Myriad Genetics Inc (MYGN) 2012 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Myriad Genetics 2012 fourth-quarter and fiscal year-end earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Tuesday, August 14, 2012. I would now like to turn the conference over to Rebecca Chambers, Director of Investor Relations. Please go ahead.

Thank you, Susan. Good afternoon, everyone, and welcome to the Myriad Genetics fourth-quarter and fiscal-year 2012 earnings call. During the call we will review the financial results we've released today and detail our expectations for fiscal 2013, after which we will host a question and answer session. If you have not had a chance to review the earnings release it can be found in the investor relations section of our website at www.Myriad.com.

Presenting today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President Myriad Genetic Laboratories; and Jim Evans, our Chief Financial Officer. This call can be heard live via webcast along with a slide presentation at www.Myriad.com. The call is being recorded and will be archived 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 aversely 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 highlight our results for fiscal 2012, which by all accounts was a year of very strong performance for Myriad. I'm extremely pleased to report that the total Company revenue increased 23% year over year to reach a new record of $496 million. All of our tests contributed to this excellent performance. Importantly, BRACAnalysis demonstrated solid year-over-year growth of 15% in fiscal 2012 as we increased our market penetration in both the oncology and women's health segments.

COLARIS delivered impressive growth last year as revenues from our colon cancer tests grew 48% year over year. Our other products also contributed to our record revenues by increasing 32%. For the full year, net income increased to $112.2 million and diluted earnings per share grew 18% to $1.30. We believe we will continue to reap the benefits of our strategic initiatives for long-term growth in fiscal 2013. Therefore, we are projecting revenue in fiscal 2013 to be $550 million to $565 million, which represents an 11% to 14% growth over last year. This level of revenue is expected to result in diluted earnings per share of $1.44 to $1.48, which is also an 11% to 14% growth over the $1.30 reported in fiscal 2012. Jim will discuss the Company's guidance in more detail later on in the call.

We are building on these strong results by continuing to execute on our strategic directives for long-term growth and diversification. Underlying these strategic directives is our commitment to improving patient care through the development and marketing of transformative tests across multiple medical specialties and geographies, which address pressing clinical needs. Our strategy is also focused on reducing inefficiencies and costs in the healthcare system, by providing patients and physicians with critical disease information to guide treatment and prevention.

As a reminder our three strategic directives are first to grow our existing tests and markets, second to expand our business internationally, and third to launch new products, including companion diagnostic tests across the diverse set of major disease indications. With the successful execution of these directives we believe Myriad is well positioned for long-term revenue growth and diversification. We will begin to see the benefits of one of these long-term initiatives this year as our international operations are expected to contribute to our revenue this fiscal year.

We are excited about the progress made thus far in Europe as well as the future prospects for the region. Therefore, we will continue building out our infrastructure in five major countries. Germany, France, Italy, Spain, and Switzerland. This expansion will focus on our sales and marketing and clinical efforts. In total, 20 additional employees will be hired, with the majority focused on educating physicians and patients about Myriad's competitive advantages, which include a 14-day turnaround time versus the current 6 to 12 months, and a 97% mutation risk determination versus the 70% to 75% standard in Europe today.

This additional investment will be critical to the success of our international initiative. As a result, we expect to incur approximately $10 million of dilution to our operating income this year. I believe it is important to note that the impact of the operating income is expected to decrease each year as we move toward our goal of $50 million of international revenue by fiscal 2016.

Since we have reimbursement in all five major market countries for our two lead products, BRACAnalysis and COLARIS, our current reimbursement focus in the region is on Prolaris. We're very optimistic about the potential of the Prolaris product in Europe, and are undertaking several key clinical studies in prostate cancer to drive the adoption and obtain reimbursement for Prolaris. We remain ahead of schedule with Pro-009, a clinical study from a German cohort of approximately 450 radical prostatectomy patients with the end point of biochemical reoccurrence, and we expect the results from this study to be published next year.

We recently signed an agreement to analyze approximately 500 French prostate samples to further validate the Prolaris testability to predict prostate cancer outcomes following a radical prostatectomy. We're also focused on initiating additional Prolaris validation studies with other international groups this year. Our goal with these studies is to obtain reimbursement for Prolaris in all five of our major market countries within the next few years.

Myriad has one of the strongest and most diverse pipelines in the industry. We have 13 candidate tests under development across multiple disease indications. On previous calls we have discussed our lung cancer prognostic test that may help guide the treatment of patients with early stage non-small cell lung adenocarcinoma. As presented at ASCO in June, our lung prognostic test was highly predictive of five-year survival rates in lung cancer patients, and provided physicians with prognostic information that is not contained in any other clinical or pathological data.

Additionally, we are making good progress on a number of other tests in the pipeline. One of our most exciting new candidate tests is our depression differential diagnostic test. This test is designed to assist physicians in correctly diagnosing patients with major depression versus bipolar disorder. These two major neuropsychiatric diseases have a continuum of symptoms that based on the stage of the disease can present significant diagnostic difficulties to a physician.

For example, the depressive phase of bipolar disorder is often indistinguishable from major depression. This product uses a multiplex protein biomarker immunoassay to identify patients with abnormal protein expression patterns unique to each disorder. Thereby assisting the physician and making an accurate initial diagnosis. Differentiating between patients with bipolar and major depression is critical since the therapies to treat these two conditions are very different. Placing a patient on the wrong drug can have life threatening consequences. In a survey of 225 psychiatrists, 93% said they would use a blood-based diagnostic test for new patients with symptoms of a potentially serious mental illness, such as bipolar disorder and major depression.

Myriad recently announced a companion diagnostic collaboration with Pharma Mar where we will assist in the BRACAnalysis status in patients who responded to their novel DNA damaging candidate drug. Pharma Mar joins our elite group of Myriad pharmaceutical collaborators, which include AViD Laboratories, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Novartis, and Roche Genentech. Our companion diagnostics services business continues to generate significant interest from other pharmaceutical partners as well, and we remain pleased with the Myriad RBM progress to date.

Revenue from this business was slightly below our expectations in the fourth quarter; however, in speaking to our pharmaceutical collaborators, excitement for Myriad RBMs best-in-class multiplex immunoassay service is strong. And even more importantly our partners are excited to work with an organization that has demonstrated deep commercial diagnostic capabilities and channels.

In summary we continue to make excellent progress on the goals set fourth in our strategic plan to diversify across multiple disease indications and grow revenue both domestically and abroad. We are pleased with the strong performance of our core business in fiscal 2012, and we believe in our ability to execute on our strategic plan for long-term growth in fiscal 2013 and beyond. Now it's my pleasure to turn the call over to Mark Capone.

Thanks, Pete. As Pete mentioned earlier, our first strategic directive is to grow our existing tests and markets. For fiscal 2012 we developed and executed on a few clear strategic initiatives to increase penetration in both the oncology and women's health segments for BRACAnalysis and COLARIS. We are pleased with the success we saw this past fiscal year, and now have turned our focus to executing our strategic plan in fiscal 2013. I would like to briefly review our fiscal 2012 results before sharing with you our plans for the upcoming year.

To begin, our oncology segment grew 16% year over year in the fourth quarter in fiscal 2012, a significant improvement from the 9% growth in fiscal 2011. This accelerated growth in the oncology segment was due to strong demand for the COLARIS test, as well as a significant increase in BRACAnalysis testing which grew in the low-double digits in fiscal 2012. The growth in BRACAnalysis accelerated due to increased utilization in ovarian cancer, carcinoma in situ, and triple negative breast cancer patients. These three indications accounted for about 45% of the BRACAnalysis growth in the oncology segment in fiscal 2012.

Our fiscal 2013 expectation is for the oncology segment to grow in the low-double digits. This growth is expected to come from three sources. First, a continued focus on ovarian, CIS, and triple negative indications; second, an expanded colon cancer specialist salesforce; and third, a translation of the protocol integration program developed using lean system concepts, which was successfully piloted in the women's health segment in fiscal 2012. We continue to educate physicians on the need to test all ovarian patients and the appropriate CIS patients with BRACAnalysis, as well as the updated NCCN guidelines for triple negative breast cancer. Combined, these indications are less than 30% penetrated and have significant momentum coming into this fiscal year.

The second focus of our oncology segment is to expand our colon cancer specialist team. As a reminder in fiscal 2012 we piloted a colon specialist sales team to focus solely on selling COLARIS, COLARIS AP, TheraGuide, and OnDose. This allowed our current reps in the territory to focus solely on BRACAnalysis. This pilot program was able to achieve breakeven in the first year and therefore, I am pleased to report that we are expanding the program by hiring an additional 16 colon cancer specialists for a total of 24 specialists. These new specialists should be in the field by the beginning of the second quarter. At that time, the colon specialist salesforce will be focused on our entire colon portfolio, selling to medical oncologists, surgeons, and GIs. Our breast cancer specialist salesforce will reach out to medical oncologists, breast surgeons, gynecological oncologists, as well as comprehensive breast cancer centers.

Finally, we will be initiating our protocol integration programs to targeted oncology physicians. As you recall, we first implemented this program in select OBGYN offices in fiscal 2012. This program focused on a systematic analysis of a physician's practice to develop the most effective and efficient ways to identify and counsel patients at risk for hereditary cancers. This is particularly important in an oncology practice that likely orders genetic tests but not on all appropriate breast and colon cancer patients. In the OBGYN offices implementing this program, we have seen a sixfold increase in physician ordering. Our goal is to complete 600 protocol integrations in the oncology segment this next fiscal year.

The women's health segment grew 32% in the fourth quarter and 24% for the fiscal year. This significant growth rate was the result of the successful execution of three initiatives. Protocol integration programs to grow same-store sales, the addition of 20 new territories last Summer to reach more OBGYNs, and our interactive marketing campaign. In fiscal 2013, we expect to deliver mid- to high-teens growth from this segment by focusing on additional territory expansion, broadening the protocol integration program, and extending the interactive media campaign. In planning for the upcoming year we performed a thorough analysis and decided to add 11 new sales representatives to territories with large physician counts, bringing the total number of women's health representatives to approximately 200. As a reminder it typically takes six to nine months for these new hires to contribute to growth.

We will also be expanding our protocol integration program into additional OBGYN offices. In fiscal 2012 we conducted 600 protocol integrations, and in fiscal '13 we plan to increase that to 900 programs. One area where we've had initial success is mammography centers which see large numbers of appropriate patients, many of which come from primary care physicians that we cannot reach. We will continue to focus on this segment in fiscal '13 with additional publications and marketing efforts.

In a market that is less than 10% penetrated we believe these protocol integration programs are critical to deepening penetration. The interactive media campaign was very successful in the fourth quarter and fiscal 2012. Just one of the programs associated with this campaign, MySupport360 has generated a strong double-digit ROI since the site was launched in March. In June alone we saw visits to this site increase to over 20,000 events, which equals the number of monthly visits during our mass media advertising campaign. The interactive marketing campaign continues to be a priority for the marketing team, we expect it to be a then larger growth driver in fiscal 2013.

While total BRACAnalysis sales grew 17%, COLARIS continued to lead the way with another 51% revenue growth rate during the fourth quarter. Our COLARIS products benefited from both the impact of PMS2 and an increase in overall demand. The impact of PMS2 contributed to approximately 50% of the growth, with all of our top payers reimbursing our four gene test and over 90% of patients requesting this test. It is important to note that the impact of adding the PMS2 gene to COLARIS will begin to comp this quarter. Because overall demand for the COLARIS test remained strong, we expect to see growth in the midteens for fiscal 2013.

Now I would like to provide an update on the reimbursement conversations with managed care. Currently these conversations are focused on two tests, our large rearrangement test, BART, and our prostate cancer test, Prolaris. We were very pleased that NCCN recently established new medical guidelines that recommended large rearrangement testing for all breast and ovarian cancer patients that are appropriate for hereditary cancer testing. We expect to see a positive impact from these updated guidelines on our BART testing revenues in fiscal 2013.

This recent change was based upon data compiled by Myriad and a 25,000 patient study and published in the Journal of Cancer in April 2012. The study demonstrated that 6% to 9% of mutations can be attributed to large rearrangements. Previously, insurance companies viewed BART as experimental, but with the changes to NCCN guidelines we hope to obtain reimbursement over the coming quarters from our top payers. Importantly the intellectual property for the BART test extends until 2025.

During the fourth quarter we also held initial conversations with all of our top payers on Prolaris. Feedback from these conversations was positive as they believe sufficient analytical and clinical validation has been completed. Payers recognize the clinical need for a test to be able to differentiate between aggressive and indolent prostate cancer, as well as the strong health economic argument for testing. Critical to reimbursement will be Medicare and our dossier has been submitted to review to our local carrier. Additionally demand for the test is growing as our 20 field-based personnel reach out to thought leaders and fast adopters for both the post prostatectomy and biopsy indications.

In summary we are very pleased with the performance of the molecular diagnostic business in both the fourth quarter and fiscal 2012. We remain diligently focused on the execution of our first strategic initiative to grow our existing tests and markets in fiscal 2013. I'll now turn call over to Jim.

Thank you, Mark and good afternoon. It's my pleasure to present a more detailed look at Myriad's financial results for the fourth quarter and fiscal 2012. Myriad's revenues for the fiscal fourth quarter were $133 million, an increase of 24% over the same period in the prior year. Molecular diagnostic revenue grew 21% year over year to $127.5 million, driven by increased patient demand and sample volumes for our existing tests.

A break out of revenue by product reveals that BRACAnalysis grew 17% to $108.7 million, compared to $92.8 million in the same period last year. Revenue from COLARIS and COLARIS AP increased 51% year over year to $11.5 million, and Myriad's other molecular diagnostic products grew 47% year over year to $7.3 million. Companion diagnostic services revenue equaled $5.5 million in the fourth quarter.

As we look to the costs and expenses incurred in the June 2012 quarter, we see the continued impact from the investments we are making to ensure long-term diversified revenue growth. This quarter research and development expense increased to $12.1 million, an increase of 32% as compared to the same quarter of last year. This increased R&D expense was associated with the further development of our diagnostic product pipeline, including the large number of clinical research programs we are investing in to support the pipeline, as well as our nine commercialized products.

Fourth-quarter SG&A expense was $56.6 million, as compared to $43.9 million in the same period of last year. The 29% increase in SG&A was due primarily to support the 24% increase in revenue, including additional sales reps for women's health, urology, and specialist sales teams, increased commissions associated with higher revenue, investments in our European operations, a full year of SG&A cost for Myriad RBM, and a modest increase in bad debt expense versus the prior year.

Operating income for the quarter was up 13% to $47.3 million, compared to $41.8 million in the fourth quarter of the prior year. The fourth-quarter effective tax rate was 39.9%, as compared to 38.2% in the same period of the prior year. Diluted weighted average shares outstanding were 86.3 million shares, and during the fourth quarter we bought back approximately $61 million, or 2.6 million shares. The pick up and buyback activity was a direct result of the stocks price during the fourth quarter. Diluted earnings per share grew 14% in the fourth quarter to equal $0.34.

Highlights of fiscal 2012 results include year-over-year revenue growth of 23% to equal $496 million, as compared to $402 million in fiscal 2011. Molecular diagnostic revenue grew 18% to $472.4 million, and companion diagnostic revenue equaled $23.6 million. Operating income grew 14% year over year to $180.3 million, even after a significant increase in investment for our strategic directives for the long-term growth and diversification. Diluted earnings per share grew 18% to $1.30, as compared to $1.10 in fiscal 2011.

Moving on to the balance sheet and cash flow, we ended fiscal 2012 with $454.2 million in cash and investments. This compares to $417.3 million at the end of fiscal 2011. Cash from operating activities equaled $141.9 million in fiscal 2012, and capital expenditures were $9.4 million for the year. During the fiscal year the Company repurchased 5.7 million shares of our common stock at an average price of $22.59, for a total of $128.5 million.

I'll now move on to our expectations for fiscal 2013. As Pete mentioned total revenue, total Company revenue is expected to be between $550 million and $565 million, or 11% to 14% growth over fiscal 2012. This breaks down to molecular diagnostic revenue of $525 million to $537 million, and companion diagnostic revenue of $25 million to $28 million. Diluted earnings per share is expected to be $1.44 to $1.48, or 11% to 14% growth over this past year. Cash flow from operations is expected to be approximately $150 million.

Other items considered in this guidance are as follows. This guidance is based on a stable physician office visit environment for fiscal 2013. We expect to experience typical seasonality throughout the year with headwinds in the first fiscal quarter due, to vacation taken by both physicians and providers, as well as in our fiscal third quarter due to the resetting of healthcare deductibles that occur in January. This revenue guidance includes a continuation of the current run rate for Prolaris and BART testing. If we were to get favorable reimbursement decisions for these tests it would provide upside to these expectations.

Revenue from our BART test is currently reported in the other molecular diagnostic revenue line. Reimbursement for BART is farther along than Prolaris, and with the NCCN issuing guidelines in May we have received some very positive feedback from insurers. If reimbursement discussions are successful and the contribution to revenue meets our expectations, we would break the revenue from this test out in a separate revenue line in future filings.

Gross margins for the molecular diagnostic business may decrease slightly if BART or Prolaris are reimbursed faster than expected as these test have slightly higher costs of goods sold due to their lower volume levels. Companion diagnostic gross margins are expected to be consistent with last year.

Full year R&D expense is expected to be approximately 9% of revenue as we continue to invest in our clinical research programs. SG&A expense will include an additional 11 women's health sales reps, 16 colon cancer sales reps, as well as the 20 urology sales reps added in the second half of last year. As a reminder these reps are approximately $225,000 fully loaded annually. Additionally our international initiatives will result in an estimated $10 million negative impact to our operating income net of international revenue.

In fiscal 2013 the tax rate is expected to be approximately 40%, and our EPS guidance takes into account the impact of stock buybacks completed to date, but does not factor in the impact of any future buybacks. As of the end of fiscal 2012 we had approximately $100 million of our $200 million stock authorization remaining. The timing and size of future buybacks will continue to be opportunistic depending on market conditions. And with that I'll hand it over to Rebecca for the Q&A.

Thank you, Jim. In order to insure broad participation in today's Q&A session, please limit your questions to one plus a related follow-up and then jump back into the queue. Operator? We are now ready for the Q&A portion of the call.

(Operator Instructions)

Scott Gleason, Stephens.

I guess first to start off you guys, when we look at BART testing, have you got any feedback from payers on what that might be reimbursed at? And when we think of a percentage of BRACAnalysis tests where you could see BART testing currently done along with BRACAnalysis, can you give us a sense for how that might shape up with reimbursement coverage in place?

Sure, thanks, Scott. First we're just in our preliminary discussions with payers at this point so it's probably a little premature to talk about what ultimately reimbursement levels might look like. What I can say is the list price for BART is $700, so that's obviously a starting point for any discussions with payers are around that list price.

The second question as to what percentage of BRACAnalysis testing might we expect to see reimbursement, again probably a little early to project that. What we can say are the NCCN guidelines are such that they recommend that for every BRACAnalysis test that a BART test should also be ordered. That was really based on one, the very large size of the study, 25,000 patients, so it's an incredibly large study. And that study showed 6% to 9% of mutations were attributed to those large rearrangements, and so I think with those two data points in hand, NCCN recommended that every BRACAnalysis test should get a BART test. And of course those publications are made available to our insurers as we have discussions with our payers.

Great, and then just for my second question. Pete mentioned the differential diagnosis test in his commentary. I'm just wondering for psychiatric disorders, I'm just wondering if we should expect to see any type of market development work really start to take hold there, if you guys are going to start building out the direct salesforce in that channel, what should we look for in the next 12 to 24 months there?

Thank you. I think again we're a little early to start building out a salesforce in the neuropsychiatric market. Obviously, we have a very strong pipeline through the acquisition of Myriad RBM and are very excited about the ability to give additional information to psychiatrists and physicians treating these types of disorders.

This project is moving along very nicely. It is still in the research and validation stage, and as we get closer to considering commercial launch we'll certainly begin to start building out that salesforce. But I don't think you'll see anything this year, nothing is in our guidance that would anticipate a neuropsychiatric salesforce.

Great. Thanks for taking my questions guys and congratulations on a strong 2012.

Jon Wood, Jefferies.

Is there any material contribution from price built into 2013 at this point?

No, at this point, we're not expecting to see any type of price impact being taken into consideration in our guidance for 2013.

Okay, great. And then Jim, the $10 million of dilution from Europe, is this net of the development costs you spent this year? I think you spent about $6 million this year, just on development work, so how should we, is that $10 million a gross number or net of -- so effectively it would be $16 million or so on top of the $6 million spent this year.

Right, no it should just, it will just be the $10 million impact in 2013, net of revenues, so the impact to the operating margins will be $10 million, not an incremental on top of the $6 million that we had this year.

Got it.

And most of our facilities are built out in Europe. This really is just the operations of the facilities in Europe. There's very little infrastructure to buildout in the future.

Great, thanks, Pete and the 20 additional employees that you kind of called out, should we assume most of those are sales reps at this point?

Yes, the majority would be sales reps. We also have some folks that will work with us in terms of the clinical trials and validation studies that we'll do in each of the countries, particularly on Prolaris to secure reimbursement.

Great. Thank you.

Amanda Murphy, William Blair.

Hi, thanks. My first question is on guidance. So you talked to some of the things that are going to remain stable next year in terms of your expectations, but I'm just curious if you can help us frame out the variability in the revenue top line numbers that you've outlined.

Thank you, Amanda. Once again let me just go over some of the macro assumptions that were made with our guidance. We are assuming stable physician office visits, so we're not expecting the economy to either improve nor to deteriorate further. We will see I think the typical seasonality that Jim pointed out, a weaker summer quarter, and after the first of the year when deductibles are reset that March quarter tends to be weaker for us as well.

And I will point out we are going to be growing the salesforce in the women's health segment, and contributions from that new sales reps that we bring on will not occur for at least six to nine months after they've been on the job. Other than that, I think you'll see typical seasonality that we've seen in the past, and we're excited about the growth again as Jim mentioned, there's no price increase assumptions in our guidance either.

Okay, fair enough and then just was looking for a little more granularity on the international business. Obviously that's doing well and you expect some contribution from that in '13. Just curious if you can give a little more perspective there. And also have you had anymore admitting more progress in terms of the hospital network conversations that you've been having?

Yes, as I mentioned I think we've made great progress in setting up the infrastructure in Europe last year; however the lab has only been in operation a relatively short period of time, and we are still very much in the early stages of this initiative. And we are a new Company, a foreign Company to Europe so we have not built in a significant contribution to revenues for this coming year. But as that continues we certainly will update the street on that revenue progress, and we remain on track to meet our goal of at least $50 million in revenue from international operations by fiscal 2016.

With regards to other discussions with some of the major networks in Europe, those discussions are going well throughout the region. Again I'll remind you that our marketing strategy is actually a three-pronged approach to address key oncology and genetic opinion leaders to address physicians and hospitals as well as the major testing networks. With our laboratory now in full operations we can demonstrate to these network groups our superior turnaround time of 14 days versus as much as one year for example, in France. And our unparalleled accuracy of 97% versus the 70% to 75% that is standard in Europe, and I believe that these discussions will be very successful in the future.

Okay, thanks very much.

Michael Yee, RBC Capital Markets.

First question is on Prolaris. Can you give maybe a little more color there on your progress on reimbursement, and more specifically, your estimate for timing there? And my second question is now that the fiscal year is over, typically a time where you think about or look forward to the next year, so I would want to go back to my capital allocation question, and that is is there anything that you're waiting for in regards to thinking about a dividend? And is there something specific or what is it, is it just time? Or maybe you can shed more light there as well, thanks.

Thanks Michael. I'll take the Prolaris question and hand it over after that. I think the conversations as I've said in my commentary have really gone very well. I think the first thing you always look for is do they believe there's been sufficient analytical validity, and the answer is yes. And do they think there's been sufficient clinical validation to link Prolaris score to clinical outcomes, and I think those conversations have gone very well. And the third thing that they're always looking for are indications of clinical utility, and we are providing some additional answers on that with two of the studies we've just recently completed. One of which was the Phase IV study that was completed in Q4, so all of the conversations I think have been very well received at this point. I think they are in the midst of reviewing the dossiers.

We would expect to begin to hear back if they feel there is some additional data that might be required, we should begin to hear back on this quarter on some of those additional data requirements, including potentially hearing back from Medicare this quarter as well on the dossier we've submitted to them. So I think the conversations we've felt have been very productive.

There's very high interest level given all of the publicity over the last year on potentially over treatment for prostate cancer, everybody is looking for a solution to figure out which are the 20% of patients that need some form of treatment from the 80% that do not. And so I think for that reason we found ourselves in the perfect time coming with this solution.

So we would expect to hear over the coming quarter what additional data might be required, and then depending on those data needs we'll expect to begin to hear reimbursement decisions thereafter. We still continue to expect 6 to 18 months which is the historical time frame for reimbursement decisions. We still think we're in that window when we could expect to hear more definitive decisions.

Let me address the second question, Michael. As you're aware the dividend topic has come up as we've met with investors over the past year or so, and I have shared those conversations with our Board of Directors. The Myriad Board remains committed to returning cash to the shareholders and continues to discuss the most appropriate method or combination of methods for accomplishing that.

While we are repurchasing shares under our current plan, and we have about $100 million left under that stock purchase authorization, the Board is continuing to deliberate and think about the best way to move forward once that's complete. So I think after we complete the current stock repurchase program, the Board will again revisit the best way for us to return cash to the shareholders.

Okay, thank you.

Isaac Ro, Goldman Sachs.

This is actually Joel in for Isaac. Just trying to get some more color on how you're thinking about the year-over-year step down in the incremental investment required for the international operations. Are you expecting by 2016 that impact will be negligible?

We certainly believe that by 2016 the international operations will be profitable and contributing to our net income. It's hard to project when we would reach breakeven, but I think we would anticipate a relatively linear growth over the first several years as we move toward that $50 million revenue number.

Okay, great and can you just comment on the physician office volumes and trends you saw this quarter?

Yes, thanks, Joel. Generally, we've seen a pretty stable environment, as we discussed last quarter we had seen a slight increase year over year in physician visits, particularly in the OBGYN segment. In Q4 we saw relatively stable environment, sequentially again slightly up year over year. But generally, I think in our view it ceased to be a headwind and at this point it's pretty stable, and that's the assumption that we've been included in our guidance for next fiscal year.

Great, thanks.

Shaun Rodriguez, Cowen & Company.

On COLARIS I think you talked last quarter about gaining New York State approval for PMS2. I was wondering if you could just talk about whether this is something that provided some gains in the quarter, or this is something that you might see as materializing as a contributor moving forward.

Yes, thanks, Shaun. You're right, we did obtain PMS2 reimbursement or approval if you will in New York. We did see that impact in Q4, so I think you would on a sequential basis, I wouldn't anticipate any additional impact from PMS2 except by just increased demand. So we did see that really materialize in Q4.

Okay, great, thanks, and one unrelated follow-up here. You talked about your assumptions related to pricing and reimbursement at the top line in the context of your guidance, but given the complicated proceedings on both the reimbursement and intellectual property front, is there any detail you can provide on how different potential outcomes on these fronts might impact spend? And here I'm thinking things like consulting or legal spend that might go one way or the other based on the outcomes of those dynamics. Thank you.

Right now, we are not spending a tremendous amount of money as we go through the fence of our intellectual properties, so that fortunately will not be a driver one way or the other as we look at the impact on legal expenses as the one item you threw out there as an example. But really, none of those issues would be directly impacted by any of the larger issues that are impacting the business for this year. So we do ultimately have a lot of flexibility in where we put our spend and how much we're going to spend in different areas, but we don't anticipate at this time needing to pull back on any of our expenses or any of our plans in our next year's budget.

If I can also add for the reimbursement side, this obviously has been going on for some time now so there wouldn't be any material changes in any of our expenses as it relates to the activities around reimbursement, so from a comp standpoint, there's really no change.

Derik De Bruin, Banc of America.

So can, I need a refresher on BART. If I remember you introduced that like back in 2006 or so, and that was done as something that was free of charge if the patient tested negative, but there was a strong family history going on. And are you telling me now that you're going now every woman now that tests negative for BRAC is now going to be reflexed to BART, and I guess does that mean now you're charging for them? I didn't quite follow what was going on.

Thank you, Derik. Yes, your memory serves you correctly. We did launch BART in about 2006. List price is $700 for those inpatients that wanted to order the test and we have generated revenues from BART since 2006. The Company has worked very hard to do clinical studies to support BART testing for all patients because we felt that BART was a very important component. And as Mark pointed out we have published a large 25,000 patient study supporting the utility and clinical value of BART.

Up until the NCCN guidelines we would offer BART free if the family history and risk profile was high enough to warrant that for the patient, and if it was not a patient could order a BART for the $700 price. Now with NCCN guidelines we have the ammunition we need to approach and support with the various insurers the value and the importance of the BART test. And we're very optimistic that with those guidelines and with the amount of clinical data Myriad has amassed and the importance to women with a family history of cancer, that insurance reimbursement should move along very smoothly. And we certainly hope to at one point in time have every woman who is appropriate tested with the BART test.

But does that mean that you'll go ahead and test for free and then try to get the higher reimbursement?

No, at this point with NCCN recommendations that this test should be provided, our goal really is to seek reimbursement from insurance companies, that has typically been for both Medicare and private payers the critical recommendation. And so with NCCN's recommendation at this point, we're actively working with insurance companies to pursue reimbursement for according to NCCN guidelines all potential patients.

We have continued the program that we originally started in 2006 which is for high-risk patients until such time as reimbursement decisions are made we have continued to do those for free, but as reimbursement decisions are made that program will phase out. That program was actually started in order for us to amass sufficient clinical data in order to obtain NCCN guidelines, and so that was really the intention all along for that particular program. And at this point I think that program has achieved its objective, which is providing the data so that the appropriate decisions could be made about medical guidelines.

Let me just add that Myriad has a patient assistance program not only for BART, but for all of our tests where if the patient does not have insurance and cannot afford a test, Myriad does do those tests for free and did over 3,000 free tests just last year.

Great. Thanks.

Bill Quirk, Piper Jaffray.

Peter on international can you talk about the payment trends, just given some of the challenges with certain economies over there right now? And to follow-up, Jim, can you break down the growth between price, volume, and then the rural space medicine contribution? Thank you.

Thank you. Yes, Europe certainly is experiencing a number of economic difficulties as we speak, but that has not diminished our enthusiasm for our facilities in Europe and our desire to expand revenues on a global basis. We have seen a very positive reimbursement in the five major market countries that we have targeted. As I mentioned for BRACAnalysis and COLARIS we have reimbursement already, and that reimbursement is about on par with what we've seen in the United States. Our goal right now really is to educate physicians and patients to provide superior and information in a more timely manner, to take away market share.

Even with the current economic difficulties in Europe, BRACAnalysis represents about $100 million annually, currently being done by networks and labs in Europe. And so our goal is not so much to build the market in a difficult economy, but to actually take market share away, and I think we can do that with the superior quality and more rapid turnaround time. So we remain very optimistic about Europe and have not seen any significant obstacles at least to date with the current economic challenges facing certain other countries in Europe.

For breaking down the growth in revenues, so as we talked about we did see the 18% growth from the molecular diagnostic revenue line, and of that, under less than 1% was attributable to pricing and that was just some of the bleed through from the BRACAnalysis retesting. Then of RBM, it contributed about $21.5 million of growth, and if you recall we only had about one month of RBM on our books in fiscal 2011. So we had the full year of RBM this year, so we had that growth from the $2 million to about $23.6 million contributed from RBM in last year's revenue growth.

Great, thanks very much guys.

Tycho Peterson, JPMorgan.

Maybe just first question on understand your guidance here doesn't assume a lot of operating leverage and you obviously highlighted some of the incremental investments that you're going to be making here, but can you just talk a little bit about how you think about operating margins maybe longer term? Do you see an opportunity for leverage? And can you also comment on margins for rural space, do you see an opportunity to kind of expand the margins for that business as well?

Yes, so operating margins obviously in this last quarter were increased to support the increase in our overall business, and we are seeing the impact of that additional investment that we're making, specifically in the research and development and as we grow out our salesforce in our international endeavors.

That being said for next year, we would expect operating margins to continue in the same ballpark that we saw in this fourth quarter around that 35.5% area. But going forward, we would expect to see some leverage that we're able to bring to bear as we turn to breakeven with the international investments as we hit a peak of our R&D investment. So I would expect that in the coming years we will be able to see improvement to that bottom line as we move out of this time of more investment and are able to take advantages of some of the efficiencies that will be driven from these investments.

And let me comment just briefly on rural space medicines operating margins. While we're very focused and very concerned about operating margins in the main business, which is selling our molecular diagnostic tests, the Myriad RBM unit is really focused at entering into collaborations with major pharmaceutical companies for the purpose of developing companion diagnostics that would be sold alongside of the pharmaceutical products if they're approved through the FDA. And so they're really an engine for Myriad generating potential product candidates particularly in the companion diagnostic space.

So we don't look to improve margins in that type of a business. We would rather enter into more pharmaceutical collaborations and generate more products for future revenues than try to maximize the operations per se. Having said that, we do expect them to not be a drain on the Company's operating margins.

And then one last thing to add Tycho is that this conversation ignores incremental capital deployment. As Jim stated earlier on the call, our current guidance takes into account share buybacks done as of today, but it does not include future share buybacks and therefore there could be incremental leverage that's not included in our guidance today.

And maybe just to follow-up on that, can you talk about your appetite for additional M&A, obviously with rural space you've got a lot on your plate in terms of pipeline, but what's your bandwidth for additional M&A or should we think about collaborations rather than actual acquisitions?

Well Myriad is very committed to and interested in further acquisitions. We have fully integrated Myriad RBM into Myriad. The operations are running very smoothly, we're very pleased as I mentioned with the operations this past year and looking forward to 2013, so we have appetite for more. We do have a relatively high hurdle in terms of what we require in an M&A candidate, but we also have a lot of cash and want to take advantage of our leadership position in this market. So that's certainly not off the table and we certainly have appetite for more if we can find the right opportunity.

And then just one last follow-up for Jim, as we think about the tax rate creeping up a little bit in '13, are you looking at anything different from a tax planning strategy or offsets, or should we think about that continuing to go up as Europe ramps in the near term?

I think we're expecting it to kind of flatten out at the 40% rate for the time being. We do see some ways that we should be able to drive that down as the international operations start to turn profitable and give us some opportunities to do some tax planning around that, but for right now we're comfortable with the 40% tax rate that we're projecting in this next year.

Okay, thank you.

Dan Leonard, Leerink Swann.

Can you give us the growth rate of the BRACAnalysis in the ovarian, carcinoma in situ, and triple negative indications in the quarter? And also remind us how you [up] the size of that total opportunity for you?

Sure. I think the one number we gave is that 45% of revenue growth we gave last year is attributed to those three indications. All three of those indications in total we put the opportunity at over $200 million annually. We're less than 30% penetrated in those three opportunities, so we continue to believe that all of those have some significant momentum coming into this fiscal year and have significant upside associated with those.

Okay, thanks. And my follow-up quickly, what's the share count assumed in guidance?

Just under 82 million shares I believe.

Per basic.

And I think about 86.4 million fully diluted is in the ballpark.

Okay, thank you.

And I will now turn the call back to you, Ms. Chambers.

Thank you, everyone. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you all again for joining us this afternoon.