Myriad Genetics Inc (MYGN) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics fourth-quarter and year-end 2014 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 12, 2014.

I would now like to turn the conference over to Scott Gleason, VP of Investor Relations at Myriad Genetics. Please go ahead, sir.

Thanks, Melody, and good afternoon, everyone, and welcome to the Myriad Genetics fourth quarter and FY14 earnings call. My name is Scott Gleason, Vice President of Investor Relations here at Myriad Genetics, and today during the call, we will review the financial results we've released today, 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 sections of our website, at Myriad.com.

Presenting today for Myriad 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, at 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 adversely from these expectations for a variety of reasons.

We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and forward-looking statements.

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

Thank you, Scott.

I'm pleased to announce that Myriad once again exceeded both our top and bottom line guidance in the fourth quarter. Fourth quarter revenues were approximately $189 million; and of particular note, myRisk revenues were $27.3 million, an 89% increase over the last quarter. The myRisk adoption rate by physicians has exceeded even our own optimistic expectations.

Revenues for the fiscal year were a record $778 million, an increase of 27% over the prior year period. And our adjusted net income was approximately $190 million, up 29% over the FY13. I'm proud of the Myriad team who, in face of broad competition, delivered the strongest year in the Company's history.

I'm also pleased to provide financial guidance for the FY15. We are projecting revenues of $800 million to $820 million and adjusted earnings per share of $1.90 to $2.00.

Myriad is committed to diversifying our revenue stream into new, high growth diagnostic markets and expanding our reach internationally, while preserving our leadership position in the hereditary cancer market. I'm pleased to report that we are making progress in all of these areas and will continue to invest this year in research and development, new product offerings and global expansion. We believe these investments will deliver long-term shareholder value and lead to greater financial leverage in FY16 and beyond.

As I mentioned earlier, our myRisk revenues nearly doubled on a sequential basis. It is now evident that the future of hereditary cancer testing is the more sensitive Multiplex genetic panels that evaluate many cancer genes. This fact was recently emphasized at the ASCO meetings, with several presentations touting the benefits of gene panel testing, including one presentation by Dr. Domchek at the University of Pennsylvania, who stated, and I quote, "For Multiplex, genetic testing of the future is here". End quote.

We believe this movement to the highly sensitive gene panels will greatly improve Myriad's already strong competitive position in the hereditary cancer market in several ways. Myriad's myRisk test leads all other cancel panels in turnaround time by a significant margin. Other gene panel tests currently have turnaround time frames measured in months, while Myriad is the only laboratory that can deliver test results within two weeks, which is a critical window needed to guide surgical decisions for cancer patients. It will be extremely difficult and costly at our competitors' volumes to achieve the necessary two-week turnaround time.

Additionally, Myriad has classified more than 25,000 mutations, and this database is rapidly expanding as we continue to classify mutations in the other genes in the myRisk panel. In FY15, we are projected to test over 100,000 patients with myRisk. To make significant progress in variant classification for cancer panel testing, a competitor would have to test hundreds of thousands of patients and spend tens of millions of dollars on variant classification. Thus, our competition will have to rely on the noncurated, unvalidated public databases that are not only small, but fraught with errors.

This public database accuracy problem was highlighted recently by the American College of Medical Geneticists. And I quote, "Few, if any, variant databases are curated to a clinical grade. It is well-known that many databases contain misclassified variants, particularly benign variants misclassified as disease causing." End quote. The result of such a misclassification would be absolutely devastating to patients.

We continue to make excellent progress on the international front. Our international revenues increased 89% this quarter, and I would like to highlight several opportunities for continued growth.

During the quarter, we signed several significant BRACAnalysis testing contracts in Spain, Italy and Switzerland, and two meaningful contracts in Spain, one for Prolaris and one for EndoPredict. We also gained several new customers for EndoPredict in Germany and South Korea, bringing the number of major cancer centers using EndoPredict to 25.

As you may recall, EndoPredict is our next-generation RNA expression test used to determine which women with breast cancer would benefit from chemotherapy. EndoPredict provides physicians with information to develop personalized treatment plans for their breast cancer patients. EndoPredict can also detect the likelihood of late metastasis, metastasis occurring after five years, and thus can guide both treatment decisions for chemotherapy, as well as extended anti-hormonal therapy.

EndoPredict has been shown to accurately predict cancer-specific disease progression and metastasis with no confusing intermediate results in 13 published clinical studies and more than more than 2,200 patients and has a registered CE mark. Myriad offers EndoPredict as an in vitro diagnostic kit to major cancer centers and hospitals throughout the world, which allows local pathologists to perform the test on-site and beneficially share in the test economics.

EndoPredict can be run on both the Siemens and Thermo Fisher instruments, and we see an opportunity to capture a significant share of the $375 million European breast cancer prognostic market. Overall, I'm very pleased with the progress we are making in the international markets, and we are on track to achieve our goal of $50 million in international revenues by FY16.

I'm also excited about the progress we have made in diversifying our business through the launch of new products and new disease indications. First, looking at our Urology segment, we continue to see meaningful growth with Prolaris sample volumes, increasing 71% this fiscal year relative to last fiscal year. Mark will provide an update on Medicare reimbursement in his comments, but we have recently undertaken a major sales force expansion in Urology, doubling the number of our sales reps, and we remain confident Prolaris will have a significant growth opportunity for the Company in 2015 and beyond.

Second, our Dermatology business unit is making great strides with our myPath melanoma test. We presented a health economic model on myPath at the Association of Value Based Cancer Care in May, and a clinical study on myPath in ASCO in June. These studies demonstrated that myPath leads to a 38% change in patient medical management and an average cost savings of $1,500 per patient tested. We are currently preparing a dossier for the reimbursement coverage for myPath and anticipate submitting it to Medicare and private insurers in the second half of this fiscal year.

Third, I'm very excited about Vectra DA and the difference it makes in the lives of patients with rheumatoid arthritis. Sample volumes for Vectra DA were up 14% sequentially, and revenues grew by 21% compared to the last quarter. The number of ordering physicians increased to over 1,000, representing greater than 30% of all practicing rheumatologists in the United States. Based on this strong sample growth, we are raising our revenue guidance for Crescendo to $65 million for the FY15.

At the recent 2014 European League Against Rheumatism, or EULAR meetings, in Paris, Crescendo presented nine posters demonstrating that Vectra DA can accurately predict radiographic progression, can predict whether RA patients will benefit from disease modifying anti-rheumatic drugs or biological therapies, and can be useful in the selection of patients for pharmaceutical clinical studies. In May, we published an important clinical study in the annals of rheumatic diseases. This study followed 235 early rheumatoid arthritis patients for one year and found that patients with a low to moderate Vectra DA score had only a 3% risk of radiographic progression, whereas patients with a high Vectra DA score had a 21% risk of progression, seven times higher than the low to moderate group.

We plan to invest aggressively in Crescendo's product pipeline of autoimmune and inflammatory disease test candidates. In the coming years, we see significant potential and unmet diagnostic opportunities in areas such as juvenile arthritis, psoriatic arthritis, anklyosing spondylitis and lupus. As part of these efforts, we recently presented data at the 2014 EULAR annual meeting on Vectra DA's potential to benefit patients with juvenile idiopathic arthritis.

This investment in our future does come at some near-term cost. Our dilution from Crescendo this quarter was approximately $0.08 per share, and we are forecasting approximately $0.20 per share of dilution from Crescendo in the FY15; however, we believe Crescendo will become a net contributor to profitability in our FY16.

Finally, we are equally excited about our new myChoice HRD test. We recently signed our sixth commercial collaboration with a major pharmaceutical partner, and we are on schedule to launch myChoice HRD in the second half of this fiscal year. MyChoice is a complex assay that measures loss of heterozygosity, telomeric allelic imbalance, and large-scale state transition. In a clinical study presented at ASCO in June, myChoice accurately predicted which triple negative breast cancer patients would respond to platinum-based therapies, such as cisplatin and carboplatin.

Given the strong clinical support for myChoice HRD, we believe that over time it will become the gold standard companion diagnostic for platinum drugs. Additionally, successful clinical trials with our six pharmaceutical partners could expand the addressable market for myChoice by predicting response to PARP inhibitors and other novel drug classes.

In conclusion, we have made significant progress toward our strategic goals of diversifying our business internationally, launching new life saving products across multiple disease indications. To accomplish these goals, we will continue to invest in new product and business lines and are confident that these investments will position the Company for sustained long-term growth.

Before I turn the call over to Mark, I would like to touch on a personal note. I want to acknowledge the outstanding contributions of Jim Evans and those that he has made to Myriad and thank him for his insight, his advice and friendship. Jim and I have worked together for the past 19 years, and I know all of us at Myriad wish him and his wife Dee Ann all the very best.

While Jim will be difficult to replace, we have engaged the search firm of Spencer Stuart to find his successor. I've already reviewed resumes on over a dozen candidates, including a strong in-house candidate, and I am confident that we will find an outstanding new CFO who will continue Jim's tradition of excellence.

With that, I will turn the call over to Mark to provide a more detailed operational update.

Thanks, Pete.

I'm happy to provide a more in-depth look at our operational performance in the fourth quarter. First, I would like to provide an overview of the segment results, followed by an update on the progress of our myRisk conversion strategy, and finally, provide some comments on reimbursement and competition.

After a full year of competition in the hereditary cancer testing market, fourth quarter hereditary cancer revenues increased 3.1%, to $168 million compared to $163 million a year ago. The Women's Health business segment continued to deliver strong growth this quarter, with revenues growing to $81.9 million, an increase of 24% year-over-year growth. Our Oncology revenues this quarter were $90.2 million, which was down 10% year-over-year.

The reduction in Oncology revenues is attributable to a reduction in Medicare reimbursement, the end of the celebrity publicity benefit that Oncology received last year, and competition in the genetics market. We believe that the Oncology market, based upon current indications, is still approximately 35% penetrated and continue to see this as a growth segment in the future years, as we complete studies to expand indications even further.

In the fourth quarter, SGO published guidelines recommending that all 60,000 newly diagnosed endometrial cancer patients each year should be tested. In addition, consistent with NCCN guidelines, last week the American Gastrointestinal Association recommended that an estimated 60,000 newly diagnosed colon cancer patients each year with a risk of 5% of hereditary colon cancer be tested.

In addition, our studies to expand hereditary breast cancer and pancreatic cancer indications are progressing very well. In total, these new indications, once they're established in pair guidelines, can almost double the size of the Oncology market.

As Pete mentioned, we made significant progress during the quarter with the conversion of our hereditary cancer business, myRisk. MyRisk revenue almost doubled on a sequential basis, increasing to $27 million compared to $14 million in the third quarter. For the quarter, myRisk revenue represented about 15% of total hereditary cancer testing; however, we ended the quarter with approximately 30% of incoming hereditary cancer samples being ordered as myRisk.

We are in the process of preparing for the broader commercial launch of myRisk in the fall. We are making significant progress in expanding our laboratory capacity to meet the incoming demand with additional automation, equipment and personnel. In the fourth quarter, our turnaround times were averaging the critical 14 days, with a goal for further reduction to 10 days by the end of this fiscal year.

I would also like to highlight a recent publication in the New England Journal of Medicine on PALB2. This study demonstrated that PALB2 plays a more important role in breast cancer susceptibility than previously believed. In a large cohort of 362 women, PALB2 conveyed up to a nine-fold risk of breast cancer relative to the general population. Additionally, PALB2 mutations are relatively common. Almost 13% of the mutations identified in our pivotal prevalent study for myRisk were associated with PALB2. We believe this data strongly conveys the importance of a gene panel-based approach with hereditary cancer testing.

From a payer standpoint, we currently have long-term contracts that contain myRisk pricing for more than 80 million covered lives, or approximately 25% of our total revenue base. Additionally, we recently signed a three-year contract with the National BlueCross and BlueShield Association, which establishes pricing for myRisk. This contract has already been accepted by some of the BlueCross BlueShield affiliates and we are working on acceptance with the other affiliates. In combination, United HealthCare and BlueCross BlueShield affiliates represent nearly half of our total commercial revenues.

In our Urology segment, our sales force expansion in anticipation of Medicare coverage is almost complete, which will nearly double the size of our sales team, to 40 reps. Our test orders in FY14 grew more than 71% for Prolaris and the ordering physician base more than doubled. We estimate that about 15% of urologists have now ordered Prolaris and 77% of these ordering urologists are repeat users.

During the fourth quarter, we presented a new prostate cancer biopsy clinical study at both the American Urology Association and American Society of Clinical Oncology meetings. This study was the largest clinical validation study completed of any gene-based prognostic test for prostate cancer, with almost 800 patients. The compelling data demonstrated that patients with a high Prolaris score had a 59% risk of 10-year prostate cancer-related mortality, compared to only 7% in patients with a low Prolaris score.

We believe 10-year prostate cancer-related mortality is the gold standard end point in this market, and given the size and scope of this study, we believe it will drive increased market traction. We have submitted this data for publication in a major medical journal, which we expect to publish in FY14.

This quarter, we also completed enrollment in our third clinical utility study called PROCEED 1000, and publication of the data is expected in the first half of FY15. We expect this data to be consistent with the results from PROCEED 500, where approximately 66% of urologists changed their patient treatment recommendation, based upon the Prolaris test score.

We also plan to publish our health economic model that demonstrates a substantial cost savings for testing all newly diagnosed prostate cancer patients with Prolaris. These data show that Prolaris testing could save the healthcare system over $800 million annually, or more than $3,000 per patient.

Lastly, we are continuing our dialogue with Noridian to obtain Medicare coverage for Prolaris. Our dossier was in excess of 800 pages and, not unexpectedly, we have received and responded to clarification questions from Noridian. We continue to believe that the significant body of evidence surrounding the test supports a positive coverage determination.

As Pete mentioned, our Dermatology sales force had made significant inroads for myPath melanoma in the dermatology market. The number of ordering physicians has continued to increase to more than 10% of all practicing dermatal pathologists. Along with Vectra DA, this has been one of the most rapid diagnostic launches of any new advanced diagnostic in history.

At ASCO, we presented data from our second major clinical validation study. The study looked at 437 pigmented lesions across multiple melanoma subtypes, and myPath was able to differentiate between benign skin lesions and melanoma with a sensitivity of 90% and a specificity of 91%. This is our second consecutive study where myPath melanoma demonstrated a diagnostic accuracy of greater than 90%.

We are also making significant progress with myPlan lung cancer. We are pleased to announce that our pivotal validation study, that was presented at the American Association for Thoracic Surgery annual meeting in April, has been accepted for publication in the Journal of Thoracic Oncology. Additionally, we had a poster presentation with our first health economic study at this year's ASCO meeting. We now have over 100 providers who have signed up for our early access clinical experience program, which will establish the clinical utility data for our reimbursement dossier.

My last product update is for BRACAnalysis CDx, which has been submitted to the FDA as a PMA for use as a companion diagnostic with olaparib. After the ODAC meeting in June, AstraZeneca and Myriad met with the FDA to review the status of the olaparib submission. In July, AstraZeneca submitted a major amendment to their NDA, and the FDA has provided a revised PDUFA date of January 3, 2015.

AstraZeneca indicated on their recent financial earnings call that they continue to be optimistic that olaparib will be given priority review for select ovarian cancer patients. The approval of PARPS may provide a much greater sense of urgency for BRCA testing for ovarian cancer patients, a market that to date is only 25% penetrated in the United States.

On a broader basis, we are now supporting 13 Phase 3 clinical trials with BRACAnalysis CDx in 6 different indicated patient populations. Looking at the indications for our partners' aggregate Phase 3 and Phase 2 studies, we believe that they represent a potential patient testing population of approximately 900,000 patients per year in the United States, roughly six times the size of the current market for BRACAnalysis in Oncology.

I would now like to provide an update on reimbursement and competition for our hereditary cancer business. It is worthwhile to reflect on reimbursement status after a year of competition. We have now had discussions with all of our material payers and have only had one payer, Horizon BlueCross BlueShield of New Jersey, change the network status for our tests.

Payers have understood the quality difference and the associated cost savings with Myriad's tests, along with the overwhelming support from providers. Consequently, the focus for our current payer discussions is centered entirely on myRisk and the benefits of panel testing versus single syndrome approaches.

We are actively transitioning our payer contracts this year to long-term agreements that have the goal of providing both Myriad and payers long-term visibility on pricing and capping exposure to the costs associated with à la carte gene testing. As I stated previously, we now have 25% of covered lives under long-term contracts for myRisk and are optimistic that a large percentage of our payers will enter into similar contracts by the end of this fiscal year.

We lost a small amount of additional market share this quarter, and the share loss remains primarily concentrated in the genetic segment of our business. Accounting for this share loss, we believe we currently maintain approximately 92% market share of the entire hereditary cancer market.

While some modest additional market share loss may occur, we do expect market share to begin to stabilize throughout FY15, especially as we transition the market to our myRisk product. We also believe we will benefit from the continued market growth from increased patient and physician awareness, as a result of increased competition.

Finally, I would like to touch on the recent announcement from the FDA surrounding their plans to regulate laboratory-developed tests. We are actively participating in this process, to ensure any regulation will continue to provide rapid patient access to life-saving technologies for tests that are rigorously validated. Ultimately, we believe we are one of the best positioned laboratories to work with the FDA, given our resources, experience and the quality of the clinical validations already performed on our tests.

As a reminder, Myriad already has submitted PMA modules to the FDA for BRACAnalysis CDx and is completing the modification of our quality systems for FDA compliance. We also believe the impact of increased regulation will have a positive benefit to Myriad by increasing the barriers to market entry.

In conclusion, we are making outstanding progress in all of our business units. We are ahead of schedule to fully convert the hereditary cancer market to myRisk, which we believe will further increase our competitive advantage. Additionally, several of our new products are on the cusp of becoming major growth drivers over the next two years and driving increased financial leverage for the Company.

With that, I will turn the call over to Jim to provide a financial update.

Thanks, Mark.

I'm pleased to provide an overview of our financial results for the fourth quarter, followed by a detailed look at our 2015 financial guidance. Fourth quarter total revenues were $188.8 million, representing top line growth of 8%. Excluding the one-time impact from celebrity publicity in the fourth quarter of last year, our revenue growth was approximately 14%. Total revenues for the FY14 were $778.2 million, a 27% increase over the prior year.

Molecular Diagnostic revenue in the quarter was $182.9 million, up 10% year-over-year. Molecular Diagnostic revenues included approximately $10.8 million of revenue from our recently completed Crescendo Bioscience acquisition.

Companion Diagnostic revenues were $5.9 million this quarter, compared to $8 million in the fourth quarter last year. This decrease in Companion Diagnostic revenues is attributable to increased revenue recognized in the fourth quarter of FY13 from the now completed Sanofi diabetes contract. Since these revenues are based on research diagnostic services with our pharmaceutical partners, and not on sales of companion diagnostic tests, as the caption may suggest, we have renamed this segment to Pharmaceutical and Clinical Services revenue. Revenue from future companion diagnostic tests will be recognized in our Molecular Diagnostic revenue line.

Other revenues in Q4 FY14 were $3.6 million and grew 15% compared to the fourth quarter of last year. After one full year of competition, hereditary cancer revenues were $720.1 million, a 26% increase over the prior year. During the fourth quarter, our hereditary cancer franchise generated revenues of $168.4 million, which represented growth of 3.4% compared to the fourth quarter of last year. The revenue breakdown for our hereditary cancer products in the fourth quarter is $107.4 million for BRACAnalysis, $27.3 million for myRisk Hereditary Cancer, $18.9 million for BART, and $14.8 million for Colaris and Colaris AP.

Gross margins were 87.2% for Myriad's core business, 42.8% for Vectra DA and 54.6% for Pharmaceutical and Clinical Services. We believe that Vectra DA's margins will improve to approximately 75% at volume, after receiving broad scale reimbursement coverage. Our consolidated gross margins this quarter were 84%, primarily due to the inclusion of Vectra DA in our product mix.

Research and development expense was $20.2 million this quarter, which was up 38% year-over-year. As we mentioned in our third quarter call, when R&D expense was down year-over-year, R&D expense will fluctuate on a quarter to quarter basis, based upon the timing of our clinical studies and should be evaluated on an annual basis.

SG&A was $84.3 million and grew 18% over the same quarter last year. Much of this growth was attributable to the acquisition of Crescendo.

Adjusted net income was $37.1 million, a decrease of 16% compared to the fourth quarter of the prior year. This decline was primarily attributable to dilution associated with the Crescendo acquisition. Non cash amortization charges were approximately $3 million this quarter. Additionally, we incurred an approximate $800,000 one-time non cash charge in other income this quarter, due to a reorganization of a Myriad RBM subsidiary in Europe that we inherited as part of that acquisition.

Our fully diluted share count increased sequentially, to 77.7 million shares, based on the increase in our stock price as of June 30, 2014, causing more employee stock options to be in the money and therefore included in the fully diluted share calculation. Our adjusted earnings per share was $0.48 for the quarter, exceeding the consensus expectation of $0.46 per share. Adjusted net income for the FY14 was $189.6 million, a 29% increase over the prior year, and adjusted earnings per share were $2.43, a 37% increase over last year.

Moving to the balance sheet, we ended the quarter was $270.6 million in cash and cash equivalents, which translates into $3.48 in cash per fully diluted share. We utilized approximately $66 million to repurchase approximately 1.8 million shares of Myriad common stock during the fourth quarter.

We continue to believe our stock price is not reflective of the long-term value of the Company. We intend to continue to repurchase stock when we believe it is undervalued. As of the end of the June quarter, we had approximately $165 million remaining on our current share repurchase authorization.

Myriad is committed to creating long-term shareholder value and, as such, we will continue investing in a business for future growth and diversification. Our research and development funding will support the development of new products across all six of our areas of disease focus. Additionally, we will continue to make investments in support of our international expansion, given the significant market opportunities with myRisk, Prolaris, Vectra DA and EndoPredict.

I'm now pleased to provide a more detailed look at our FY15 financial guidance. As Pete mentioned, Myriad is guiding toward revenues of $800 million to $820 million and earnings per share of $1.90 to $2.00. Our revenue guidance assumes approximately $700 million to $720 million for our core products, approximately $65 million for Vectra DA, and Pharmaceutical and Clinical Services revenues of approximately $35 million.

Celebrity publicity represented a substantial benefit for the Company throughout the first half of the FY14, adding approximately $55 million in additional revenue and approximately $0.35 to $0.40 to our overall earnings per share. As we compare the first half of FY15 with the first half of FY14, it is important to take into consideration this one-time benefit we received last year.

As in past years, we expect to see the typical seasonal weakness due to summer vacations in the first quarter, resulting in relatively flat to lower sequential revenues compared to the fourth quarter of the preceding year. Layered on top of this seasonality is the impact of the recent Horizon decision that was effective July 1, 2014 and some anticipated incremental market share loss.

As Pete and Mark have highlighted, we are very pleased with the rapid conversion of legacy testing to our myRisk panel. One consequence of this swift migration is the impact to revenues from longer turnaround time. While industry-leading, myRisk's 14-day turnaround, when compared to BRACAnalysis at 7 days, results in some revenue being pushed into future periods. We believe this impact will be disproportionately felt in the first half of FY15, as we ramp our myRisk business, and will reverse in the second half of the year as turnaround times for myRisk begin to decline.

Based upon the above issues, we believe revenues in our first fiscal quarter will be approximately 5% lower than in our FY14 fourth quarter. However, we believe subsequent quarters will benefit as the growth in the hereditary cancer market outpaces market share loss, with a favorable Medicare reimbursement decision on Prolaris, with private reimbursement contracts for Vectra DA, and continued revenue growth from our international operations, including EndoPredict.

In the FY15, we expect consolidated gross margins to be approximately 82%, research and development expenses to be approximately 9% of revenue, and SG&A to be approximately 45% of revenue. Finally, our guidance assumes an approximate 39% tax rate and a fully diluted share count for the full year of approximately 76 million shares.

Before I turn the call back over to Scott, I wanted to take the time to thank Pete and my colleagues at Myriad for 19 wonderful years. What makes a job or life in general enjoyable is the people you surround yourself with. Both at Myriad, as well as working with the financial community, I've had a great opportunity to interact with truly amazing people. I know the future of Myriad is very bright, and I look forward to watching the Company's continued success with the rest of you from the outside, once my successor is identified.

With that, I will now turn the call back over to Scott for Q&A.

Thanks, Jim.

As a reminder, during today's call, we used certain non-GAAP financial measures. A reconciliation of the GAAP financial results to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website.

Now we are ready to begin the Q&A session of our call. In order to ensure broad participation in today's Q&A session, we are asking participants to please ask only one question and one follow-up. Operator, we are now ready to begin the Q&A portion of the call.

Thank you.

(Operator Instructions)

Derik de Bruin with Bank of America. Please proceed.

Mr. de Bruin, your line is open.

Could you help us get a little bit better sense, in terms of the myRisk conversion and how we should think about that in terms of ASPs on that test for 2015? And also, in terms of modeling purposes, some general color on how you see the BRCA, COLARIS and the BART, just the mechanics on how that all flows through? Basically, I'm seeing, where do you expect myRisk to be in terms of the conversion number at the end of the year and just how everything fills together.

Sure. Thanks, Derik. First of all, I'll answer your first question from an ASP standpoint. What we've said, even since the initial analyst day where we unveiled myRisk, is that we expect ASP for myRisk to be consistent with that for our legacy products. Our goal here is to transition to a more informative market, a better test at a same price point. And that we expect to hold through -- throughout the year.

Increasingly, what you will see us do is just report our hereditary cancer revenues as a whole. Because as we transition from BRACAnalysis or BART or COLARIS to myRisk, you're going to see that cannibalize that market. And so we really begin to see that as an entire market segment and will report on that accordingly.

So the mechanics, generally, are what we've seen with myRisk, is the transition is immediate and complete when we approach a physician and ask them if they are interested in this more sensitive test. And that's why demand has been quite robust. And as you know, we have only made myRisk available to a segment of the market at this point. We've gone now through an early access, then an expanded access and then genetics. And those are the physicians that currently have access to the test. We are planning the full commercial launch this fall, when we will unveil this to a larger segment of the physician population. So, you should see us move from that 30% where we exited Q4 into Q1, you're going to begin to see that ramp up in Q2 towards that 100% conversion number that we expect by next summer.

Great. And just one quick follow-up. On the Prolaris expectations for -- I guess, when do you have a better sense in terms of reimbursement? Do you have any guidance in terms of what you have in the model for revenue contributions from Prolaris?

As we mentioned, we're still in discussions with Medicare, which is about 65% of the patients in the Prolaris market. Unfortunately, there's no statutory requirement for Medicare to make decisions on approval. And so we are continuing those discussions and answering the clarification questions that came out of the initial review. We have included some Prolaris revenue. We won't break out revenue by product, but we have included some Prolaris revenue in our guidance assumptions and would expect that to happen more at the latter half of the year.

Great. Thank you very much.

Isaac Ro with Goldman Sachs.

Just want to start off if I could with a question about the Angelina Jolie impact. I think there has been a little bit of skepticism about how you can measure the accuracy -- how you can accurately measure the impact of Angelina Jolie, and then maybe in the context of the rising competition, help us understand why you're confident that you can separate those two dynamics?

Thanks, Isaac. Certainly, with multiple factors going on at the same time, it complicates the analysis. I think in this particular case, we were able to take advantage of some analytics that we developed when we were doing public awareness campaigns, as you know, six, seven years ago. We developed some very sophisticated analytics to understand the impact to the market of the various public awareness campaigns. We've been able to use those same analytics to evaluate what was a very similar phenomenon that we saw with the celebrity publicity.

What we saw with that, is that the shape of the curve was actually quite similar to what we've seen historically with the consumer awareness campaigns. The magnitude of the curve was substantially higher, which is why, as Jim mentioned, we saw that $55 million benefit last year. But the shape of the curve actually turned out to be quite similar. And so through some of that sophisticated modeling, we've been able to look at the market impact and ascertain that, really, by the end of Q2 last year, that any of that benefit had gone away.

In addition to that, we triangulate that with feedback we get from our field sales force. As a reminder, we have over 600 conversations with physicians every day, with a very large sales force that exceeds 400 people. And we triangulate with surveys with physicians, with surveys with our salespeople, in addition to those analytics. And it's that triangulation that really validated, in our minds, what we saw as a pattern consistent with the impact really falling off after Q2.

Great. If I could just ask a quick follow-up on the financials, Jim. Wondering about capital deployment for this year. You guys have been pretty progressive with M&A. But there's also, I think, a lot of potential for the share repurchase to continue going here. And be curious what you guys are baking into your guidance this year. What's reasonable to expect? And I just want to wish you the very best. Thank you.

Thanks, Isaac. I really do appreciate that. We have not built any stock repurchase into the guidance that we have provided. But we will continue to buy back stock aggressively at those rates, or those levels of stock price that we think are under -- reflect an under valuation of the Company. So I think as you've seen over this last year, even with the stock price improving, we've continued to be relatively aggressive in stock buyback, as we believe that there is additional value to be seen in the stock and the valuation for the Company. And so that continues to be a priority for the Company, to return excess cash to the shareholders.

Tycho Peterson with JPMorgan.

First, just on the celebrity publicity. You had previously talked about that under the auspices of Women's Health. Now you're talking about it in terms of Oncology. Can you maybe just clarify why that change?

Thanks, Tycho. I think what we'd said before is that the majority of the impact was felt in the Women's Health marketplace. For those that were asymptomatic, just as Ms. Jolie was, that there is, of course, a halo effect into those that may have been diagnosed with cancer, and also, in the Genetics segment, where the Genetics segment gets added up under our Oncology segment, but Genetics sees patients that are both asymptomatic and those with cancer. And so I think that was the commentary we had, is that you would have seen a majority in the Women's Health segment, but there certainly is some impact into what we call the Oncology market.

And then, if we think about the organic growth this quarter, can you maybe just tease out the impact of price versus volume? And then as we think about some of the insurance contracts you have around myRisk, how closely is that tied to BRCA? In other words, if BRCA pricing comes down under some of those contracts, is there some risk to myRisk pricing?

So for Q1, I assume you're referring to -- I think as we commented on, we have really seen -- we've talked to all of our material payers at this point, and revised any contracts. We have not seen any material change in pricing or ASP for our legacy products. And for myRisk, our goal is to maintain that pricing as we negotiate contracts with those various payers. So I think those are -- that's where we stand on the ASP standpoint.

From a volume perspective, as Jim mentioned, we are guiding towards down 5% Q4 to Q1. That's driven by a couple of factors, one of which is the seasonality that we typically see at this time of year. The second is the Horizon decision that I mentioned will be fully felt in the first quarter, and so we are going to see that. And we would expect to see some additional marginal share decline in the first quarter. And those are the things we'd expect to lead to that 5% sequential decline.

Okay. Thank you.

Jon Groberg with Macquarie Capital.

Two quick questions for me. One, just quickly, I didn't hear much, or maybe I missed it, in terms of internationally, what you're seeing. And I'm curious if there's any thought at all -- one of the things that stands out for you guys, obviously, is your tax rate. Is there any thought at all in terms of maybe utilizing something more internationally to look at lowering that tax rate?

Thank you for your question. As we mentioned on the call today, we have seen very strong growth over the past three or four quarters internationally, up 89% this past fourth fiscal quarter. We're seeing strong growth across our product lines and are particularly excited about the potential for approval of PARP inhibitors in Europe, as well as our EndoPredict test, which has really performed well over the last several quarters. So as we have mentioned in the past, we're very excited internationally. We think we are on track to achieve international revenues of $50 million by 2016, and it should be a significant component of Myriad's future growth.

I think you are also alluding toward inversions, and Myriad is very well aware of the fact that our tax rate is high and that tax rate can be beneficially improved with an acquisition in Europe that might result in an inversion and a lower overall corporate rate. We certainly are looking at M&A, not only here in the United States, but also abroad, to augment the revenue growth we're receiving in Europe. And I wouldn't put that possibility out of the question. But more importantly, we would do an acquisition that made good business sense and not have the tax tail wag the business dog.

Okay. Makes sense. And if I could just get a quick clarification. On your comments around what the FDA -- I know it's kind of vague language, but what they're saying around LDTs. Can you just clarify, when you mention you have some PMA modules, I think you're probably alluding to some of your companion diagnostic tests.

Have you had conversations around the myRisk panel? You have a plethora of tests now that are out there. And obviously, on the hereditary side, it's moving all toward the myRisk panel. So I'm just curious if your conversations have evolved to the point of some of these multi-gene panel-based tests with them. Thanks.

Thanks, Jon. You are correct that to date, our submission has been focused on the use of BRACAnalysis as a companion diagnostic for olaparib. And that's the PMA modules that we have submitted to the FDA. We have not had discussions about the plethora of other tests that are available in the market or in development. The focus for the FDA, at least their highest priority at this point, are for companion diagnostics and any laboratory developed test that is indicated for an already approved Class 3 indication. And so, at this point, that would just be our companion diagnostic portfolio.

We will continue to actively participate in the discussions, as the FDA contemplates going beyond that to other high risk and other Class 2 devices. And then, as that progresses, we will assess our status of our other products and submissions for those products. I think most importantly, we think we are very well-positioned, because we've already worked on the quality systems that are necessary for FDA approval. We have the types of clinical validation that are necessary for rigorous review. And so we think we've built the capabilities that will allow us to participate in whatever the regulatory framework evolves to here over the next few years.

Amanda Murphy with William Blair.

So I had another question on the guidance for 2015 on the top line. Just thinking about it at a high level, so you have this Jolie effect, obviously, but then you upped the Crescendo guidance, and then you're including some of the Prolaris, and you had, I think, some guideline changes to COLARIS. I'm not sure if they're actually flowing through yet in the P&L. And obviously, had some good myRisk adoption.

I'm just trying to figure out, the growth rate implies a pretty big step down in the growth rate for the base BRCA business. And so I'm trying to get a handle on that. Obviously, you've made comments about pricing on the legacy BRAC products being not that much different and network changes, other than Horizon, not being massive. So is it a volume issue with competitive dynamics, or is there some pricing dynamics on BRCA that would make the underlying growth rate of the BRCA business be so much lower than it has been historically, even considering Jolie, et cetera?

Thank you, Amanda. We tried to give some top line color on the guidance for revenue growth for FY15 and the breakout of Vectra DA and our Pharmaceutical and Clinical Services business. You're correct, we are anticipating that we will get Medicare reimbursement for Prolaris, and I think that product has a significant opportunity going forward to be a major growth driver. And we have factored in the international growth that we've seen as a company over the last three or four quarters.

As we look at the guidance for the core hereditary cancer business going forward, we really are not factoring in, nor have we seen significant price readjustment or declines in that business. And I think that's reflective, if you look at our gross profit margins, our gross profit margins, factoring in the Crescendo 48% gross profit margin as part of our product mix, and the Pharmaceutical Services, about 54%, are still very robust and do not reflect the decline in the core products, either BRACAnalysis or COLARIS.

And we're very confident -- I'm actually very pleased that a year after the Supreme Court decision and almost a dozen laboratories offering products in competition of Myriad, that a year later we've retained 92% market share, and don't really anticipate significant market share loss as the year goes forward. And particularly as we transition to the myRisk product.

So hopefully that color on our top line guidance is helpful. As a company, we loathe to disappoint Wall Street; and historically, our guidance has been somewhat conservative. In fact, last year we raised guidance every single quarter throughout the entire year. But hopefully, that gives you a little bit of insight into that top line number and how we arrived at it.

(Inaudible) hereditary cancer, (inaudible) 2015. What would that be relative to 2014, excluding Jolie, the pure organic growth rate expectation?

Thanks, Amanda. I was having a little difficult time hearing the question. I think you were talking about hereditary cancer, specifically year-over-year.

I think if you back out the $55 million number that Jim discussed in his section, and you look at where we were guiding this year, you will continue to see hereditary cancer market growth, once you back out those comparables. So I think what's impacting that overall number, obviously you have continued market growth. Offsetting that is we will now face that full-year of market share loss that we experienced throughout 2014. We're also going to feel the full-year impact of the Medicare reimbursement cut and the Horizon out-of-network status are all things that you're going to see that are impacting our overall revenue growth. So those may be a couple other things to point, as you try to do that year-over-year.

I think for us, what's important is we continue to believe the hereditary cancer market is an excellent growth opportunity. We are still very low penetration in the Women's Health segment. We have only 35% penetration in what's currently defined as the Oncology market, but we have new indications that have now been written into guidelines and other studies that we're doing that can continue to expand those.

So we continue to think that with myRisk coming on board, we see a lot of interest from physicians. We see physicians begin to do update testing for patients that have previously been tested, and we think all those things ultimately are going to continue to allow the hereditary cancer market to be a growth market into the future.

Doug Schenkel with Cowen and Company.

My first question is related to the long-term contracts you've spoken about. You have previously indicated that these contracts are not exclusive. So besides these contracts offering you some pricing visibility, can you talk about how these contracts really protect your market share, recognizing that competitors continue to compete, to some extent, on price, if not aggressively on price? And it doesn't seem like, at least contractually, there's anything that prevents the payers from using competitive tests.

Thanks, Doug. You're correct. We have mentioned that these long-term contracts with payers are not exclusive. I think, in our view, that's not the vehicle that we would choose to try to maintain share. I think our focus is on providing the highest quality test supported by the best variant classification, the best analytical test, our turnaround times that actually can provide meaningful realtime decision-making, where other panels most certainly cannot, and the level of service and confidence that we provide to the providers.

The last piece that we continue to get feedback on is that the quality of the report that we are now producing with myRisk, which is proprietary until many, many man years of proprietary informatics, that that, in and of itself, is an enormously differentiator between ourselves and what any of our competitors have been able to produce. We also think that that long-term commitment we make to patients to continually classify variants over time is unique and is something that's very valued by our customers. So we think there are ample other competitive advantages that we offer to our physicians, as evidenced by our continued 92% market share, that will allow us to differentiate and have not tried to use an exclusive contract as a crutch in order to do so.

Okay. That is helpful. And I just want to go back and ask a follow-up question to Amanda's first question. I'm just trying to do some math on your guidance. It seems to imply that you're assuming that FY15 hereditary cancer revenue remains about level with what you generated in fiscal Q4, on an annualized basis.

I just want to see if that's essentially how you're thinking about it. And if so, recognizing the enhanced focus on myRisk, the progress you described that you're making with myRisk, and also the expansion in guidelines for both BRCA and COLARIS is essentially the offset to those positive dynamics, what you're assuming in terms of what's going to happen in terms of incremental share loss and pricing. Is that how you get to what I think is essentially -- what you've done is just annualize what you did in Q4 as what you've built into FY15 guidance for hereditary?

I think you've done a good job of outlining the puts and takes on that, Doug. I think one of the things I would say is one of the upsides we see in myRisk is physicians eventually, as we bring them on board, looking to use update testing and potentially, because we've simplified the ordering process, we have seen the early adopters begin to identify more patients. Those are probably things that are going to play out more towards either the latter stages of this year and into FY16, as we do the full transition.

The other part of that, the increased guideline, again, is probably more of a FY16 impact, just because we now need to work all those guidelines into payer coverage decisions which, as you know, are a separate conversation from payer contracting decisions. And so we are being realistic about what we think it will take us in order to ultimately get coverage expanded to address these new indications and to work through this myRisk transition over this coming year. And I think it's those puts and takes that we've tried to balance in our guidance.

Okay. Thank you.

Dan Leonard with Leerink.

My first question, on the long-term contracts, again. I think you mentioned last quarter that the United Health contract allowed for update testing. Do these other long-term contracts allow for the same thing?

Thanks, Dan. All of these contracts will also include an update testing provision in them, as well. I think that's an important point. We now have over 1.3 million patients out there that have been previously tested that continue to become aware of new information. PALB2 is just one of many examples of that. Now, women are hearing about that. They're looking for alternatives.

And when you look at laboratories charging $1,200, $1,500 for a PALB2 gene in and of itself, an update test could become very attractive to a payer, because they are now exposed to every new publication, somebody wanting to order another $1,500 gene. And so they've been very interested in making sure update testing is part of that contract.

Got it. And my follow-up question, Mark, is it still the plan to discontinue offering integrated BRAC by the end of next year?

Yes. We continue to expect by summer time to have the market fully converted. And so what we will continue to see is BRACAnalysis CDx ordered as a companion diagnostic, which is, in fact, the FDA approved version of integrated BRACAnalysis. So that indication, we expect to continue to be used. But for hereditary cancer, we'd see the market transitioned by summer.

So if somebody submits an order for integrated BRAC, you don't fill that order, by the summer of next year?

For a physician that may do that and may not be aware of the availability of myRisk, we would talk to that physician, make sure they understand that there is a panel available and make sure that their intention was to order just a single syndrome test. And so that's something we would do. But again, our experience so far has been, when a physician is aware of myRisk, and the 50% to 60% increase in sensitivity at the same cost, we have seen complete conversion.

Got it. Thank you.

Mr. Gleason, that was our final question. I'll turn the call back to you for your closing remarks.

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

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