Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics Second Quarter 2014 Financial Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, February 4th 2014. I would now like to turn the call over to Scott Gleason, VP, Investor Relations. Please go ahead, sir.

Thank you, (Petra). Good afternoon everyone, and welcome to Myriad Genetics second quarter fiscal year 2014 earnings call. My name is Scott Gleason, Vice President of Investor Relations here at Myriad Genetics, Inc. 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've not had a chance to review the earnings release, it can be found in the Investor Relations 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 Genetic 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 its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. With that, I'd now like to turn the call over to Pete.

Thank you, Scott. To begin the call, I am pleased to announce that Myriad will acquire Crescendo Bioscience for $270 million. Crescendo is a global leader in the autoimmune disease diagnostics area, with a very exciting rheumatoid arthritis product that accurately measures disease activity in RA patients. We are fortunate to have Bill Hagstrom, President and CEO of Crescendo join us this afternoon. Bill will be providing an overview of Crescendo later on in the call. I am also pleased to announce that Myriad delivered another exceptional quarter. Second quarter revenues rose to a record of $204 million, growing 37% year-over-year. All of our product groups experienced solid growth rates this quarter, reflecting continued strong demand from our physician and patient customers. Net income was $50 million, an increase of 44% year-over-year, which resulted in earnings per share growth of 57% to $0.66 compared to $0.42 in the same period of last year. Given these solid results, we are once again raising our financial guidance for fiscal year 2014. We are now projecting revenues of $740 million to $750 million, representing 21% to 22% growth, and earnings per share of $2.09 to $2.12, representing 18% to 20% growth. This guidance incorporates the impact of the Crescendo Bioscience acquisition, which we anticipate will close by the end of this fiscal year. Jim will provide more details surrounding our guidance later on in the call. Today in my prepared remarks, I would like to highlight our strategic goals of continuing to deliver excellent performance and growing our business in the future. The first component of our strategy is well underway. As we are in the progress of transitioning and expanding our product portfolio to ensure that we maintain our current level of leadership position in the hereditary cancer testing market. The second…

Thanks, Pete. Let me start by saying that on behalf of the entire Crescendo team, we are all very excited to join an organization with the reputation and track record of success that Myriad brings to the table. I really believe that the combined strength of Myriad's operational expertise and Crescendo's outstanding products will bring our business to new heights over the next few years. As Pete mentioned, Crescendo is a molecular diagnostics company focused solely on autoimmune and inflammatory diseases. Over 23 million Americans suffer from some form of autoimmune disease. And this leads to total healthcare expenditures of over $120 billion, compared to $70 billion in direct healthcare costs for cancer. Autoimmune disorders tend to be lifelong chronic debilitating conditions that require decades of intervention and monitoring. We also tend to be poorly characterized with subjective or qualitative diagnostic tools, which can lead to significant variation in care and outcomes. We believe this is a field of medicine that is highly underappreciated and right from molecular diagnostics to play a leading role in providing risk assessment, diagnosing disease, stratifying disease, severity, guiding therapy and associated response as well as tracking ongoing disease actually towards the ultimate goal of remission. Our first commercial product, Vectra DA, is a great example of how molecular diagnostics can aid patient care in this arena. Vectra DA is a quantitative objective, protein-based test to routinely assess disease activity and provide rheumatologists with timely insights in how to more effectively treat their patients. Prior to Crescendo, the standard of care for assessing disease activity and progression as well as guiding therapy for RA patients was the DAS28 composite index, whereby rheumatologists would make a subjective physical assessment of disease activity by squeezing and evaluating 28 joints throughout the body. In contrast, Vectra DA directly…

Thanks, Bill. I am pleased to provide a more in-depth look at our operational performance. As Pete mentioned, Myriad had an exceptional second quarter. Our oncology division posted total revenues of $101.6 million representing 12% year-over-year growth. Our Women's Health division delivered revenues of $94.6 million representing an impressive 90% year-over-year growth. The Women's Health segment accounted for almost half of our molecular diagnostic revenues in the fiscal second quarter and continues to be our highest growth segment. We see ample room for additional growth in the Women's Health channel since there is less than 10% penetrated and our sales force currently calls in only half of the 35,000 practicing OB-GYNs in the United States. We are making exceptional progress across the full spectrum of our new commercial products. And I would like to provide some highlights starting with the myRisk hereditary cancer test. As Pete mentioned, we got off to a great start this quarter with myRisk test generating almost $12 million in revenue, which is about 6% of total revenues. The feedback we have received from our early access launch has been very satisfying. Almost universally, physicians find myRisk easier to order given that they no longer have to prioritize and compromise on which genes to test. In addition, the comprehensive test report based upon genetic test results and family history provides an easy summary of appropriate medical management recommendations that physicians find extremely helpful. Additionally, physicians understand and appreciate the critical clinical value that myRisk provides for their patients. We presented data this fall demonstrating that myRisk increased the number of identified high risk patients by over 50% for hereditary breast and colon cancer patients. Physicians and patients are reassured that every possible hereditary cancer gene has been evaluated, thereby increasing the value of a negative test…

Thanks, Mark. First, I will provide a breakout of our financial performance in the quarter followed by a more detailed look at Crescendo Bioscience's financials and concluding with our thoughts surrounding our race in the fiscal year 2014 financial guidance. The second quarter was another record quarter for Myriad, with total revenues of $204.1 million, growing 37% year-over-year. This represents our 10th consecutive quarter where top line growth has exceeded 20%. Molecular diagnostic revenue in the first quarter or in same quarter was a $196.2 million, up 39% year-over-year. As Mark discussed, oncology revenues increased 12% to a $101.6 million and represented 52% of molecular diagnostic revenues. Women's Health revenues increased 90% to $94.6 million and represented 48% of our diagnostic revenue. Women's Health revenues benefited from celebrity publicity early on in the quarter. However, the benefit was indiscernible by December. Our best estimate is that celebrity publicity contributed between $15 million to $20 million to our revenues this quarter. And excluding this impact, the Women's Health revenue growth would have been approximately 35% year-over-year. Company diagnostic revenues in the second quarter were $7.9 million and represented 4% of our total revenue. BRACAnalysis revenue in the quarter was $141.2 million, a 28% compared to the same quarter in the prior year. BART revenue was $24.7 million, up 57% year-over-year. And almost all BRACAnalysis tests now have a corresponding BART test. COLARIS and COLARIS AP revenue increased 29% compared to the fiscal second quarter of 2013 to $15.6 million. We are continuing to capture market share in the hereditary colon cancer market, given the quality advantages of our laboratory. myRisk revenue was a $11.5 million representing approximately 6% of our total sales during the first full quarter of that early-access March. We are very pleased with the uptake of myRisk to-date.…

Thank you, Jim. In order to ensure broad participation in today's Q&A session, we are asking participants to please ask only one question and then jump back into the queue. Operator, we are now ready for the Q&A portion of our call.

Thank you. (Operator Instructions) Our first question comes from the line of Bill Quirk with Piper Jaffray. Please proceed with your question.

Great, thanks. Good afternoon, everybody. First question, I don't think there is any doubt that Crescendo is an extremely attractive asset. It obviously, as you alluded to, does take you down a new sales channel. So I was hoping if you could elaborate a little bit about managing this, and then also should we think about whether or not this is trying to send us a message regarding the base business? And then I guess third part of one question here is just what happens to the Crescendo team, will Bill stay on to help lead that group?

Thank you, Bill. We are very excited about the opportunity to combine with Crescendo. And as I mentioned on my remarks, Bill Hagstrom has put together an outstanding team. As we have done with Myriad RBM, Crescendo will maintain it's identity . They will still be called Crescendo Bioscience, but it will be noted that they are a wholly owned subsidiary of Myriad Genetics. Bill will remain as the President of that wholly owned subsidiary, and as with Myriad RBM in Austin, they will operate relatively independently of Myriad. This is a different sales channel, and while we can provide synergies in the area of customer service, managed care, product development, it is a totally different sales channel, and we will rely on Bill and his team to grow that -- not only rheumatoid arthritis, but complete autoimmune disease market. So they will remain as part of Myriad, a very integral part of the Myriad team, and we don't anticipate really any significant change in the operations within Crescendo Bioscience. And Bill, do you want to elaborate on anything beyond that?

Thanks for the question, Bill. Yes, we've got an exceptional team and a great group of resources have come around this cause of building a global autoimmune franchise. And we look forward to continue to see that team thrive and prosper within the Myriad organization. We think that the structure that Pete has elaborated upon allows us to do that, as well as allowing us to further expand our commercial infrastructure, look at product pipeline, and accessing other resources that will be helpful to accelerate our growth.

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

Hi, thanks. So I had a question about the private payer side. So it's been a couple of months since the whole Medicare cut happened, at least presumably for 2014. So, could you just talk a little bit more about what kind of conversations you've had with the private side both in terms of the BRCA1 and 2 tests, and And then also in terms of the myRisk panel, I'm assuming you are still billing that as a BRCA test, but just curious about conversations with them, longer term around myRisk. Thanks.

Thanks, Amanda. As I mentioned in my prepared remarks, we've now had almost eight months of competition, so we've had discussions with private payers throughout that entire time. And up till now, we've had discussions with private payers that represent about 75% of our revenues. The discussions post the posting by CMS have not been very different from those that occurred before. Generally, they have been mostly focused on understanding what the quality differences are between these tests. There is broad recognition that they are not the same tests, and they really would like to understand what some of those differences are when we talk about the quality differences, when we talk about the myVision program, we talk about how much we can save them in downstream costs by more accurate test. They have been very receptive to that. And as a consequence as I mentioned, we haven't seen any material changes in either network status or in the average selling price in our private pay segment. Specifically as it relates to myRisk, we have just as I mentioned started to begin to have conversations about myRisk. It was really only on as we provided some of the clinical data, which we just rolled out to be definitive data on the breast cancer side in December. And so, as a result of that, we have now begun to start having conversations to expose them to that data and to some of the advantages of the myRisk panel, and so early stages in conversations, they are very interested. All of them interestingly enough have examples where they have paid $10,000, $15,000 on the same patient because they have been subjected to a la carte testing for a variety of genes. And so, as I hedge against what they know their systems can't catch, they are all very interested in that and do understand that there is increased sensitivity for essentially the same price as single gene, single syndrome testing. It can be very favorable to their health economics, so I think early conversations have gone well, but there is still a lot of conversations that will continue.

Our next question comes from the line of Drew Jones with Stephens. Please proceed with your question.

Thanks, good afternoon guys. A lot of chatter in the investment community just around doctor surveys suggesting major share loss for you guys on the BRACAnalysis side, but if we look at the competitive lab launches, the high number of competitive lab launches we saw in 2013 combined with these results; that clearly doesn't seem to be the case. Can you walk us through where is the disconnect between conventional wisdom and what you guys are seeing on the ground, and just really any change in market dynamics to speak of over the past six months?

Yeah, thanks for the question. Obviously we've glanced at some of those surveys. What I can say is first of all we see about 800 physicians a day and have had pretty extensive conversations with those physicians. So between the feedbacks we get from the field, between our own market research surveys, which are rather robust we feel like we have got a pretty good handle on exactly what our physicians are saying about our various different competitors. I think what continues to be the most important thing for physicians and for patients is to ensure that they have the most accurate test; above all, that's the most important. And they appreciate that Myriad's experience or myVariant Classification program and the very high accuracy that we perform, the sequencing will provide them the most accurate test. And so I think what we've seen, physicians are consistently providing that type of feedback to us. As I noted in my comments that we only saw a modest incremental share loss in the second quarter, it was isolated to the genetics portion of our oncology business, which represents about 15% of our total revenue. So it really depends as you well know, on exactly what questions were asked to what physicians, when you do a market research survey to the extent that those surveys are focused on the genetics segment. I think you would get a very different picture than a word at a much broader survey. The other thing that's important to know for surveys are that as I mentioned we only call on about half of the OB-GYNs in this market place. And so we are surveys targeted or at to physicians that have had very little experience with BRACAnalysis I think you would get different answers than you would from those that have more significant experience with Myriad. So I think we have a pretty good handle on what our customers are saying and we'll continue to monitor that very closely.

And let me just add that with 90% revenue growth this past quarter in the Women's Health market, I'm hard-pressed to find significant market share loss.

Our next question comes from the line Sung Ji Nam with Cantor. Please proceed with your question.

Thanks for taking my questions. So I was wondering if I may ask another question to Bill. You talked about some competitive advantages of Vectra DA, and including novel informatics tool as well as first-to-market. Can you maybe talk about how important is the database in terms of providing a better product for the customers as a potential competitive advantage, as well as in terms of opportunities for companion diagnostic development? Thank you so much.

Sure, thanks for the question. The competitive advantages for Vectra DA can be created along several fronts. First, when you look at the uses of the product, they range from baselining a patient upon initial diagnosis to look at the severity of disease. Second, look at how do you baseline a patient going on to initial therapy such as lower cost (DMARDs). We would look at the response to those (DMARDs) as well as the potential to go on to more advanced biological therapy. One of the key insights one would like to know before going on to a biologic is; what's the potential for radiographic progression because only a biologic provides radio protective benefit. That's something that Vectra DA can demonstrate to a physician. We can also show rapidly once you start a biologic, who is responding or who is not responding to that drug. Up to 40% of patients fail initial TNF therapy and need to be cycle bound to another drug. Our test can also better parse out or separate the effects of confounders and comorbidities like fibromyalgia, which overlapped 20% to 25% with RA patients and we don't want to undertreat or overtreat based on fibro versus the RA effect. Our test can better tell who is in remission versus who has active and smoldering disease. So the test with studies, we've now done over 20 studies and the data that we produced is very compelling to physicians as they grapple with decisions of various notes and the disease process. VectraView is a very novel capability that we have that allows a physician to see for all the patients in their practice, what's the relative level of disease activity. In our market, treat to target is a guideline, which says that for every patient, the goal should be remission. And if you have patients that are not in remission, your objective should be taking action to bringing the disease actively down lower towards remission. VectraView can allow you to stratify to look at intensification of interventions for your highs to bring them to moderates or moderates to low and so it goes. So that's a unique and proprietary tool cumulative data. Last point along those lines is that each doc has the ability to look at a relative frequency histogram of their patient's disease activity curve, and compare and contrast it to national data. So, these are all unique capabilities along with the MyRA tool that I mentioned, allows patients to track and report up to their physician.

And let me just add to that, that there is no competitive markets of Vectra DA, competitive product of Vectra DA on the market. So, Bill has really been a pioneer in this whole field. And I'd also like to point out that this is a good example of bringing molecular diagnostics into a new disease area, one that I think benefits significantly, in terms of improving patient care and assisting and improving quality of life of patients. Currently, physicians use a test that I'll refer to as the knuckle squeezing test to try to assess disease activity. So, bringing these new technologies into this marketplace is a great advancement and will certainly benefit patients in the future.

Our next question comes from the line of Isaac Ro with Goldman Sachs. Please proceed with your question.

Good afternoon, Guys. Thanks for taking the question. Why don't you just spend a couple of minutes talking about margins today, specifically in the core businesses as well as longer term as you incorporate the autoimmune assets you're getting from Crescendo? On the first part, just can you maybe give us an update on how you are looking at margins across the various segments of the core business, Oncology versus Women's Health and then maybe in the international business? And by margins, I'm talking about at the EBIT line, any color you can give on how you are scaling in those various segments, would be helpful.

Yes. Let me start and I'll ask Jim to add a little additional color. Our margins for the Women's Health care segment and Oncology segment are essentially identical. And our margins crossed different product lines. Once they reach volume, are also very consistent. Internationally, the margins are lower. That's a new opportunity for the company as I mentioned, it's growing very rapidly, but it's still small. And when those revenues are roughly 5% to 10% of our total revenues, we'll actually break those out separately, so you can see those. But overtime, as international growth in volumes, we anticipate margins to be very similar to what we experience here in the United States. It's interesting to know that our current reimbursement for BRACAnalysis and COLARIS in the major market countries in Europe is actually slightly higher than our current ASP here in the United States. So we would anticipate a similar margin structure there as well. And Jim, I don't know if you want to add anything?

Yes. Just a little bit on the gross margin lines specifically. We have talked about myRisk being a little bit more expensive of the test and what we've historically we've been able to accomplish with the single gene test. And so, from our 89% gross margin that we've talked about myRisk, we're projecting more in the 87% gross margin range. We talked about the impact of Crescendo and what their margins should look like. We are spending money as we continue to launch new products and so that could have a little bit of an impact on our earnings, our operating margin in the second half of the year, as we get those upfront cost going for some of these new products and get them launched and get materials put together from them. So, there will be some pressure on the operating margin, but really think they will still be very, very attractive.

Our next question comes from the line of Eric (inaudible). Please proceed with your question.

Good afternoon. Thank you for taking my question, just throwing in for Peter today. So the single gene test that performed pretty well this quarter, especially it might be of the strong myRisk launch. Could you provide a little more detail maybe into the pacing of that conversion dynamic and if you think that there's going to be some type of inflection point, where those BRACA and COLARIS revenue lines start to fall off as myRisk revenue increases?

Yes. Thanks, Eric. So, we just successfully completed our early-access program. And as I mentioned, we will be doubling the numbers of doctors that are participating in what we have now launched as our expanded access program. That will carry us through until we can ensure that the performance of the test, the turnaround times and everything is meeting our customers' expectations. And from that point, we will continue to ramp to full conversion by the summer of 2015. And so you should look for, and we will provide additional guidance on the next call on exactly what that trajectory will look like after that expanded access launch. It is our strategy to convert the current hereditary cancer business to myRisk. So you should see a corresponding decrease in the BRACAnalysis and COLARIS revenue line as we begin to transition to myRisk. As Jim mentioned, one of the things we did see in the early-access program is because of the interest, the scrutiny, the ease-of-use with myRisk, we were actually able to see an increased utilization in those physicians that were in the early-access program, which is why you may not have seen total (cannibalization) in this initial part of the program. We'll see how that goes in coming quarters, but overall you should anticipate reductions in BRACAnalysis and COLARIS offset by increases in myRisk.

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

Hi. This is Shannon on behalf of Michael. Following on the point about myRisk, and obviously you did very well; you just passed on target of $10 million this quarter. It's very interesting that you made the comment that decisions have attributed different ordering behaviors, so they are ordering more test. Can you help us understand how much of that is the dynamic that you spoke of about them not having to prioritize different genes to order versus the absolute total market size that the test is eligible for since it covers so many different cancers? Thank you.

Yes. I think in this case, it's more about increased penetration as opposed to a broader addressable market because we have yet to expand the guidelines. The addressable market at this point is the same as, Pete mentioned, our goal is to double the size of the addressable market in the Oncology segment. But that will require some additional studies and guideline changes. So, I think what we saw was just increased penetration into the current indications that we have. I think as always when you participate in a program like this, there is -- the staff, the physician are much more in-tune with hereditary cancers. And I think because of that they're much more diligent in identifying patients that may be appropriate. There is an aspect as you mentioned that, they no longer have to prioritize. So it's simpler trying to decide whether to order COLARIS or BRAC. And so, that does facilitate some increased penetration into the market. As we mentioned historically, we have less than 10% penetration into Women's Health market. And so any type of scrutiny or interest from the physician can allow us to penetrate in a market that's really underpenetrated at this point. And so I think those are some of the dynamics that we've seen and we'll have to see if that plays out as you get to a broader physician participation.

Our last question comes from the line of Dan Leonard with Leerink Swann. Please proceed with your question.

Great, thank you. I will ask in two parts, and they are somewhat related. I guess, on reimbursement you are in discussions with a lot of your payers. I am wondering if now that you have additional published information differentiating your test, if any of the discussions are along the lines of Myriad potentially becoming an exclusive vendor or a preferred vendor for hereditary cancer testing. And then secondly, just kind of housekeeping, are all your genetic counselors, are they all reported in your oncology channel, presumably there will be plenty of referrals from where we began to genetic counselors as well, but I am just not sure how the buckets work? Thank you.

Yes, thanks Dan. As you mentioned, we are in discussions with payers. We are just beginning the discussions about myRisk. We would always have a broad set of discussions, and those include everything from potentially exclusive contracts to a variety of other possibilities. We obviously don't get into that level of detail. But it is something that we will discuss with payers. And if they are interested in exclusive arrangements we can talk about the best ways to accomplish that, so that the patients get the best care. To the housekeeping point, yes, all of our genetic segment is reported in through our oncology market. Any test that is ordered by an OB-GYN would come through our Women's Health segment. So, if the test was ordered by an OB-GYN and a counselor was called in to do counseling after the test had been ordered, those types of test would fall into our OB-GYN category because it was ordered originally by an OB-GYN.

This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you again for joining us this afternoon.

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