Myriad Genetics Inc (MYGN) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Myriad Genetics 2011 financial earnings conference 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, August 9, 2011.

I would now like to turn the conference over to Rebecca Chambers, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Lindsey. Good afternoon, everyone, and welcome to the Myriad Genetics fourth quarter and fiscal year 2011 earnings call. During the call we will review the financial results we've released today and detail the strategic directives which will guide the Company in fiscal 2012. After which we will host a question-and-answer session. If you have not a had a chance to review the Earnings Release, it can be found in the Investor Relations section of our website at Myriad.com Presenting today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President Myriad Genetics Laboratories, and Jim Evans, Chief Financial Officer. This call can be heard live via a Webcast along with a slide presentation at Myriad.com. The call is being recorded and will be archived along with the presentation in the investor 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 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 reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

With that I'll now turn the call over to Pete.

Thank you, Rebecca. To begin, I would like to provide highlights of our fourth quarter and full year results. Before introducing the Company's strategic directives for fiscal 2012. I am pleased to report that fourth quarter revenues increased 14% year-over-year to a record $107.4 million. Fiscal 2011 revenues grew 11% to $402.1 million, as compared to $362.6 million in the last fiscal year. These financial results contributed to our record of consistently delivering annual double-digit revenue growth. Now for the 12th consecutive year. Additionally, Myriad's full year profitability increased to an impressive 17% year-over-year, with operating income of $157.8 million.

These strong results have positioned us well for continued success, particularly when combined with the strategic investments we are making for future growth. We continue to increase investments in our research and development programs in an effort to discover and develop exciting new products.

And also to enhance the clinical support for our current product portfolio. In addition, we have been strategically deploying capital with the in-licensing of novel technologies from Chronix Biomedical and Melanoma Diagnostics. And the acquisition of Rules-Based Medicine. In addition to repurchasing over $200 million of our stock this year.

Now I'd like to move on to the Company's expectations for fiscal 2012. We expect total revenues of $445 million to $465 million(Sic-see press release). This level of revenue is expected to result in fully diluted earnings per share of $1.20 to $1.25. Jim will speak more to the specifics of our guidance later on in the call.

This compelling outlook will require a focus on executing our 3 strategic directives for long-term revenue growth. Grow existing products and markets. Develop an international presence. And invest in new products and capitalize on the companion diagnostic opportunity. Shortly, Mark will discuss our strategy to recognize the full potential of our current product portfolio. And I will focus my remaining comments on our European operations and investing in our product pipeline to fuel innovative product introductions and revenue growth for years to come.

I will begin by providing a brief update of our international expansion to Europe. We are making excellent progress completing, equipping, staffing and certifying our laboratory in Munich. And are on track to begin receiving samples and generating revenues in January 2012, a year ahead of schedule. We're also working with distributors to expand our presence in Latin America and Asia.

We view this international expansion as an exciting growth opportunity for Myriad and are working aggressively to make it a reality. As I've previously shared with you, we have made it a priority to increase our internal investment in research and development, to continue to deliver new transformative molecular diagnostic products, which assess a person's risk of disease, guide treatment decisions, and help improve a patient's quality of life.

Additionally, the 2 licensing deals and the acquisition of Rules-Based Medicine have augmented our already-strong product pipeline. Our strategy is to aggressively pursue a combination of internal development, technology in-licensing and acquisitions to grow our business in the future. And we therefore expect to further increase our investment in this area in fiscal 2012.

As detailed on the following slide, we currently have 13 innovative products under development in various stages. I would like to briefly discuss several of these new product opportunities that I'm particularly excited about. The first product candidate is based on technology we end licensed from Melanoma Diagnostics last December.

We plan on launching the first of several products from this technology this fiscal year. And believe this product will assist a dermatopathologist in determining whether or not a skin lesion is cancerous or benign. Current pathology analysis is unable to determine malignancy on approximately 10% of the 3 million skin biopsies done every year in the United States. And this test could provide a molecular answer for physicians that would improve the healthcare management of their patients.

Another product candidate in development is a tissue-based breast cancer test which will allow physicians to determine whether a breast cancer tumor has lost BRCA function. The hypothesis currently being tested in numerous clinical studies is that tumors with BRCA deficiencies are very susceptible to DNA damaging agents such as PARP inhibitors. Providing physicians with knowledge on both the somatic and germ line BRCA status of tumors will increase the number of patients that are suitable candidates for this exciting new class of DNA damaging agents.

Next is a lung cancer prognosis test that may guide therapeutic decisions for patients with lung cancer. Lung cancer patients, particularly those that are in stage 1B or 2A are faced with a question of whether or not to undergo chemotherapy. This product candidate may help a physician determine the aggressiveness of the cancer and, therefore, whether or not the chemotherapy might be appropriate for their patient.

The kidney damage product candidate from the Myriad RBM portfolio will allow the identification of kidney damage at a much earlier stage than can be accomplished by current methods. This could provide physicians with critical information to begin treatment earlier in the course of disease, and prevent some of the co-morbidities that may occur when treatment is delayed. This is particularly important for transplant patients and those with diabetes.

Several other product candidates acquired with the RBM acquisition include an anti-psychotic diagnosis product, and a differential diagnosis product for psychiatrists. These products will help psychiatrists categorize patients between schizophrenia, bipolar disorder and major depression, to ensure that the patient receives the appropriate therapy. Not infrequently, patients are initially misdiagnosed and given inappropriate therapies that can be harmful to the patient.

Our next product candidate is for hepatitis C therapy response, which could allow a physician to determine whether or not a patient will likely respond to the interferon alpha class of drugs. Or whether they would be better off with 1 of the other hepatitis C treatments. Scientists at Myriad RBM are also developing and anti-depressant response product which will allow physicians to select between different classes of drugs and determine whether or not a patient is responding to a particular treatment.

We are also working on an exciting candidate for the early detection of cancer from blood. In May, we announced the in-licensing of technology from Chronix Biomedical aimed at an early cancer detection in prostate, breast and colon cancers. If successful, we believe this product candidate represents a substantial market opportunity for the Company. And will revolutionize early cancer detection.

Finally, the last product I will discuss is focused on a next generation hereditary screening product, based on the strengths of next generation sequencing. This will include a large panel of genes for increased sensitivity to determine an individual's risk of developing any hereditary cancer. We envision this product to be the natural progression of our current cancer specific products.

As you can see, these products have the potential to transform healthcare and solve many of the issues currently facing the healthcare system. I hope you are as excited as we are about these possibilities for future growth, as we develop products to help patients and physicians understand the risk of getting disease, and guide the appropriate course of treatment.

Before handing the call over to Mark, I would like to briefly discuss the ruling made by the Federal Circuit Court of Appeals a few weeks ago. I was very pleased that the court declared that the composition of matter patent claims covering the isolated DNA and CDNA sequence of the BRCA-1 and BRCA-2 genes are patent eligible and reinstated 9 claims which had previously been held invalid by the lower court. We now have over 100 composition of matter patent claims covering our BRACAnalysis product. Some of which provide protection until 2018.

The court also decided that 5 of the Company's 6 method claims at issue did not satisfy Section 101. These 5 claims were very broad in nature, as is typical in patent drafting. Fortunately, we have additional specific method claims covering essentially the same patentable subject matter that remain in full force and effect. For example, 1claim that was not overturned by the Federal Circuit Court covered a comparison of a patient's DNA sequence with a normal sequence, regardless of the method used.

We have related claims that remain enforceable, covering a comparison of a patient's DNA sequence with the normal sequence, using a variety of DNA sequencing technologies. Additionally, we have over 230 remaining method claims that cover transformative processes that were not affected by this ruling and remain in full force. Today, our intellectual property protection for BRACAnalysis is as strong as it was before the ACLU brought suit against Myriad.

Now it is my pleasure to turn the call over to Mark Capone.

Thank you, Pete. As Pete mentioned earlier, our first strategic directive is to grow our existing products and markets. I would like to share with you all the initiatives we will be focusing on over the coming months to further penetrate the market for BRACAnalysis and realize the potential of COLARIS and PROLARIS. As we discussed in the second quarter of fiscal 2011, we are focused on developing the ovarian triple negative and carcinoma in situ indications for BRACAnalysis in our oncology segment.

The unrealized annual potential for these indications, including newly0diagnosed patients and survivors, is $200 million, with a total oncology market potential of over $650 million annually. I am pleased with our progress on these initiatives which contributed to the 11% growth in oncology during the fourth quarter. And I would like to outline some of our fiscal 2012 approaches to further penetrate these indications.

About 22,000 ovarian cancer patients are diagnosed each year. And professional guidelines have firmly established that all of these patients should undergo BRACAnalysis testing. For the ovarian cancer indication, we realized a 21% growth rate in 2011, raising our penetration to about 30%.

Our efforts have been focused on educating gynecological oncologists that are typically responsible for treating these patients. Due to the publicity associated with PARP clinical studies, gyn-oncs have been keenly aware of the importance of understanding the BRCA status of their patients. Promotional materials specific to this segment have been developed, as well as interactive media approaches designed to raise awareness directly with patients.

We also continue to work on expanding testing in triple negative patients. Until recently, less than half of the 35,000 newly-diagnosed triple negative patients met testing criteria for BRACAnalysis. And only 30% of those that met criteria were tested.

Recently NCCN guidelines were updated to include all triple negative breast cancer patients under the age of 60, expanding the market potential to 70% of all triple negative patients. To that end, we are conducting additional speaker training events, sponsoring regional and national symposia, updating promotional materials and changing our test request forms to specifically address triple negative status.

Our last BRACAnalysis oncology initiative is focused on carcinoma in situ, or CIS. CIS is diagnosed in approximately 62,000 patients per year, a third of which are appropriate for testing. In fiscal year '11 we grew this indication by 20% to a market penetration of 30%. Our educational efforts are directed towards enhancing awareness of a study published last December in the journal Cancer Prevention Research.

This study analyzed the relationship between BRCA-1 and BRCA-2 mutations in patients diagnosed with carcinoma in situ, and demonstrated an increased prevalence of BRCA mutations in the CIS patient population. As a result of these types of studies, CIS has already been incorporated into professional society guidelines as a red flag for hereditary cancer.

The women's health segment grew 15% year-over-year. And initiatives to continue to deliver strong growth in this segment are focused on growing both new stores and same store sales. The current women's health sales force calls on about half of the 35,000 community-based OB/GYNs in the United States.

In planning for the upcoming fiscal year, we performed a thorough analysis of the fiscal 2011 territory splits. Based upon that analysis, we are adding 20 new sales representatives to territories with large physician counts. This will bring the total number of women's health representatives to 185. It is important to note that it normally takes a new sales representative 6 to 9 months to contribute to growth.

In addition, we are making progress in our efforts to increase same store sales for existing territories. In fiscal year '11, existing territories grew revenue over 12%. To continue growth in fiscal year '12 we have developed an advanced targeting tool for our largest territories to identify high-volume primary care physicians that treat significant numbers of women.

In addition, our market research has shown that the biggest reason experienced physicians do not test all appropriate patients is because of the time and logistics required to integrate testing into their practice. To address this concern, we recently completed a successful lean systems pilot program that involved detailed process mapping similar to the approach we used to drive margin improvements in our laboratory.

The results showed significant increases in patient identification without increasing staff time commitments. We are now expanding these efforts to a larger national subset of experienced physicians. Lastly, we are providing these practices with utilization comparisons between hereditary cancer testing and other standard of care screening tests such as PAP smears and breast exams.

Historically we have conducted a regional DTC campaign to increase patient awareness for BRACAnalysis. To date, we have held DTC campaigns across 4 regions which all resulted in an attractive return on investment and increased patient testing. A significant portion of the country has now been covered by a campaign with only the Western region remaining.

In planning for the upcoming fiscal year, we analyzed the expected rate of return from a Western DTC campaign and found that it did not meet our internal hurdle rate due to high media costs associated with that region. Therefore, we have decided to explore new approaches in a next generation DTC campaign which utilizes an interactive media strategy.

Our plans for this next generation DTC campaign are focused on educating, through discussions on social media sites such as Facebook, enhancing awareness with patient stories on outlets such as YouTube and disseminating patient stories through blog sites. We also intend to partner with patient advocacy groups to increase patient visits to our web sites.

Our early pilot work shows that this approach may be significantly more efficient than mass media approaches at generating appropriate patient leads. We also plan to extend this next generation campaign to other products beyond BRACAnalysis at the appropriate time.

Next, I would like to provide an update on how we plan to recognize the potential of COLARIS. I'm pleased to report we successfully added a fourth gene, PMS2, to the COLARIS product during the last month of the fourth quarter. With the addition of this gene we now offer the most robust, sensitive and accurate test for hereditary colon cancer.

This is evidenced by the fact that we have a significant increase in the volume of COLARIS since the introduction of PMS2, with a large percentage of orders requesting PMS2 as an additional test. We also have successfully obtained Medicare reimbursement for the 4-gene COLARIS product using new less stringent criteria.

These new criteria replace the criteria that were historically used and are now similar to those for BRACAnalysis. If these criteria were to be adopted by all payers it would increase the market size by over $50 million.

In addition, we continue to execute on our strategic plan to educate professional societies, key opinion leaders, and insurers on the important findings of the health economic study for COLARIS published in cancer prevention research last November. As you may recall, the study concluded that it would be cost effective to test unaffected patients with as little as a single affected family member, which is even broader criteria than the recent NCCN changes.

Additionally, due to the number of opportunities in our oncology portfolio, we have launched an initiative to increase adoption of our 4 colon cancer products. COLARIS, COLARIS AP, OnDose and TheraGuide. In this initial geography, we have added an 8-person colon cancer specialist team alongside what has become our breast cancer specialist team.

We have already seen evidence that this increased focus has led to significant increases in all 4 colon cancer products in our portfolio. And facilitates quicker penetration of the additional BRACAnalysis indications. Depending upon the success of this initial team, we may add further colon cancer specialists to other geographies later this fiscal year.

Lastly, we were incredibly encouraged with the prostate biopsy data presented at ASCO which demonstrated that POLARIS was the strongest predictor of cancer death outcome. And more significant than either Gleason score or PSA. We are currently working to get this exciting data published in a peer reviewed journal.

This will be our second published study which is generally the threshold for professional society guidelines and payer reimbursement. In addition, 6 other retrospective studies are in progress as well as a health economics study. We are also initiating a prospective phase 4 study with key opinion leaders to establish clinical experience with the product.

These opinion leaders will subsequently attend speaker training scheduled for the second quarter of this fiscal year. Having just completed a National Advisory Board meeting with urologists, excited about this new data, we will be expanding to regional meetings during this quarter.

Myriad will be submitting data for presentation at 4a regional American Urology Association meetings in the fall as well as the Society of Urologic Oncologists meeting in December. We believe our current 8-person urology sales team is well-positioned for successful launch of this new PROLARIS indication as soon as the latest study is published.

In summary, I am pleased with the success we demonstrated in growing the women's health and oncology segments in fiscal 2011 and the prospects for continued growth. In addition, we are excited about the potential to revolutionize the practice of urology with a PROLARIS biopsy launch later this year. And we continue to prepare to commercialize the other exciting near term pipeline products outlined by Pete.

Now I will turn the call over to Jim for a detailed review of our fourth quarter and fiscal 2011 results. Thank you.

Thank you, Mark, and good afternoon everyone. It is my pleasure to present a more detailed look at Myriad's financial results for the fourth quarter and fiscal year 2011. Myriad's revenues for the fiscal fourth quarter were $107.4 million, an increase of 14% over the same period in the prior year. We were pleased that fourth quarter revenues exceeded expectations of $104.6 million.

Companion diagnostic services contributed $2 million to total revenue. And molecular diagnostic revenue contributed $105.4 million, for 12% year-over-year molecular diagnostic revenue growth. Of this 12% growth, price contributed 1%, while the remaining 11% came from an increase in sample volumes and new products.

By segment, $74.7 million of revenue was generated from the oncology market, an increase of over 11% versus the fourth quarter last year. Revenue from the women's health or OB/GYN segment grew 15% year-over-year to $30.6 million. A breakdown of revenue by product shows BRACAnalysis revenues grew 12.5% to $92.8 million compared to $82.5 million in the same period last year. And represented 86.5% of total revenues.

Revenue from COLARIS and COLARIS AP increased to $7.6 million, or 7% of total revenues. COLARIS volumes were impacted by the launch of PMS2 as we saw a delay in orders during the first 2 months of the quarter in anticipation of the launch of the more robust 4-gene panel.

As Mark mentioned demand for the COLARIS product has increased after the product's update was completed, and we expect COLARIS to return to growth levels seen earlier in the year. Myriad's 6 other products grew 21% year-over-year, and accounted for 4.5% of revenue or $4.9 million. Lastly, companion diagnostic services represented 2% of revenue.

Moving down the income statement, fourth quarter SG&A expense decreased 150 basis points as a percentage of sales to $43.9 million. Research and development expense was 8.6% of sales, or $9.2 million, a strong increase versus the $5.3 million reported in the fourth quarter last year.

This increase represents a commitment by the Company to reinvest in its business and reflects investments made in new product research and development including the launch of PMS2, upfront fees associated with the end-licensing of the Chronix technology, protein analysis research at Myriad RBM, and the cost of samples for clinical studies to support the Company's newer products such as PROLARIS and OnDose.

Operating income for the quarter was $41.8 million resulting in an operating margin of 38.9%. This level of operating margin represented a 110 basis point contraction year-over-year, which was primarily a result of higher R&D expenses to ensure future revenue growth and diversification.

The fourth quarter effective tax rate was 38.2%, and our diluted share count was 88.1 million shares. During the fourth quarter, we repurchased approximately $22 million of stock, and ended the quarter with approximately $28 million of the current stock repurchase authorization left to complete. I am pleased to report that today we're close to finishing the remaining authorization and expect it to be completed soon.

On a per share basis, Myriad produced a pretax diluted earnings per share of $0.48, compared with $0.39 for the same quarter of the prior year, an increase of 23%. Earnings per share including book tax was $0.30 fully diluted for the fourth quarter of 2011, exceeding consensus estimates of $0.29 per share.

Highlights of fiscal 2011 include revenue of $402.1 million, an increase of 11% year-over-year. Molecular diagnostic revenue was $400.1 million, and companion diagnostic services contributed $2 million. Full year SG&A expense increased only 5% to $169.8 million, as we continue to leverage our infrastructure to grow revenue faster than investments in sales and marketing.

Research and development expense grew 27% year-over-year to $27.8 million, as we continue to invest in the new product pipeline, acquisition of technology and clinical studies to support our existing products. Operating income for the year equaled a record $157.8 million. Despite the increased investment in R&D, operating margins expanded 190 basis points year-over-year to 39.2%.

Moving on to the balance sheet and cash flow, our ending cash and investments for the year were $417.3 million. This compares to $488.4 million as of the prior year end. Uses of cash during the year included buying back over $200 million of stock, and acquiring Rules-Based Medicine for $80 million. Cash from operating activities equaled $130.8 million, and total cash generated equaled $185.8 million.

I'll now move on to our expectations for fiscal 2012. As Pete mentioned earlier, we expect fiscal 2012 revenue of $445 million to $446 million, with molecular diagnostic revenue of $421 million to $439 million, and companion diagnostic service revenue of $24 million to $26 million. This level of revenue is expected to result in diluted earnings per share of $1.20 to $1.25. The following assumptions were included as part of this guidance.

During the first fiscal quarter we typically encounter seasonal vacation headwinds which historically have resulted in revenue declining sequentially. While year-over-year physician visit trends are stable, we anticipate the sequential impact of the vacation season will be typical for the first fiscal quarter.

Cost of sales are expected to be in line with current levels as a percentage of revenues. While we do not expect to incur the $6 million expense associated with a traditional media DTC campaign this fiscal year, we will be investing in 20 new sales reps, 2 new product launches, the next generation DTC campaign, and approximately $6 million to develop the European market.

Our investment in R&D will continue to grow with development of our product pipeline including spending associated with the acquisition of RBM and further clinical studies on existing products such as OnDose and PROLARIS. As such, we expect full year R&D to be approximately 9% of revenue. Additionally, first quarter R&D is expected to increase sequentially due to the full quarter impact of Rules-Based Medicine and new clinical trials.

Finally, the effective tax rate is expected to continue at approximately 38%. We finished this year with approximately $87 million in net operating losses and expect to fully utilize net operating losses by the end of the second quarter. Therefore, we expect to pay cash taxes in the back half of the fiscal year.

With that, I will hand it over to Rebecca for the Q&A.

Thank you, Jim. Lindsey, we're now ready for the Q&A portion of the call.

(Operator Instructions). Jon Wood with Jefferies.

First question is probably for Jim. Can you give us a sense of, embedded within your fiscal '12 outlook, the price and volume, ballpark, that's embedded in your outlook for fiscal year '12 for the entire corporation?

Yes. Since the list price increase, from our most recent price augmentation occurred back in April of 2010, we have really realized the bulk of that price increase. The majority of our contracts are annual renewals and so most of those have been built in over this past year. We do have a small number of contracts that do go out 2 and even 3 years. So we would expect any impact in fiscal 2012 to be less than 1 point of incremental revenue growth driven off of the price increase. So fairly minimal price increase. The bulk of what we're projecting is going to be volume.

And then Jim, have you baked in -- you discussed finishing the $28 million of share repurchases that you've got authorized but have you baked in any incremental capital redeployment activity into that fiscal year '12 outlook at this point?

No, currently at this point we're just building in the culmination of the existing programs that we have already announced. Nothing else has been built into those numbers for any additional deployment that we might bring to bear.

Okay. And then on the cash flow side, understanding your comments on the NOL, can you give us a ballpark on operating cash flow guidance for fiscal '12 at this point?

Yes, we haven't given official specific guidance on that but we're expecting to see probably $130 million in cash from operations this next year.

And then last one. You mentioned the European investment as being about $6 million. Have you baked in any expectation on the revenue side into your guidance?

There's modest revenues from international expansions built into this expectations or guidance for this year. But while we expect the operations to be up and functional in the first part of the calendar year, it's still fairly modest expectations for the revenue coming from ex-US at this point.

Amanda Murphy with William Blair.

It's actually Sylvia here for Amanda. Just a question on the volume growth in the OB/GYN sector. Is it just more increase of utilizations or is it more like your sales efforts being realized?

Thank you for the question. Last year, this past quarter, we saw a 15% growth in the OB/GYN segment or the women's health segment, which is pretty robust. That growth really came from both same store sales, where we saw a 12% increase, and our new store sales, which was substantially higher than that, which is what one would expect for the account executives. When we add those account executives at the beginning of the year, takes them 6 to 9 months to begin to really make contributions, and we saw those contributions occur in the fourth quarter. So 15% growth rate we felt pretty good about. I think we also feel very good about the initiatives that led to that 15%, and how those will carry over into this next fiscal year.

Maybe just a follow-up. So except for the first quarter, fiscal first quarter, you would expect a little decline in volume. Do you expect the same run rate going through for fiscal 2012?

I think traditionally what we've seen is, as Jim said, a sequential decline in the first quarter due to some of the vacation. Our second quarter has historically been our strongest,, as people and as their cafeteria plans, their deductibles and those types of out-of-pocket costs, are lower in our second fiscal quarter. Our third quarter we see the headwinds then emerge as deductibles reset and we would continue to expect that same sort of cyclical pattern this next year.

And maybe just in terms of the international expansion, is there any meaningful results from talking with (inaudible) networking your target countries? Or you will not announce that until next year?

On the international front, the Company is aggressively pursuing a variety of initiatives to penetrate that European market, which we believe is about 75% the size of the US market. So it's a significant opportunity for Myriad. One is to go to the major cancer centers and networks and collaborate directly with them. That will take a little longer to materialize but will have a quantum step impact on revenue growth. We'll also go directly to physicians and work with physicians and other labs in terms of bringing samples into our lab in Munich. So we're going to pursue the European sales on a number of fronts and try to penetrate that market as quickly and aggressively as possible.

Michael Yee with RBC Capital Markets.

2 questions. One is, can you talk a little bit about the macro environment? What are you seeing in terms of OB/GYN and physician office visits recently and going through the summer? What have you seen and what are you including in your guidance? Stable? Office physician visits are getting better? What do you think about the macro side of things? And then the second question is, I wasn't sure if you gave more specific guidance about SG&A for fiscal '12. I know you said R&D was 9%. What do you think about SG&A? As part of that SG, A you were talking about social interactive advertising, et cetera. When would that kick in and when would you expect to see the expenses there and then, therefore, the benefits?

Thank you, Michael. I'll let Jim address the SG&A question. Physician office visits, from the Thomson Reuter data that we collect, for the fourth fiscal quarter ending June 30, were relatively flat. And in our guidance we built in stable OB/GYN on office visits. We haven't assumed they would increase or decrease significantly. So we've seen a stabilization there and we're assuming pretty much status quo going forward.

Michael, this is Mark. Let me address the social media question that you asked and that next generation DTC. I think overall the expenses we view are relatively modest in that, only because we see some pretty good efficiencies, as opposed to what you see on the mass media side. There are other ways to do that very efficiently. So those expenses will begin in the first quarter but they're actually very modest. I think any benefits from that we would expect to begin to see in the latter half of the year.

And maybe Jim will address more specifics about the guidance but should I think about really the new salespeople as adding incremental expenses, but then slightly offset by none of DTC?

So I think from the salespeople, most of those will be onboard by September, so those costs will begin to incur in first quarter. Again, generally we don't see the benefits from those salespeople until 6 to 9 months out and so that's when you would expect to see that.

And Michael, this is Pete. You can budget -- it's about $225,000 per sales rep, fully burdened cost for Myriad.

In addition to that, Michael, we'll also have the expense associated with investing in Europe and additional SG&A from bringing on Myriad RBM.

Scott Gleason with Stephens.

To start off, it looks like on the PROLARIS side you guys had some pretty strong data coming out of ASCO. You've got 6 other studies going on, a health economic study. It seems like you guys maybe have met the criteria level to go to Medicare and potentially get Medicare reimbursement approval here pretty soon. Can you talk about how those discussions are progressing and what you guys are hearing from Medicare?

Sure, thanks, Scott. I think as I mentioned briefly in my discussion, typically to engage in discussions for reimbursement for payers, you generally need to have at least 2 pivotal studies. We obviously have the Lancet oncology paper that was published a few months ago. And so when we get this biopsy data published, which we're aggressively working on, we think we will have sufficient information to begin to approach payers, including Medicare. We certainly know the concept and the health economics behind the story as one that will be embraced by payers. When you begin to look at the level of intervention that prostate cancer patients generally undergo. Yet you look at how many of them have cancers that are not very aggressive. We know that story is one that payers are certainly very willing to listen to. We have had preliminary discussion with payers about some of the abstract type data and they're very interested in seeing the peer review data. So you should look toward that peer reviewed publication from the biopsy data as really the beginning of our discussions in earnest with payers.

Along that line, when we look at some of the new product launches that you guys are planning that are in areas not in your core focus markets of oncology and gynecology, is there any plan throughout this year to build or add additional folks on the sales side? Maybe in urology or psychiatry.

We certainly are going to be very aggressive as we're able to move PROLARIS forward and obtain reimbursement, and could clearly see additional urology sales additions. We're a little bit farther away in terms of the neuro science area. So I don't think in this coming fiscal year you'll see additional salespeople to address the psychiatric market. But we are looking very closely at that and definitely see that as an opportunity in fiscal 2013.

Tycho Peterson with JPMorgan.

Maybe just first question on guidance, wondering if you could give us a little bit more color around your thoughts on OB/GYN versus oncology for BRCA for the coming year.

We don't typically split guidance down to that granularity.

Can you just talk a little bit maybe, then, about how you're thinking about further penetration of triple negative and adenocarcinoma versus additional sales and marketing initiatives within the current customer base?

Sure, thanks, Tycho. As we discussed, the 3 indications on oncology -- carcinoma in situ, triple negative and ovarian cancer -- 2 of those actually now have well-established guidelines. So carcinoma in situ and ovarian cancer, those are now in guidelines and so we can very aggressively pursue patients that meet those criteria. And those initiatives are underway. As stated, we think they contributed to some of the 11% growth in the fourth quarter for oncology. And we are pleased to see oncology in the double-digit growth for that quarter.

As to the triple negative, that is a newer guideline that NCCN just published and so we are now aggressively pursuing that to update criteria with payers. And historically we've seen payers be very receptive to NCCN guidelines and we are hoping that we will get the same receptivity to the expansion of criteria to include these triple negative patients that are under the age of 60. So those discussions are taking place right now, as we speak. And we would hope that within the next 3 months we will have been able to have those with all of the major payers including Medicare.

Okay. And then on COLARIS, with the addition of the fourth gene, can you just talk about whether there's an opportunity to retroactively go back? I think you've talked in the past about 46,000 patients that have been tested to date. How should we think about going back to some of those patients?

Yes, there is definitely the opportunity for those that historically tested. We are actually seeing tests come in now from some of those patients. I think the only caution on that is it does require a healthcare provider to have maintained contact with those patients from the time that they were tested. And some of those 46,000 were multiple years historically. And so while there is an opportunity in those that have good contacts with their patients, that have maintained them over the past few years, they can reach back to those patients and recommend that they get PMS2 testing. And we are pursuing with insurers reimbursement for patients that have been historically been tested for the 3 genes. But it certainly takes some effort to go back and reach back to those patients.

Then just last one on Europe, and appreciate the color you provided so far. With regards to the network in Germany and then NCI network in France, you haven't finalized any agreements there, is that correct?

We would announce publicly through a press release if we executed agreements with either of those 2 organizations.

And then what about the pharma alliances in Europe for Prezeon and P10? Anything that we should be thinking about in terms of time lines there?

Myriad is very fortunate in the companion diagnostic space to have discovered 2 extremely important genes. P10, which may play a pivotal role as a companion diagnostic with PIK-3 kinase inhibitors which are currently being worked on by a number of major pharmaceutical companies. And the BRCA genes, which obviously play a critical role in the PARP inhibitors. And other DNA damaging agents that may come along. So the Company is working very closely and pursuing those opportunities aggressively. As well as augmenting our 2 primary positions with the work that's being done at Myriad RBM. And they have collaborations with over 20 major pharmaceutical companies in terms of developing new companion diagnostics for new drugs being developed by those pharma companies. So this is certainly an area of interest and great opportunity for Myriad.

Doug Schenkel with Cowen and Company.

In your prepared remarks you talked about efforts to capitalize on the new NCCN guidelines. Did you see any change related to those guidelines during the quarter? And if not, any thoughts on when a related pick-up in demand might occur as you ramp up efforts to take advantage of this?

Thanks for the question, Doug. Yes, the NCCN guidelines I mentioned in the comment were related to the triple negative breast cancer. Those guidelines really had very little impact on the fourth quarter because, after NCCN establishes those guidelines, we then need to take those to payers and then get them to change their criteria. And so those are the discussions we're engaged in right now is taking those to payers. So no impact in the fourth quarter. And then we will, over the next 3 to 6 months work with insurers to update their guidelines. And as that happens, you will begin to see incremental impact as each of those contracts or criteria are updated.

So it's probably fair to assume that you guys haven't baked in a whole lot related to that into your fiscal 2012 guidance. But if you were to execute to plan and if some of the payers came onboard sooner than later, that that could be a source of upside?

Yes, I think it would be fair to say. If we got those payers onboard very quickly then I think there is upside to this plan.

And then turning to COLARIS, the 4-gene product making that available, do you think there was some pent-up demand in advance of making that 4-gene product available? And if so, do you think you've worked through that at this point?

Yes, that's a great question. We certainly know, because the healthcare providers knew that we were working on this gene and the demand was high for that, we do know there was some pent-up demand. And that when the gene became available in June, we saw some impact from that. We think any pent-up demand is probably gone at this point. As we mentioned, we saw strong demand in June after this became available. And we have seen continued strong demand going into this first quarter, as well, for COLARIS. And we think we've worked through all of the pent-up demand.

Okay, and 1 more. What hurdles need to be met for expanding the colon cancer specialist team? And how quickly would you envision making a decision on that and then broadening the initiative? Thanks again for taking the questions.

Sure. Generally for any of these initiatives we look for a double-digit rate of return, and we would need to see line of sight to a double-digit rate of return on this additional sales team. So we have an 8-person team. We've hired most of that team. They will be in the field in September. We will monitor that on a very frequent basis. As soon as we see line of sight to a double-digit return, we would then look to expand that team into additional geographies. And it really will just depend on how quickly we might see that return. If we were very successful, I think you could see that happen yet this year, this fiscal year, that we would begin to look to add some additional teams.

Charles Duncan with JMP Securities.

Most of my questions have been asked but I wanted to ask you a question on the Rules-Based Medicine vector, or the companion diagnostics vector. You haven't provided much detail on that one. What do you think are the trigger points for growing that business?

Charles, if I understand your question correctly, and thank you for asking it, we have a number of opportunities in the companion diagnostic sector with Myriad RBM. As I mentioned, we have 20 different collaborations ongoing. These are mostly early stage new drugs in either animal studies or Phase 1, Phase 2 studies, looking for markers that would identify patients who would be likely responders, or might suffer an adverse event from those drugs. So we're very excited about the future potential of that. And as I mentioned on the call, there are a number of products in our current product pipeline that have come out of research from RBM. And a number of those we think will be ready for product launch within the next 2 years or so.

And Pete, if you or Mark could provide a little bit more detail on the PROLARIS commercial strategy. It seems like over the course of the next so many quarters, you might be adding to the infrastructure, commercial infrastructure. Might you use social media efforts, as well, that are capital efficient? Or how do you really intend to exploit the opportunity with PROLARIS?

Thanks, Charles. Yes, we are very excited about the data that we just released. It was outstanding. I know you've seen that data. And as we submit that data through peer review process, and that additional publication comes out, we will then use that, first, as the opportunity to then work with payers to obtain reimbursement. And then to aggressively begin to market and sell that to the top urologists. We've already identified those urologists that we believe will be rapid adopters because we've had a sales team out in the field for the past year doing market development. So we clearly have identified those targets where we expect to see rapid adoption. And that effort will begin in parallel to the reimbursement efforts as soon as you see publication.

We would not expect this year to probably move into the social media arena. Generally, we would like to do that once we've established sufficient contact with physicians because physicians want to make sure they're very comfortable with the product and how to use that before they might get inquiries from their patients. And so I think you'll see a social media strategy for PROLARIS more likely in 2013.

The last thin I'll add as to what Pete already did, I'll just underscore again, is that as we begin to see adoption for PROLARIS, we will look to aggressively expand that urology sales team based on reimbursement and adoption from rapid adopters. And that's something that, again, we'll watch as soon as we get that additional publication completed.

Dane Leone with Macquarie.

My first one is, maybe excluding Rules-Based Medicine, could you give us some color on what you envision for new product sales or new test sales in FY 2012, maybe including new indications that you're pursuing along with some new tests that you might be launching?

Thank you for the question. As I mentioned on the call today, the next product we plan on launching is a melanoma diagnostic product. We will launch it this fiscal year. Obviously when you launch a new product it takes some time for reimbursement and appropriate guidelines to be established, and to develop the marketing and sales infrastructure around that new product. But we're very excited about it. As I mentioned, there are over 3 million skin biopsies performed in the United States every year. And about 300,000 of those really can't be determined with any confidence using current anatomical pathology methods. And so being able to determine whether or not a mole is benign or malignant is certainly very critical and we think has an exciting opportunity to improve patient healthcare. That's the only product this year that we're planning on publicly announcing. But as I mentioned on the pipeline, we have a lot of very exciting products that are in that pipeline that will come out over the next several years. Not only in oncology, but in areas outside of oncology, as well. So we are very excited about the pipeline and feel it's probably one of the strongest molecular diagnostic pipelines in the industry.

Another question from me is I think quarter on quarter there was a tick-up in bad debt expense. Is there anything we should read into that? Was that just seasonality or some impact from higher deductibles from insurance plans?

No, there's nothing specific to look at. It's more a case by case basis. We review our receivables and determine which ones might not be collectible, which ones we've gone through our whole series of steps to try to collect. But there's no overriding issue that we're concerned about in that area. As you know, year-over-year that number has come down significantly. That's driven in part by additional pre authorization from some of the insurance carriers that helps us to assure the collection. But no, we're not aware of any overriding concerns in that area.

Dane, that flip-flops around a bit quarter to quarter, so I agree with Jim, there's nothing to read into there.

Last one from me. I just want to gauge your appetite for using debt and potential M&A deal. Is that something that's been discussed?

You bring up a good point, that debt has a lower cost of capital for Myriad, obviously, than equity. And the Company has no aversion to using debt and taking advantage of that leverage to do an acquisition. If we saw an acquisition that would warrant both the significant amount of cash in excess of $400 million that we have on the balance sheet and would require more than that, and use debt to leverage to do that acquisition. So we're not debt averse. We recognize the benefits of debt, particularly with the extremely low cost of borrowing that we're enjoying in this current environment. So we certainly are keeping our eyes open and, where appropriate, we would certainly take advantage of that opportunity.

I believe this does conclude our question-and-answer session. Ms. Chambers, I would now turn the call back to you for any closing remarks you may have.

Thank you, Lindsay. This does conclude our fourth quarter earnings conference call. A replay will be available via Webcast on our website for 1 week. Thank you all for joining us this afternoon.

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