Myriad Genetics, Inc. (MYGN) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics First Quarter 2014 Financial Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, November 5, 2013. I would now like to turn the conference over to Mr. Scott Gleason. Please go ahead, sir.

Thanks, Mike. Good afternoon, everyone, and welcome to the Myriad Genetics First Quarter Fiscal Year 2014 Earnings Call. My name is Scott Gleason, VP of Investor Relations here at Myriad Genetics. During the call, we will review the financial results we 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 Investor Relations section of our website at myriad.com. Presenting today for Myriad 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 myriad.com. The call is being recorded and will be archived in the Investor section of our website. Please note that some of the information presented here today may contain projections or other forward-looking statements regarding future events or the future financial performance of the company. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's Annual Report on Form 10-K, its quarterly reports on Form 10-Q and current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I'll now turn the call over to Pete.

Thank you, Scott. To begin, I am pleased to provide highlights of our first quarter results. The revenues for the first quarter of our 2014 fiscal year increased 52% year-over-year to a record $202 million. As expected, we benefited from increased publicity during the quarter. However, even with that benefit, first quarter revenues rose 25% compared to the same period in the prior fiscal year, representing continued strong growth in our core markets. Every one of our products contributed to this excellent performance, and I am pleased to note that our international division made excellent progress, with revenues increasing 125% year-over-year. Our investments and efforts in Europe are paying dividends, and looking ahead, we see 2 potential major catalysts in this market. First is the European approval of AstraZeneca's PARP inhibitor, which represents a $100 million companion diagnostic market opportunity. The second catalyst is the European launch of Myriad myRisk Hereditary Cancer test, which will occur during the second half of this fiscal year. Net income for the first fiscal quarter was $55 million, compared to $30 million in the same quarter of the prior fiscal year, an increase of 84%. Finally, diluted earnings per share grew 89% to $0.68, compared to $0.37 in the first fiscal quarter of 2013. Given these strong results, I am pleased to increase our financial guidance for fiscal year 2014. We are now projecting revenues of $700 million to $715 million, representing 14% to 17% growth, and earnings per share of $1.92 to $1.97, representing 9% to 12% growth. These results speak to the dedication of the Myriad team, and I'm especially proud of the hard work and diligent efforts of each one of our employees for delivering this excellent performance in the face of new direct competition. The company has aggressively repurchased its stock and has recently exhausted the current board repurchase authorization. To date, we have repurchased $700 million worth of Myriad's stock, representing over 30% of the company. We are committed to this long-standing policy of returning cash to the shareholders. And so I am pleased to announce that the board has approved a new stock buyback authorization of $300 million. This brings our total share repurchase authorizations to $1 billion. We will continue to build on these strong results by executing on our 3 major strategic directives of growing our existing markets, expanding internationally and launching new innovative products. Underlying these strategic directives is our commitment to improving patient health care through the development of transformative molecular diagnostic tests across multiple medical specialties, which address pressing clinical needs. We are also committed to reducing cost in the health care system by providing patients and their physicians with critical information to assess risk of disease, accurately diagnose disease, guide treatment decisions and predict disease recurrence. Myriad is making substantial progress in the field of PARP inhibitors, and collaboration with our pharmaceutical partners are ramping up in terms of activity. Myriad recently expanded its companion diagnostic agreement with AstraZeneca on olaparib, a novel PARP inhibitor. On September 30, the European medicines agency, which is equivalent to our FDA, accepted AstraZeneca's market authorization application for olaparib as a treatment for BRCA positive patients on ovarian cancer. Olaparib has a potential of being the first commercially available PARP inhibitor, and may be on the market in Europe as early as January 2015. Additionally, in October, the FDA granted orphan drug status for olaparib. We also recently announced that BioMarin Pharmaceuticals will use our BRACAnalysis test for their pivotal Phase III clinical study for BMN 673, an orally active PARP inhibitor. The BioMarin PARP inhibitor has exhibited strong potency, possibly due to its ability of trapping PARP onto the DNA, which is lethal to cancer cells. As required by the FDA, Myriad has submitted an Investigational Device Exemption, or IDE, for BRACAnalysis that will allow it to be used as a companion diagnostic to stratify breast cancer patients for BioMarin's Phase III studies. Finally, one of Myriad's other partners, Tesaro, also announced last quarter the initiation of a Phase III clinical trial in ovarian cancer for its orally active PARP inhibitor. As with our other collaborators, Myriad is determining the BRAC status of all patients prior to their enrollment in Tesaro's Phase III clinical study. All in all, Myriad has PARP inhibitor collaborations with 6 pharmaceutical or biotechnology companies. We are excited to play an important role in the development of this novel class of drugs, since we believe PARP inhibitors may represent an exciting new treatment paradigm for ovarian cancer patients. If approved, these therapies have the potential to dramatically expand our core markets as the number of patients that qualify for our tests increases. While we believe the hereditary cancer market will rapidly shift to myRisk, we continue to believe that BRACAnalysis will enjoy strong demand as a companion diagnostic for PARP inhibitors and possibly DNA-damaging agents. During the past 3 years, Myriad has launched 3 novel molecular diagnostic tests. Interestingly, we will duplicate that feat in the first 6 months of this year. In addition to myRisk Hereditary Cancer, which was launched on September 3, and myPlan Lung Cancer, which was launched on October 29, we will be launching myPath Melanoma before the end of the calendar year. As you may remember, myPath Melanoma is a gene expression test that analyzes skin biopsy tissue for the purpose of aiding a dermatopathologist in the accurate diagnosis of melanoma. Each year in the United States, there are approximately 2 million skin biopsies performed specifically for the diagnosis of melanoma. Approximately 14% or 280,000 biopsies are classified as indeterminate. In other words, the dermatopathologist cannot accurately determine whether the cells are benign or malignant. This is critical information since the outcome for patients is poor if melanoma is not caught at an early stage. 5-year survival rates drop from 95% in stage 1 to less than 20% in stage 4. During the quarter, we presented outstanding data from our verification study for myPath Melanoma. In this study, Myriad evaluated 450 skin biopsy samples, including 258 melanomas, representing all major subtypes of the disease. The ability to accurately distinguish melanoma from benign lesions across all subtypes has been a major shortcoming of other assays. Utilizing MyPath, we are able to differentiate melanoma from benign skin lesions with an accuracy rate of greater than 90%. We believe this level of accuracy is remarkable, and rarely seen among molecular diagnostics for cancer. MyPath Melanoma represents a global market of over $800 million annually, and Myriad will have an average selling price of $150 -- sorry, $1,500 for myPath Melanoma. As I mentioned, we recently launched myPlan Lung Cancer, a novel gene expression test designed to assist physicians in predicting the aggressiveness of a patient's lung cancer. Many early-stage lung cancer patients do not see an added benefit from postsurgical chemotherapy, which not only reduces the patient's quality of life, but represents an unnecessary cost burden to the health care system. However, early-stage lung cancer patients may also die of their disease if not treated with chemotherapy. myPlan is the only test on the market today that can accurately predict which early-stage lung cancer patients may benefit from added chemotherapy, thus filling a pressing medical need. In October, at the international Association for the Study of Lung Cancer meeting in Sydney, Australia, we presented data from 2 clinical studies in 1,145 patients with stage 1 or stage 2 lung cancer. Both studies were highly statistically significant in predicting the postsurgical risk of lung cancer death. Lung cancer patients with a high risk myPlan score, indicative of an aggressive form of the disease, had a 5-year disease-specific mortality rate of twice that of patients with a low risk myPlan score. The studies demonstrated that Myriad's myPlan Lung Cancer test is the strongest independent predictor of 5-year survival in early-stage lung cancer patients. As you may remember, Myriad entered into an agreement with Crescendo biosciences several years ago. Crescendo is a molecular diagnostic company focused on autoimmune and inflammatory diseases. Under the agreement, Myriad was granted an exclusive option to acquire Crescendo for a predetermined price based on Crescendo's revenues and growth rate. Crescendo launched their first product, Vectra DA, in 2011 to help guide treatment decisions for patients with rheumatoid arthritis. Vectra DA is the only multi-biomarker blood test on the market that measures disease activity in patients with rheumatoid arthritis. They have also developed a mobile app called myRA that enables patients to regularly track multiple aspects of their disease, and easily share the information with their physicians. Crescendo announced this spring that their Medicare contractor Palmetto established national coverage for their Vectra DA test at a price of $587. So Vectra DA is now covered for all Medicare patients throughout the United States. Additionally, in August, Inc. Magazine ranked Crescendo as the fifth fastest growing private health care company in the United States. Crescendo continues to make excellent progress, and the company received 22,000 patient samples in the quarter ended September 30, 2013. Myriad anticipates making a decision on the possible acquisition of Crescendo during this fiscal year. I think it is evident by the number of clinical studies we have published or presented in the last 6 months, the outstanding data surrounding myRisk, myPlan and myPath and the recent seamless multiple product launches that Myriad has significantly increased its product development capabilities. The decision to focus solely on molecular diagnostics in 2009, followed by meaningful investments in research and development, is now paying dividends. Myriad has developed a significant pipeline of highly validated diagnostic tests that fill critical unmet needs. It is truly an exciting time at Myriad as we are on the cusp of becoming a much more diversified and much larger player in the diagnostic industry. I'm confident in our ability to continue to deliver strong growth, and in the Myriad team's ability to excel. Now it is my pleasure to turn the call over to Mark Capone, who will provide an operational update.

Thanks, Pete. I am pleased to provide a more in-depth look at our operational progress during the first quarter. Before I discuss a detailed breakdown of revenue by market segment, I would like to provide an assessment about the impact of celebrity publicity in the quarter. After performing an analysis of the first quarter, we estimate the additional publicity increased our revenues by approximately $35 million. Factoring out this nonrecurring event, we delivered strong revenue growth of 25% in the quarter due to the execution of our strategic initiatives. I would like to provide a more detailed look at this execution within the Oncology segment. Oncology revenues grew 30% in the first quarter to $108.3 million, compared to $83.4 million in the September quarter last year. Much of this success is directly attributable to our initiatives focused on targeting strategic growth accounts and implementing our protocol integration strategy, while a small benefit was attributable to the increased publicity. Our oncology growth account strategy is focused on the 3,000 oncologists with relatively low BRACAnalysis testing, but high patient volumes. During the quarter, 47% of incremental testing volume came from these physicians, and our sales force call volume to these physician subsets almost doubled. We are encouraged by the early success of this program, and are expanding our efforts to a larger percentage of these customers. The second strategic initiatives in oncology is the expansion of our protocol integration strategy, which is similar to the very successful initiative implemented in the preventive care market. This quarter, we completed 200 protocol integrations in oncology and are on track to complete 800 in fiscal year 2014. In our Women's Health division, we continue to see very strong growth this quarter, with revenues increasing 93% to $84.7 million when compared to the $43.9 million in the same period last year. As anticipated, some of this growth was reflective of the increased demand due to additional publicity. However, our 3-part strategy of protocol integration, broadening the radiology channel and digital marketing also continues to fuel segment growth. We completed 232 protocol integrations in our Women's Health division this quarter, and our goal for our women's health team is to implement 1,200 protocol integrations in fiscal year 2014. We continue to envision this program being a major growth driver this year. In addition, during the first quarter, we increased the size of our sales team focused on the radiology portion of the women's health market. We remain under 10% penetrated in the 3,000 large breast imaging centers in the country, and see a meaningful opportunity to continue selling deeper into this concentrated channel of high-risk women. Our digital marketing efforts continue to produce meaningful growth opportunities. By way of example, our hereditary cancer quiz has now been completed by almost 400,000 individuals. To date, 170,000 women have self-identified as high-risk and are periodically reminded by Myriad to discuss their family history with their physicians. We are continuing a variety of digital marketing programs to increase the awareness amongst the 6 million at-risk women in the United States. I would also like to provide an update on competition in the BRACAnalysis market. We have seen some share loss due to competition, with an estimated revenue loss of approximately $5 million in the first quarter, representing less than 3% market share. In future quarters, we believe this impact may increase modestly, as additional competitors enter the market. However, we are confident the vast majority of physicians and patients will continue to utilize our tests because of the major quality turnaround time and service advantages Myriad has to offer. From a payer perspective, our managed care team is engaging payers to ensure they understand the quality differences between our tests and competitive offerings. Much like what we have seen in the COLARIS market, payers appreciate the importance this testing will have on managing a patient's health care, and have therefore not dictated physician and patient test selections. In addition, we recently completed a pharmacoeconomic study, which demonstrated that our higher-quality test would save payers over $2,600 per patient testing and downstream costs. Consequently, we envision the payer landscape evolving to look very similar to COLARIS where payers contract with multiple providers, but do not disadvantage any individual company. We believe the hereditary cancer testing market is rapidly moving from single-syndrome testing towards a more comprehensive cancer panel. Therefore, I am pleased to provide an update on our myRisk hereditary cancer launch. As a reminder, we launched our early access program for myRisk on September 3 of this year. So far, the feedback on the test has been outstanding, and the workflow in our laboratory has been exceptionally smooth. We have actually seen physicians participating in the early access program increase their testing volumes with myRisk relative to their historical volumes seen with BRACAnalysis and COLARIS. We received over 1,000 myRisk samples in September, and anticipate monthly volumes maintaining these levels during the early access program, which will complete -- be completed by this calendar year. This represents a revenue run rate during our second fiscal quarter of approximately $10 million. Additionally, turnaround times for the myRisk test results have been better than our original goal of less than 3 weeks. Our expanded access program will begin in January, and we are confident that an entire hereditary cancer market will transition to myRisk by the summer of 2015. As you have seen in our recent press releases, we have made several presentations at major medical meetings this fall, supporting the myRisk Hereditary Cancer test. We believe these presentations have created an exceptionally strong clinical argument for the use of broad-based panel testing. At the Collaborative Group of the Americas Inherited Colorectal Cancer meeting in October, we presented data on about 1,500 patients, which show that myRisk can detect 60% more deleterious mutations in patients with a family history of colon cancer when compared to the COLARIS test. Putting this in context, BART was able to detect 7% more high-risk patients, and was quickly added to medical guidelines and reimbursed by payers. When patients are seeking answers to cancers that have devastated generations of family members, only the most sensitive tests will be acceptable. We also plan to present our data on the increased sensitivity of myRisk versus BRACAnalysis for breast and ovarian cancer patients at the San Antonio Breast Cancer symposium in December. Additionally, we have published several studies showing the overlap of patients that meet criteria for both hereditary breast and ovarian cancer and hereditary colon cancer. One recently presented study showed that almost 1/3 of patients with a family history for colon cancer also met medical guideline criteria for hereditary breast and ovarian cancer testing. Family histories for patients tend to have multiple cancers yet with traditional single-syndrome tests, physicians are forced to compromise by selecting a single gene. By providing a more comprehensive test, patients and physicians will no longer be left with residual concerns about cancer risks. Another study presented at the American Society of Human Genetics meeting demonstrated that myRisk correctly identified 15,877 of the 15,878 known BRCA mutations, representing an accuracy of 99.99%. Our laboratory has now performed over 8,000 hereditary cancer tests, and is characterizing the variants for all 25 genes in myRisk through our myVision Variant Classification algorithms. This will allow Myriad to rapidly reduce the VUS rate on the 25 genes in the myRisk panel. While classifying all of the mutations in these genes will be a major undertaking, we continue to believe that our extensive capabilities in informatics will further differentiate the quality of our tests as the market transitions to panel testing. Lastly, I would like to discuss the results within our urology business unit where we continue to make excellent progress with PROLARIS. First, our sample volumes increased meaningfully in the first quarter, with a 20% sequential increase in the number of ordering physicians. Second, we are in the process of submitting the final clinical utility package to Medicare. The data exceeded the endpoints for the study, and demonstrate physicians' willingness to modify their treatment decisions based upon the PROLARIS score. Based on the interim data analysis from the study, physicians changed their treatment decisions 65% of the time when using PROLARIS. 39% of the time, physicians chose a lower level of intervention, while 26% of the time, they increase their medical management. This is the highest level of clinical utility seen in any cancer prognostic test, and should prove very persuasive to payers. Additionally, in survey data, 89% of urologists said the PROLARIS score had a moderate to very high impact on treatment decisions. Finally, we continue to believe that we are on track to obtain Medicare reimbursement in the first half of calendar year 2014. Upon obtaining Medicare coverage, we expect revenues to ramp meaningfully for this product. As a reminder, our financial guidance assumes no major impact from PROLARIS in fiscal year 2014. Overall, we are very pleased with the extremely strong start to fiscal year 2014. We have seen the rapid growth of our legacy hereditary cancer business, the launch of myRisk and myPlan Lung Cancer, outstanding clinical utility data to support reimbursement for PROLARIS, and groundbreaking data for the myPath Melanoma diagnostic test. These milestones provide exciting opportunities for Myriad to continue as the pioneer in personalized medicine, and I am confident in our team's ability to execute and deliver exceptional results. With that, I would like to turn the call over to Jim to provide a financial synopsis and detailed look at guidance.

Thanks, Mark. As Pete mentioned, first quarter revenues were $202.5 million, representing 52% year-over-year growth. Clearly, some of this success is tied to recent celebrity publicity, which has increased awareness around BRCA testing. In an effort to provide a better assessment of our pro forma growth as a company, we believe without celebrity publicity, our first quarter revenues would have been approximately $167 million, a 25% increase over the same quarter last year. As Mark mentioned, we also believe competition negatively impacted our results by approximately $5 million in the first quarter, representing less than 3% market share loss. It should also be noted that our core markets are growing at a rate substantially greater than the current impact from competition. First quarter revenue from molecular diagnostics was $193 million, up 52% year-over-year. Companion diagnostic revenues were $9.5 million, up 54% compared to the same quarter in fiscal 2013. Looking at growth by product, BRACAnalysis revenue was $149.6 million, an increase of 42% year-over-year. BART revenue in the quarter was $24.8 million, and was up 225% year-over-year. The vast majority of our BRACAnalysis test had an accompanying BART test this quarter. COLARIS demonstrated continued growth in the first quarter, with revenues increasing 19% year-over-year to $14.3 million. Other revenue this quarter came in at $4.3 million, which was up 66% from the same quarter in fiscal year 2013. The increase in our revenue was primarily -- in other revenue was primarily attributable to myRisk and Polaris. The oncology market segment experienced a 30% growth in patient sample volumes, and while it is a more mature market, we are still seeing continued growth opportunities, especially as we expand indications with myRisk over the coming years. The women's health market is less 10% penetrated, and increased 93% year-over-year. This market segment is still largely untapped, and we believe the women's health market may benefit from other companies' entering the market, and encouraging physicians and patients to learn about their hereditary cancer risk. As you saw this quarter, we anticipate that this market expansion should exceed any market share losses resulting from competition. Moving down the income statement. Gross margins this quarter were 87.4%, and increased 40 basis points year-over-year. Our expectation is that as myRisk becomes a larger component of revenue, you will see a modest reduction in gross margins for the full fiscal year. Research and development spending was $16.8 million or 8.3% of revenue, compared to 8.5% during the prior year period. This R&D spending should continue to approach our goal of 9% of revenue for the full year. Sales, general and administrative expenses were 38.2% of revenue compared to 42.1% of revenue in the same period last year, which provided operation -- operating leverage for our first fiscal quarter. We continue to approximate SG&A expense of 41% for the full year as we continue to invest in sales and marketing to support our 3 new product launches this year. Based primarily on our lower SG&A spend as a percentage of revenue in the first quarter, operating margins grew year-over-year by 450 basis points to 40.9% of revenue. Total operating income increased 71% year-over-year to $82.9 million. Our tax rate in the first quarter came in at 34%. This rate is reflective of a onetime tax benefit associated with divesting of our research subsidiary that we acquired as part of the Myriad RBM acquisition. Based upon the divestiture, we were able to garner a onetime tax benefit of approximately $6 million. For the remainder of the year, we continue to believe our effective tax rate will be approximately 40%. Net income for the first quarter came in at $55.5 million and grew 84% year-over-year when compared to net income of $30.1 million in the September quarter last year. This translates to a fully diluted earnings per share in the first quarter of $0.68, which grew 89% on a year-over-year basis. During the first quarter, we repurchased a record amount of stock with total purchases of $102.3 million or approximately 3.8 million shares. Fully diluted shares outstanding for the first quarter were 81.8 million shares. Subsequent to the end of the quarter, we have purchased an additional $51 million of our stock and have now exhausted our previous $200 million share repurchase authorization. We are pleased to announce that our board has approved an additional $300 million share repurchase authorization. We have historically repurchased stock at price thresholds which we believe are not reflective of the true value of the company, and we will continue to aggressively repurchase shares in these instances looking forward. In aggregate, the company has now repurchased $700 million worth of our stock or a little over 30% of the shares outstanding since the inception of the program. Net cash from operating activities was $90 million during this first fiscal quarter compared to $51 million during the same period last year. Even with the significant share repurchase activity during the quarter, we still ended the quarter with $515.6 million in cash and cash equivalents, or approximately $6.30 in cash for fully diluted share. This quarter, we saw a substantial improvement in cash collections. As we have moved beyond the transition to the new molecular pathology codes, we have begun receiving more timely reimbursement from payers. Our receivable balance declined by $8.1 million sequentially despite the 16% sequential growth in revenue, and our days sales outstanding declined to approximately 39 days. Now, I would like to spend some time going through our financial guidance. Myriad has a long track record of exceeding expectations. Given the evolving competitive landscape, we feel it is prudent to be exceptionally conservative this fiscal year in terms of our approach to guidance. However, we still feel confident in raising our financial guidance at this time. We are increasing our fiscal year revenue guidance to $700 million to $715 million, representing 14% to 17% growth year-over-year. On the bottom line, we are increasing our EPS guidance to $1.92 to $1.97, representing 9% to 12% growth over fiscal year 2013. We expect to see a small continued impact of celebrity publicity extend into the second quarter. Consequently, the impact on revenue will be substantially smaller than was seen in the first quarter and more in line with levels seen in the fourth fiscal quarter of last year. As we look beyond the second quarter this fiscal year, we believe the ongoing impact of celebrity publicity will be insignificant. From a competitive standpoint, we expect the $5 million negative impact we saw in the first quarter will increase modestly going forward. But we believe Myriad will continue to dominate our core hereditary cancer testing market. Given increased competition and a declining impact from celebrity publicity, we believe that quarterly revenues in the remainder of the fiscal year will be relatively flattish on a sequential basis. As a reminder, our guidance does not take into account future stock repurchase activity. With that, I will now turn the call back over to Scott for Q&A.

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 Tycho Peterson. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Maybe, Jim, segueing off your last comments on guidance, can you maybe just talk about your assumptions on pricing and share for the remainder of the year, and what's baked into the revised guidance? And is the fact that you beat by 22 [ph] and only increased guidance by $0.03, are there other factors that are kind of weighing on that?

Thank you, Tycho. Let me start off with the answer to the question and I'll ask Jim to expand on it as well. I think when you look at our guidance, as Jim mentioned, the company historically has given very conservative guidance. I think the company have stated on prior earnings calls that we feel very comfortable, being able to differentiate the quality of the products that the company offers and justifying a premium price. So our guidance does not include a significant price erosion. We did see a less than 3% market share loss during this quarter. As we've mentioned on the call, we think that will increase modestly, and that was certainly factored into the guidance. And then, I think you have to take into account the fact that the publicity impact we saw this quarter is not recurring, and we're not going to see much of that impact going forward. So all of those factors were taken into account in the guidance. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then, just a follow-up on myRisk, can you maybe just give a little more color on payer discussions? How that's progressing, and maybe any milestones we should be paying attention to there?

Yes. Thanks, Tycho. We're obviously in the early access program with myRisk, and so that also means in the early stages of any discussions with payers. We just released the pivotal data on the colon cancer patients, as you know in October, have showed a 60% increase in the number of positive patients that were identified by using myRisk relative to COLARIS. The data everybody is probably even more interested in is the breast -- hereditary breast and ovarian cancer data. That data will be out next month at the San Antonio Breast Symposium. Historically, we've said we expect that to be at least a 30% increase in the number of positive patients. And I think as that data becomes available, then we will continue to have more lengthy discussions with payers about the increased sensitivity associated with myRisk. The discussions we've had with payers as we mentioned, they've been sensitized to how important this is with BART. BART showed a 7% increase in sensitivity and was very quickly adopted by physicians and by payers because that additional sensitivity is so important when you're trying to make sure that a patient gets the best answer to, as Pete described, an incredibly pressing question. And so when you talk about it, 60% increase for colon cancer patients, at least a 30% increase for breast cancer patients. This is -- those are very significant, very important numbers to payers. And from a financial perspective, it's very important for payers to adequately identify those patients that are at high risk because those are patients where we can prevent very significant downstream costs if we can prevent those cancers from happening. So, I think the payer discussions have been very productive, and we'll look forward to even more extensive discussions as the hereditary breast and ovarian cancer data comes out next month.

And our next question will be coming from the line of Sung Ji Nam with Cantor. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: Was wondering if you could provide more color around your guidance on the companion diagnostic portion of your revenue? I was wondering also is that strength this quarter, is it largely the PARP inhibitor partnerships?

We don't -- in our guidance break down companion diagnostic revenues from molecular diagnostic revenues, obviously, we did see a very nice increase in both of those 2 revenue categories. Most of the PARP inhibitor collaboration revenue is run through the Myriad Genetic Laboratories facility here in Salt Lake. So that actually does appear as molecular diagnostic revenues. So all of the growth in the companion diagnostic revenues was through our Austin lab, Myriad RBM and represented companion diagnostic collaborations with major pharmaceutical companies but focused more on protein analysis than the PARP inhibitor collaborations which are DNA sequencing analysis.

And our next question will be coming from the line of Bill Quirk with Piper Jaffray.

First off, can you elaborate a little bit around the pacing of your payer talks for BRCA, and obviously, you guys -- Mark talks about a little bit on in terms of trying to get them to understand the differences between yourself and others. But is there any maybe tangible evidence that we can point to that indeed, you're having some success with that differentiation strategy?

Sure. Yes, as I mentioned that our managed care team is proactively talking to payers to make sure that they fully appreciate the differences in quality between tests. As I often describe, there's really 2 different departments within a payer organization. One is on the clinical side and they are expressly concerned with quality of tests, the accuracy of tests and making sure their providers are adequately serviced. The other side is on a procurement side, where in the event that the clinical side were to determine that tests were identical they then turned that over to the procurement side to do whatever contracting that they might feel is appropriate. Our discussions continue to largely be with the clinical side of payers that are trying to understand the differences between quality. They've certainly been very receptive to those quality discussions and have seen ample examples where there have been differences in laboratory quality. And so they are quite keen on understanding those differences. As Pete mentioned, our guidance going forward does not include any changes to reimbursement and I think that's probably the best indicator of the nature of how those discussions have -- had gone to date.

Perfect. And then if I can sneak one other one in here, just in terms of myRisk Hereditary Cancer guides, when you launch this as a, I guess, in the broader launch, once we get out of this early access program, could you talk about what your expected VUS rates are, perhaps, year 1 and then maybe give us an idea of kind of year 2, year 3?

Yes. As you correctly pointed out, we're in that early access phase so -- through the end of September we had run 1,000 samples in the commercial program. I also mentioned that in January, we plan to go to an expanded access phase, which will significantly increase the number of test that we run. It's a little early to probably comment on exactly what the VUS rates will be per gene. We have commented that for -- and published for the major genes that we have our legacy genes, which include all our BRACAnalysis genes and all our COLARIS genes, that those genes are at 2% or less. You would expect some of the newer genes, the 14 newer genes, to start out with higher VUS rates but I think with our -- my variant classification program, you will quickly be able to see us reduce those -- those VUS rates on those newer genes down to significantly lower levels as we take advantage of the significant volumes that we will be running relative to other laboratories. So it's a little early to comment on exactly what we might see but I'm confident that we will, as we have with other genes, reduce those -- any VUSes that we see significantly rather quickly.

Our next question will be coming from the line of Doug Schenkel with Cowen and Company.

I have a, I guess, what's really 3 or 4-part question. First, do you still believe that the benefit in Q4 was only $7 million to $9 million given that $35 million was estimated to be the benefit in Q2 associated with celebrity awareness driven volumes? The second part is how did you get this surprised by the upside in this quarter when you provide guidance for Q1 on August 13, which was halfway through the quarter? This is really just a pacing and a visibility question. The third part is can you describe celebrity awareness driven volumes over the past 5, 6 weeks of this quarter, especially given you indicated your guidance assumes that there's not going to be celebrity awareness benefits moving forward? And the final part is why aren't you increasing full year guidance by at least the magnitude of the quarterly beat, especially given what you described in terms of the myRisk revenue run rate relative to your original guidance? Did you make changes in assumptions for pricing or share loss?

Yes, Doug. We are confident in the amount that we identified for celebrity publicity last quarter. As you recall, that -- the event took place near the end of the -- or mid-May, and so by the time people were able to get into their physicians, have their blood drawn, get it to Myriad, get the results turned around and back to them, the real impact was seen in this quarter. So we're comfortable with what we saw last quarter versus where we are today. We set out in our original guidance knowing that there would be an impact in the first quarter. I think if you go back, some people were concerned that Myriad might be a little aggressive in our original guidance and giving ourselves hurdles that might be difficult to overcome. I think we were able to show with this first quarter's result that we are confident in the guidance that we put out, and that we do want to make sure that we give guidance that is achievable by the company with our best vision into what's going to happen in the future.

And let me add, Doug, that the company does not give quarterly guidance. So we did not give a guidance for this first fiscal quarter. We give only annual guidance. As we look at the annual guidance, we historically have been somewhat conservative. We do not want to disappoint the Street. As we look at this year, factoring out the celebrity publicity, this quarter would've been around $167 million. If you look at the high end of our guidance, it implies an average quarterly revenue run rate of about $171 million. And I think that's appropriately conservative in light of some of the uncertainties surrounding direct competition. But I think you can read into our guidance that our core business continues to perform extremely well and that we have a lot of confidence in the company going forward this year, and we're actually able to raise guidance but obviously, since the publicity benefit is a nonrecurring event, you do have to factor out that $35 million when you think of a run rate going forward.

And our next question will be coming from the line of Isaac Ro with Goldman Sachs.

I wanted to ask a question about myRisk in terms of sort of what your plan is to convert some of the more casual primary care docs that you currently work with for BRAC to that test, and just wondering, how you expect to convert them in cases where -- in some cases, it would seem that doctors may not want all the data that they're going to get?

Yes. As we mentioned, we're in the early access program. It's been incredibly well received by physicians, overprescribed as far as numbers of physicians that wanted to participate, and half of those physicians were in the women's health or preventive care market. I think those physicians in particular who see it as their role to prevent the first cancer from happening as opposed to oncology segment where you're already dealing with the patient that has been diagnosed. It's actually not difficult to convince them that they want the most sensitive test that can avoid any possibility of a patient potentially ending up with a preventable cancer, and so they have been very receptive to using this most sensitive test. As we move into the expanded access, we will obviously broaden that out to a larger subset of the women's health physicians. Again, we expect that to be oversubscribed in the numbers of physicians that would like to participate from the preventive care side. What we see with these physicians -- and you may as well if you go out and talk to them, initially when we do micro research, we will generally hear physicians talk about things such as, you mentioned, Isaac, which is what is the information that's going to be presented, how will it be presented, how do I communicate this with patients, and those are certainly questions they have. When we present to them, 2 pieces of information: One is the increased sensitivity associated with the test and second, an example of the report that will come back with the test result. When we show them both of those pieces, we see over 90% of OB/GYNs that are willing to immediately switch to the myRisk test. And so a lot of this is making sure that the information that's presented to the physicians are something they're comfortable with, their patients would be comfortable with. And we have done many, many hours of market research to make sure that report adequately meet the needs of the physician and patients. And the feedback we have on the 1,000 tests we've done to date and the reports that have been generated has really been outstanding.

Yes, keep in the back of your mind, Isaac, that the myRisk Hereditary Cancer Panel is based on only clinically actionable genes. So unlike possibly other panels in the market, we focus on clinical actionable genes where there is good published information and literature specifically outlining actions that the physician could take to better manage the patient's health care. And as Mark pointed out, rather than having the physician see a mutation on the gene, and then wonder what to do about it or maybe have to go online and search out those publications, we actually provide all of that information in the reports. So the physician knows exactly what that means if there's a mutation in a particular gene and what current medical guidelines are recommending in terms of how you treat those patients. So as Mark mentioned, over 90% of the physicians have embraced this after seeing the report. And it's really not a situation of a physician not wanting to know that information. They very much want that information so that they can help their patients.

Sure, okay. That's helpful. And then, just switching gears back to the guidance and the competitive dynamic, just trying to understand how you guys are handicapping the expectations around competition for the balance of the fiscal year? And I noted you said that the market seems to be growing faster than the pace of new entrants are having an effect. And I don't want to misrepresent but, effectively, what I'm trying to figure out is how long do you think the market will continue to expand at that pace? Because, presumably, that's got a finite life span to it. The products in the market was already relatively well-penetrated before the entrance of new players, so as the market kind of stops this sort of short-term expansion, how do you think that will play out relative to the impact of new competition?

A very good question. But I think your assumption is incorrect. In the primary care market, we're only about 10% penetrant so it's not at all a mature or heavily pretreated market. And if Myriad is the only company out there offering hereditary cancer testing then we're a relatively small voice trying to educate physicians and create awareness among patients. One of the advantages of competition is now you have other companies also talking about the importance of a patient understanding their hereditary cancer risk. And we do think that's going to continue to grow the markets faster than any loss of market share due to that competition. So I think Myriad believes that the onset of competition is a net-net benefit to the company. We certainly believe we've seen that in this quarter. That's certainly taken into account in our guidance for this fiscal year and I would argue that, that's not going to wane. These are relatively large markets that are underpenetrated and there's a lot of room for future growth and expansion in our markets.

And our next question will be coming from the line of Amanda Murphy with William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: So I just had a quick question on the share loss that you guys talked about. Can you just provide some more qualitative information about where you think that loss came from specifically? And then in terms of future trends there, where you think the incremental loss might come from.

Yes. As we mentioned, it was less than 3% share loss in the quarter. We make that largely confined to genetics and the academic genetic segment. That's a minority of our oncology market, which as you can see in this quarter, oncology now is about 56% of revenue, the woman's health market was 44% of revenue. So the genetics is a smaller part of the Oncology segment and it looks like that loss was generally confined to that segment. We know that the laboratories that have launched have all expressed that, that is the specific segment that they would like to penetrate. And so, as we contemplated guidance for the remainder of this fiscal year and our comments that we would expect some moderate increase to that share loss, it was with the understanding of the size of that market what we may have seen in the COLARIS market, and how we think that might translate for BRACAnalysis for the remainder of this year. Amanda Murphy - William Blair & Company L.L.C., Research Division: So in terms of that, then, just thinking about the 3% number, is there a number we can think about in terms of where that might max out?

No, I don't think we're prepared to talk about any more granularity on that. I think we can say that we obviously took that into consideration as we provided guidance and our thoughts as to what that might look like for the rest of the year. But I don't think that's -- I don't think we're prepared to provide a more detailed look at that number.

And our final question for today will be coming from the line of Derik De Bruin with Bank of America.

So I have 2 Europe related questions. Could -- according to -- yes, you said your European diagnostic business was up 125%. That, by my model, that would imply it could potentially have been down sequentially. Could you just give me a little color on what the European or x U.S. number was for the diagnostics business? And also, along those lines, what are sort of, if asked if you're expecting for answers that are kind of PARP inhibitor, are there milestones associated with that approval? Could you just talk about how sort of the economics works with the PARP?

Thank you, Derik. You're correct. The international revenues were up 125% year-over-year. They were also up sequentially. European revenues are still small, so we don't break them out specifically. The company policy is that until a revenue segment achieves at least 5% of revenues, we don't break them out specifically. But ever since we set up the labs in Europe a little over 1.5 years ago, we've seen a steady increase and improvement in revenue so we've not seen any sequentially decline. And again, we're very excited about the potential in Europe not only because of the traction we're currently seeing with the 125% revenue growth but the possibility of PARP inhibitors and the launch of myRisk in Europe, both of which have been really anticipated by potential customers. With regard to PARP inhibitors, our focus as a diagnostic company is providing the clinical data in supporting the pharmaceutical companies in terms of getting their drug approved but based on a companion diagnostic like BRACAnalysis that would receive FDA approval along with the drug. And then providing that information so the patients can benefit from a drug that there's a good likelihood they'll respond. We do not ask for any royalties from the partner company nor do they get royalties from us. We do not ask for any milestone payments. The PARP inhibitor opportunity for ovarian cancer, and remember, ovarian cancer is relatively small in terms of the number of patients who contract that particular cancer. In Europe, it's $100 million annually and that is the companion diagnostic, not the drug market opportunity. So these are very large market opportunities not only in Europe but here in the United States. And we're very excited about that opportunity and don't look for milestones or bile duct type arrangements with our collaborations.

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.

And 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.