Ladies and gentlemen, thank you for standing by, and welcome to the Myriad Genetics First Quarter 2015 Financial Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, November 4th, 2014. I would now like to turn the conference over to Mr. Scott Gleason, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Ash. Good morning, everyone, and welcome to the Myriad Genetics' First Quarter Earnings Call. My name is Scott Gleason. I am VP of Investor Relations here at Myriad Genetics. During the call, we will review the financial results we've released today. After which, we'll 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 for Myriad today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President, Myriad Genetics Laboratories; and Bryan Riggsbee, our newly appointed 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 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'll now turn the call over to Pete.

Thank you, Scott. To begin with, I am pleased to introduce our new Chief Financial Officer, Bryan Rigssbee. Bryan brings to Myriad an extremely strong financial background with broad experience in corporate accounting, financial planning and analysis, and mergers and acquisitions. In his most recent role, Bryan was the Senior Vice President of Corporate Finance for LabCorp, where he oversaw the FP&A and treasury functions. Additionally, during this time at Lab Corp, Bryan was the Chief Financial Officer for DynaLIFE Diagnostics, a LabCorp joint venture in Canada. He also oversaw the integration of the Genzyme genetics acquisition. Prior to his 10 years at LabCorp, Bryan worked for General Electric for 6 years, serving in a variety of financial roles, both in the commercial finance and the energy sectors. Bryan began his career in the audit division of KPMG. He has an MBA from Northwestern University, a BA in accounting from North Carolina State University and is a licensed CPA in North Carolina. We are very excited with the skills and experience Bryan brings to the Myriad team, and I am pleased to formally welcome him to the company.

Thank you, Pete for the kind introduction. It's an honor to come to work for a company of the caliber of Myriad. I'm very excited to hit the ground running in this new role. I'm looking forward to learning more about Myriad's business, and I believe my past experience will prove valuable in a number of areas as the company looks execute upon its business strategy. I am also looking forward to engaging with the investment community and meeting many of you in the coming months.

Thanks, Bryan. Fiscal year 2015 is a transitional year for Myriad, and our first quarter was indicative of this transition. Our revenue in the first quarter was $168.8 million and was impacted by the greater-than-expected demand for Myriad's myRisk Heredi tary Cancer test. This significant demand exceeded our laboratory capacity, resulting in an increase in work-in-progress during the first quarter. Even with these capacity constraints, myRisk revenue was $53.1 million, an increase of 95% over the prior quarter. We are very pleased with the physician receptivity to our myRisk tests and we believe the current trajectory of our Hereditary Cancer franchise positions us well for the future. On the bottom line, we reported adjusted diluted earnings per share of $0.25. The increased demand for myRisk and the lab capacity constraints resulted in both increased work-in-progress and laboratory expenses. Both these factors impacted our profitability this quarter. As we expand capacity and increase our laboratory efficiencies, we expect profitability to improve throughout the remainder of the fiscal year. Given the current demand trends for our products and our current expectations on reimbursement for our newer products, we are maintaining our full year outlook, which calls for revenues of $800 million to $820 million and adjusted earnings per share of $1.90 to $2. We continue to have confidence in our ability to achieve this guidance and we expect to see an improvement in our revenues and profitability beginning in the second quarter and then ramping up through the second half of the fiscal year. As such, in the second quarter, we are anticipating revenues to be between $180 million and $185 million, and adjusted earnings per share of $0.33 to $0.36. We recently achieved a major milestone in receiving a draft Medicare coverage decision for Prolaris. While final Medicare reimbursement will not…

Thanks, Pete. I'm pleased to provide a more in-depth look at our operational performance in the first quarter. First, I will provide an overview of our strategic goal to transition and expand our Hereditary Cancer market; and secondly, I will provide an update on the progress of our efforts to diversify our portfolio. As a reminder from our last earnings call, we had guided to a 5% sequential decline for the Hereditary Cancer business in the first fiscal quarter. This expected decline was due to summer seasonality, the horizon out-of-network decision and some incremental share loss. If the additional myRisk WIP is taken into consideration, the first quarter revenues were in line with these expectations. The increase in myRisk WIP is due to the conversion proceeding much faster than expected. During the quarter, we expanded myRisk access to the top physicians in every territory in the country, which was a few months ahead of schedule. As we have seen previously, these physicians rapidly converted to myRisk because of the increased sensitivity and more comprehensive patient reports. What we did not anticipate is that other physicians in these group practices would request immediate access to myRisk. As a result, demand exceeded our expectations and we ended the quarter with over 50% of all Hereditary Cancer samples ordered as myRisk. This surge in demand for myRisk test exceeded our laboratory capacity, which extended our turnaround times by about an additional week. We are working rapidly to expand our laboratory capacity for myRisk testing by adding equipment, personnel, automation and informatics applications. Several of our proprietary processes requires specially modified equipment from third-party suppliers with meaningful lead times. We are anticipating the completion of these expansion activities to meet current demand by the beginning of our third fiscal quarter. Nevertheless, Myriad's myRisk turnaround…

Thanks, Mark. I'm pleased to provide an overview of our financial results for the quarter followed by a detailed look at our 2015 financial guidance. First quarter total revenue was $168.8 million compared to $202.5 million for the same period of the prior year. The 17% decrease in revenue this quarter was primarily the result of the nonrecurring positive revenue impact from last year's celebrity publicity. The increase in work-in-progress during the first quarter is a result of the transition to the myRisk test and the impact of competition. Molecular diagnostic revenue in the quarter was $164.5 million and includes approximately $10.6 million from the Vectra DA test. Pharmaceutical and clinical services revenues were $4.3 million this quarter and were down quarter-over-quarter due to the timing of research programs with our pharmaceutical customers. We expect pharmaceutical and clinical services revenue to remain modest in our second fiscal quarter, but to increase in the back half of this fiscal year. Our Hereditary Cancer revenues this quarter were $150.6 million and were down 20% compared to the same quarter last year. Excluding the impact of celebrity publicity and WIP build in the quarter, our Hereditary Cancer revenues would have increased year-over-year. More importantly, we have experienced strong demand for our myRisk test with revenues up 95% sequentially. Looking at our operating expenses, our consolidated gross profit margins this quarter were 79.3%. Gross margins were negatively impacted compared to the same quarter last year by several factors: first, the myRisk capacity constraints contributed significantly to our lower margin as did the increase in turnaround time since we incurred costs that did not recognize revenue until the test result is reported to the physician; secondly, since Crescendo does that yet get have contracts with most private payers, a number of its tests are not…

Thanks, Bryan. As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of the GAAP financial results to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website. Now we are beginning our Q&A session. In order to ensure a broad participation in today's Q&A session, we are asking participants of these ask only one question and one follow-up. Operator, we are now ready for the Q&A portion of the call.

[Operator Instructions] And our first question today comes from the line of Amanda Murphy with William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: Welcome, Bryan. Just a quick question on sort of pricing, and there's a lot of discussion around that and, obviously, competition. So is there a way you can maybe give us -- obviously, the revenue commentary was helpful, but just maybe a perspective on volumes just so we can get comfortable with kind of pricing on the legacy BRACA business and as well as the myRisk -- I'm sorry, yes, the new myRisk asset. That would be helpful.

Yes, thanks, Amanda. On -- yes, a couple of comments on that. First, from a competition standpoint, as I've mentioned in my prepared remarks, we did see what we believe to be some incremental share loss as we moved from Q4 to Q1 this year, and I would say incremental. It's becoming increasingly difficult with the market dynamics to provide real precision around that share loss because, as you know, people don't report out specific sample volumes. And so while we think there was some incremental share loss, it's difficult to quantify, which I think it underscores that it was, in fact, incremental. So I think that's on the competition standpoint. From a pricing standpoint, we were -- we will continue with our policy that we won't discuss in detail any pricing It's obviously, a competitive environment. And in addition, our contracts preclude us from any public discussions about pricing. What I can underscore is what we've said historically that is all of the contracts that we've negotiated recently, including the myRisk contracts, all of which, we continue to believe as we work on the efficiencies of this myRisk process that by it's time we fully converted the market, that we will be able to still achieve an 87% gross margin. So the pricing is obviously consistent with that gross margin goal. Amanda Murphy - William Blair & Company L.L.C., Research Division: Okay. And then just, I guess, a second one on myRisk. You had talked a lot about efforts to manage the capacity of the lab as you ramped. So I'm just curious, I know you mentioned having incremental demands within physician practices, but can you sort of rationalize that with prior commentary about being very measured about how you rolled out myRisk just to avoid the exact capacity issues that you ran into this quarter?

Yes. Thanks, Amanda. You're right. That is one that we have always been cognizant that going back to even April 2013, when we introduced that, you'll remember the market research that said physicians over 90% would adopt myRisk when it was available. So we have always been quite conscious of the fact that demand, we thought would be strong and we would need to ensure that capacity and demand were in sync. I think that this is the first quarter where we got those out of sync. We thought we had a pretty tight plan laid out, which had very specific numbers of physician targets in each of the territories around the country. We were 2 months earlier than we had originally anticipated in the -- in that national rollout. As you remember, we talked about doing that in the "fall", and we obviously did that earlier. I think what we fail to plan for is the fact that those targets were spread amongst multiple physician practices, and we did not plan for the fact that other physicians within those practices would hear about myRisk and then insist that they would be included in the myRisk program as well. In hindsight, maybe we should have planned for that but we didn't. I think had it been left to the original physicians that we had targeted, we would have been in good shape, but it was really these additional physicians within practices that really did not want to wait to have access to myRisk that put us in a position that we hadn't planned upon. I still think -- again, I will underscore that although those turnaround times were a week longer than we expected, it's still months shorter than what we see with other competitors. And so we have not -- while we have -- we're not able to achieve our own expectations, I think the expectations of our customers are such that they have -- still have been very pleased with myRisk. We haven't seen any change in their ordering as a result of this, and we will aggressively increase capacity before we then begin the next wave of physicians to add into the myRisk program.

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

Another question on myRisk. How should we think about the updated United policy on Hereditary Cancer that doesn't appear to mention myRisk, especially versus the 3-year contract you got announced with them back in May?

Yes, thanks, Drew. You're right. United just online updated their hereditary breast and ovarian cancer policy and so a couple of comments on that: first of all, United does not have policies on everything that is covered. By way of example, hereditary colon cancer has no policy. Yet, of course, United's been paying for hereditary colon cancer services for over a decade. So they haven't always included policies for everything that's covered. They do not have a general policy on panel testing, which is obviously more inclusive than in hereditary breast and ovarian cancer policy. But even though they have no overall policy, we have a contract with United and they have agreed to cover myRisk. So myRisk is being covered. We've negotiated reimbursement. And so we continue to submit and get paid on myRisk claims with United and they continue to be an excellent partner in TNR [ph] Hereditary Cancer. So the fact that there's no overall panel policy is really irrelevant because we have a specific contract with United for myRisk and are seeing coverage consistent with what we see in the single-syndrome testing.

Okay. Moving over to Vectra really quickly. Obviously, nice volume growth, but revenue seems to kind of continue bumping along around $10 million per quarter. You guys took up guidance for Vectra in the back half of the year. Can you give us a little more color on where the confidence in expanded commercial coverage comes from?

Yes. Thank you, Drew. We are very excited about the potential of Vectra DA. And I think just looking at the fourth quarter versus the first quarter, it doesn't give you an accurate picture. It was flat, but, of course, that is a historical weakness we see in the summer vacation period. And I did wanted to point out in my comments that sample volumes compared year-over-year were actually up 55%. So I think we're seeing good uptake. We have decided to aggressively pursue private pay right now while Vectra DA has good coverage under Medicare, which represents about 40% of all rheumatoid arthritis patients. They do not have contracts with most private payers. And as a result, they either don't get reimbursement or get reimbursement at a lower level. Our strategy initially is to target Medicare Advantage plans, and we'll do that with Myriad's Managed Care team. The nice aspect of Medicare Advantage plan is because we already have Medicare coverage, the Medicare Advantage plans should rapidly adopt expanded coverage with Vectra DA. From a Medicare Advantage plans then, we have some have targeted some of the larger payers and are working toward approaching those insurance companies and getting expanded coverage for Vectra DA. I think you'll see most of the success of this expanded coverage in the second half of the year. And as a result, we're forecasting much stronger revenue growth in the back half of the year.

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

It's actually Dave Clair. I'm here for Bill. So the first question for me, I was just curious if you give us some metrics around physician retention on myRisk? I know that's been really strong in the past. Just wondering if that's still the case.

Yes. Thanks, Dave. Retention is excellent. We have seen once physicians start using myRisk, which is really immediate when they're offered to enter into the program, they stay with myRisk. We do not see physicians going back to single-syndrome testing. And I use the analogy, once you see a high-definition TV, you really don't want to go backwards. When they start getting reports that have 40% to 50% increase in sensitivity and they can sit across from a patient and give that patient the best possible answer and tell her that the negative test result means we've looked at every gene that's known to cause hereditary cancer and none of those were positive, a physician never wants to back track on that kind of granularity in that type of discussion with the patient to something that they would view as less accurate. So they stay with myRisk once they've converted.

Okay. And then on olaparib, are your expectations that the label is going to specifically highlight BRACAnalysis CDx? And what are your expectations for some of the other PARP drug labels?

So I think we'll see what that label will look like in the coming weeks. As we mentioned, they have -- AstraZeneca has a PDUFA date of January 3. So in the coming weeks, we'll see what that label could look like. Historically, the FDA has said that generally, the label will not necessarily contain trade names for companion diagnostics, but I think this particular situation is quite unique. And so we'll have to see if the FDA is to modify that to reference specifically BRACAnalysis CDx, which, of course, would be the only the BRCA test that has been proven through a very rigorous FDA process.

Our next question comes from the line of Eric Criscuolo with Mizuho.

Just filling in for Peter Lawson tonight. I guess on the myRisk insurance coverage, can you kind of compare where it is currently versus where BRACAnalysis has been or where it was at its height?

Yes. Thanks, Eric. We're obviously in the earlier stages of obtaining specific myRisk contracts. As we've mentioned on previous calls, UnitedHealthcare, we have a contract with. We've also contracted with Blue Cross Blue Shield Association and are in conversations with all of the Blue Cross Blue Shield affiliates at this point. Those 2 alone were they -- were all the affiliates to adopt the contract we have with the association would represent over 50% of covered lives under contract for myRisk. Obviously, with BRACAnalysis, we have essentially complete coverage at this point. So there are still opportunities for us. We have some of the national players and regional players, and we are in the midst of conversations with all of those payers at this point to extend to myRisk. So those conversations generally take months to occur. This is not something that goes quickly, necessarily, but payers are quite interested in panels. They are already seeing the impact for a la carte testing, where patients that have been previously tested with -- for BRCA1 and 2, they are now seeing requests for other genes, like PALB2 and -- or panels. And so they are concerned about their liability for this a la carte testing. And so we have found that they are quite interested in a discussion with us about myRisk. And also the health economics with very positive when for the same price as single-syndrome testing, you can prevent more cancers. And so we will continue in those conversations certainly throughout the rest of the year, but we're encouraged by those discussions.

Okay. And then on the Prolaris initial recommendation, can you maybe talk about why the initial decision came out as only the low to very low population? And if there's anything in particular that you think that CMS is looking for or that you can provide to kind of expand that population for the final decision?

Yes. I think in the discussions with Medicare, obviously, this is a significant change in standard of care. And so I think what Medicare felt is the best thing to do for a draft coverage decision was to cover the very low and low-risk patients that represent about half of patients. And then to seek public comments on what others in the community thought about coverage for intermediate and high-risk patients given the magnitude of the change in standard of care that this would represent. So I think it's an appropriate approach to reach out to others within the urology community and get their opinions on where they think this might fit in to a practice beyond the very low and low risk. And so we would expect public comments to occur during this next 90 days over the next 45 days on where this might fit within a broader practice. What Medicare did lay out were a couple of pieces of information that they were looking for, for those intermediate and high-risk categories. One would be any guidelines that could include either NCCN or AUA guidelines. And so they can -- the initial guidance from NCCN can be part of that discussion. In addition, they were looking for any additional clinical data that we can provide on intermediate and high-risk patients. And as I mentioned, we're in the process of submitting 2 additional publications that will address Prolaris scores across all risk categories. And so those are all things that will be available during the public comment period. And regardless, I would still come back to the fact that the categories that were initially included, if all payers were to adopt those, this is 100,000 patients a year that would fall into those categories, which is a market potential of over $300 million. So certainly, there's ample market to start with as we amass whatever additional data or comments might be required in order to broaden the coverage.

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

This is John on behalf of Michael Yee. It seems like by maintaining your annual guidance, despite Q1 being revised down and even Q2 sort of looking little conservative versus historical trends that implies you have strong confidence and an uptick in the second half. And Bryan laid out several reasons for us that support this guidance, such as Prolaris, Vectra DA or turnaround times improving. But given that we're only about 4 months into the fiscal year, so going forward, of these, what are the 1 or 2 areas that are the most unpredictable that for whatever reason may put your guidance at risk?

Thank you, John. The first half of this year has unique challenges as we work through the myRisk transition. And as Bryan alluded, we believe the capacity constraints will be resolved by the second half of the year, and we have a very high level of confidence in that. And we believe then, we'll be able to recognize the full benefit of the myRisk demand. And we have been very pleasantly surprised with the physician receptivity and uptake around myRisk. However, we also anticipated strong revenue growth from Vectra DA, particularly in the second half of the year as we hopefully increase private insurance coverage, and I feel very confident about that. Our international revenues are growing strong and at an accelerated pace, and we'll make a meaningful contribution in the second half of the year. That is, of course, dependent upon EMA approval. But with the positive CHMP recommendations, I think, that does not carry a great amount of risk. Additionally, we believe the second half of the year will benefit from strong revenue growth from the newer products, as you've mentioned, Prolaris, and with the initial draft coverage, we're very excited about the ability in the third quarter to begin recognizing revenues from Prolaris. But of course, that draft coverage has to go through the public comment period and become official. But again, I think the risks there are low. We also see a very strong revenue growth from EndoPredict. We believe that will continue. BRACAnalysis CDx is certainly in our guidance. That probably has a little more risk than some of the others I've mentioned because we believe very strongly, as does AstraZeneca, that the FDA is likely to approve olaparib. But again, that remains to be seen. So that would certainly be a component that could affect our guidance.

Just as a follow-up. Just touching on that unique challenge you mentioned in the first quarter, in the first half with myRisk, how the incoming volume and demand was obviously much greater than anticipated. But at the same time, how are you confident that this initial enthusiasm doesn't represent a bolus where it could slow down in the second half? Or is that already part of the thinking?

We've launched myRisk about a year ago. And so I don't think this is an initial onetime bolus. While revenues were up 95% sequentially, they're up almost 100% sequentially the prior fourth quarter over the third quarter comparison. And so we've seen strong demand, strong physician receptivity and strong physician acceptance and retention of myRisk for about a year now. So I don't think we're seeing a onetime bonus -- bolus. I think this is definitely going to be a test that is very well-received by the physician community. Now as Mark mentioned, we're going to try to manage uptake better in the second quarter and then going into the second half of the year. And while we think that demand will continue to grow very strongly, we're going to try to match that with capacity constraints in the laboratory. So I think, for me, the risk is almost greater that demand, again, exceeds capacity as opposed to there's any fall off in interest or demand for myRisk.

Our next question comes from the line of Derik De Bruin with Bank of America.

A little bit on Prolaris in terms of what sort of expectations you are having for reimbursement in pricing on the tests and sort of like volumes? I'm just trying to get a sense of what's embedded into your 2015 guidance?

Thanks, Derik. We haven't provided any additional granularity on volumes for Prolaris. I think, certainly, our commentary, you can surmise that we certainly are expecting material revenues for Prolaris in the second half of the year. From a pricing perspective, the list price of Prolaris is $3,400. We've consistently said we would anticipate an average selling price of $3,000 or more. And so everything we've consistently seen and heard in our discussions with payers would suggest those expectations around average selling price should be realistic. So that's why we translate that 100,000 patient opportunity into $300 million market opportunity, at least, in its initial form.

Great. And just one quick follow-up. The myRisk ramp was impressive. I'm just curious, are you giving -- are these all straight orders? Or some -- are some people are arguing BRACAnalysis and you're adding myRisk on the -- basically show the superiority of the test and basically show it can add additional information to it. I'm just curious if it's just straight myRisk orders that going there? Or are there some mix involved?

Yes. These are -- these actually are all de novo patients. So these are patients that have not been previously tested and are really looking for myRisk as their first test. We have not begun to promote the update testing, which would be available to patients that have previously been tested with either BRACAnalysis or some of the hereditary colon cancer genes. As you might imagine with the capacity constraints that we currently have, best to get the de novo patients that are going to be tested. And so that's really what we're dealing with right now. Update testing is an opportunity that we'll look to in the future once we've had a chance to ramp up our capacities.

Yes. And if I could just add, Todd. These are all tests that are prescribed by the physicians for myRisk. We, as a laboratory company, do have to perform the tasks actually prescribed by the doctors. So if the doctor prescribes BRACAnalysis, we'd run and perform BRACAnalysis. So all of these tests were actually prescribed by the physician as a myRisk test.

The next question comes from the line of Sung Ji Nam with Cantor. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: Pete or Mark, I was wondering on Prolaris and the draft LCD. I think one of the differentiating value proposition for the product, if I understand correctly, is that it's applicable for patients post-biopsy, as well as post-prostatectomy. But the language in the equipment -- or in the language in the draft LCD is pretty specific in terms of biopsy samples versus, I think, one of your competitors, they also received a draft LCD where they're targeting the post-prostatectomy patients. So I was kind of curious as to how you're interpreting this and how we should look at the potential initial market segment as you are looking for the -- after the comment period in the coming guidelines?

Yes, thanks. On the -- so we'll differentiate Medicare versus NCCN. In this case, Medicare clearly spelled out the biopsy indication, and that's what the draft LCD was really based on. You are correct if you were to look at these NCCN guidelines, there is some ambiguity in the specific language that was chosen by NCCN. And in some ways, that language is inconsistent with the flowsheet where they lay out precisely where Prolaris should be considered, which is actually at time of biopsy, yet the language is a little inconsistent with that. So we are bringing that to the attention of NCCN. We know what their intention was, was to use this at the time of biopsy. If you just read through all the language, that's really the intention. And that's the only way it makes sense in the flowsheet they've put together. But we have brought to their attention the fact that this language can be a little confusing and so we'll see if we can get a modification there just to eliminate that ambiguity. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: Okay. And then my follow-up is on Vectra DA. I was wondering using, obviously, really good volume growth there. As you're kind of looking to expand your private payer coverage, are -- is the growth largely coming from kind of -- where is the growth coming from? Is it largely the new physician adoption of the test? Or is it pretty much kind of the same-store sales?

It's coming from both areas. So we are going to see improved margins and increased revenues just with additional private pay coverage. But at the same time, we have seen, quarter-over-quarter, the number of physicians ordering the test increase. So physician acceptance tests has grown, and we are expanding the market, as well as we certainly do hope to get better private pay coverage and grow revenues in that fashion as well.

And with that, I will now turn the call back to you for any closing remarks or comments.

Thank you. This concludes our call. A replay will be available via webcast on our website for 1 week. Thank you again for joining us this afternoon.