or more relatives diagnosed with pancreatic cancer at any age should be considered for BRACAnalysis testing. And individuals with a personal history of pancreatic adenocarcinoma at any age with two relatives diagnosed with breast and/or ovarian, and/or pancreatic cancer at any age, should all be considered for BRACAnalysis testing. We are pleased with the updated guidelines as we believe they will encourage additional patients to gain access to important information on their genetic predisposition to hereditary cancers.

Now, to conclude, I will move on to our expectations for the rest of this fiscal year. Given our strong performance in the first nine months, we are increasing our revenue guidance range from our original $380 million to $395 million, and now expect fiscal year 2011 revenue of $396 million to $402 million. Our EPS expectations, originally $0.95 to $1 per share, based on our share repurchases and impressive profitability, increased to $1.06 to $1.09 per share. Additionally, we have updated our cash generated guidance to $175 million from $170 million to reflect our continued strong cash generation.

Additional items to consider include, guidance -- guidance includes the financial impact to the RBM acquisition, which is expected to close on or before May 31, 2011. Fourth quarter gross margins are expected to expand approximately 100 basis points year-over-year as we continue to benefit from ongoing laboratory efficiencies and the impact of price realization. Our investment in R&D has accelerated and the initiation of a number of new clinical studies -- with an initiation of a number of new clinical studies, and we now expect R&D expense for fiscal 2011 to increase by 15% to 20% year-over-year. The effective tax rate is expected to return to 38% for the fourth fiscal quarter, and the remaining $50 million in share buybacks will be spread over the rest of the calendar year in open market transactions opportunistically. With that, I will hand it back over to Rebecca for Q&A.

Thank you, Jim. Susan, we are now ready for the Q&A portion of the call.

Thank you. (Operator Instructions). The first question is on the line from Jon Wood with Jefferies & Company. Please go ahead.

Thanks, good afternoon.

Hi, John.

So Pete or Jim, could you parse out the impact of the Rules-Based Medicine in terms of revenue in the fourth quarter? And if you are ready to give any initial thoughts on 2012 related to revenue, please do.

Thank you, John. Obviously, we are very excited about the combination of Rules-Based Medicine with Myriad. As we mentioned on the call, their revenues last year ended December 31 were about $25 million. That is about $2 million per month. We anticipate that we will close this acquisition on May 31, so we will have one remaining month in the fourth fiscal quarter that would include RBM revenues. So, estimate roughly $2 million of that impact this fiscal year. And we will be providing guidance for fiscal 2012 at our August earnings call when we talk about the year-end financial results.

Okay, great. Thanks for that. And a follow-up, Pete, any updated thoughts on the timing and/or expected outcomes of the AMA CPT coding initiative? Anything you guys have picked up throughout the process would love to hear your thoughts on.

Yes, I can give you a little bit of information. We are anticipating that the various new codes that were established by the AMA, which included a code for BRACAnalysis, and COLARIS. We are going to the rec committee, and a determination is being made as to whether or not it will go to the physician fee schedule or the clinical fee schedule. We believe that BRACAnalysis is appropriate for the clinical fee schedule, as there really is no physician interpretation and interaction with that test. We understand that there will be some public hearings in July and then we anticipate that pricing information will be made available publicly this fall.

Okay, great. Thanks a lot.

Our next question is from the line of Amanda Murphy with William Blair. Please go ahead.

Hi, thanks. I had a question on underlying utilization. Oncology was up pretty nicely but OB/GYN was down sequentially, I think. Can you just talk to that a little bit? Were you surprised by the strength in oncology? And how should we think about the run rate in those two segments going forward?

Thank you, Amanda. We did notice a 13.5% increase in the oncology segment of our business. It was particularly strong. I believe the oncology segment benefited from, as I mentioned, some of our ongoing sales and marketing initiatives during this third fiscal quarter. As I previously discussed, we've been focusing on increasing penetration in the ovarian cancer, the triple negative breast cancer, and the ductal carcinoma in situ segments of oncology. We are also focusing on increasing same-store sales through a number of sales and marketing initiatives.

Additionally, oncology is less exposed to the impact of resetting deductibles in some of the high deductible plans, because of the heightened sense of urgency for testing cancer patients. And as a result, we saw very nice growth in oncology of 13.5%. The growth in the OB/GYN market was approximately 11%. It is impacted more by the resetting of deductibles because it is more of a discretionary plan. And typically, not only is the OB/GYN revenues flat to down between the second and third quarters, but historically our total revenues have been down between the second and third quarters. So, we actually saw a fairly typical, strong 11% growth in the women's health are segment and enjoyed an increase in revenues, primarily from an exceptionally strong growth in the oncology segment.

And, what are you guys thinking about DTC campaigns going forward?

We are giving a lot of thought to the DTC campaign going forward. This campaign has been very successful and we've been very pleased with the results of this campaign to date. And we are going to be talking quite a bit about our future plans for DTC, which I think you'll find very exciting, at our next earnings call in August when we prepare the year-end results.

Okay and then just last one, all the NCCN changes, have you -- do you have any idea from a numbers standpoint how much that expands your addressable market?

We are still in the process of analyzing that. Obviously, we are very pleased with the NCCN guideline changes. It gives us, I think, a very strong component in the triple negative breast cancer arena and that is one that we've been focused on, as you are aware, for a number of quarters. I 'm very excited about the pancreatic NCCN guidelines, which not only will impact PANEXIA, but as you can tell by the guidelines, because of the tie between pancreatic cancer and breast and ovarian cancer, we think we'll also boost our BRACAnalysis revenue potential as well. So, we are in the process of analyzing specifically that impact and we will take that into account and discuss that further when we give guidance for the next fiscal year, again, at our August earnings call.

Okay, thanks very much.

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

Great, thanks. Congratulations on a good quarter. A couple questions. Can you talk a little bit about what you are seeing in terms of patient volumes in the OB/GYN market, thinking about January, February, March and going into April? Is it incrementally getting better in the environment? And then second question is, with the Rules-Based Medicine revenues you're talking about, is that all product revenue, or is some of that collaboration and partnership revenue? Can you help break that out? And then third and final question is, with Europe, when you think about building out the business there and start booking revenues in 2012, is that really contingent and is the plan to get some contracts with some consortium hospitals? And so once that happens, once you land those deals, that is really going to give you a lot more visibility? Is not sort of like US where you have to go, obviously, hospital to hospital? Thanks.

Thank you, Michael. Let me address the first two parts of your question, and Gary, I will ask you to handle the third component. We look very much at the Thomson Reuters data, which provides information on OB/GYN office visits. And unlike the second quarter, where we reported that there was actually a year-over-year decline in OB/GYN office visits, things have pretty much stabilized. The OB/GYN office visits for the first quarter were pretty flat. January was actually, I think, up 2% and February and March were completely flat year-over-year. So, we are seeing things improve in the economy. We are seeing a stabilization in OB/GYN office visits. And that is very, I think, reassuring.

With regards to Rules-Based Medicine, almost all of their revenues are associated with their pharmaceutical services collaborations and looking at the potential for identifying biomarkers associated with drugs that are in pre-clinical or clinical trials. They have launched recently a new product called VeriPsych. It is as exciting product, as I mentioned, particularly in the military application. But those revenues are small and that product is just beginning to be marketed. So, those are almost entirely collaboration revenues that we are expecting in this fourth quarter. Gary, do you want to address the European?

Yes. Our strategy to approach Europe will be, as you suggested, to approach the large testing networks such as the BRCA network in Germany and the MCI network at 21 hospitals and France, and we are doing that as we speak. We will also approach the insurance company groups in Germany. These would be fairly binary decisions that would mean large revenue when those deals happen. Is a very large private market, though, in Europe. Switzerland is 100% private insurance, Spain is about 30%, and Germany is about half private testing. Where we can access what is done through commercial markets now by competing with a superior product, faster turnaround time, lower VUS at a very competitive price. So, they are really a two-pronged market. The large networks and then the private market we can attack sequentially.

Okay. Thanks.

Our next question is from the line of Tycho Peterson with JPMorgan. Please go ahead.

Hi, good afternoon. First question on capital deployment. You talked about finishing the buyback this year and between that and Rules-Based and the European build out, do you have enough on your plate, or are there still an appetite here for [tuck] and M&A?

Thank you, Tycho. We are very interested in additional acquisitions, and the Company has a very aggressive M&A focus. As I've mentioned on past calls, however, we have fairly strict criteria with regards to any acquisition we might make. We also remain very committed to a balanced capital deployment approach, which includes not only looking at acquisitions, but investing in future organic growth. And at the same time, as we have done this year, returning excess cash to shareholders. We do have $50 million remaining under the current stock authorization, which we expect, as Jim mentioned, to be concluded by the end of year. But we certainly have plenty of cash to continue looking aggressively at M&A opportunities and other ways of returning cash to shareholders.

And as we think about Rules-Based, you mentioned the VeriPsych test a minute ago. Can you comment on the reimbursement -- there is established reimbursement for the test today, right?

Yes, this is Mark Capone. I'm happy to talk about that. VeriPsych right now is being billed just using typical code stacking, like most molecular diagnostic products. And that code stack is really, given that there are 51 markers associated with that product, the code stack is somewhere between $1,500 and $1,900, depending on the insurance company. And so that is currently how VeriPsych is being billed.

And then on BRCA, anything you can provide us, Pete, in terms of preventative care -- the thought process there by the US PTF and elimination co-pays?

Yes, not a lot. I can tell you that we believe that the intent of the Affordable Care Act was to include preventive tests and, certainly, that would include BRACAnalysis and it was mentioned specifically. For this reason, we are very proactively reaching out to the US PTF and HHS to work with them, to clarify any ambiguity that might be in the statute. And this process is going to take a couple of months, but we are optimistic that we will be able to clarify that by the end of this calendar year.

And then just last one, I guess as we think about the build out in Europe, anything you're doing different there from a technology perspective? We follow the other side, the NextGen sequencing companies things. Can you talk to your appetite for bringing on new technologies?

(Multiple speakers) Sorry, go ahead, Gary.

Sorry, the idea in Europe would be that we would copy exactly what we do in the US, and that's really for two reasons. Number one, we've optimized the procedures in the US so that we can do it quickly, cost-effectively, and very accurately. And then second, we have all the procedure manuals and all the documentation ready for a very rapid ISO and DAC approval in Europe. So, we would like to take what we do in the US and take that over to our Munich laboratory.

With regards to technology development in the US, we are very much interested in NextGen sequencing. As was mentioned on previous occasions, we do have an Illumina HiSeq and the 454 machines in Myriad at our research facility, and are very interested in upgrading our systems as new technologies come on board. But running a clinical laboratory, where accuracy and reliability for patient testing is our paramount concern, as opposed to just cost or speed, we really have to test these new technologies and systems thoroughly before we feel that they are reliable enough to adapt in a commercial clinical setting. So, we are very interested in the technologies and we will certainly adapt them at the appropriate time. But again, when you are dealing with patients and information that will greatly affect their lives, we have to be very careful to make sure that the technology is as accurate and reliable as what Myriad standards historically have required.

Great. Thank you.

Our next question is from the line of Derik De Bruin with UBS. Please go ahead.

Hi, good afternoon. Forgive me if I missed this, I got disconnected for a bit, but what is the size of the market that the five countries in Europe represent? That is part one of the question, and part due to the question would be, what you think is going to be in ASP in terms of what you are thinking you could get paid for? Is it a EUR2,000 test? Is it more than that?

Yes. The overall European market is about 75% the size of the US molecular diagnostics market.

I'm referring specifically to the BRCA portion of it.

I'm sorry?

The BRCA market is 75% of the total US market?

No. If you look at just the BRCA portions, we mentioned the penetration of BRCA testing in Europe is much lower than that in the US. It is probably one third penetrated the US currently. So, if you look at population-to-population, 300 million to 300 million, which is roughly the population of the five European countries that we are pursuing, the BRCA test currently done it is about one third the number of test that is done in the United States.

If you look at the prices that -- or the reimbursement rates, the reimbursement varies country by country, but in the largest market, Germany, BRCA testing was reset on January 1 from being procedure-based to being test-based at a rate that is approximately twice the US reimbursement rate. In Switzerland and Italy, reimbursement is set by procedure, but those reimbursements are actually higher than our ASP in the United States. France and Spain, the testing is covered by laboratory operating budget, so it is difficult to know exactly what the potential market would be. But if you look at commercial testing prices in Spain, it is approximately equal to our US average selling price. So, apples to apples, you'd probably say the potential BRAC market in Europe is about one third the size of the US.

Great. Very helpful. And when you look at it -- one more question on Rules-Based Medicine. So, it is a companion diagnostic investment, I guess. Can you shed any light on what is in the pipeline in terms of what we should look for in terms of milestones? Is there a near-term companion diagnostic that is likely to be on the market that we can look for?

Thank you, Derek. And let me add to what Gary said. I certainly agree with Gary's European comments. The market is less penetrated and underserved in Europe at the present time. And I would agree with that, about a third the size of the US market. But there has been no single entity to launch a significant marketing education effort in Europe. And because of the lack of turnaround times, the BRACAnalysis test has really never been used to guide surgical intervention in these patients and, of course, that is a major benefit of BRACAnalysis in the US. In fact, oncology represents approximately 70% of our total BRAC revenues.

So, I think with Myriad's presence there, where we are dedicated and focused on educating physicians, educating patients, educating the marketplace, I am optimistic that we can grow that significantly to where Europe begins to approach maybe 75% of the size of the US market. And again, would you remind me of your question?

Basically, what is in the near term pipeline for RBM?

Well, we have talked a little bit about the pipeline in terms of products that we would launch using, internally, the products. Unfortunately, with regards to the collaborations with our major pharmaceutical partners, we are not allowed to talk specifically about them. But I will point out again that RBM has over 20 major pharmaceutical collaborations, and we do see significant future opportunity to develop companion diagnostics that could provide meaningful revenues to Myriad.

Great. Thanks.

Our next question is from the line of Marshall Urist with Morgan Stanley. Please go ahead.

Hi, guys. Good afternoon, thanks for taking the questions. First question is just on price in the quarter. Jim or Pete, obviously it did seem like it accelerated meaningfully from, I think you guys had 250 basis points last quarter, so just would like to get some insight there. And then is that going to continue into the fourth quarter, and what do you guys baking in for price in the fourth quarter?

Well, we have noted that on a number of our private payer contracts actually renewed in the first calendar quarter. As we talked about historically, the price increase is built into the new contracts throughout the year as they renew, and there was a nice bolus of contracts that came up at the beginning of the year. And so that, we think, helped to accelerate the price impact of what we saw in the growth. Going forward, I don't know that we have any specific periods that will see this same type of concentrated growth, so it is going to be more gradual with the remaining price impact. Much of it has been seen and will have a gradual impact going forward.

I think one thing to add there, Marshall, is that the price increase went into effect April 1 of 2010. So, in the fourth fiscal quarter, we'll start to comp that, so you won't see it as additive to year-over-year growth.

Okay. Perfect. Thanks. And then, just on the guidance increase, it looks like if you back out a couple million dollars for Rules-Based Medicine, the midpoint of guidance is basically flat, kind of flat sequentially. So, would love to get a little bit more insight into how you're thinking about oncology versus women's health in the fourth quarter. This quarter was obviously notable were oncology grew faster than women's health, and do you think that repeats itself in 4Q, just given what you're seeing and how women's health is trending right now?

Thank you, Marshall. I don't think we are going to see anything in the fourth fiscal quarter dramatically different from what we've seen in prior fourth fiscal quarters. Again, as the year goes on, in the women's health sector, the high deductible component becomes less significant. And as we've seen by the second fiscal quarter of next year, it actually becomes a nice positive, as most women have met their deductibles and can have the test with minimal out-of-pocket cost. So, the impact that we saw in the third fiscal quarter ending March 31 as a result of a resetting of the deductibles becomes a little less significant in the June quarter. But other than that, we don't anticipate anything dramatically different from what we've seen historically in either of those two market segments.

Okay, that's helpful. And just one more for me, which is on the CPT coding issue and the [RUC] process, could you just give us a sense of what your interactions, if any, have been with the RUC process so far in terms of, have you gotten inquiries from them on the protocol behind the test and the time and motion kind of stuff behind what goes in to suggest that they are taking a kind of soup to nuts look at the test? Or has it been more limited than that in terms of where the test is priced today, et cetera? Thanks.

We have provided the committee a vignette that describes the BRACAnalysis test and gives them information so they can make a decision on that. And we certainly work very closely with the ACLA and the Coalition for 21th Century Medicine, and they are certainly involved with and have conversations with both the AMA and CMS. But Myriad is not directly lobbying or interacting with the RUC committee.

Great. Thanks for taking the question.

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

Hi, guys, congratulations on a nice quarter. Thanks for taking my question. My first one is on Rules-Based Medicine, which seems to be the topic du jour. I'm wondering if you could give us some additional insights on the pharmaceutical collaboration trends that you foresee for the next year or so out of the Rules-Based Medicine acquisition, as well as the ownership. Pete, you talked about companion diagnostics. Could you confirm that you have rights to all of the technology and that you would be the owner of companion diagnostics from that acquisition?

Thank you, Charles. Yes. We are very excited about the companion diagnostic opportunity, and anticipate that we are going to see continued good collaborations from RBM. And actually, we will be giving a little more color at our earnings guidance for next year.

In the area of companion diagnostics, as we mentioned on the call, many, if not most of those collaborations RBM does have access to the data and the patient samples and the right to develop a companion diagnostic. Not all. Some of the pharmaceutical companies have retained that for their own use, but certainly most, we do. And that is one of the drivers for us in our enthusiasm for the acquisition of RBM. We are very excited about this whole area of companion diagnostics and feel that it is really the future of pharmaceutical development and drug discovery.

That's a neat added aspect of the business. If I could hop over to Prolaris, we were reviewing the ASCO abstracts and we noted that at least the titles, in the titling it looks like there is potentially some interesting information out on a possible pre-prostatectomy use of Prolaris. Could you give us some sense as to what you would like to see out of that data? And secondarily, address the potential for heterogeneity within different patient populations impacting the use of the Prolaris test? Do you look forward to seeing that data?

Well, as you have pointed out, Myriad will be presenting at ASCO data on Prolaris, and we have completed a major study based on biopsy samples for patients prior to the prostatectomy, and that data we'll hold off until the presentation at ASCO. We are very excited about Prolaris. We think it is one of the major growth opportunities for the Company going forward. We had very exciting data in tumor tissue, post-prostatectomy. We followed that up with presenting at ASCO GU very exciting data in [turp] material pre-prostatectomy, and now we will complete the tripartite with biopsy data at the ASCO meeting. And with that, I think we are very excited about Prolaris as a future product for the Company.

Thanks for the added color, Pete.

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

Thank you very much. This concludes our third quarter earnings call. A replay will be available via webcast on our website for one week. Thank you all for joining us this afternoon, and having good day.

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