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Myriad Expects BRACAnalysis to Remain Best Seller in 'Post-Patent' Era

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During a call this week to discuss its second-quarter finances, Myriad Genetics acknowledged that its flagship BRACAnalysis product will likely begin to face competition in the market by 2018, when its core BRCA patents expire.

Myriad CEO Peter Meldrum first assured analysts during a call to discuss the firm's second-quarter fiscal year 2013 revenues that the company will be able to maintain a leadership position in the hereditary breast and ovarian cancer diagnostics market by maintaining strong patent protection around its BRCA genetic testing products, regardless of how the Supreme Court decides in an upcoming case challenging certain gene patents underlying BRACAnalysis. Meldrum noted that there are 24 patents around BRACAnalysis that will deflect competitors until 2018 and its BRACAnalysis Large Rearrangement Test will provide "an added layer of protection" as it gauges up to 10 percent of the deleterious mutations that confer cancer risk but cannot be detected by conventional sequencing.

"I will note, however, that there will be competition likely in the market after 2018, and I would argue that Myriad competes very effectively," Meldrum told analysts. By the time BRACAnalysis faces market competition, however, Myriad will turn its attention to becoming the leading provider of testing for hereditary colorectal and endometrial cancers via its Colaris test.

Myriad's second-quarter financials show that although BRACAnalysis and BART together account for nearly 90 percent of the company's $141 million revenues from molecular diagnostics products, the Colaris test is showing some growth quarter over quarter. Colaris in the second quarter contributed $12 million to molecular diagnostics revenues, compared to $11 million in the first quarter.

Meldrum used Colaris as an example of how Myriad intends to compete in a "post-patent" molecular diagnostics industry.

Colaris "has no patent protection, no competitive advantage. We compete on a completely level playing field with major reference labs, with very prestigious hospital and university laboratories, as well as smaller venture capital-backed startup labs. And yet we dominate that market with 70 percent market share," Meldrum asserted. "So, I think, even on a level playing field and with a premium price product, which is what we have in the Colaris market, our greater accuracy, our turnaround time, our customer service all allow Myriad to compete very effectively in the post-patent era."

However, during the same call, Mark Capone, president of Myriad Genetic Laboratories, indicated that the company plans to add a fifth new hereditary colorectal cancer risk marker to the Colaris panel, the MYH gene, and that the company does hold exclusive patent rights around the gene and its method of use.

"To increase our market share, in addition to increasing market penetration, we are launching a clinical study this quarter to evaluate the inclusion of a fifth gene, MYH, with every Colaris test result," Capone said, explaining that preliminary data suggest that the MYH mutation is as prevalent as PMS2 gene mutations. Capone further added that Myriad holds "the exclusive worldwide rights to both composition-of-matter and method-of-use patents for MYH," enabling patent protection through 2022. "This would allow Myriad to have the most sensitive, proprietary, hereditary colon-cancer test."

The Supreme Court is slated to hear Association for Molecular Pathology et al. v. USPTO et al. sometime in April. In that case, researchers and patients represented by the American Civil Liberties Union and the Public Patent Foundation are challenging BRCA patents held by the University of Utah and exclusively licensed to Myriad. The plaintiffs allege that Myriad's patents are invalid because they claim gene sequences in the body, which are naturally occurring substances and cannot be patented under US law (PGx Reporter 8/22/2012).

The case stands to have impact beyond Myriad's gene patents, since AMP v. USPTO is questioning the validity of patenting genes isolated from the body. The USPTO has granted numerous patents of this type over the years. Myriad officials during this week's call said that with a projected April hearing by the Supreme Court, a decision in the case will likely be out in June.

Growth Drivers

For the three months ended Dec. 31, 2012, Myriad's total revenues grew by 21 percent to $149.1 million. Company officials touted this as the sixth consecutive quarter with top-line growth exceeding 20 percent.

Growth drivers during the quarter included a "bolus" of BART testing and a bump in companion diagnostics revenue driven by Myriad's collaboration with Sanofi. During the second quarter, 65 percent of BRACAnalysis orders included orders for BART, while in the first quarter, only 35 percent of BRACAnalysis orders were accompanied by BART.

BART testing during the quarter brought in $15.9 million, comprising around 11 percent of Myriad's molecular testing revenues.

Additionally, companion diagnostics revenues for Myriad grew by 63 percent from the year-ago quarter, to $8.5 million.

In December, Myriad, Sanofi, and the Population Health Research Institute announced they were working together to identify protein biomarker patterns linked to the pathology of diabetes, early diagnosis, and treatment response. Myriad's Rules Based Medicine subsidiary will use its DiscoveryMAP 250+ immunoassay panel to analyze more than 8,000 serum samples collected as part of the Outcome Reduction with Initial Glargine Intervention, or ORIGIN, study (PGx Reporter 12/19/2012). Sanofi will pay Myriad $10 million to analyze these patient samples over the next two fiscal years.

Meldrum highlighted that Myriad has companion diagnostic development agreements with more than 20 drug developers.

Other future growth opportunities for the company include Prolaris, a test that, in conjunction with clinical parameters, can detect the aggressiveness of a patient's prostate cancer; and Melapath, a test that gauges whether a skin biopsy is malignant or benign.

Myriad plans to present several studies related to Prolaris at upcoming medical conferences. The company is conducting a study, called PROCEED, to provide payors with additional clinical utility data on the test. In September, Medicare contractor Noridian placed Prolaris on its draft non-covered local coverage determination list. Myriad can provide additional data to try to change Noridian's mind before it issues a final coverage decision (PGx Reporter 9/26/2012).

Data from PROCEED, Myriad is hoping, will result in positive Medicare coverage. The company estimates the market for Prolaris to be $1 billion.

Melapath, meantime, is slated for commercial launch this year. Myriad has projected a $400 million annual market for the test based on a selling price of $1,500. The company will sell the test with an eight-person dermatology sales team. Capone noted that the validation studies for Melapath have been completed and submitted for publication.

During the last quarter, after conducting a pipeline evaluation, Myriad decided to return rights for OnDose, a test that evaluates exposure to the chemotherapy fluorouracil in order to guide dosing, to Saladax. "While we continue to believe in the market potential for OnDose, the opportunity costs, including prospective clinical studies relative to our anticipated returns, did not meet our return on investment threshold," Capone explained.

Reimbursement Uncertainty

Although Myriad's $149 million second-quarter revenues beat analyst estimates of $144 million, investment firms issued cautious commentary given the difficult reimbursement environment.

Recently, Medicare contractor Cahaba issued preliminary pricing for a list of molecular tests, in which Myriad's Comprehensive BRACAnalysis test, which includes BART, was priced at a 12 percent discount compared to current reimbursement levels. However, analyst William Quirk of the investment firm Piper Jaffray pointed out that this may not be a significant marker of actual reimbursement levels for the test, since it is paid for by a different contractor, Noridian, which has yet to submit its pricing to CMS. Quirk said his firm expects contractor cuts to BRACAnalysis reimbursement levels to be "minimal," at most 10 percent.

Vamil Divan of Credit Suisse expected a similar decline in BRACAnalysis reimbursement from Noridian. He maintained a "neutral" rating on Myriad, citing "risks on the reimbursement and intellectual property front that we feel overshadow the organic growth potential of the company."

Myriad's quarterly net income rose to $35 million from $28.3 million a year ago. The company increased its R&D spending by 38 percent to $14 million from $10 million in the prior-year quarter. SG&A spending grew 17 percent to nearly $60 million in the second quarter.

Also during the quarter Myriad purchased 1.3 million shares of its common stock for $33.7 million. To date, the company has bought back a total of $500 million of its stock, CFO Jim Evans said on the call. On Tuesday, the company announced that its board has approved a new $200 million stock buyback program.

The company finished the quarter with $468.3 million in cash, cash equivalents, and marketable investment securities.

Given its performance in the past quarter, Myriad raised the low end of its revenue guidance for fiscal 2013. The company now expects revenue to be in the range of $575 million to $585 million, up from a previous range of $570 million to $585 million.

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