Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics Second Quarter 2018 Financial Earnings Conference 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 6, 2018. I will now turn the conference over to Scott Gleason, VP, Investor Relations. Please go ahead.

Thanks, George. Good afternoon, and welcome to the Myriad Genetics fiscal second quarter 2018 earnings call. My name is Scott Gleason and I'm the VP of Investor Relations. During the call, we will review the financial results we released today, after which we’ll 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 of our website at myriad.com. Presenting from Myriad today will be Mark Capone, President and Chief Executive Officer; and Bryan Riggsbee, Chief Financial Officer. This call can be heard via live webcast at myriad.com. The call is being recorded and will be archived in the Investors section of our website. In addition, there's a slide presentation pertaining to today's call on the Investors section of our website and which will be filed following the call on Form 8-K. Please note that some of the information presented today may contain projections of 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 and forward-looking statements. With that, I'm pleased to turn the call over to Mark.

Thanks, Scott. I would like to start today's call by providing key business and financial highlights from the second quarter of fiscal 2018, after which Bryan will provide an overview of our financial results and guidance, and I will finish by providing additional details pertaining to the ongoing execution of our business strategy. In the second quarter, we once again exceeded expectations with revenues of $194 million, and adjusted earnings per share of $0.31. This performance was a result of outstanding execution of our strategy, which calls for a solid foundation of hereditary cancer revenues and continued growth in our new products. In particular, GeneSight continued to outperform expectations this quarter with revenue increasing 46% on a year-over-year basis. Based upon the strength in our operating results we are raising our financial outlook for this fiscal year and are guiding to revenues of $760 million to $770 million, which is at the high end of our previous guidance range, and adjusted earnings per share for $1.11 to $1.16, compared to our previous range of $1 to $1.5. During the quarter, we continue to make significant progress on our five critical success factors. To build upon a solid hereditary cancer foundation, grow new product volume, expand reimbursement for our new products, increase international RNA kit revenue, and improve profitability with Elevate 2020. From a hereditary cancer perspective, revenue was up slightly on a sequential basis as volume growth was offset by the remaining price reductions in our long-term contracts. The second quarter fully reflected the pricing in our long-term contracts and therefore we anticipate stable pricing for the remaining duration of these three-year contracts. Importantly, this was the fourth straight quarter with year-over-year volume growth. We believe the growth in sequential volume was partly attributed to the launch of riskScore, which…

Thanks Mark. I would like to start by providing a more in-depth overview of our fiscal second quarter financial results. Second quarter total revenues were $194 million, compared to $196.5 million in the same period in the prior year. A decline of 1% year-over-year. With the year-over-year pricing decline in hereditary cancer, being mostly offset by new product revenue growth, and hereditary cancer volume growth. Hereditary cancer revenue in the quarter was $126.9 million, which was up slightly on a sequential basis and consistent with our expectations as volume increases were offset by the remainder of the price reductions in our long-term contract. On a year-over-year basis, volume growth once again exceeded our 3% growth target. As a consequence, the 12% year-over-year hereditary cancer revenue decline was driven by the price reductions in our long-term contracts. GeneSight revenue in the quarter once again set a record at $31.7 million, and grew 46% year-over-year and 10%, sequentially. Volume in the quarter achieved a new record and was driven entirely through increased sales representative productivity. This quarter, we once again set a record with an additional 2,000 new ordering physicians, and a total of 12,500 ordering doctors. In the quarter, approximately 30% of psychiatrists ordered GeneSight. So, even with this record growth we have significant upside opportunity in the psychiatry market, as well as the even larger preventive care market, where we have yet to broadly commercialize the test. Vectra DA revenue in the second quarter was $11.1 million and grew 4% year-over-year. Given the recent increase in the Medicare rate for Vectra DA on the clinical laboratory fee schedule for calendar year 2018, along with our expectation for higher volumes in the second half of fiscal year 2018, we anticipate a meaningful increase in Vectra DA revenue beginning in the fiscal…

Thanks, Brian. I would now like to provide some additional details on important clinical data and our performance for the second quarter beginning with hereditary cancer. The second quarter represented our first full quarter of commercializing riskScore, and we are exceptionally pleased with the customer feedback. We saw preventive care year-over-year volume trends accelerate during the fiscal second quarter, and believe the impact could be greater in the future, given that the full validation data was only presented in December at the San Antonio Breast Cancer Symposium. The validation data underscored how critical the information from riskScore can be to shaping patient care. Specifically, the data show that the lifetime risks associated with riskScore range widely from 1% to 66%. This dramatic difference in lifetime risk places patients along a continuum from below the general population risk to risks similar to that of high penetrance genes such as BRCA1 or BRCA2. Additionally, in the validation, 38% of patients had lifetime risks greater than 20%, which is the level of risk where guidelines recommend using more sensitive MRI screening instead of mammography. Moreover, 7% of patients had a lifetime risk greater than three times the general population risk. Putting this in context, riskScore identifies more patients with significantly elevated breast cancer risk in BRCA1 and BRCA2 combined. This is why healthcare providers truly believe we are entering the fourth major epic in hereditary cancer testing. Peter Kraft, an epidemiologist at Harvard, recently stated in MI Technology review, and I quote "it's like we have discovered another BRCA, but it’s not one gene." Overall customers are very pleased with Myriad's pioneering riskScore launch and we believe it will continue to be a competitive differentiator and catalyst for growth in our hereditary cancer franchise. We’re also seeing a significant increase in hereditary cancer…

Thanks Mark. 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’re ready to begin the Q&A session. In order to ensure broad participation in today's Q&A session, we’re asking participants to please ask only one question and one follow-up. George, we're now ready for the Q&A portion of the call.

Certainly. [Operator Instructions] Our first question is coming from the line of Sung Ji Nam with BTIG. Please go ahead.

Hi, thanks for taking the questions. Mark, sorry if I missed it, but what’s the expected contribution for BRACAnalysis CDx for the second half of the year, I know - I believe Bryan mentioned it for third quarter, is there a meaningful contribution for the second half?

Thanks, Sung Ji. We don’t provide product specific guidance. So, we didn’t give anything specifically for BRACAnalysis CDx. So, I think our commentary was that for guidance assumptions for Q3, we’re really only assuming a modest impact and I think that’s true for the entire second half that would include fourth quarter as well. So, obviously if we were to see the performance of BRAC CDx with breast significantly in excess of what we saw with ovarian cancer, I think that would be upside to what we’ve provided to our guidance.

And then, just as a follow-up, how should we think about maybe the first year of sales, do you expect Lynparza for the metastatic breast cancer product to ramp, kind of in a similar fashion to how the ovarian product ramped for AstraZeneca?

I don’t think AstraZeneca has provided any public commentary on their expectations around Lynparza, and what that might look like. So, I would hesitate to comment on that. I think that’s a commentary that really probably needs to come from AstraZeneca. I could say from our end, from a diagnostic standpoint, obviously this is a much bigger market that we’re addressing than the ovarian cancer market. The prevalence pool is 125,000 patients, which is substantially larger than the prevalence pool of ovarian cancer patients of 20,000 or so that were eligible when BRACAnalysis CDx was approved for that particular indication. So, this is certainly a much larger market, very motivated group of patients and that’s why we’ve always pointed to this as a potential catalyst, and so that’s what we’re focused on. Our teams are very keen on making sure that we can get those patients into the offices quickly as possible to at least get them tested and facilitate their ability to take olaparib. So, significant opportunity, but I don’t think either one of us is necessarily opined on exactly what that trajectory may look like.

Okay. Thank you.

Our next question is from the line of Amanda Murphy with William Blair. Please go ahead.

Hi, this is actually [indiscernible] behalf of Amanda. Thank you for taking the question. Just wanted to follow- up around the impact that you’re estimating as a result of the proposed Medicare coding changes and how you would expect to impact the business in terms of your Vectra tests?

Yes. Thanks, Matt [ph]. So, I think from a Vectra perspective, we - we've obviously seen a significant increase in price from Medicare effective January 1. So, that price is now $860, which - that’s increased from the $560 that was previously. So obviously, that that's going to have a significant impact on Vectra. We don't provide products specific guidance, so we didn't necessarily call out that that Vectra revenue. But I think, Bryan pointed out our expectation that, of course, you're going to see a nice year-over-year volume growth in Vectra, given the fact that where we've got volumes increasing plus a higher ASP. I think the other thing just to note in that is that typically, the Medicare volume is about 40% of Vectra volume, so it is a very significant component of Vectra testing.

Perfect. That was actually my follow-up question. I wanted to get a better sense of exactly the percentage of testing that related to, so appreciate the context there. And then I know this has kind of been discussed already, obviously, but I just wanted to get more commentary around greater opportunities for GeneSight, and do you have just any updated thoughts around timing for potentially getting coverage?

Yes, I think, at this point, as we said from a guidance perspective, our assumption is that coverage decisions would occur after publication of peer reviewed journal articles that, at least, historically what we've seen. And so, as always, as Bryan and I provide guidance, it's really based on historical precedent. And so that's the assumption that we've used. The data still is expected to be presented fully in May. And our goal still remains to have a publication available by the end of this fiscal year, which would then allow us to be considered for coverage decisions, as we enter into the next fiscal year starting with July. The timing as to when those additional coverage decisions might happen is something that we wouldn’t necessarily try to predict, because there's no statutory requirement for timeline on those covered decisions. But obviously, our discussions have gone well so far with payers and we're laying the educational foundations, such that when those peer reviews happen, we've at least positioned all the appropriate people within the payer organizations to have already digested the information. And in fact, we can get back to them and answer any other questions they may have on the data even before the data gets published. So that's our strategy here over the next six months.

Great. That's helpful. Thank you.

Our next question is from the line of Tycho Peterson with JPMorgan. Please go ahead.

Hey, thanks. Mark, I just want to understand the guidance, you guys posted a pretty strong feeds in the first-half of the year. You obviously have the companion diagnostics approval and better reimbursement from PAMA for Prolaris and Vectra. You’re only raising guidance here marginally. Other offsets here we should be factoring in, in terms of why you're not increasing the guide, Mark?

Yes, Tycho, this is Bryan, I'll take the question. I think, as we look at the front-half versus the back-half, I think there are a couple of things that are important at a high-level. One is, we had the Vectra positive from the accrual transition to accrual accounting that was in Q1. We had the Prolaris backpay. We’ve had RBM, our clinical service - pharma clinical services business, as I mentioned, we expect that business to be down $4 million sequentially from the second quarter. So, I think, there are some things there that you can't necessarily extrapolate. I think in terms of the guide, what we've said is that, we're very happy with the first-half of the year, especially from a hereditary perspective. We've seen nice volume there and expect to have a stable pricing and expect that business to move to more seasonal trends in the back-half. Of note, typically, we see in Q3 for that business. Historically, we've seen up to a 5% sequential decline from the December quarter to the March quarter for reasons that we mentioned on the call. So, I think, we - as Mark said, we look at our business. We didn’t - we thought about BRAC CDx and the impact that can have. But again, we don't have a lot of data to look at to know where - how much we should build in their ovarian cancer with a small market. So, I think, we put out guidance again that we feel is achievable and represents our best guess at where the business is headed. So, I don't know if that answered your question. But there is - it is difficult to look at the front-half and necessarily extrapolate that to the back.

Okay. And Bryan, can you comment on account receivable? DSOs, I think went up against sequentially, any color you can provide there?

Yes, we look at every month obviously. I think there were some things that were unique to the end of the year, especially, as I mentioned, the large RBM deliveries, right, during December and obviously - and normally, December is the month, where you have very little time to collect. You have the holidays in there. And we typically see lower collections during that period. So, I think, as we look at it relative to historical, it looks in line. When you see the growth in GeneSight, that's another area where we have higher DSO in that business. But we - there's nothing of concern for us there relative to the change in the December quarter.

Okay. Thank you.

You’re welcome.

Our next question is from the line of Brandon Couillard with Jefferies. Please go ahead.

Great. Thanks. Good afternoon. Mark, curious if you could elaborate a little bit on the risk or and perhaps the halo effect that that's having on the hereditary cancer business, and if you're actually able to measure in any way the impact of that on volumes you have?

Yes, thanks, Brandon. As I mentioned in general, but certainly from a qualitative standpoint, our customers have been very excited about this data they've known about the potential impact for snips and family history for quite some time. But to be able to have such a highly validated test that definitively quantifies that for them. So, they can have a very straightforward conversations of patients. It's really something they've been looking for quite a while, and obviously, they trust Myriad to do that validation in a way that others cannot plus frankly just the level of statistical significance when you start talking about P values 10 to the minus 30, it's pretty impactful to people. As I noted, we did see an acceleration of the hereditary cancer volumes in the preventive care segment. The segment were, of course, you would expect riskScore to have an impact, because it's delivered to patients that that obviously haven't had cancer. And so that's one indication. We do have other metrics. We measure, Brandon, we look at frequency of testing by doctors. We can correlate that to the number of riskScore results they've got. So, there's actually quite a few analytics we can do. I think, everything is positive from that regard as we would have expected. As I also mentioned, because their full data wasn't available until December, there certainly were customers that were anxiously awaiting that presentation in order to get the full understanding of the validation. And so that happened right at the very end of the quarter. So, our expectation is that the interest would just continue to build now that that data is out there. And also, we've got a number of other things in the pipeline as we evolve riskScore for other applications that will continue to interest customers. So, I think, so far, everything has gone exactly as we would hope.

Very good. Thanks.

Our next question is from the line of Dan Leonard with Deutsche Bank. Please go ahead.

Thank you. So, I had a couple of follow-up questions on GeneSight. First off, on your assumption that revenues would be down sequentially in the March quarter, why would that be given the low penetration rates for the product? And I do believe that is not consistent with historical seasonality in GeneSight. So, I could hope to understand that better?

Yes, to be clear, I think, as Bryan mentioned, Dan, our assumption for guidance was that it would be flat Q2 to Q3 just because of some of that seasonality. So obviously, the product has grown dramatically since a year ago. So, it's really difficult to compare data from previous years just because we're at a much higher base. So, the assumption we've made is that, we would expect that to be flat, again, the same weather conditions that affected hereditary has affected all of our products, and frankly, the whole industry. And so, we have, at least, visibility into that as we look at the third quarter, as January is behind us, and that's certainly going to have an impact on what we would see for volumes. What I can say overall, the volume trends for GeneSight continue to be ones that we're very pleased with. The reception that we've gotten from doctors to the top line results has been very positive. I think, doctors have recognized this is something they need to be doing a lot more of and not less. And so, I think, the overall trends of the business are ones that we feel very good about. We've just provided guidance based on the assumption that we've got a weather impact and seasonality for a business that's now bigger and does face the same concerns from patients about the resets of deductibles and copays that we see in our other businesses.

Okay, that's helpful color. And then my follow-up for Bryan on GeneSight is a follow-up to take those questions. So, Bryan, why would GeneSight have higher DSOs? My understanding is historically, these emerging growth diagnostic companies recognize most of the revenue based on cash versus accrual, and I wouldn't think the Medicare portion of GeneSight would lag from a DSO standpoint?

Yes, I think that we may have talked about this a little bit on the Q1 call as we talked about Vectra and the transition to an accrual basis of accounting that's really consistent with ASC 606 and that's the case. It's really consistent with what the way we account for GeneSight revenue. So, we actually do see some level of DSO impact there, because it is a longer - a longer collection cycle related to that business, as compared to, say, a business like our hereditary cancer business.

Okay. Thank you.

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

Great. Thanks. Good afternoon, everybody. A couple of questions, Mark. Just a couple of clarifications really on reimbursement. So first off on Vectra. You mentioned that the number of studies you’ve undertaken were based on feedback from payers. Does that include feedback from CMS as well?

Well, we've been in discussion with CMS. I think, obviously, from a CMS perspective, we already have covered. So, I think that commentary is a little different. We do provide them updates on all the plethora of utility data that we generated over the last year or so, every time there's new data. This is something that we feed into the process, so they continue to get updates on any of that material. But from their perspective, these questions were not gaps that were identified by CMS, these were things identified by commercial payers.

Okay, got it. I appreciate the clarification. And then just on GeneSight, appreciate the comment about the publication timing and then the expectation that we could start to see some private payer momentum thereafter, just given that the timing safe to assume that that should be probably more of a - or fiscal 2019 phenomena? I’m assuming you’re not - you’re still continuing to not assume any incremental GeneSight reimbursement in the current fiscal year, correct?

Yes, that's correct, Bill. So, our guidance assumes no additional reimbursement for GeneSight that based on our assumption that the publication will not be out before the end of the fiscal year and assuming historical practice that coverage would wait for that, it will be a fiscal 2019 event. That's at least what our assumptions are based on. Where payers in a position where they wanted to act prior to that just based on the data we're providing that would be upside to guidance.

And then just I guess, a quick follow-up to that, recognizing that, are we speaking the timing of reimbursement is one of the more difficult things to do in this business. That said, it sounds like you’re gaining some pretty good feedback from some of your conversations with payers. So how quickly do you think they could move following publication of the study?

Yes, it’s a great question Bill. I can't answer that specifically. I can't say the feedback has been very positive and very consistent with what we heard when the study was designed four or five years ago. We asked payers exactly how this study should be designed, what are the things they most want to see? We designed it according to that, so it is encouraging that we go back with that data and it has answered the exact question they wanted us to answer. The focus really has been on remission and response. They’ve really wanted to understand that data because they understand that the cost savings that are going to accrue to them are based on improvements in remission and response. And so, that’s really where their focus has been on understanding some of that additional data. So, I think that the conversations have been very positive. How quickly they will want to move on that. Again, we’re going to show them and have shown them health economic data that it is in their financial interest to more quickly because the savings for this will pay for itself, within the first year and so that’s what we’re trying to set up as a scenario where the data is strong, the health economics are in their advantage to act quickly, projecting exactly when that will happen is really difficult as you mentioned, and we would agree Bill, but we are trying to do things differently so that we can speed that up.

Got it. Appreciate all the color. Thanks Mark.

You bet.

Our next question is from the line of Doug Schenkel with Cowen. Please go ahead.

Hi, good afternoon guys. I guess I just want to start with a guidance question, did you reduce your expectations for the year for HCT revenue, I guess I ask because it seems like you're expecting second-half revenue at least for that category to be a bit less than what I was looking for based on previous guidance. I might be doing something wrong, but I mean we now have Q1 HCT revenue, which actually beat expectations. You're about in line in the second quarter. So, when I take your full-year guidance and then factor in what you said about GeneSight, I know you said that’s going to be flat sequentially and up in Q4. You told us Prolaris is essentially going to move sideways, and then up a little bit in Q4 and our predict you indicate it would improve a bit based on coverage and ASPs, and you reiterated that full year Pharma and clinical service revenue is going to be flat year-over-year, so I think we have enough data points to back into at least in the right neighborhood, what you’re expecting for HCT revenue in the second half and for the year, I’m coming up with something like above 10% declines year-over-year. I may just be making a mistake recognizing there’s a lot of moving parts here. So, I guess back to the simple question, did you change your HCT guidance?

Yes, thanks Doug. You're right. Those are definitely a lot of moving parts. I think what I can do, as we said, we’re not providing additional guidance on products for the rest of the year. We’ve obviously raised to 760 to 770, which is top end of the guidance that we have provided before. So, I think it’s a signal overall that we feel like the business is performing quite well. And for hereditary cancer we actually feel very good about how that business is performing overall. We’ve got four quarters in a row of year-over-year growth and stable pricing and so when you put those two components together that’s a business that’s certainly a solid foundation, an opportunity for significant continued improvement in that business. So, overall, I think we’re very pleased with how the year has shaped up. We did raise the guidance to the higher end of the range from a revenue perspective, and so I think that’s probably the commentary I can provide since we’re not going to provide necessarily product specific guidance.

Okay, understood. And thank you for that. Just a quick cleanup on Vectra and I apologize if I missed this in your prepared remarks. I think year were about $1 million late of your target on the quarter, was that pricing or volume driven, it sounds like you’re pretty enthused about the outlook for the second half, I'm just wondering what happened in the quarter just so we can think about that right as we’re contemplating our model updates tonight?

Yes thanks. We didn’t provide Vectra specific guidance for the quarter as we don't for any products. I think overall Vectra performance was in line with our expectations for the second quarter. We saw year-over-year revenue growth of 4%. So that was pretty much in-line with what we had expected. You’re right, the back half is going to be a different story for Vectra since 40% of the business is Medicare and we saw significant price increase in that portion of the business. So, we do expect significant revenue growth for Vectra and in the second half of the year, but I would characterize the performance in Q2 as pretty much in-line with our expectations for Vectra.

Okay, thank you.

And our last question for today will be from Drew Jones with Stephens. Please go ahead.

Hi, good afternoon. This is James Rutherford on for Drew. A couple of questions for me. In terms of your opportunity for the BRAC companion diagnostic for Lynparza, can you give some insight into the split between patients who are treated in the community, oncology settings versus an academic hospital and how your go to market strategy might change for each of those groups?

Yes, thanks James. So, breast cancer is a little different and I'm sure that’s what you’re reflecting in your question compared to ovarian cancer, and that the majority of those patients, over 70% of those patients are really treated out in the community medical oncology segment. Whereas, ovarian cancer generally more of that is treated in academic centers. Obviously, we have presence in both of those settings, our market shares are higher in the community oncology setting than they necessarily are in the academic settings. And so that positions us very well for those conversations out there in the medical oncologist’s office in the community. I think it’s interesting to note that 3,300, it’s a relatively concentrated set of physicians that handle 75% of that. So, even when we say, if they are mostly treated in the community setting, it’s actually mostly in a subset of physicians that do the largest volume in those community settings located in places where you would expect the higher density areas. And so, we made sure from a sales execution standpoint that we’re going to change the way they target and call on those physicians to ensure that we get much higher frequencies with those physicians that are treating a higher number of those metastatic breast cancer patients. So, I think that gives us an opportunity to penetrate this market in our way that we may not necessarily have seen what the original - with the ovarian cancer launch of BRACAnalysis CDx.

Okay, very helpful. And then on ACR guidelines for Vectra, can you give us an update on timing for that and the potential for inclusion of Vectra in those guidelines and how that might impact adoption of Vectra?

The expectation is that the ACR guidelines revisions would be out before the end of the fiscal year certainly, and so that’s something that could come any month. We know that Vectra was being considered for inclusion in those as one of the disease activity measures. We know there’s a lot of community support for that as we’ve mentioned 75% of rheumatologists in the country order Vectra. So - and over 300,000 patients have been tested. So there has been quite a ground swell of utilization of Vectra. So, there’s a lot of physicians that certainly are very supportive of that and they had opportunities to provide comments to the guidelines setting committee that was considering its inclusion, Vectra's inclusion in those. So, we’ll have to see how that plays out here over the next few months. To your point, those are very important because typically for commercial payers, they follow those medical society guidelines because it’s important and as it enters the guideline it now considers standard of care, and obviously payers need to and want to follow anything that is deemed a standard of care and so historically inclusion in guidelines has really been a catalyst for us to be able to broaden commercial payer coverage. And so those are things you certainly should look for as Vectra and is that included and just as a reminder there are other potential guidelines coming on things like Prolaris and myPath Melanoma in NCCN guidelines. Any of those types of guidelines should be viewed as a significant step forward as far as a reimbursement catalyst as well. So, those are all events here that can happen over the next few months.

Great. Thanks for the color.

That's all the time that we had for today. I will now turn the call back to the presenters for their closing remarks.

Thanks George. 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, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.