Myriad Genetics Inc (MYGN) 2015 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the Myriad Genetics third-quarter 2015 financial earnings conference call.

(Operator instructions)

As a reminder this conference is being recorded Tuesday, May 5, 2015. I would now like to turn the conference over to Scott Gleason, VP of Investor Relations. Please go ahead sir.

Thanks Jodi. Good afternoon everyone and welcome to the Myriad Genetics 3rd quarter earnings call. My name is Scott Gleason and I am VP of Investor Relations.

During the call we will review the financial calls 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 section of our website at myriad.com.

Presenting for Myriad today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President, Myriad Genetic Laboratories; and Bryan Riggsbee, 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 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 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 report 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 would now turn the call over to Pete.

Thank you, Scott. To begin the call, I am pleased to provide highlights of our third quarter financial results.

Total revenue for the third fiscal quarter was $180 million and was within our guidance range. Revenue in the quarter was impacted by severe weather on the East coast which occurred for much of the months of January and February.

Our adjusted earnings per share was $0.40 for the third quarter which exceeded the first call consensus estimate. As we look to the remainder of the fiscal year, we are forecasting fiscal fourth quarter revenues of $187 million to $189 million, and adjusted earnings per share of $0.40 to $0.42. We continue to execute on our three strategic initiatives of converting and expanding our core hereditary cancer market, diversifying our product portfolio and expanding our business internationally.

Today I will focus primarily on our international business and the rheumatoid arthritis business at Crescendo Bioscience. Then I will turn the call over to Mark to provide an update on our hereditary cancer business and our other pipeline products.

Many of you have noticed that we have been carrying restricted cash on our balance sheet for the past two quarters. This restricted cash was associated with a pending strategic purchase of an asset in Germany that was completed during the third quarter, thus removing the restricted cash from the balance sheet. The asset acquired was an [MVZ] clinic located near Munich approximately 15 miles from Myriad's main European laboratory. The primary reason for this acquisition is the clinic status as an MVZ organization which greatly facilitate reimbursement of our products and our penetration into the German market.

Owning an MVZ is important to our marketing strategy in Germany, since it will enable Myriad to have direct reimbursement negotiations with public and private insurance providers in Germany. Otherwise the reimbursement pathway is a lengthy process taking as long as five years and requiring us to work through physician advocates and other intermediaries.

An MVZ is a licensed medical service provider that can be reimbursed for products or services within the German public health insurance system. This public health system covers 90% of the German population. Similar to hospital testing laboratories, Myriad's laboratory will function as a testing extension of our MVZ clinic.

In addition to facilitating the reimbursement negotiations with healthcare providers, an MVZ is able to form its own referring physicians network and enter into contracts directly with hospitals and physicians. In summary, there are several benefits to Myriad's association with this MVZ acquisition.

First, the MVZ provides Myriad with opened managed care discussions with the German payers. We believe this will reduce the reimbursement timelines for our novel molecular diagnostic tests such as myRisk, Prolaris, myPath Melanoma and Vectra DA.

Second, the European market for hereditary cancer testing is extremely fragmented and decentralized with testing performed by small local laboratories, hospitals and university laboratories. The MVZ provides Myriad with the ability to contract directly with these physician networks and hospitals to provide our testing services as well as establish our own physician network. We expect this relationship will accelerate product uptake, improve patient access to our novel molecular diagnostic tests and expand physician education.

Third, we see a significant opportunity with companion diagnostics for PARP inhibitors in Europe which are currently being studied in most solid tumor cancers. This represents a multibillion-dollar market opportunity for our companion diagnostic products and the MVZ facility will play an important strategic role in allowing Myriad to capture a larger portion of this significant market opportunity.

Finally the [marcher] diagnostic market in Germany is the largest market opportunity in Europe representing approximately 30% of the total European molecular diagnostic sales. The MVZ will allow Myriad to form collaborations with physicians and thought leaders throughout Germany and more rapidly penetrate this important market. Obviously we are very excited to have been able to conclude this strategic acquisition.

Next, international revenue was up 63% year-over-year, as we continue to make excellent progress with EndoPredict, our breast cancer prognostic test. We recently completed a large health economic study on EndoPredict in Switzerland. The results of this study showed that EndoPredict was very cost-effective and when compared to the same gallon guidelines saved the health insurance system $3,700 per patient tested. Not surprisingly, I'm pleased to announce that during the third quarter Switzerland awarded coverage for EndoPredict under the government healthcare reimbursement system.

Additionally Germany recently issued a draft coverage decision for EndoPredict and we are now anticipating receiving reimbursement early next year versus the third quarter of this year. We have also seen interest among several regions of the National Health System in the UK to use EndoPredict for prognostic assessment of breast cancer patients. We believe EndoPredict has the potential of being one of our more exciting products.

Moving on to Crescendo, we are working closely with the Crescendo team toward restoring growth. Our new President at Crescendo is already implementing a number of new initiatives to drive revenue growth, especially in the Medicare segment where we already have good reimbursement coverage. These initiatives include establishing a new sales force incentive program, making Vectra DA ordering easier for community physicians, and refining our core messaging and sales tactics for Vectra DA. These changes are already starting to have an impact and I am pleased to report that sample volumes increased during the month of April.

We have also completed the transition from an outsourced billings provider to our own in-house billings and collections system. We believe this should reduce collection costs, increase the speed of collections and improve our reimbursement rate.

In April our health economic study for Vectra DA appeared in the online version of the journal Rheumatology. The study showed a reduction in overall costs associated with the use of Vectra DA, as well as an improvement in the quality adjusted life years. Over a ten-year period, the Vectra DA test cost costs approximately $22,000 per quality adjusted life year gained, which is about half of what is considered to be cost-effective medicine. We believe this publication is further evidence of the value that Vectra DA can bring to the healthcare system while significantly improving the quality of life for RA patients.

During the quarter we completed the first round of discussions with commercial insurance providers on Vectra DA. The feedback we have received was positive, based on the clinical validation data surrounding the test. However, some of the insurers would like to see additional clinical utility data on Vectra DA. We are currently designing additional clinical utility studies to address those requests and we'll provide an update on the timeline surrounding private payer coverage in the future.

We remain confident in the strong value proposition and health economic argument for this test and believe it is simply a matter of time for us to obtain broad private insurance reimbursement. Since some of the additional clinical utility studies will take some time to complete, we are not assuming any significant additional private pay reimbursement next year. Therefore our current sales strategy will be to focus on Medicare and Medicare Advantage patients where we already have good reimbursement coverage.

This market represents a greater than $600 million opportunity in the United States and is currently less than 10% penetrated. Consequently, we believe there is ample opportunity for near-term growth as we work toward full reimbursement for Vectra DA among all payers.

Before I turn the call over to Mark, I would like to thank all of you. After 24 years at Myriad, this is my 76th and final earnings call. I have thoroughly enjoyed my tenure as CEO and have loved working every day for this outstanding Company.

What has made this journey so special to me are the outstanding people I've had an opportunity to meet and work with over the past several decades, including all of you on the call today. I have every confidence in Mark and the rest of the executive team and I believe Myriad's brightest days stand before it.

With that I'm pleased to turn the call over to Mark.

Thanks, Pete. The entire Myriad team appreciates your outstanding leadership and vision over the past two decades and we are committed to continue as the pioneer in personalized medicine. I am pleased to provide a more in-depth look at our operation performance in the third quarter.

First I would like to provide an update on our core hereditary cancer business, followed by an update on our myRisk conversion progress and finally provide some additional detail around our pipeline opportunities. Total hereditary cancer revenue in the third quarter was $159 million, which was consistent with our expectations for the quarter.

The third quarter typically faces headwinds from the reset of deductibles which have become more pronounced since over 40% of patients have transitioned into high-deductible plans. In addition, severe weather in the areas of the country that account for a large percentage of our revenue had a detrimental impact during the quarter, which we estimate to be approximately $4 million. As expected, these headwinds differentially impact the preventive care segment, which is a more elective market than the oncology market.

Based upon our in-depth analysis of ordering physicians, we saw no discernible sequential market losses during the quarter. Therefore, we believe that the hereditary cancer revenues this quarter reflect the underlying market performance.

Importantly, our market share in the community physicians segment responsible for all of the market growth exceeds 95%. Additionally, the sample trends we saw in March and April point towards sequential growth in the fourth quarter in our hereditary cancer business, consistent with historical trends.

This quarter we were pleased to see a 3% sequential growth in our oncology segment. This segment now includes the BRACAnalysis CDx product that was launched in January. We have seen significant interest by physicians who desire the highest quality FDA-approved test to identify ovarian cancer patients at risk for hereditary cancers and who may be appropriate for PARP inhibitor therapy.

In addition, the oncology segment also has seen stabilization in the academic and genetic segment where the preponderance of our share loss has occurred. In aggregate the genetic segment now represents approximately 7% of total revenue compared to the 15% before the advent of competition.

We continue to make progress on the conversion of the hereditary cancer market from single syndrome testing to the myRisk Hereditary Cancer panel. The weight of evidence supporting broad hereditary cancer panel testing continues to grow. We are seeing updates to professional guidelines supporting broader panel testing.

For example, in April the NCCN updated their hereditary cancer guidelines to include screening for three additional genes. These new guidelines build on the NCCN recommendations made in the fall for physicians to consider panel-based tests for their patients. In total, 19 of the 25 genes in the myRisk panel are listed in the current NCCN guidelines.

Additionally in April Myriad had an important peer-reviewed study published in community genetics that highlighted many of the issues associated with utilizing public research databases for clinical applications. In the study, a team of Myriad scientists analyzed the content of several public databases to compare and contrast calls on the set of 2017 BRCA1 and BRCA2 mutations from 24,650 consecutively tested patient samples received by our laboratory that were representative of a real-world data set.

The databases analyzed included ClinVar, the breast cancer information core or BIC database, an online open-access breast cancer mutation database maintained by the National Human Genome Research Institute at the National Institutes of Health; the [Lydent] open variant database; the BRCA1 and BRCA2 universal mutation database; and the human gene mutation database HGMD.

We believe there are some important key takeaways from this publication. First 34% of the mutations we identified were not present in any of the public databases. Additionally, for the databases that allow conflicting classifications, the rate of conflicting classifications range from 4% to 13%.

Finally overall concordance among the public databases was exceptionally low. Of the 116 variants that had a pathogenic classification in at least one database, only 3% we're classified as pathogenic in all five databases. This data supports why physicians and commercial payers continue to value Myriad's experience with varying classifications as a key differentiator between tests.

As discussed in the last conference call, the plan for our myRisk process in the third quarter was to install the necessary informatics to have the capacity for complete market conversion. We were successful in accomplishing this goal during the quarter and began expanding access to the test again late in the third quarter.

Consequently, myRisk conversion increased to 58% of incoming samples by the end of the quarter. We would expect to see additional conversion during the fourth quarter and to complete the conversion by the end of September. At that point, we believe we will have converted all of our targeted customers, leaving only infrequent users with low utilization rates. Some of these low-volume physicians will likely continue to send in legacy single-syndrome test kits and we are already piloting alternative approaches to convert these customers throughout FY16.

We also continue to make progress with payers as we signed additional long-term hereditary contracts in the quarter. It is worth noting that patient out-of-pocket costs remain very low. On average, 80% of patients tested at Myriad pay nothing out-of-pocket and the average patient bill is less than $100, making myRisk the best patient value on the market.

Myriad's extensive customer service team will continue to ensure that patients realize the benefits of this broad insurance coverage. This extensive coverage results from payers understanding of the very unique hereditary cancer market. Patients lives and those of their entire family are forever changed when they open the envelope that contains these test results.

These tests are unlike any other diagnostic tests and the cost of an inaccurate test result can add hundreds of thousands of dollars of unnecessary downstream costs. Consequently payers continue to value Myriad's most sensitive and accurate tests as a way to best serve their members and avoid material, unforeseen downstream costs.

Transitioning to our urology business, we are still awaiting a final LCD from Meridian for Prolaris. Originally the comment period was to end on April 10. However, due to Medicare contractor scheduling issues, all seven of the LCDs under consideration, including Prolaris, have the common period extended until the end of April.

As Pete mentioned, given the 45-day timeline for the LCD to become effective, our guidance for the fourth quarter no longer assumes any Prolaris revenue. We do know that during the comment period there were a large number of physicians that provided positive support for Prolaris in managing their prostate cancer patients. So while this delay will impact our fourth quarter, we anticipate that we will have no impact on FY16.

This quarter we continued to see significant growth in Prolaris volumes with incoming samples up 30% sequentially which follows the 32% sequential increase we saw in the second quarter. We are currently seeing a significant amount of sales momentum as our new sales representative additions have begun to contribute meaningfully to growth. Our total ordering physician base has now grown to approximately 20% of all urologists with repeat users representing 85% of ordering physicians in the third quarter.

We also have several important data presentations at the upcoming AUA meeting surrounding Prolaris. The first will be the final results from our Proceed 1000 clinical utility study which was very consistent with their interim data analysis. In this study, physicians changed their clinical treatment decisions 44% of the time, based upon the patient's Prolaris test score.

Additionally, we will be presenting data surrounding a definitive Prolaris score threshold recommendation for active surveillance. This threshold translates to approximately a 3% risk of ten-year prostate-specific mortality. Since Prolaris is the only test that has been developed to correlate to the gold standard endpoint of prostate-specific mortality, we believe this will be an important differentiator for our product. Physicians and patients faced with a difficult decision are interested in tests that can facilitate definitive recommendations and this new threshold will provide that information.

Next I would like to provide an update on our dermatology business unit. I am pleased to announce that our first clinical validation study for myPath Melanoma has now been published in the Journal of Cutaneous Pathology. In the study myPath Melanoma had a 90% diagnostic accuracy in identifying melanomas from a set of 464 suspicious lesions.

Additionally, we presented our third clinical utility study at the recent AAD meeting. The study followed patients for up to 12 months after their diagnosis and in 214 patients who received a benign myPath Melanoma score, there was no evidence of recurrent disease. We believe this additional data continues to provide dermatologist and dermatopathologists greater confidence in making definitive treatment recommendations for lesions with an uncertain initial diagnosis.

In aggregate, we have now completed our initial verification study, two large validation studies and analytical validation, three clinical utility studies and a health economic model. We also received New York State licensing for this test in the quarter.

Based upon the growing body of evidence supporting both the clinical validity and utility of the test, we have initiated discussions with Medicare and private insurers regarding the current dossier. We continue to believe that myPath Melanoma represents an important pioneering discovery to provide a definitive diagnosis for the over 500,000 indeterminate lesions biopsied in the United States and Europe every year.

I would also like to provide an update on our companion diagnostic business since we had several important developments during the quarter. First, we saw significant demand for our BRACAnalysis Cdx test for ovarian cancer patients this quarter and are very pleased with the progress we have made in our collaboration with AstraZeneca, as sample demand for ovarian cancer patients increased almost 40% sequentially.

Additionally we recently signed an expanded agreement with AstraZeneca under which we will use BRACAnalysis CDx as a companion diagnostic in support of their clinical trial in metastatic pancreatic cancer. This represents a new market opportunity for Myriad, since we currently test very few pancreatic patients. Every year in the United States and Europe, 152,000 patients are diagnosed with pancreatic cancer and, unfortunately, most of these are diagnosed with or progress to late-stage disease. If this trial is successful, every pancreatic cancer patient would be assessed with BRACAnalysis CDx, which represents a market potential of approximately $500 million per year.

We also made significant progress this quarter with our third companion diagnostic, myChoice HRD. During the quarter, we announced an expanded agreement with BioMarin under which they will evaluate myChoice HRD as a companion diagnostic for BMN-673 in metastatic breast, ovarian cancer and potentially other tumor types. Also Tesaro recently announced their plans to utilize myChoice HRD in support of the evaluation of [norriporib] for their Nova study in ovarian cancer.

In support of this prospective clinical trial, as well as other planned clinical trials with our pharmaceutical partners, we have begun the construction of an FDA laboratory for myChoice HRD and are working toward the submission of an investigational device exemption or IDE through the FDA.

Lastly, AbbVie announced positive data with myChoice HRD at the 13th international Congress on targeted anticancer therapies. In the study of 71 ovarian cancer patients, 100% of the responders to ABT-767 had high HRD scores. The mounting clinical validation data for myChoice HRD will continue as we present five abstracts at the upcoming ASCO meeting, including one podium presentation on myChoice HRD's ability to predict response to both platinum-based therapies and PARP inhibitors.

MyChoice HRD continues to represent yet one more pioneering effort by Myriad to transform the way cancer therapy is provided for patients. If these studies are successful in ovarian cancer, breast cancer and pancreatic cancer, almost 700,000 patients per year in the US and Europe will have their therapy dictated by myChoice HRD.

In closing, I'm very excited and honored to have the opportunity to follow in Pete's footsteps as the second CEO of Myriad Genetics. FY15 has been a year full of transitions and I'm confident that the investments we are making to transition the hereditary market, diversify our product portfolio and expand internationally have positioned us for continued growth in the coming years. My commitment is to lead the outstanding employees of this company to become a diversified global pioneer in personalized medicine that can revolutionize patient care.

In FY16 we will celebrate the 25th anniversary of the Company. To kick off this year, on September 14 in New York City, we will be hosting an Analyst Day where we will provide more details on how we plan to achieve our five-year vision for the Company. I hope all of you will be able to attend this important event.

With that, I will turn the call over to Brian to discuss our financials and guidance.

Thanks, Mark. I'm pleased to provide an overview of our financial results for the third quarter, followed by a detailed look at our updated FY15 financial guidance.

Third quarter total revenue was $180 million, compared to $182.9 million in the same period in the prior year, a decline of 1.6% year-over-year. This quarter we also saw significant impact from the sustained severe weather conditions experienced by much of the East coast through the months of January and February. We estimate the negative impact from weather this quarter was approximately $4 million from a revenue perspective and $0.03 on the bottom line.

Gross margins for the quarter were 79.8%, compared 85.5% during the same quarter last year. On a sequential basis, we saw 30 basis points of gross margin improvement as we gained further operating efficiencies and executed upon our myRisk conversion strategy. Moving on to our operating expenses, research and development expenses were $16.7 million in the fiscal third quarter, an increase of 25% relative to the third quarter of last year.

Our third quarter RND expense increase resulted primarily from the full impact of the Crescendo acquisition and will continue to fluctuate on a quarter-to-quarter basis based upon the timing of clinical trials and the receipt of research samples. GAAP SG&A expense this quarter was $91.3 million, an increase of 4.2% relative to last year. The increases in SG&A this quarter are attributable primarily to increased operating expenses resulting from the Crescendo acquisition, as well as one-time executive transition costs incurred in the quarter.

Adjusted net income was $29.3 million and adjusted earnings per share were $0.40 for the third quarter. The year-over-year decline in adjusted earnings per share is primarily due to dilution from the Crescendo acquisition, lower gross margins due to transition costs associated with converting our single cancer syndrome test to myRisk, increased product launch costs and a higher effective tax rate in the fiscal third quarter.

Our fully diluted share count decreased sequentially to 73.9 million shares from 75.4 million shares in the prior quarter, driven by our share repurchase program. During the quarter, we used approximately $62 million to repurchase 1.8 million shares of Myriad common stock. We have approximately $200 million remaining on the current Board authorization.

I would now like to provide a more detailed look at our updated FY15 financial guidance. As Pete mentioned, we are anticipating fourth-quarter revenues of $187 million to $189 million, and fourth quarter earnings per share of $0.40 to $0.42. This translates to full-year revenues of $720 million to $722 million and adjusted earnings per share of $1.44 to $1.46.

The reduction in our full-year outlook is primarily attributable to lower than expected revenue due to severe weather in the third quarter, the Medicare delay in the reimbursement of our Prolaris test, and delays in international reimbursement. Importantly, we expect hereditary-cancer revenues to increase on a sequential basis in the fourth quarter. From an expense standpoint we are expecting fourth-quarter gross margins to be approximately 80% and our fourth-quarter tax rate to be in line with the third-quarter tax rate.

Looking back two years prior to the Supreme Court decision, we have been able to grow the hereditary cancer business at a 5% compound annual growth rate comparing this quarter's revenues of $159 million to the March 2013 quarter of $145.6 million. Additionally, due to the quality of our tests compared to the competition, we have retained the vast majority of the market share.

Finally we have confidence in our product pipeline, in our ability to leverage the significant investments we have made over the last year with product such as Vectra DA, Prolaris, EndoPredict, myPath Melanoma. In addition to internal investments, we will continue to aggressively deploy capital as appropriate through strategic acquisitions and return cash to shareholders through our share repurchase program.

Now I would like to turn the call back over to Scott

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

Now we are ready to begin the Q&A section. In order to broad participation in today's Q&A session, we're asking participants to please ask only one question.

Operator, we're now ready for the Q&A portion of our call.

(Operator Instructions)

Amanda Murphy, William Blair.

Hello. Good afternoon.

I just had a question on the guidance. I think it died down, to some degree it was anticipated, given your comments on Prolaris. But I'm just curious, there's a lot obviously going on in the hereditary-cancer business, and it seems like we're looking now at that cure early in the next quarter here.

And you had, I think myRisk revenue maybe ticked down a bit, despite the increase in penetration rate offset by your comments on the CDx product. I just want to get a sense a little bit more of what's going on here. You talked about the revenue on myRisk side. What gives you confidence that the hereditary-cancer business is now stable, if not sequentially up share points going forward, just given that we've seen a few guidance reductions here.

Thank you

Thank you, Amanda. Let me recap the guidance change and then I will ask Mark to talk a little bit more about myRisk.

As we mentioned on the call, in addition to the weather impact we saw this quarter and the greater utilization of high-deductible plans, we did decide to revise our guidance for the FY15 year, based on a number of other factors, primarily the delay in recognizing Prolaris' revenue until the first quarter of next year and the slower ramp-up in international reimbursement for EndoPredict. But as we mentioned on the call, we are anticipating growth in the hereditary-cancer market in the fourth quarter, and that certainly includes growth in myRisk.

And just some additional color on myRisk. You're right, Amanda, that myRisk revenues were down sequentially from Q2 to Q3. First, a reflection that the quarter as a whole we saw revenues down for hereditary cancer going from Q2 to Q3. That's predominantly related to the preventive-care business, where we saw an impact from not only weather but we typically see sequentially down in a preventive care market because of the reset of deductibles. Those dynamics affect the entire hereditary-cancer portfolio, which includes myRisk.

The second reason is that we were not doing any active additional conversion in myRisk in the third quarter as we were installing all of the final informatics systems. So, in essence, you can think we were changing out the operating system for the entire process and updating the operating system, and we didn't want to pursue additional conversion at the same time that we were doing that massive informatics change. And so, our strategy had always been, as you know, not to do any additional myRisk conversion in the third quarter.

We were able to complete that changeout early and, therefore, towards the end of the quarter we did instruct our sales team to begin the next wave of conversion and were, therefore, able to exit the quarter at a 58% conversion rate where we had entered the quarter at a 53% conversion rate. But that was on incoming samples, which really didn't have an impact to revenue for the third quarter. And so, myRisk really just followed the entire general pattern we saw in hereditary cancer, where we saw preventive care down sequentially.

But, as I commented, we did see oncology up sequentially, which was related to hereditary cancer and BRACAnalysis CDx. The last point I'd make is, as Pete mentioned, as I mentioned in my comments, that we do anticipate hereditary cancer being up in the fourth quarter. This is consistent with what we have seen with historical patterns that we do see some sequential growth as we move from Q3 to Q4 which, I think, again underscores that our expectation for hereditary-cancer revenues are going to be consistent with the overall market dynamics, which is indicative of the fact that we are not seeing any market losses. And, therefore, the overall market dynamics are translating directly into our hereditary-cancer revenues.

Thanks very much

Tycho Peterson with JPMorgan. Please proceed.

Thanks. It's actually Patrick Donnelly in for Tycho. On the weather impact, obviously you gave guidance at the beginning of February, so how much of incremental weather happened after you gave guidance compared to, obviously January, you knew about at the time you provided guidance?

Obviously, there was a lot of severe weather through February and even in the beginnings of March that we could not have anticipated. There was severe weather in towards the end of January.

I think in that case we're always not certain at the time we gave guidance, beginning of February, whether or not we might see some bounceback in the quarter from the impacts that we had seen in January, and we obviously can't predict that at the beginning of February either. This really was all unanticipated when we gave our update to guidance in the beginning of February

And just a quick one on myRisk pricing. Can you just confirm it is being reimbursed at the list price of around $4,000?

As we've discussed in the past, given the competitive nature of the market, we don't discuss individual prices for our products, including myRisk. The list price: we've never received list price for any of our products, our legacy products or myRisk, as all those who have followed the Company for quite some time know that we have, as every company, does provide discounts off our list prices. And so you would not expect to receive list price. But we're not going to provide any additional granularity on pricing.

I will come back to my comments that I made previously and that is that we did not see any market losses Q2 to Q3 that we could discern, nor are we anticipating any from Q3 to Q4. And therefore, we expect that what you'll see in myRisk performance is going to be consistent with the underlying market dynamics

Thank you.

Jack Meehan with Barclays. Please proceed.

Thanks and good afternoon.

I just wanted to ask to start with the hereditary-cancer numbers, and could you quantify the contribution from BRACAnalysis CDx in the quarter? And then have you seen any changes in WIP in earning some of that back?

Thanks, Jack. We aren't planning to break out BRACAnalysis CDx separately at this point. It is contained in the hereditary-cancer line item for oncology. So that's where the BRACAnalysis Cdx revenue would exist.

As you know, ovarian cancer patients now have two possible indications, one of which would be for hereditary cancer and the second would be as a companion diagnostic for PARP inhibitors. Because those indications overlap, we've left BRACAnalysis CDx in the revenue numbers for the oncology segment.

The only other comment I can underscore is that, in totality, we saw a 40% sequential increase in the number of ovarian cancer patients that we tested, which is obviously a significant growth, and that's really attributed to the benefit that we've seen by having BRACAnalysis CDx available and now having an additional reason for gynecological oncologists and medical oncologists to order testing for their ovarian cancer patients

Got it. That's helpful.

And if I can squeeze in one more, Mark? You're going to be in this position next quarter preparing this guidance for the first time as CEO of the Company. Could you just remind us what framework you intend to use when setting guidance for next year? There were a lot of unknowns heading into this year and clearly a lot of things that are going to be ramping next year. So swerve -- what's the approach you're going to take when we come to August?

Thanks Jack.

And you're right, this year obviously a lot of transitions and a lot of moving parts. One of the strategies of the company has been to transition the red-shirt cancer market and diversity. But, of course, with that becomes a much more complex business with many more moving parts.

As we reflect, all of us, collectively on this year, I think the one thing that's been a consistent theme, not only from Myriad but across the entire industry, is that predicting new product reimbursement is inherently uncertain and incorporating that into guidance is, of course, risky. So I think one of the philosophies that we'll embrace as we look at FY16 guidance is, first of all, to base guidance upon known reimbursement, which, obviously, is something we can predict, and in our case the additional non-reimbursement will include Prolaris reimbursement beginning in the first quarter of 2016.

So I think that known reimbursement will not only impact our revenue guidance, it will also impact the guidance we provide for operating margins. We do know that as we obtain additional reimbursement, we are going to see leverage on the operating margin line. But again, we will base our guidance for operating margins on known reimbursements.

What that will mean is as we obtain additional reimbursement throughout the fiscal year, those then provide an opportunity for upside to guidance both on the revenue line and on the operating margin line.

So, I think those are things that you can anticipate as we approach guidance for FY16. Obviously we're not able to provide details around that guidance. That will come in August. But at least philosophically, you'll know what -- the lens we'll view guidance through as a team here at Myriad.

Isaac Ro with Goldman Sachs. Please proceed

I just had a question about payer coverage as it relates to the compensation. I would be curious to get a sense of how many lines under coverage you touch today in hereditary cancer, how many of them you might feel like you have relatively exclusive access to versus -- now versus a year ago.

Because my checks have suggested there's been a pretty decent uptick of coverage, not only yourselves but also for someone at new entrance. And it's hard to pin down how much of an effect that's having on the market share dynamic. Any color you could offer there would be very appreciated.

Thanks, Isaac.

Honestly, it would be difficult for me to speculate on what types of contracts and payor arrangements that other competitors may have in the hereditary-cancer space. I can speak to our coverage and, as you know, with the exception of one payor, we have remained in that work throughout all of this time period since two years ago, the Supreme Court's decision.

We know competitors are seeking to be included in that network, and we know some of those competitors are, in fact, obtaining inclusion in network. But, I think from our perspective, provided we remain in network like we have, we feel very good about our ability to compete for patients, given the high quality of data that we provide, given the accurate interpretation we provide, our reliance on our database rather than public databases that we know have contained a number of errors, as I outlined on the call, and the service level that we can provide to our physicians.

Recognize that this is a very complicated science, and physicians really need the type of support that's required to determine which patients are appropriate, what to do with the information when you receive the information, up-to-date information on any of the prevalence and penetrance data that we can provide, et cetera. So as long as we remain in network, we're very confident in our ability to compete for those patients and that's what we continue to see.

Thank you very much.

Dan Leonard with Leerink. Please proceed.

Thank you. I want to talk a little bit further about your review for the ovarian cancer testing opportunities. So, the 40% sequential growth you saw in volume, despite the weather, is your view that's a one-time step-up following Olaparib approval or do you expect there will be continued sequential acceleration here?

Thanks, Dan. Good question.

As you know there is a -- there was a pent-up pool of patients -- survivor patients with ovarian cancer that had been anticipating the approval of Olaparib and BRACAnalysis CDx as a companion diagnostic. And so we do know some of that pent-up bolus are patients that we are seeing in this quarter.

We'll be able to provide some color on our fourth-quarter call on what we've seen sequentially that will address your question more specifically. But we do know for certain there was some bolus of activity in this initial quarter.

That being said, remember overall we had only penetrated about 25% of the ovarian-cancer market in Q2. So, while we saw 40% sequential increase, there is still a substantial amount of the ovarian-cancer market that remains unpenetrated. And so, even with a bolus of patients in this first quarter, we still think there's ample opportunity to continue to grow and further penetrate the ovarian-cancer market.

Okay. Thank you.

Derik de Bruin with Bank of America. Please proceed.

Good afternoon. Two quick questions.

Can you tell us what you had embedded for Prolaris in your original guidance for the year versus -- I'm just trying to figure out the delta from the start of the year for what is now and where we are in the app. Just trying to get what the revenue impact was on the delays overall. And then just a quickie, what is the CDx ASP?

Thank you, Derek.

Unfortunately, we haven't broken out guidance specifically by product line, so I really can't add a lot of color to you with regards to what we're anticipating for Prolaris. I would like to note, as Mark mentioned on the call, that the delay that occurred at Medicare was not just Prolaris. All seven of the draft coverage decisions had their public comment period extended through April 30.

So, I think that's not a reflection of anything negative toward the product. We are very confident about getting that decision by the first of next year, and we'll certainly provide additional guidance next year in August.

And then on the second question on ASP, the ASP for BRACAnalysis CDx is the same as it is for the BRACAnalysis product. Again, we aren't providing any more granularity on that, but there's, at this point, no difference in ASP between those two products

Great. Thank you.

Bill Quirk with Piper Jaffray. Please proceed.

This is actually Alex [Nowak] on for Bill. Can you quantify the increase that you saw with Vectra DA volumes in April? And is this the early impact from reworking the sales force?

Thank you. I think it definitely is a reflection of a number of initiatives and changes that the new President of Crescendo has implemented, and we were very pleased to see the increase in April. I think it's a little too early to determine the magnitude or the extent of that increase. Obviously, we feel very strongly about the potential of the product; we're very excited about Vectra DA.

We can't give you any additional color as to the magnitude of the increase, other than to say we're very optimistic about the product potential and we definitely think some of the new initiatives that have been implemented are starting to take traction and we hope to see that trend continue through May, June and into next year

How many contract lives do you have for myRisk now?

Thanks, Alex.

We haven't provided a specific status of where we are. What I can say is that -- repeat what I did on the last call which if, fact, we're successful in signing all of the Blue Cross Blue Shield affiliates, as we have been able to negotiate a contract with the Blue Cross Blue Shield Association, and so if those affiliates were to adopt that contract, then we would have 75% of our hereditary- cancer revenue under long-term contract. So we continue to make progress towards that goal.

We also continue to work with the payers that were not in that 75% number, other payers that we may be able to secure for long-term contracts. So, I think we're making very nice progress in our long-term contracting strategy. As you know, payor discussions generally take some time and so the progress is -- we're satisfied with that progress, but we also know it's going to take months to continue to have those negotiations and continue to finalize all of those additional contracts

Eric Crisp-Willow with Mizuho. Please proceed.

I'm filling in for Peter Lawson tonight. What kind of background level of BRACAnalysis and Prolaris sales are you expecting once your full conversion happens in September?

So let me take a stab at that, Eric, and if I haven't answered your question, please follow up. Our goal is to -- as we exit the third quarter we're at 53% conversion. We have instructed the sales team to begin the next wave of conversion, which is going to continue in the fourth quarter and then we will continue that through the first quarter. Our expectation is by the end of our first quarter in FY16 that we will have fully converted all of our targeted customers.

Now, the reason we say that is we continue to get tests from a number of customers that are not necessarily targeted by our sales force. These are physicians that may test because of some of our direct activities, direct-to-physician activities through Internet marketing or through patient requests.

And so as those tests come in from nontargeted customers, we will develop alternative approaches in order to convert that remaining marketplace, because those are tests we wouldn't necessarily know about in advance and come from nontargeted customers. So that will be, really, the task for the remaining part of FY16 is to convert some of those nontargeted customer tests over to myRisk through the rest of the year

That clarifies things; thank you very much.

Sung Ji Nam with Cantor. Please proceed.

Thanks for taking the question. I was wondering for the 40% increase in ovarian cancer testing, is that largely in the US? Is the increase from largely for the US, or is it including international as well -- Europe as well?

Thanks for the question. That largely is in the United States. As we discussed on the call last time, because AstraZeneca is still pursuing reimbursement for Olaparib throughout Europe, and has really yet to obtain reimbursement largely in Europe, the tumor BRACAnalysis product that we have prepared for launch in Europe will have to wait until we have the pricing completed for Olaparib and AstraZeneca begins to promote in those markets. And so as a result, that increase was really largely focused here in the United States with BRACAnalysis CDx the germline version of the test.

And just quickly I was wondering for the fourth quarter uptick in terms of hereditary-cancer demand, any residual impact from celebrity publicity there? I know Angelina Jolie made op ad, given the situation there. So I was wondering if there was any secondary impact from that, as well? Thanks.

Yes, we have obviously been closely monitoring what incoming sample trends look like associated with the time frame upon which there was additional celebrity publicity. We really haven't been able to discern any sort of impact from that publicity. Certainly by now we had seen some very strong signals.

The last time we went through a similar event -- and we haven't been able to see that discernible change associated with this particular time. That's not unexpected on our part, given the fact that the story had quite a bit of play the first time. This focus was more on ovarian cancer as opposed to breast cancer which generally probably merits less attention from patients. And so we are not anticipating any sort of publicity effect from this particular round.

Brandon Couillard with Jefferies. Please proceed.

This is actually Kate in for Brandon. Just a quick one on international. Giving the timing shifts of revenue, would you continue to anticipate $50 million next year is still feasible?

We're going to be getting more clarity in terms of the guidance at our August earnings call. So I would ask you to be patient with us and wait until there and we will be able to, I think, give you a better feel for the international revenue

And one last one on myRisk conversion, should we anticipate the remaining conversion plays out evenly over the next two quarters? Is that a good way to understand that?

I think that it would be a little granular for us to probably lay out exactly what will happen in Q4 and Q1. Obviously we've just turned the team loose and they are now starting to enroll physicians into that. So I would expect relatively even transition these next two quarters. But it's a little early to know exactly what that's going to look like as we start to enroll physicians just in the last few weeks

Thanks

There are no further questions at this time. Mr. Gleason, I'll now turn the call back over to you

Thank you, Jodi. 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.

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