Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics third quarter 2009 financial earnings results call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, May 5, 2009. I would like now to turn the conference over to Peter Meldrum, President and CEO. Please go ahead, sir.

Good morning, and welcome to the Myriad Genetics earnings call for our third fiscal quarter ended March 31, 2009. My name is Peter Meldrum, and I'm the President and Chief Executive Officer. I'm joined today by James Evans, our, Chief Financial Officer, Gregory Critchfield, President of Myriad Genetic Laboratories, and Adrian Hobden, President of Myriad Pharmaceuticals. I will begin the discussion this morning with a brief review of the past quarter and will be followed by Mr. Evans who will discuss our financial results. Dr. Critchfield will review the company's molecular diagnostic business, and Dr. Hobden will discuss Myriad Pharmaceuticals drug development activities. At the end of the presentation, I will turn the call over to the operator for a question-and-answer period. 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 those 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, its current report on Form 8-K, and Myriad Pharmaceuticals' Form 10 registration. 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. I'm pleased to report that we have received initial comments from the Securities and Exchange Commission on Myriad Pharmaceuticals' Form 10. We are preparing our response to those comments and are on schedule with the implementation of the spin-off of our pharmaceutical and research businesses. At our upcoming June 2nd Board of Directors' meeting, the Board…

Thank you, Pete. It is my pleasure to present a more detailed look at Myriad's financial results for our third fiscal quarter ended March 31, 2009. Myriad continued to see growth in total revenues for the quarter coming in at $87.5 million, compared with $61.8 million for the same period of the prior year. Molecular diagnostic revenue for the March 2009 quarter increased 47% or $27.5 million year-over-year. We're continuing to see positive results related to our expanded sales force and our DTC campaigns, most recently in the South. As we look at quarter-to-quarter sequential revenue growth, our molecular diagnostic revenue increased from $83,952,000 in our second fiscal quarter ended December 31, 2008 to this quarter's $86,531,000. It is important to consider that the double-digit growth in molecular diagnostic revenue that we experienced between our first and second fiscal quarters in 2009 was comparing a quarter with essentially no DTC benefits to a full quarter with DTC impact from the south campaign. Both our second and third fiscal 2009 quarters had the southern DTC activities fully engaged, so the sequential growth was more modest. As recently reported in the Wall Street Journal, both UnitedHealthcare and WellPoint Health insurance companies experienced large declines in membership as a result of layoffs during the quarter ended March 31, 2009. With 47% revenue growth in that same March 31, 2009 quarter over the March quarter of the prior year, it does not appear that we're being impacted by the current severe recession by the same degree. However, no company, including Myriad, is completely immune from what is happening around us, and we believe there was a dampening effect on our revenue growth this past quarter due to the economy. With that said, we remain confident that we will finish the 2009 fiscal year with…

Thank you, Jim. It is a great pleasure to speak with you today about our molecular diagnostics business. As Jim and Pete mentioned, we achieved record fiscal '09 third quarter molecular diagnostics revenues. We're continuing our focus on increasing penetration in the oncology market and expanding further into the women's health market segment and have already had several successes. In particular, two important recent events should help us continue growing our business in these market segments. First, we recently announced the commercial launch of our seventh molecular diagnostic product, OnDose. OnDose employs a unique proprietary nanoparticle immunoassay to measure a patient's exposure to the chemotherapy drug, 5-fluorouracil or 5-FU. This critical piece of data assists oncologists in adjusting and optimizing patient dosing to improve efficacy and reduce toxicity. 5-FU is the backbone of a number of important chemotherapy regimens used to treat colorectal, head and neck and breast cancers. Patients receiving 5-FU have up to a 30-fold difference in their ability to clear the drug from their system. This variability in drug clearance makes it difficult to achieve an optimal balance between having too much drug on board with attendant serious side effects and too little drug on board resulting in continued tumor growth and lower efficacy in treatment. We believe OnDose provides critical information that may allow for more optimal treatment of patients' cancers. Prior to OnDose, there was no readily available method to help the physician know how much drug a patient was exposed to or how best to modify the subsequent doses of drug. As a result, physicians used body surface area dosing or BSA dosing. BSA considers only the patient's height and weight. A prospective randomized controlled Phase III study recently published in the Journal of Clinical Oncology by [Erik Gamlin] et al., found that using…

Thank you, Greg and good morning. On our last earnings conference call, we announced our intent to submit an IND for MPC-3100 this spring. MPC-3100 is our orally-bioavailable, second generation, and fully synthetic Hsp90 inhibitor for the treatment of cancers. I'm delighted to tell you that the IND was submitted on schedule and accepted by the FDA well within the 30 days statutory period for review. This was Myriad Pharmaceuticals' sixth IND submission to the FDA and the fifth for a compound discovered at Myriad. All of the INDs have been accepted by the FDA within the 30-day limit. We are very excited by the commercial potential of MPC-3100 and expect that the clinical development program will progress rapidly. Hsp90 inhibitors have great clinical potential because their molecular target is involved in promoting the growth and replication of most, if not all, cancers. First generation inhibitors have advanced to clinical development and demonstrated anti-cancer activity in patients. Unfortunately, this activity has been accompanied by significant toxicity. It is widely believed that this toxicity is primarily as a result of the molecular structure of these first generation compounds and not toxicity intrinsic to the target. Hsp90 is a so-called molecular chaperone, which stabilizes intracellular proteins. A mutated protein, such as an oncogene, would normally be rapidly degraded in a cell, but for the presence of active Hsp90. When the function of Hsp90 is inhibited, the oncogene is rapidly degraded and the growth stimulus on the tumor is lost. Hsp90 is known to regulate the activity of a large number of proteins and oncogenes, which control cell division, apoptosis, angiogenesis, metastases and resistance to other cancer drugs. Each metastatic cancer expresses a large number of mutated or over-expressed oncogenes, which are subject to regulation by Hsp90. And thus, further mutation of a…

Thank you, Adrian, and I will hand the call over to the operator for the question-and-answer portion of the call.

(Operator Instructions). Our first question comes from the line of Geoff Meacham with JPMorgan. Please proceed with your question.

I wondered if you can talk about either volume or revenue trends exiting the fiscal third quarter, and then anything you can give us that you're seeing in April or even so far this month on just trends? Thanks.

Thank you, Geoff. As we indicated on the call, the revenue growth and the sample volume growth has remained strong compared to last year, up 47%. During the past quarter, we saw a very strong January followed by a weak February, and we think this was to a large extent explained because of the job loss, insurance loss, and economic downturn. Then we did see a nice rebound in March. So we remain confident as a company, as Jim said, that for this fiscal year we'll exceed 48% revenue growth compared to last year. But as Jim also said, I don't think any company is immune to the recession, and I think we are currently seeing a dampening effect on our revenues, and that was reflected by the 4% total revenue growth quarter-over-quarter, compared to the double-digit quarter-over-quarter growth we saw in the December quarter.

Just a quick follow-up, Pete, is there any extrapolation from the trends in March going forward, either the sample flow or the revenue side?

Again, the sample flow remains strong in April, and that precipitated our indicating that we'll feel very confidently that we'll achieve the 48% revenue growth for this fiscal year.

Our next question comes from the line of Charles Duncan with JMP Securities. Please proceed with your question.

Pete, my question is related to a comparison of the Midwest Direct-to-Consumer campaign versus then in the south and northeast. Can you provide a little bit more color on the types of reimbursement patterns that you might see there? And the types of docs, et cetera, to really give us a sense as to how that Midwest DTC could perform relative to that in the northeast and south?

I will talk a little bit about the Midwest campaign, but then I will ask Greg to provide a little more color in terms of reimbursement. The northeast campaign, which is the first campaign we did, represents about 12% of our revenue base, and the expense associated with that campaign was about $8.5 million. The south campaign was larger. It represents about 18% of our revenue base and costs about the same amount. The Midwest is kind of in between the two. It represents 15% of our total revenue base, but because of the economic downturn, we're projecting the cost to be about $2 million less than either the northeast or the south campaign. We feel that the demographics are very strong in the Midwest and very appropriate for Myriad's products and that was one of the reasons that we selected the Midwest as the third region for our Direct-to-Consumer campaign. I will let Greg comment further.

As far as the physician target, it is the same as in the previous campaigns. The professional target is the practicing OB-GYN. We believe that the new ACOG guidelines will actually put wind in the sails as we talk to the OB-GYNs. In fact, even now we're seeing a lot of interest in BRACAnalysis testing as a result of the recent guidelines. As Pete mentioned, when we did the analysis to select the regions that the campaign would run in the Midwest, we look carefully at insurance reimbursement to make sure that we were performing the campaign in an area where the reimbursement would be good. That went into the selection of the regions that we chose.

Our next question comes from the line of Derik de Bruin with UBS. Please proceed with your question.

So I guess could you talk a little bit about the bad debt expense, just trying to get more color? Was there a significance sequential increase this quarter?

No, I don't believe so. I think it has been able to stay in the same range where it has been over the last number of quarters in that 4.7% to 5% of revenue. We monitor that closely. We watch those accounts that are difficult to collect and try to make sure that we aggressively work with those people to give them the terms that they need to be able to make payment. The majority of our revenues do come from insurance companies. So we are able to work directly with the insurance companies in getting payment. We do have, what turns out to be relatively minor part of the payment that we receive from individuals, and we've started some programs to allow individuals to make payments over longer periods of time. We don't want the relatively small co-pay there come into play as a deterrent for taking one of our tests. So we have put some programs out there to allow patients to pay over 12 months or some type of extended payment period to make sure that that's not an issue. But so far, we have not seen any type of spike in bad debt.

I think, Derik, you make a good point in that Myriad has a very modest bad debt expense of about 5%, and that's remained very steady over the past four or five quarters. Even in this severe economic downturn where you might anticipate an increase in bad debt expense, we certainly haven't seen it. And again as Jim mentioned, that's largely due to the fact that most of our revenues come from large insurance companies and are collectible.

Great. That's exactly the point I was going for. I guess when you look at some of the market trends other than just the continuation of the orders and the revenue run rate going into April, are there any other indicators that you look at to note that the so-called dampening is behind you?

No. I don't think the dampening is behind us. We're seeing strong revenue growth, and that's reflected in 48% year-over-year. But clearly the recession is having some impact on the company, and I think going forward you are going to see a more modest growth rate. I don't think you will be seeing the double-digit, 20% growth rate that we saw in the December quarter.

Great. And just one final one. I know the FDA is starting to take a more active role in regulating laboratory derived tests. How do you think FDA will kind of look at the way to the new tests that you are launching going forward?

At the present time, we are regulated of course by CLIA. The FDA has indicated in the past that they're comfortable with CLIA regulation. However, the FDA has issued guidance on a class of tests called IVDMIAs. Myriad has none of those tests. All seven of our products, including OnDose, are laboratory developed tests, but not subject to the FDA guidance. The FDA could certainly look more closely at regulating the reference laboratory industry, in general, or molecular diagnostics, in particular. And I think Myriad would actually embrace that. Myriad has the financial resources, and since we have been moving drugs through the FDA, certainly the intellectual capacity to get approval on the diagnostic front. What this would do is actually create a barrier to market entry, and smaller companies that lack that intellectual power or financial resource would actually have to turn to Myriad to license products to have us move them through the regulatory environment. So I would actually view FDA regulation of laboratory developed tests as a positive to Myriad and any of the larger, more well-financed companies, as it would create barrier to market entry.

Our next question comes from the line of Lucy Lu with Citigroup. Please proceed with your question.

In the March quarter, is there any change in the revenue mix in terms of the tests? Is COLARIS still your fastest growing test?

Yes, COLARIS is still our fastest growing test, but all of the tests have performed extremely well during the quarter. There was no real shift in the revenue mix. The revenue mix during this quarter was very consistent from our prior quarters.

I'm also wondering because in the past most of your tests are paid for by third-party insurance companies. Wondering if you are seeing a change in terms of percentage of patients that are paying out of their pockets? If you can also comment on percentage of patients paid for by the COBRA payments?

No. We have not seen a shift in payment. Still approximately 90% of all of our revenues are paid by insurance companies. Only about 4% are out-of-pocket paid by the patient, and the majority of that, of course, is the modest co-pay. I don't think we have a good number in terms of being able to track COBRA payments. Obviously, as Jim pointed out, there has been a substantial loss of members from UnitedHealthcare and WellPoint, and I'm sure other large insurers that have resulted from the unemployment rate reaching 8.5%, and the loss of jobs which then translates to loss of insurance. As I mentioned, that certainly is having an impact on our revenue growth. It's not significant because of our 47% year-over-year growth. Certainly, this quarter saw the impact of the recession more than any other quarter that the company has obtained. Obviously, if an employee loses his or her insurance, they are eligible for COBRA. Frequently, they can't afford the COBRA payments. President Obama, in his stimulus package, has allowed now that the federal government will pick up 65% of those COBRA costs. If an employee lost their job after August 1st of last year, they are eligible to come back on COBRA and the government will pick up that roughly two-thirds portion of the COBRA payment. There is no real way we can track COBRA, so we can't really give you a good estimate of the percent of our revenues that are COBRA pay.

COBRA payment takes place between the employee or former employee and their former employer, just to keep them on the insurance that they had prior to leaving the company. So, from Myriad's side, we'll just see that we are still working with that insurance company. We don't have any way of seeing how that's being paid for on the employee side.

Our next question comes from the line of Charles Duncan. Please proceed with your question. Mr. Duncan, your line is now open. Please proceed with your question.

I had a question regarding the recent data on the BRACAnalysis predictive value in people of ethnic background that have not been traditionally thought of as candidates. What do you intend to do with this information? Do you intend to provide that to folks here in the states or is there an international effort that you might pursue?

What you are referring to, of course, is the recent paper published that showed that, irrespective of a person's ethnicity, if they have a strong personal or family history for breast or ovarian cancer risk that they are candidates for testing. In fact, those individuals harbor the mutations that cause the risk to occur. This is an important thing for all physicians to understand. Conventional wisdom has been that this was a condition that was primarily focused in European populations, and specifically, Western European populations. Our data show conclusively that that is not the case. So, there is an importance to make sure that individuals of all ethnicities, if they have a strong family or personal history, that they be evaluated and be given the opportunity to be tested. This has implications both in the U.S. and abroad. As we look at populations that are currently not served, certainly, those individuals should be considered for testing.

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

Can you characterize whether the weakness in the quarter was either geography-related or was it broad-spread? Then, can you help us understand whether April and May, is it accelerating? How does it compare to March as you see it right at this point?

We don't see really a geographical impact. We think revenues remain fairly consistent throughout the country. As we mentioned, we saw a very strong January. That was followed by a very weak February, and that was followed by a rebound and stronger March. Again, we don't think the recession will have a significant impact on our revenues, but it is having a dampening impact on our revenues. April was also very strong, similar to the January and March months. Not at all like the weakness we saw in February. So again, we are projecting 48% revenue growth for this fiscal year over the prior year. We think that's an outstanding revenue growth in this severe economic recession. We, clearly, are not immune to the recession. We are clearly being impacted across the country, irrespective of geography, by job loss, insurance loss, and the economic downturn. Fortunately at Myriad, the impact is modest. It's not anywhere near as significant as many companies are experiencing.

A quick nuance question on the guidance. Is that molecular diagnostic revenue year-over-year? Or is that total revenue year-over-year?

No, that's molecular diagnostic revenue year-over-year.

Why, if it was an economic issue, do you think in February that why would March and April rebound so strongly if unemployment hasn't really changed? Certainly, I don't think the economy has materially changed in two months? Why would it be just an economic issue? Do you think, in February?

It's our best estimate that it's the economy that is doing it, and it's difficult for us to pinpoint a specific cause-effect. The best guess we have is, it is the recession and the economy that has weakened this quarter. Keep in mind, that the quarter experienced 4% revenue quarter-over-quarter growth, which is historically less than Myriad has enjoyed. We think that is an impact of the recession. I won't blame it entirely on February, but February clearly was a weak spot in our revenue sample received.

Just lastly on nuance again, is it more than 48% or is it, 48%? Just on nuance there.

I think I'll ask Jim to repeat what he said in his earnings call for you, so that you get the percentage exactly right. Jim?

Well, we did say that the growth would be more than 48% over fiscal 2008. That gives you a pretty good feel for where our best estimate would be.

In other words, we have confidence in that 48% number.

Our next question comes from the line of Kim Lee with Wedbush Morgan Securities. Please proceed with your questions.

What have you seen is the impact of the new sales reps that were added in the fall of last year?

The new sales reps that you are talking about were in the OB-GYN segment of the market. We added 50 individuals to our group. We see those individuals, between six and nine months, reaching profitability. They are contributing to revenue and we are glad that we hired them at the beginning of the year for that very reason.

If I can add, it takes about six to nine months for a sales rep to come up to speed and breakeven. So we're seeing those sales reps at that point in time. Then within about a two-year timeframe, the sales reps usually generate at least $1 million per year per rep.

Our next question comes from the line of Bruce Cranna from Leerink Swann. Please proceed with your question.

Just a couple of clean-up questions from me, Peter. So I'm clear on this, the sluggishness you guys saw in the quarter sequentially was uniform across your portfolio. In other words, it wasn't price sensitivity on the BRACA side versus something like MELARIS?

No, it was very uniform. In fact, it would be hard to differentiate this quarter from any other quarter in terms of the individual product line revenue growth. So we're not seeing any reluctance to the pricing or sensitivity on the pricing. We aren't seeing any reluctance from our major insurers or payers. We're not seeing any softening in terms of the physician enthusiasm about all of Myriad's products. I think what we are seeing is a severe economic recession that's resulted in significant job loss. When people lose their job, they frequently lose their insurance if they are not able to stay on COBRA. Again as Jim pointed out, in the recent Wall Street Journal article, both WellPoint and United Health have seen significant membership lost. Again, it's difficult to pinpoint exactly the softening we're seeing, but our best guess is it is due to the economy and the recession. Now, again, having said that, and I do want to emphasize that we are seeing a dampening effect on our growth. We are still maintaining a 48% growth. So the recession, obviously, is not impacting us significantly, but we're not completely immune to it either.

I know you mentioned that there was no geographic skewing to the economic weakness, if you will. Can you draw any correlation between the areas you've gone DTC in and in weakness or relative weakness or less weakness than areas perhaps that you haven't?

The revenues in our DTC campaign are stronger than the rest of the country, because they have benefited from that increased physician base.

Sure.

I think the fact that the DTC campaign maybe masks any impact the recession might be having on those areas, because clearly those areas are stronger. That's one of the reasons we are going forward, even in this recessionary environment, with the Midwest campaign because we are getting such great returns on the DTC campaign.

Just quickly, any early color on OnDose, if you have any? Just so I'm clear on it, I know you probably don't want to comment too much on modeling, but is there any reason why I should not assume that a physician or oncologist using TheraGuide wouldn't, in fact, be using OnDose? Any reason to suspect that the payers who are paying for TheraGuide would, in fact, not pay for OnDose?

Let me ask Greg to answer the question of the synergy and the compatibility between TheraGuide 5-FU and OnDose. Then, we actually happen to have in the room with us Mark Capone, who is our Chief Operating Officer, and oversees all of the sales group. I'll let him talk a little bit about some of the initial physician feedback that we have heard from clinicians that we've talked to and from our sales force.

There is very strong complimentarity between the two products. TheraGuide is used in the initial assessment of a patient's risk of developing serious toxicity. OnDose is a way of following up and measuring the amounts of drug that a patient receives. One can make an adjustment early in the course of treatment that can help a patient avoid Grade 3 or 4 toxicity, which in many cases requires hospitalization and in some cases, actually causes death. So the two products really are complimentary. As we talk to insurers, and we are having a number of discussions with insurers, they are very interested in how these fit together, and it does give us an opportunity to increase the number of insurance companies that are carrying the product. On the physician side that Mark will talk about, we are able to discuss both of these with physicians.

I'd say the early reception from physicians has been extremely positive. As one physician stated, they all recognize that traditional means of dosing, using BSA. One equated that to using the same dose for everybody with the same shirts size. They recognize that's an inappropriate way to dose something, particularly with a narrow therapeutic window such as 5-FU. The receptivity has been extremely positive. We have had conversations now with over 1,000 oncologists on this particular product. I'm pleased and surprised even, at the level of receptivity that the physicians have had. So we're excited with this initial launch.

Lastly, Peter and/or Jim, can you comment perhaps on margins on the ELISA-based tests, relative to your others?

All our tests are priced based on clinical utility, not on cost of the test. So all of our tests have very attractive gross profit margins and at full economies of scale in that high 80% range. So the ELISA-based tests are really no different than the full DNA sequence-based tests. Now, I would caution listeners to keep in mind that when we launch a test and volumes are small, the margins of those tests are not going to be at the same level. As they achieve full economies and achieve full capacity in the lab, they will have all the similar high 80% gross profit margins.

I guess I'd just add to that as they are small and don't have the type of margins, they are not going to be significant enough to really impact our current margins I would not imagine. So, as they grow and become more significant, and they get to the level that they have the better margins, that's when they will start being impactive to our current margins.

Unfortunately, that's all the time we have for questions and answers today. Mr. Meldrum, I will now turn the call back to you. Please continue with your presentation or closing remarks.

I want to thank everyone for participating on the Myriad third quarter earnings call. This will conclude the call. Thank you.

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