Myriad Genetics, Inc. (MYGN) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics Fourth Quarter and Year End 2013 Financial Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, August 13, 2013. I would now like to turn the conference over to Mr. Scott Gleason. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to the Myriad Genetics fourth quarter fiscal year 2013 earnings call. My name is Scott Gleason, VP of Investor Relations here at Myriad Genetics. And during the call, we will review the financial results we've released today. After which, we will host a question-and-answer session. If you have not had a chance to review the earnings release, it can be found on the Investors section of our website at www.myriad.com. Presenting for Myriad today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President Myriad Genetics Laboratories; and Jim Evans, our Chief Financial Officer. This call can be heard live via webcast at www.myriad.com. The call is being recorded and will be archived in the Investor Section of our website. We would encourage listeners on today's call to follow along with our prepared slides, which can be found under the Investors Section of our website at www.myriad.com. Please note that some of the information presented here today may contain projections or rather forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's Annual Report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that would cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I'd like now to turn the call over to Pete.

Thank you, Scott. I'm pleased to report that Myriad delivered another strong quarter to top off what was an outstanding year for the company. Year-over-year revenue growth in the fourth quarter exceeded 30%, and represented the eighth consecutive quarter where top line growth has exceeded 20%. This outstanding performance is a testament to the dedication of our employees and I'm proud of the entire Myriad team. Again, our Women's Health business, which benefited from our protocol integration strategy, our social media targeting efforts and from recent celebrity publicity around breast cancer was a standout segment in the quarter with year-over-year growth of 51%. Our Oncology business increased 19% compared to the prior year period, generating strong double-digit growth and building upon trends we saw at the end of the third fiscal quarter. This strong revenue growth is a testament to the focus of our Oncology team and the utilization of our new targeted selling strategy. Earnings per share in the fourth quarter were $0.53, up 58% year-over-year. We are very pleased with the performance of the company and we are actively pursuing several strategies to continue to grow our business and enhance shareholder value. These strategies include expanding our core markets through our new myRisk Hereditary Cancer and myPlan Lung Cancer test. Entering new sales channels such as dermatology and pathology with our new myPath Melanoma test. And building our international business as we transition into a company with true global reach. With that in mind, I'm pleased to provide a first look at our fiscal 2014 financial guidance. We considered several factors before preparing our 2014 guidance. While the company received a benefit from the recent celebrity publicity around breast cancer, the duration of this publicity benefit is likely to be short term. Consequently, for the purpose of our guidance, we are assuming this tailwind will wane quickly. Additionally, we've taken into consideration the recent emergence of competition into our core markets. Based upon these 2 assumptions, we are forecasting total revenue of $690 million to $710 million in fiscal 2014, which represents a 13% to 16% revenue growth compared to the 2013 fiscal year. This is in line with the previous guidance at our Analyst Day where we projected low to mid double-digit top line growth. Moving on to our earnings per share guidance. We had a 37% corporate tax rate in fiscal 2013, but believe we will return to the more normal 40% tax rate in fiscal 2014. We also anticipate that our legal expenses will be substantially higher in fiscal 2014 due to the recent patent infringement litigations. Therefore, we are assuming added legal spending of approximately $10 million or approximately $0.07 per share after tax. Finally, we will be launching 3 very exciting new tests in fiscal 2014 to continue growing our business for the future. Including myRisk Hereditary Cancer panel, myPath Melanoma and myPlan Lung Cancer. Factoring in the significant launch expenses, legal expenses and higher tax rate, we're projected fiscal year 2014 diluted earnings per share of $1.87 to $1.94, representing 6% to 10% growth over the prior year. As you are aware, several laboratories have recently announced the availability of test to compete with BRACAnalysis. We believe Myriad has a very strong intellectual property portfolio covering our BRACAnalysis test. We currently have a patent of state of 24 patents and over 500 claims that cover BRACAnalysis testing, and which remain valid and fully enforceable. While the Supreme Court recently ruled that isolated DNA is a product of nature and not patent eligible, the court also ruled that complementary DNA is patent eligible, because it is not naturally occurring and made by a technician in the laboratory. Moreover, the Supreme Court noted that Myriad, as the first party to discover and gain knowledge of the BRCA1 and BRCA2 sequences was in an excellent position to claim the application of that prior knowledge. Based on the strength of our patent to state, the patent owners have taken legal action against 2 companies, who we believe are infringing these patents. Litigation is in the early stages and our policy is not to discuss ongoing litigation matters. At our Investor Day, we announced the upcoming launch of our myRisk Hereditary Cancer test. I'm pleased to announce that we are ahead of schedule and we'll launch myRisk next month. Based on our discussions with physicians, we believe adoption will be rapid. myRisk is a pan-cancer panel test that will provide unparalleled accuracy in analyzing 25 major genes that have documented evidence of their role in increasing individual's risk of cancer. We believe myRisk Hereditary Cancer has a potential to double our existing market while increasing barriers to entry in our core market. It took 3 years to develop the technology to perform this test and ensure 100% accuracy at every base pair. A clinically acceptable turnaround time and a comprehensive user-friendly report. Characterizing the genetic information in this extended panel of genes will be a major undertaking at Myriad. But we have the advantage of having over 0.25 million patient samples coming through our laboratory every year, and we believe this will vastly expedite the process. Mark will provide additional information on myRisk Hereditary Cancer and our launch strategies later on in the call. In addition to myRisk Hereditary Cancer, Myriad will launch 2 additional new tests in fiscal 2014. myPath Melanoma is a molecular diagnostic test to assist pathologists in determining whether a difficult to call skin biopsy is benign or malignant. Misdiagnosis of melanoma is the single largest cause of medical malpractice lawsuits. And based on our early discussions with dermatopathologists, we believe there will be a high level of demand for this product. Our third launch this year will be myPath -- sorry, myPlan Lung Cancer. myPlan Lung Cancer is a molecular diagnostic test to guide physicians in making chemotherapeutic decisions for lung cancer patients in an early stage of their disease. With 3 new product launches, this should be a very exciting and transformative year for Myriad. Now, I would like to highlight some important events that transpired throughout the fourth fiscal quarter. First, we are pleased to see the progress, our pharmaceutical collaborators have made with PARP inhibitors. And we believe these new therapies will play a critical role in cancer treatment in the future. We currently have companion diagnostic collaborations with AstraZeneca, AbbVie, BioMarin, Pharmamar, Cephalon and recently announced partnership with Tesoro. Several of our partners have now entered Phase III clinical trials and with their perspective drugs. And I am pleased to note that the FDA has recently accepted our IDE for BRACAnalysis. We believe PARP inhibitors will positively impact our business in several ways. First, Myriad will be paid to support clinical trials for these 6 companies. And Myriad's BRACAnalysis will be the first FDA-approved personalized medicine test for PARP inhibitors. Second, we believe the potential approval of PARP inhibitors will significantly expand our core market size, almost all breast and ovarian cancer patients would be candidates for these new therapies. And many of our collaborators are pursuing approval in lung cancer and gastric cancer as well, which would open up new markets for our test. Finally, we envision the approval of PARP inhibitors in Europe as being instrumental in growing our business overseas. AstraZeneca announced at their Analyst Day that they could receive EMA approval for olaparib within the next 18 months. If approved, Myriad will work with AstraZeneca in identifying patients with this exciting new therapy. Overall, we are excited by the progress being made in that area of PARP inhibitors and look forward to providing additional developments in this area in the future. On a similar note, we have seen interest from pharmaceutical companies in our new HRD test. We have now signed HRD collaborations with 2 major pharmaceutical companies, in addition to our publicly announced collaboration with Pharmamar. Additionally, we remain on track for the commercial launch of the HRD test in the United States in 2015 for production of patient response to platinum-based therapies. During the fourth quarter, we announced a major diagnostic collaboration with DaVita, one of the largest dialysis providers in the United States. The initial focus of this collaboration is to identify protein biomarkers that are predictive of vascular access closure, which is a major cause of concern for dialysis patients and expands to the healthcare system. Myriad RBM's extensive experience with protein biomarkers tied to inflammation, may allow us to identify at-risk patients before they experience the vascular access closure. If caught early on, the patient could be given a relatively inexpensive anti-inflammatory steroids or undergo a minor procedure to revamp vascular access closure. Vascular access closure in dialysis patients results in 20% to 30% of all hospitalizations for this patient group with the cost to the healthcare system of over $1 billion annually. There are over 375,000 dialysis patients in the United States that can potentially benefit from this test and its population is expected to double by the year 2020. In conclusion, I am aware that recent events have created some uncertainty about our business. As a Founder of the company, who has been here from the very beginning, I feel confident in saying that the future growth prospects for Myriad have never been stronger and our future has never been brighter. Looking forward, I feel confident in our ability to continue to grow our core markets, diversify our business into new sales channels and expand internationally. This coming year in particular will be an exciting and transformative year for Myriad. With that, I am pleased to turn the call over to Mark who will provide an operational update.

Thanks, Pete. I am pleased to provide an update on both our current products and upcoming product launches. As Pete mentioned, this was another quarter of exceptionally strong growth for the company and while some of the strength in the fourth quarter was totally [ph] attributable to recent publicity. The majority of the success was based upon the execution of our business strategy to expand utilization in our core markets. Our Women's Health business was exceptionally strong again this quarter with revenues growing 51% year-over-year. This is attributed to our 3-part strategy of expanding utilization through protocol integration, identifying patients with interactive marketing, and expanding the sales force. In fiscal year '13, Our Women's Health business unit completed 1,272 protocol integrations, substantially exceeding our fiscal year '13 goal of 800. OB/GYN accounts that completed protocol integrations had 10x the testing volume compared to control accounts. In fiscal year '14, we plan to complete 1,200 protocol integrations. And we once again envision this program being a major growth driver for the Women's Health segment. We also have continued to see remarkable success with our interactive marketing campaigns, and especially with our Hereditary Cancer Quiz. This quarter, 115,000 individuals took our Hereditary Cancer Quiz with more than 51,000 self-identifying as having an at-risk result. Since our launch in the fall of 2012, 400,000 individuals have taken the quiz with over 150,000 at-risk results. These patients can enroll in our support 360 program and receive additional information and reminders about hereditary cancer testing and the importance of discussing the results with their healthcare provider. We will continue to expand these efforts in fiscal year '14 as they have demonstrated a very attractive return on investment. Furthermore, we continue to see broad success with our radiology expansion program. Radiology revenue grew by 68% in fiscal year '13 compared to fiscal year '12. This remains a significant growth opportunity as we have penetrated less than 10% of the 3,000 mammography centers. As a result in fiscal year '14, we are expanding to a team of 8 strategic account managers to focus specifically on this channel. In addition, to expand our reach in the Women's Health market, we will be adding another 20 sales representatives this year. The Oncology business segment experienced an acceleration in growth this quarter with revenues growing just under 20% on a year-over-year basis. Much of this growth was attributable to the growth account selling strategy combined with successful protocol integrations, which were initiated in the third quarter. Excluding the impact of BART, the Oncology segment growth this quarter was still double-digit. We have seen significant success with our growth accounts selling strategy. Our sales team has identified 3,000 growth accounts that represent 63% of the market potential but have relatively low BRACAnalysis penetration rates. We initially targeted 582 of these growth accounts, but plan on expanding to 2,500 over the next several quarters. Call volume among these accounts was up almost 50% in the fourth quarter and revenue from this segment grew at a 50% higher rate than the rest of our Oncology business. We believe these efforts will help to deepen our market penetration with both newly diagnosed patients and cancer survivors. I would like to add a few thoughts about the quality of Myriad's tests. Physicians value the accuracy, turnaround time, customer service, reimbursement assistance and variant classification for all of our tests and see little incentive to transition to less experienced laboratories. Our extensive variant classification procedure is our critical differentiator. Typically, to classify an uncertain variant, Myriad must identify the variant in 20 different individuals and test for free 10 additional family members. After having tested over 1 million patients, we have identified almost 20,000 mutations in the breast and colon cancer genes, at a cost to the company of over $100 million. In the process, we have developed proprietary classification algorithms that are now responsible for classifying 70% of uncertain variants. Laboratories relying on the largest unregulated public database have access to only 3,800 mutations. Even with our experience testing over 1 million patients, we still identify on average, 15 new mutations every week. In fact, there are no common mutations in the general population and less than 4% of the mutations we have identified have a frequency of greater than 1 and 10,000 patients. Consequently, the distribution of these mutations is widespread. Clearly, the work we have done classifying mutations creates a meaningful competitive advantage for our test, relative to any competitive offerings. Our managed care team continues to proactively reinforce the health economic value associated with our highly accurate tests. Payers have been very receptive to our health economic models that demonstrate the substantial impact in inaccurate tests for high uncertain variant rate can have on healthcare cost. For example, patients with an uncertain variant test result are instructed to make treatment decisions based solely upon family history and often pursue aggressive and expensive interventions. Laboratories with a higher uncertain variant rate, many of which are eventually classified as benign, will drive significant unnecessary healthcare costs. We recently completed a health economic model that is being submitted for publication, which demonstrate that Myriad's more accurate test can save a payer an additional $2,615 per patient tested when factoring-in downstream costs, which more than justifies our current price when compared to a less accurate test. As Pete mentioned, we also showed significant progress in our growing portfolio of new products including PROLARIS, myRisk Hereditary Cancer, myPath Melanoma and myPlan Lung Cancer. The names of these new products now reflect the branding strategy aligned to our corporate 4 and 6 strategy, which looks at addressing 4 major clinical questions across 6 major disease states. We continue to see meaningful progress in our Urology business unit with PROLARIS. As a reminder, Medicare was satisfied with their analytical and clinical validation studies and only requested additional clinical utility data. We have completed a manuscript for our initial clinical utility study, with over 294 patients that demonstrated 32% of physicians would consider changing treatment based upon the PROLARIS test results. This data has now been submitted to Medicare and additional clinical utility studies are well underway with over 25 sites enrolling patients. We anticipate providing this additional clinical utility data in the fall and continue to believe we are on track to obtain Medicare reimbursement in the second half of fiscal year '14. Interest in PROLARIS continues to grow and in this quarter, we saw a 30% sequential growth in the number of ordering physicians. As Pete said, the launch of myRisk, our next generation Hereditary Cancer Panel will begin in September. Initially, we will target 250 physicians thought leaders with a goal of expanding the enrollment later in the fiscal year and obtaining complete conversion by the summer of calendar year 2015. We have completed multiple pivotal prevalence studies for the conversion phase, which will be presented at major medical conferences this fall. As discussed in our Analyst Day this past May, we believe myRisk will be able to detect at least 30% more deleterious breast and ovarian cancer mutations than integrated BRACAnalysis. For the expansion phase, we have initiated studies to broaden patient eligibility criteria for the 8 cancers identified by the panel. We expect these efforts to lead to a doubling of the Oncology market by fiscal year 2016. The interest level amongst physicians for this test is extraordinarily high and our entire commercial team is highly motivated to make this launch an unconditional success. Our Dermatology business unit is also excited about the upcoming launch of myPath Melanoma, our second of 3 new product launches slated for fiscal year 2014. myPath Melanoma will assist dermatopathologists in diagnosing the 280,000 indeterminate melanoma biopsies that occur in the U.S. every year, representing a market opportunity of more than $400 million. Our training set data on myPath Melanoma has been accepted for oral presentation at the Annual Society of Dermatopathology Meeting, which will occur October 10 through 13 in Washington, D.C. Our early access launch is scheduled to take place after this event and we have hired 8 new sales representatives for our dermatology team to support the test rollout. Our Oncology business unit is completing plans to launch myPlan Lung Cancer, which will be our third new product launch this year. This product is designed to provide a prognostic assessment for stage 1 or 2 lung cancers to direct physicians regarding adjuvant chemotherapy. This represents a total annual market opportunity of 30,000 patients or $100 million. Our initial clinical study, which we conducted in concert with M.D. Anderson, was presented at ASCO and showed an 8% 5-year lung cancer-related mortality rate for low risk patients versus 27% mortality rate for high-risk patients. This data has been accepted for publication and our clinical validation study is underway with presentation of the data expected this fall. Hiring for our lung cancer specialty team is complete and we are ramping up for a planned early access launch in the second half of this fiscal year. We believe this will be a landmark year for Myriad as we continue to penetrate our existing markets, obtain Medicare reimbursement for PROLARIS and launch 3 exciting new products including myRisk, which will transform our hereditary cancer market. The execution of our strategic plan continues to exceed expectations and we look forward to a very productive fiscal year '14. Now, I would like to turn the call over to Jim Evans.

Thanks, Mark. I'm now going to provide a more detailed look into our fourth quarter and fiscal year 2013 financial results and provide additional information pertaining to our fiscal '14 guidance. Fourth quarter revenues came in at $174.1 million, an increase of 31% year-over-year. As Mark mentioned, the majority of the growth resulted from the successful implementation of our strategic initiatives such as protocol integration. But we did see added growth attributable to the recent celebrity publicity around hereditary breast cancer. We estimate that celebrity publicity positively impacted fourth quarter revenues by $7 million to $9 million. Fourth quarter revenue from our molecular diagnostic segment was $166.1 million, up 30% year-over-year and companion diagnostic revenue was $8 million, up 47% year-over-year. As previously discussed, our molecular diagnostic segment benefited from strong growth in both our Oncology and Women's Health segments. All of our product lines grew at healthy double-digit rates with BRACAnalysis revenue up over 19% year-over-year; BART up over 300% year-over-year; COLARIS revenue up 26% year-over-year; and our other revenue segment growing 16% year-over-year. The growth of our COLARIS product was particularly strong in the fourth quarter as we continued to gain market share. Moving down the income statement. Research and development spending in the fourth quarter totaled $14.6 million or 8% of total revenue, a 20% or $2.4 million increase from the same quarter of fiscal 2012. Research and development expense will fluctuate quarter-to-quarter due to the timing of clinical studies. For the full year, R&D ended close to our 9% of revenue target, and we continue to project this level of research and development spending looking forward as we work to expand and diversify our business. During fiscal 2013, our R&D investment covered 38 different research and clinical trials. For fiscal 2014, we anticipated funding 66 trials. Our selling, general and administrative expense this quarter came in at $71.5 million or 41% of revenue. On a year-over-year basis, we were able to garner approximately 230 basis points of operating leverage, which, along with the slightly lower R&D spend as a percentage of revenue, translated to improved operating margins of 37.9%. While SG&A will fluctuate quarter-to-quarter based upon the timing of new product launches and litigation expense, we do expect to see additional operating leverage over time. Our tax rate in the fourth quarter came in at 34.4%. The tax rate was driven lower this quarter due to year-end state tax rate adjustments and a tax benefit associated with incentive stock option activity during the quarter. As you may be aware, the exercising of incentive stock options results in a deduction in our tax rate. While tax rate is expected to fluctuate by a few basis points on a quarter-to-quarter basis, we believe 40% is still the appropriate rate to utilize for forward-modeling purposes. Net income for the quarter totaled $44.1 million, a 51% increase over the same period in the prior year, which translated to fully diluted earnings per share of $0.53 compared to $0.34 in the prior year period. We are pleased with this level of profitability growth, which represents our highest rate of earnings growth in the last 4 fiscal years. Diluted weighted shares outstanding for the fourth quarter were 82.6 million, which was down by approximately 3.7 million shares on a year-over-year basis, but up slightly sequentially. The sequential increase in fully diluted shares during the fourth quarter was driven by our employee stock option activity, offset by share repurchase activity. During the fourth quarter, we repurchased $21.6 million worth of stock or approximately 826,000 shares. As of the end of the fiscal year, the company had approximately $153 million remaining on its current share repurchase authorization. Myriad's results for the full fiscal year were also impressive, with revenue growing over $117 million from the prior 12-month period to $613.2 million. Operating margins for the 2013 fiscal year improved to 37.2% versus 36.4% in fiscal 2012, and earnings per diluted share grew 36% from $1.30 to $1.77, demonstrating the company's ability to dramatically increase revenue while controlling costs and driving earnings growth. We would note that the quality of our earnings was exceptionally high again this year as reflected in the comparison of our GAAP EPS with cash EPS. Our cash EPS of $2.09 was meaningfully higher than our GAAP EPS of $1.77. We have observed the same trend the previous 3 fiscal years. The company continues to generate significant cash flow. Cash flow from operations in fiscal 2013 was approximately $174 million, an increase of 23% compared to the prior year. As a result of this strong cash generation, we ended the fiscal year with $531 million in cash and cash equivalents on the balance sheet, a 17% increase over the prior year. This cash position represents $6.43 per fully diluted share. We believe that this provides us with ample capacity to reinvest in growing our business, to continue to opportunistically buy back stock and pursue strategically sound acquisitions. Looking at our receivable balances. We saw an improvement in collections throughout the fourth quarter and our days sales outstanding were reduced as Medicare and other payers have loaded the new molecular pathology codes into their systems and begun making payments. As the billing process normalizes, we expect to see a further improvement in cash collections over the next few quarters, and for our days sales outstanding trends to continue to improve. Now I would like to spend some time providing additional detail on our fiscal year 2014 financial guidance. As Pete mentioned, on the top line, we are guiding toward revenues of $690 million to $710 million, representing top line growth of 13% to 16%. While our fourth quarter benefited from increased awareness brought on by celebrity publicity around breast cancer, we anticipate that this heightened awareness will wane by the end of the first quarter. Since we do expect some positive benefit from this publicity in the first quarter, we do not anticipate seeing the same seasonality from summer vacations that we have seen in the past. This stronger first fiscal quarter will result in relatively flatter quarter-to-quarter growth rates throughout the year. Additionally, although patient samples remain strong, we are now facing increased competition and have assumed that it will be more pronounced in the second half of our fiscal year. We have considered this potential future negative impact on our top line guidance. Molecular diagnostic revenues are expected to be $665 million to $685 million, and companion diagnostic revenues are expected to be approximately $25 million. Myriad RBM has now completed the biomarker discovery portion associated with our Sanofi partnership, which was the largest contract in Myriad RBM's history. Therefore, Myriad RBM revenues are projected to be down slightly year-over-year. Moving on to gross margins. We expect margins to be flat to slightly down year-over-year. Gross margins will benefit from our companion diagnostic segment, comprising a lower percentage of revenue, but will also see a slight negative impact due to the launch of myRisk Hereditary Cancer, myPath Melanoma and myPlan Lung Cancer since these products will not benefit from any economies of scale next year. Looking at the operating expense lines. We are forecasting research and development spending to remain at approximately 9% of sales next year, consistent with our desire to continue to reinvest in the business and bring our industry-leading product pipeline to market. We are projecting SG&A expenses to be approximately 41% of revenue, similar to the 2013 fiscal year. This estimate includes approximately $10 million in additional legal expenses and the launch costs of 3 new products. Finally, we expect our tax rate to return to our historical levels of approximately 40% of revenue. As usual, our guidance does not take into consideration the potential impact of any future share repurchase activity. On the bottom line, we are guiding towards earnings per share of $1.87 to $1.94. As Pete previously mentioned, our fiscal year 2014 earnings per share will be negatively impacted by a higher effective tax rate, incremental legal expense tied to our ongoing litigation and investments we will make in the launch of 3 new commercial products this year. Overall, we believe our business remains in a strong position from a long-term growth standpoint, and we remain comfortable with the long-term growth guidance we gave at our Analyst Day in May. With that, I will now turn the call back over to Scott.

Thank you, Jim. [Operator Instructions] Operator, we are now ready for the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of Amanda Murphy with William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: So I had a question about some of the work you're doing with the pharma companies at the companion diagnostics. So there's been quite a lot of talk about competition, but I'm curious how: number one, maybe you could just talk to the process with the FDA just in terms of timing and data required to get the IDE designation? And then secondly, in terms of your relationship with some of the pharma companies, is it an exclusive arrangement in terms of your ability to be a companion diagnostic test for them once they're on the market?

Thank you, Amanda. Yes. As you pointed out, we have 6 major collaborations with pharmaceutical companies developing PARP-inhibitors. We have submitted, and it has been accepted by the FDA, our IDE. BRAC, as a companion diagnostic product, will be approved on the same clinical data and the antiparallel process with the approval of the drug itself. We are excited about this opportunity. Obviously, we don't have an exclusive from Myriad's perspective with the pharma companies. We're free to work with any of the pharma companies that are developing PARP-inhibitors. As we work through the regulatory process, we are working very closely with the pharmaceutical companies as collaborators on how best to ensure timely and rapid uptake of their particular drugs.

Our next question comes from the line of Bill Quirk with Piper Jaffray.

Just a couple of quick ones for me. One, can you just remind us the BART penetration from BRACAnalysis in the quarter? And then, Jim, maybe you can just elaborate about how you're thinking about that? Is it -- as we think about the 2014 guidance?

Bill, thanks for the question. BART penetration rates were, as we mentioned last call, we ended the quarter at around 80%. We've seen pretty consistent 80% penetration throughout the rest of the quarter through the fourth quarter. As we mentioned, we have done almost all with large or all of the large insurance companies, and they were really only some of the smaller payers that were left. And we expected that, that would take some additional time. And so we didn't see a major change in the ratio of BART to BRACAnalysis test in Q4. I think we've assumed that as we go into next year, that we will continue to see essentially that same level of BART reimbursement that we did in the fourth quarter.

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

This is Charmaine on behalf of Michael. We recognize there are many moving parts to guidance. But could you maybe help us understand just on the BRCA testing portion, do you anticipate your percentage share of BRCA testing overall on the market? How does that compare to year-over-year with the competitive impact, but then the market itself also growing?

Thank you. Yes. As we mentioned in the guidance, we did take into account the impact of competition in our BRACAnalysis market. So that has been factored in on our guidance this year. We don't break down specifically guidance on a product-by-product basis. Sorry, I can't comment further other than that.

Our next question comes from the line of Dan Leonard with Leerink Swann.

I was hoping to gain more insight into the pricing assumptions in your guidance. And maybe into the answer, you can weave in an update on your conversations with payers. You mentioned the health economics study was favorable for you. And also, if there's any sensitivity in this thinking to the outcome of your near-term legal process.

Thanks, Dan. Yes. As I mentioned, we have had a few conversations with some of our payers about BRACAnalysis. Generally, those have been more requesting information, some additional background information for payers. Generally, they would look for 2 different things. First, some clinical background to understand the differences between our test and other tests that may exist. As you know, there are substantial differences between tests and the clinicians at payers are well aware that there are differences. And so generally, they're trying to understand scientifically what some of those differences are. The second part of those conversations have been with the procurement side and understanding what those differences are, how they might impact the health economic performance of a payer. As I mentioned, we've been able to share with those few payers the $2,615 that Myriad would save on top of what another laboratory may charge because of the increased accuracy of our tests. And so that information has been well received by payers as they look at that. So in general, based on our payer discussions, we haven't talked specifically about what either share or pricing may -- how that may impact guidance. I think what we can say overall is we've provided the $690 million to $710 million guidance. That, of course, would combine any assumptions that we've made on either share or pricing.

Our next question comes from the line of Sung Ji Nam with Cantor. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: I was wondering -- you guys talked about pretty positive feedback from the physician community on the myRisk Hereditary Cancer Panel. I was wondering kind of what type of feedback you might be getting currently from your managed care community with respect to the panel vis-a-vis kind of some of the other drum line mutation panels that are out there, and how they're thinking about that.

Sure. The payer interactions we've had so far have been very positive as well. From a payer perspective, what we've been able to tell them is that we anticipate at least a 30% increase in sensitivity of the test. The real data to be published yet in the fall, but they will be receiving that increased sensitivity at the same pricing that they currently experience. And so that, obviously, from their perspective, is very powerful from a health economic standpoint to the extent that you can prevent that many more additional cancers, that's a very positive health economic story. And so payers have been very pleased to hear about the panel. The price point for the panel is -- relative to competitors, is very competitive. They have been appreciative to see that. And in addition, they are aware and have experienced situations where repetitive rounds of testing by other laboratories where each and every gene is built can lead to very high expenses on a per patient level, discussions of spending over $11,000 for patients for genetic testing done in a more sequential fashion. And so, I think the combination of all 3 of those have allowed us to have very productive conversations with payers to date.

[Operator Instructions] Our next question comes from the line of Derik De Bruin with Bank of America.

So I'm just a little bit more -- I'm just a little bit curious on the top line forecast. I mean, if you back out sort of the BART and the Angelina Jolie -- the sort of tailwinds from that. I'm just -- if the underlying growth was about 12% from that. I guess, could you just talk a little bit more about, I guess, how you sort of get to the 13% to 15% number? I mean, are you expecting an -- I mean, are you expecting a sort of significant growth in the BART? Are you expecting more -- are you expecting -- I'm just curious in terms of what some of your line expectations are for COLARIS, PROLARIS, the new test out there? I'm just trying to -- just help me get to the numbers a little bit?

Thank you, Derik. As we reported on the call today, we are forecasting $690 million to $710 million, that's 13% to 16% revenue growth. It does factor in what we anticipate with BART, currently about 80% penetrant, and we think eventually we'll get very close to the 100% penetration. It does certainly impact or take into consideration the impact of the recent publicity. Again, we think that publicity will wane during this quarter, and we don't anticipate any tailwind in Q2, Q3 and Q4. I'd like to help you with more of a product-by-product guidance, but unfortunately, we just give top and bottom line guidance. We don't get into the weeds, so to speak, with all of the various products.

Our next question comes from the line of Drew Jones with Stephens Inc.

You cited the COLARIS strength, really the source there being competitive gains. Can you give us some of the feedback that you're getting from those customers?

Yes. So this was -- it's COLARIS. I just want to make sure I heard right, the COLARIS gains? Yes. So I think for COLARIS, much of the competitive advantages that I articulated in the prepared comments relative to BRACAnalysis hold for COLARIS as well, things around turnaround time, the highest sensitivity tests, the assistance with reimbursement, the clarity around the report, our medical affairs support for physicians that may have questions about specific patients. So it's really that entire package of services that we are able to provide, all in the lower uncertain variant rates as well. That entire package of services are the things that have allowed us -- continued to allow us to maintain the highest market share. We believe we have over 70% of the market share in the colon cancer business. We have been showing significant growth, some of that has been shares, some of that has been overall demand. And it really is that entire suite of competitive advantages that have allowed us to continue to capture additional share and grow the market. Those are all things that we continue to experience with BRACAnalysis as well.

Our next question comes from the line of Peter Lawson with Mizuho Securities.

Peter, just on the increased competitive strength. What's factored into guidance on the revenue side for that increased strength? And has that changed any of the pricing conversations you've had either with the payers or pharma collaborators?

Thank you, Peter. As company policy, we really don't comment on matters related to litigation that it is ongoing. But as we've said in the call, we did factor in the competitive impact that we have seen and anticipate seeing throughout next fiscal year. We did indicate that we think as the quarter goes on, that impact will be more significant. And so we've indicated that we're going to see a little less seasonality in the 4 quarters of next fiscal year. But other than that, we did factor it into our guidance. You have our guidance, but we really -- we won't comment on issues around litigation beyond that.

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

So clearly, you have a head start in BRCA relative to competition, but I think it's less clear that you have an advantage when it comes to cancer panels. So a 4-part question: First, you said data on myRisk is going to be presented this fall, what discussions have you entered into with advisory groups on working myRisk into guidelines? The second part is when do you assume myRisk will be written into guidelines, and would you expect it to be myRisk named specifically? The third part is can you help us understand why the investment community should afford you more credit versus others for these panels when others have been marketing cancer panels for years? And the last part is with a number of companies on the verge of offering different cancer panels that include BRCA in the markers including -- that you include on COLARIS, is it inevitable that there's going to be conflicting claims made by competitors? And if so, doesn't this accelerate FDA LDT regulation?

Thanks, Doug. I'm going to take a crack, and hopefully, I got all 4 of these down. So I'll do my best. So first question is myRisk and what are our thoughts about how myRisk will be worked into guidelines. We already have engaged in discussions with numbers of guideline-setting committees. A number of those have actually been part of the studies that we have conducted so that they have an opportunity to experience the increased sensitivity firsthand with their patients. We do think, as always, that will take some time. As we have mentioned in Analyst Day, that we expect by 2016 to have a broadening of the guidelines such that the oncology market could double from the size that it is today. But we think that's about the time frame it would take in order to expand guidelines. What's important to note is that the guidelines, as they exist today in the oncology market, we're only about 45% penetrated for existing guidelines. In the preventive care market, we're less than 10% penetrated with the existing guidelines. So even with the existing guidelines today, there's ample opportunity for growth. But strategically, we're looking towards fiscal year '16 to broaden those guidelines. We don't expect those to be myRisk-specific. We expect that they would be more associated with the numbers of genes that would be appropriate and the specific identity of the genes that would be appropriate. So we don't necessarily expect that those would be called out by brand names, but of course, recognized to the extent that they are proprietary genes that are in the myRisk panel. Those would, in essence, become proprietary recommendations to the extent those genes are there. And as you know, things like BRCA1 and 2 [BRCA2], PALB2, MYH, and others, RAD51C, are all proprietary to Myriad. You're correct. There are competitors that have been in the market with panels. Those have not been as comprehensive in that they have not included BRCA1 and 2 [BRCA2]. And obviously, all the benefits and advantages we have with our experience with BRCA1 and 2 [BRCA2] will come to bear with those panels. In addition to that, the panels have generally had very long turnaround times in excess of 70 days up to 90 days. They have not been reimbursed. They're not necessarily in insurance contracts. And so many of the advantages that we have throughout the hereditary cancer market will come to bear with the Myriad panels. And it was only until we really were able to address what we consider to be our customers' very high expectations on panels that we were comfortable launching a panel product. And those, up until to date, have not been able to perform at the level that would demand widespread access. And lastly, I think your question is around FDA and LDTs. That's obviously still a work in progress. The FDA has announced its intentions to regulate LDTs for a number of years. There are continual discussions about guidelines that may or may not come out. We have continued to stay abreast of all the developments in the event that the FDA were to decide to regulate in the LDT space. Of course, we now have experience with BRACAnalysis as an IDT -- IDE with the FDA. And so we think any move to regulate that space, if it's done in a comprehensive way, we'll be well-positioned to compete in an FDA-regulated space. Many other laboratories, we think, would have difficulties implementing the type of controls we have that would pass the scrutiny of the FDA. So we'll monitor that, but I think, we feel comfortable that we'd compete very well in an FDA-regulated market. So hopefully, that addressed all your points.

Our final question comes from the line of Isaac Ro with Goldman Sachs.

Let me just try and tackle the guidance item one more time in a totally different way. Can you maybe put a little bit of color regarding what is baked into your guidance with regard to pricing and market share? Anything to really help us understand as we think about the implications of competition, know what the impact might be to gross margins. That would be helpful. And I appreciate there's a large range of potential outcomes, but anything you can do regarding pricing and share will be helpful.

Thank you, Isaac. Again, I'm very sympathetic to your desire for additional information, but I think we've given very complete and thorough guidance. Certainly, on the bottom line, as both Jim and I have highlighted, we do think that will be impacted by the slightly higher tax rate, and it's actually a return to more traditional tax rate after a more favorable fiscal 2013, increased litigation expense and the launch of 3 very exciting new tests. Myriad has a very strong legacy of launching new molecular diagnostic tests. And I think, again, this is going to be very much a transformative year as we launch myRisk Hereditary Cancer, myPath Melanoma and myPlan Lung Cancer. On the top line, factoring in competition, the diminishing impact of celebrity publicity and looking at the growth we've seen across all of our products this past year and really past 8 quarters, we've given top line guidance of the $690 million to $710 million. But we clearly have looked at the impact of all of those factors on the guidance we've provided. But I very much, Isaac, appreciate your question.

This concludes our earnings call. A replay will be available via webcast on our website for 1 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 line.