Ladies and gentlemen, thank you for standing by, and welcome to the Myriad Genetics 2011 Financial Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, August 9, 2011. I would now like to turn the conference over to Rebecca Chambers, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Lindsay. Good afternoon, everyone, and welcome to the Myriad Genetics Fourth Quarter and Fiscal Year 2011 Earnings Call. During the call, we will review the financial results we've released today and detail the strategic directives, which will guide the company in fiscal 2012, after which we will host a question-and-answer session. If you had 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 today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President, Myriad Genetic Laboratories; and Jim Evans, Chief Financial Officer. This call can be heard live via webcast along with the slide presentation at myriad.com. The call is being recorded and will be archived along with the presentation in the Investors 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 report on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I'll now turn the call over to Pete.

Thank you, Rebecca. To begin, I would like to provide highlights of our fourth quarter and full year results before introducing the company's strategic directives for fiscal 2012. I am pleased to report that fourth quarter revenues increased 14% year-over-year to a record $107.4 million. Fiscal 2011 revenues grew 11% to $402.1 million as compared to $362.6 million in the last fiscal year. These financial results contributed to a record of consistently delivering annual double-digit revenue growth now for the 12th consecutive year. Additionally, Myriad's full year profitability increased to an impressive 17% year-over-year with operating income of $157.8 million. These strong results have positioned us well for continued success, particularly when combined with the strategic investments we are making for future growth. We continue to increase investments in our research and development programs in an effort to discover and develop exciting new products and also to enhance the clinical support for our current product portfolio. In addition, we have been strategically deploying capital with the in-licensing of novel technologies from Chronix Biomedical and the Melanoma Diagnostics and the acquisition of Rules-Based Medicine in addition to repurchasing over $200 million of our stock this year. Now I'd like to move on to the company's expectations for fiscal 2012. We expect total revenues of $445 million to $465 million. This level of revenue is expected to result in fully diluted earnings per share of $1.20 to $1.25. Jim will speak more to the specifics of our guidance later on in the call. This compelling outlook will require a focus on executing our 3 strategic directives for long-term revenue growth: Grow existing products and markets, develop an international presence and invest in new products and capitalize on the companion diagnostic opportunity. Shortly, Mark will discuss our strategy to recognize the full potential…

Thank you, Pete. As Pete mentioned earlier, our first strategic directive is to grow our existing products and markets. I would like to share with you all the initiatives we will be focusing on over the coming months to further penetrate the market for BRACAnalysis and realize the potential of COLARIS and PROLARIS. As we discussed in the second quarter of fiscal 2011, we are focused on developing the ovarian triple negative and carcinoma in situ indications for BRACAnalysis in our Oncology segment. The unrealized annual potential for these indications, including newly diagnosed patients and survivors, is $200 million with a total oncology market potential of over $650 million annually. I am pleased with our progress on these initiatives, which contributed to the 11% growth in oncology during the fourth quarter. And I would like to outline some of our fiscal 2012 approaches to further penetrate these indications. About 22,000 ovarian cancer patients are diagnosed each year, and professional guidelines have firmly established that all of these patients should undergo BRACAnalysis testing. For the ovarian cancer indication, we realized the 21% growth rate in fiscal year '11, raising our penetration to about 30%. Our efforts have been focused on educating gynecological oncologists that are typically responsible for treating these patients. Due to the publicity associated with PARP clinical studies, gynecs [ph] have been keenly aware of the importance of understanding the BRCA status of their patients. Promotional materials specific to this segment have been developed as well as interactive media approaches designed to raise awareness directly with patients. We also continue to work on expanding testing in triple negative patients. Until recently, less than half of the 35,000 newly diagnosed triple negative patients met testing criteria for BRACAnalysis, and only 30% of those that met criteria were tested. Recently, NCCN…

Thank you, Mark, and good afternoon, everyone. It is my pleasure to present a more detailed look at Myriad's financial results for the fourth quarter and fiscal year 2011. Myriad's revenues for the fiscal fourth quarter were $107.4 million, an increase of 14% over the same period in the prior year. We were pleased that fourth quarter revenues exceeded expectations of $104.6 million. Companion diagnostic services contributed $2 million to total revenue, and molecular diagnostic revenue contributed $105.4 million for 12% year-over-year molecular diagnostic revenue growth. Of this 12% growth, price contributed 1%, while the remaining 11% came from an increase in sample volumes and new products. By segment, $74.7 million of revenue was generated from the oncology market, an increase of over 11% versus the fourth quarter last year. Revenue from the Women's Health or OB/GYN segment, grew 15% year-over-year to $30.6 million. A breakdown of revenue by product shows BRACAnalysis revenues grew 12.5% to $92.8 million compared to $82.5 million in the same period last year and represented 86.5% of total revenues. Revenue from COLARIS and COLARIS AP increased to $7.6 million or 7% of total revenues. COLARIS volumes were impacted by the launch of PMS2 as we saw a delay in orders during the first 2 months of the quarter in anticipation of the launch of the more robust 4-gene panel. As Mark mentioned, demand for the COLARIS product has increased after the product update was completed, and we expect COLARIS to return to growth levels seen earlier in the year. Myriad's 6 other products grew 21% year-over-year and accounted for 4.5% of revenue or $4.9 million. Lastly, companion diagnostic services represented 2% of revenue. Moving down the income statement. Fourth quarter SG&A expense decreased 150 basis points as a percentage of sales to $43.9 million. Research…

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

[Operator Instructions] Our first question comes from the line of Jon Wood with Jefferies. Jon Wood - Jefferies & Company, Inc.: First question is probably for Jim. Can you give us a sense of embedded within your fiscal '12 outlook, the price and volume ballpark that's embedded in your outlook for fiscal year '12 for the entire corporation?

Yes. Since the list price increased from our most recent price augmentation, occurred back in April of 2010, we have really realized the bulk of that price increase, the majority of our contracts, our annual renewals, and so most of those have been built in over this past year. We do have a small number of contracts that do go out 2 and even 3 years. So we would expect any impact in fiscal 2012 to be less than 1 point of incremental revenue growth driven off of the price increase, so a fairly minimal price increase. The bulk of what we're projecting is going to be volumes. Jon Wood - Jefferies & Company, Inc.: Okay, great. And then, Jim, have you baked in -- you discussed finishing the $28 million of share repurchases that are -- that you've got authorized, but have you baked in any incremental capital redeployment activity into that fiscal year '12 outlook at this point?

No. Currently at this point, we're just building in the culmination of the existing programs that we've already announced. Nothing else has been built into those numbers for any additional deployment that we might bring together. Jon Wood - Jefferies & Company, Inc.: Okay. And then on the cash flow side, understanding your comments on the NOL, can you give us a ballpark on operating cash flow guidance for fiscal '12 at this point?

Yes. I mean, we haven't given official specific guidance on that. But we're expecting to see probably $130 million in cash from operations this next year. Jon Wood - Jefferies & Company, Inc.: Okay, great. And then last one, you mentioned the European investment as being about $6 million. Have you baked in any expectation on the revenue side into your guidance?

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

Our next question comes from the line of Amanda Murphy with William Blair.

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

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

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

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

Okay, that's helpful. And maybe just in terms of the international expansion, is there any meaningful results from talking with large hospital network in your target countries or you will not announce that until next year?

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

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

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

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

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

Okay. And maybe Jim will address more specific about that guidance, but have -- should I think about really the new salespeople as adding incremental expenses but then slightly offset by no -- none of DTC this year?

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

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

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

Our next question comes from the line of Scott Gleason with Stephens.

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

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

Great. And I guess along that line, when we look at some of the new product launches you guys are planning that are in areas not in kind of your core focus markets of oncology and gynecology, is there any plan, I guess, throughout this year to build potentially have or add additional folks on the sales side, maybe in neurology or psychiatry?

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

Our next question comes from the line of Tycho Peterson with JPMorgan. Tycho Peterson - JP Morgan Chase & Co: Maybe just first question on guidance. Wondering if you can give us a little bit more color around your thoughts on OB/GYN versus oncology for BRAC for the coming year.

Tych, we don't typically split guidance down to that granularity. Tycho Peterson - JP Morgan Chase & Co: Okay. I mean, can you just talk a little bit maybe then about how you're thinking about further penetration of triple negative and adenocarcinoma versus kind of additional sales and marketing initiatives within kind of the current customer base?

Sure. So as we discussed, the 3 indications on oncology, carcinoma in situ, triple negative and ovarian cancer, 2 of those actually now have well-established guidelines. So carcinoma in situ and ovarian cancer, those are now in guidelines. And so we can very aggressively pursue patients that meet those criteria. And those initiatives are underway as stated. We think they contributed to some of the 11% growth in the fourth quarter for oncology, and we are pleased to see oncology in the double-digit growth for that quarter. As to the triple negative, that is a newer guideline that NCCN just published. And so we are now aggressively pursuing that to update criteria with payers. And historically, we've seen payers be very receptive to NCCN guidelines. And we are hoping that we will get the same receptivity to the expansion of criteria to include these triple negative patients that are under the age of 60. So those discussions are taking place right now as we speak. And we would hope that within the next 3 months, we will have been able to have those with all of the major payers, including Medicare. Tycho Peterson - JP Morgan Chase & Co: And then on COLARIS, with the addition of the fourth gene, can you just talk about whether there's an opportunity to retroactively go back? I think you've talked in the past about 46,000 patients that have been tested to date? How should we think about going back to some of those patients?

Yes. There is definitely the opportunity for those that are historically tested. We are actually seeing tests come in now from some of those patients. I think the only caution on that is it does require a healthcare provider to have maintained contact with those patients from the time that they were tested, and some of those 46,000 were multiple years historically. And so while there is an opportunity and those that have good contacts with their patients that have maintained them over the past few years, they can reach back to those patients and recommend that they get PMS2 testing and we are pursuing with insurers reimbursement for patients that have been historically tested for the 3 genes. But it certainly takes some effort to go back and reach back to those patients. Tycho Peterson - JP Morgan Chase & Co: Okay, and then just last one in Europe, and I appreciate the color you provided so far. I guess with regards to the network in Germany and then NCI Network in France. I mean, you haven't finalized any agreement there, is that correct?

We would announce publicly through a press release if we executed agreements with either of those 2 organizations. Tycho Peterson - JP Morgan Chase & Co: Okay. And then what about the pharma alliances in Europe, for PREZEON and p10? Anything that we should be thinking about in terms of timelines there?

Well, Myriad is very fortunate the end of companion diagnostic space to have discovered 2 extremely important genes, p10, which may play a pivotal role as the companion diagnostic with PI 3-kinase inhibitors, which are currently being worked on by a number of major pharmaceutical companies; and the BRCA genes, which obviously play a critical role in the PARP inhibitors and other DNA-damaging agents that may come along. So the company is working very closely and pursuing those opportunities aggressively as well as augmenting our 2 primary positions with work that's being done at Myriad RBM. And they have collaborations with over 20 major pharmaceutical companies in terms of developing new companion diagnostics for new drugs being developed by those pharma companies. So this is certainly an area of interest and great opportunity for Myriad.

Our next question comes from the line of Doug Schenkel with Cowen and Company.

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

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

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

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

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

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

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

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

Our next question then comes from the line of Charles Duncan with JMP Securities.

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

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

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

Yes, we are very excited about the data that we just released. It was outstanding. I know you've seen that data. And as we begin to -- as we submit that data through peer review process and that additional publication comes out, we will then use that first as the opportunity to then work with payers to obtain reimbursement and then to aggressively begin to market and sell that to the top urologists. We've already identified those urologists that we believe will be rapid adopters because we've had a sales team out in the field for the past year doing market development. So we clearly have identified those targets where we expect to see rapid adoption, and that effort will begin in parallel to the reimbursement efforts as soon as you see publication. We would not expect this year to probably move into the social media arena. Generally, we would like to do that once we've established sufficient contact with physicians because physicians want to make sure they're very comfortable with the product and how to use that before they might get inquiries from their patients. And so I think you'll see a social media strategy for PROLARIS more likely in 2013. The last thing I'll add as to what Pete already did, I'll just underscore again, is that as we begin to see adoption for PROLARIS, we will look to aggressively expand that urology sales team based on reimbursement and adoption from rapid adopters. And that's something that, again, we'll watch as soon as we get that additional publication completed.

Our next question comes from the line of Dane Leone with Macquarie.

I guess my first one is maybe excluding Rules-Based Medicine, can you kind of give us some color on what you envision for, I guess, new product sales or new test sales in -- by 2012, maybe including new indications that you're pursuing off with some new tests that you might be launching?

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

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

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

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

Great. And then the last one for me, I just want to gauge your appetite for using debt in a potential M&A deal. Is that something that's been discussed or [indiscernible].

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

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

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

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