In the last fiscal quarter of 2013 Myriad Genetics' business faced some challenges, although one wouldn't know it by looking at the company's earnings.
In May, actress Angelina Jolie wrote in a New York Times editorial about her decision to get a preventive double mastectomy after learning she harbored BRCA mutations. In the same piece, she mentioned that the cost of BRCA testing is more than $3,000 in the US and "remains an obstacle for many women."
At the time of this editorial, Myriad was the only company offering BRCA testing in the US, and to date, although there are other firms offering competing tests, Myriad remains the market leader by a wide margin. After publication of Jolie's story, and with an impending Supreme Court hearing on its BRCA testing patent claims, Myriad's stock price took a hit. However, it seems Jolie's star power benefited the company's top line.
During a call with Wall Street analysts to discuss fourth quarter and fiscal year 2013 earnings, Myriad officials noted that "recent celebrity publicity" around hereditary breast cancer impacted fourth quarter revenues by $7 million to $9 million. For the quarter, Myriad reported $174 million in revenues, a 31 percent increase from the same quarter last year. For full fiscal year 2013, Myriad reported $613 million in revenues, a 24 percent increase from the 2012 fiscal year.
The company's revenues surpassed Wall Street consensus revenue estimates, which were $159.9 million for the fourth quarter and $598.8 million for the fiscal year.
Before the firm's 2013 fiscal year closed on June 30, the Supreme Court issued a decision in the case Association for Molecular Pathology et al. v. Myriad, in which the justices invalidated several of the company's patent claims on isolated BRCA1 and BRCA2 sequences, underlying its BRACAnalysis test, which in the fourth quarter of 2013 was responsible for approximately three-quarters of the company's revenues. The court, however, upheld the firm's claims on synthetic DNA, used as probes and primers in diagnostic testing.
Immediately following the decision, several diagnostics firms moved to compete with Myriad by launching commercial BRCA testing services. With the long-term impact of the Supreme Court's decision with regard to Myriad's BRCA patent claims still unknown and increasing competition in the space, market observers speculated that although it may take several years for competitors to build up clinical evidence on their tests and convince payors before meaningfully cutting into Myriad's BRACAnalysis revenues, Myriad would likely face near-term pressure to lower the price of the test.
"I am aware that recent events have created some uncertainty about our business," Myriad CEO Peter Meldrum told analysts during the earnings call this week, assuring them that the firm's future prospects were strong and FY 2014 would be a "transformative" year.
Factoring in potential competition in "core markets," Myriad forecast FY2014 revenues of between $690 million to $710 million, which translates to 13 percent to 16 percent revenue growth from the past year.
Myriad is planning to the launch the myRisk Hereditary Cancer panel in September, which is earlier than the firm had initially planned. Subsequently, Myriad will launch two additional tests: myPath Melanoma for determining whether a skin biopsy is malignant or benign, and myPlan Lung Cancer, for helping doctors decide whether an early-stage lung cancer patient should receive chemotherapy.
In an interview with PGx Reporter, Meldrum noted that this will be the first time Myriad launches three new tests in one year. The revenue from these three tests will likely not impact Myriad's revenues next fiscal year, however.
By 2015, Myriad is planning to phase out BRACAnalysis and its other hereditary cancer diagnostics, and test patients for alterations in 25 genes on the myRisk panel. However, until then, the company will push to maintain its leadership position in the hereditary breast and ovarian cancer diagnostics market.
In July, Myriad started fiscal year 2014 by suing two diagnostics shops offering BRCA testing, Ambry Genetics and Gene by Gene. Subsequently, in August, Ambry countersued Myriad, alleging antitrust violations (PGx Reporter 8/7/2013).
The federal district court in Utah will hold a preliminary hearing in September in the lawsuit and countersuit between Myriad, Ambry, and Gene by Gene. Myriad maintains that it still has 500 valid claims in 24 patents underlying BRACAnalysis, an assertion that will be tested in the upcoming lawsuits against Ambry and Gene by Gene. "Based on the strength of our patent estate, the patent owners have taken legal action against two companies, who we believe are infringing these patents," Meldrum said during the call. "Litigation is in the early stages and our policy is not to discuss ongoing litigation matters."
Myriad's molecular diagnostic testing revenue in the fourth quarter was $166.1 million, a 30 percent jump compared to $127.5 million for the fourth quarter of 2012. The BRACAnalysis and BRACAnalysis Large Rearrangement Test brought in $129.6 million and $18.8 million in revenue, respectively, during the quarter. BRACAnalysis revenues increased by 19 percent and BART revenues grew by 310 percent over the comparable quarter.
With the prospect of facing competition in the BRCA testing space, Myriad has been highlighting the very low rate of variants of unknown significance, or VUS, for BRACAnalysis. A VUS is a gene abnormality that researchers and healthcare providers aren't sure is linked to cancer based on available evidence. According to Myriad, less than 3 percent of BRACAnalysis test results yield a VUS.
During the call with investors, Myriad's Capone explained that the company must pick up a VUS in 20 different individuals and test for free 10 additional family members in order to classify the variant as either deleterious or benign. "Our extensive variant classification procedure is our critical differentiator," Capone said. In testing more than one million patients on BRACAnalysis, Myriad said it has identified nearly 20,000 cancer-linked gene mutations, a feat that has cost the company more than $100 million.
"In the process, we have developed proprietary classification algorithms that are now responsible for classifying 70 percent of uncertain variants," Capone said. "Laboratories relying on the largest unregulated public database have access to only 3,800 mutations."
Myriad highlighted that even with the volume of patient samples it analyzes in its lab, the company comes across 15 new gene mutations each week. "In fact, there are no common mutations in the general population and less than 4 percent of the mutations we have identified have a frequency of greater than 1 in 10,000 patients," Capone said. "Clearly, the work we have done classifying mutations creates a meaningful competitive advantage for our test, relative to any competitive offerings."
Myriad has begun conversations with payors about BRACAnalysis, discussing the differences between its test and competing diagnostics. While other labs may be offering BRCA testing at a lower price than Myriad is, the company has maintained BRACAnalysis is comparatively more accurate. On average, payors' reimbursement for Myriad's BRACAnalysis and BART tests together is around $3,700. Competitors such as Ambry Genetics offer BRCA testing services with a list price of around $2,200, and payor reimbursement would likely be at a discount to the list price.
Myriad has completed a health economic model for BRACAnalysis that demonstrates that the test can save a payor $2,615 per patient tested, given the greater accuracy of the test compared to other BRCA tests on the market. The company has shared this data ahead of publication with several payors.
"Patients with an uncertain variant test result are instructed to make treatment decisions based solely upon family history and often pursue aggressive and expensive interventions," Capone said. "Laboratories with a higher uncertain variant rate, many of which are eventually classified as benign, will drive significant unnecessary healthcare costs." Using publicly available data, Myriad claims that competing labs have a VUS rate between 20 percent and 30 percent. Ambry has contested this figure in documents filed with the federal district court in Utah, as have other competitors.
Many of the markers gauged currently via Myriad's hereditary cancer diagnostics, including the BRACAnalysis and Colaris tests, will be migrated to the next-generation sequencing based myRisk Hereditary Cancer panel by the summer of 2015.
Meldrum projected that the myRisk Hereditary Cancer test could potentially double Myriad's existing market in hereditary cancer testing. "It took three years to develop the technology to perform this test and ensure 100 percent accuracy at every base pair, a clinically acceptable turnaround time, and a comprehensive user-friendly report," he said.
Mark Capone, president of Myriad Genetic Laboratories, told analysts during the call that the company will initially target 250 physician thought leaders in the first months after launching MyRisk and eventually expand marketing and educational efforts to the broader physician community.
For several years, Myriad employed traditional direct-to-consumer advertising strategies, through television and print media (PGx Reporter 9/12/2007), to get the word out about its BRACAnalysis test. More recently, the company has been using social media tools to spread the word about the test, and it will take a similar approach with the myRisk panel, Meldrum said.
While Myriad hasn't yet publicized its specific marketing strategy for myRisk, those interested in the panel can sign up for updates about the test through the company's website. The company will also make available a myRisk Hereditary Cancer quiz, which people can take to gauge whether they should be tested on the panel based on their family and medical history.
"We'll continue to have the patient work through their physician, who will be their ordering customer for Myriad," CFO James Evans told PGx Reporter. "They'll have [the physician] to rely on to help them understand whatever their variant result might be, even on a more complex test."
Myriad said it has completed multiple pivotal studies involving the myRisk test and is planning to present data at major medical conferences in the fall to coincide with the launch of the panel.
While market observers appear convinced that Myriad will be able to maintain its leadership position in the BRCA testing marketing with BRACAnalysis, they need convincing that the firm will be able to overtake competing diagnostics shops that already market next-generation sequencing-based cancer tests.
Meldrum told analysts during the earnings call that competitors' hereditary cancer panels have long turnaround times – up to 90 days – and are not comprehensive, since they have not been testing BRCA1 and BRCA2 genes for as long as Myriad has. "All the benefits and advantages we have with our experience with BRCA1 and BRCA2 will come to bear with those panels," Meldrum said.
Following the Supreme Court's decision in AMP v. Myriad, pioneering genetics researcher Mary-Claire King said that her lab at the University of Washington would add BRCA1 and BRCA2 to its NGS-based hereditary cancer panel, called BROCA. GeneDx and a handful of commercial labs have announced plans for similar test offerings.
Another advantage Myriad officials highlighted is the firm's longstanding relationships with payors around BRACAnalysis. According to Meldrum, many of the competing labs marketing NGS-based hereditary cancer panels don't have insurance contracts with payors.
He estimated that by 2016 treatment guidelines would likely be expanded to include additional genes that are important for hereditary cancer risk assessment. This may benefit Myriad to the extent that many of those markers "are proprietary genes" included in the myRisk Panel, Meldrum noted.
Previously, Meldrum has highlighted that the company has strong method patent protection around at least eight of the genes in the myRisk panel, including BRCA1, BRCA2, BART, RAD51C, PALB2, PTEN, MYH, and P16. This suggests that the company is planning to exert its method patent rights to keep competitors from gauging these markers in their hereditary cancer risk panels.
During the fourth quarter of fiscal year 2013, Myriad had $8 million in revenues from companion diagnostics collaborations with drug developers, a 47 percent increase over the year-ago fourth quarter. Myriad has six collaborations with various pharmaceutical companies for using its tests to pick out best responders to investigational DNA damaging cancer treatments.
During the fourth quarter, Myriad submitted its first investigational device exemption application with the US Food and Drug Administration to use its BRCA test in five pivotal trials involving AstraZeneca's olaparib. According to Meldrum, the FDA has accepted Myriad's IDE application. AstraZeneca is expecting to garner approval in the European market for olaparib in the next 18 months. If the drug is successfully launched in EU countries, Myriad could be looking to launch its first commercial companion diagnostic in early 2015.
"We believe the potential approval of PARP inhibitors will significantly expand our core market size, [as] almost all breast and ovarian cancer patients would be candidates for these new therapies," Meldrum said during the call. "And many of our collaborators are pursuing approval in lung cancer and gastric cancer as well, which would open up new markets for our test." Moreover, Meldrum added that the approval of olaparib in Europe would allow Myriad to further expand the use of the BRCA test in European markets, where it has been working to grow its presence.
Separately, Myriad reiterated its plans to launch its homologous recombination deficiency, or HRD, test, which detects whether tumor cells have lost the ability to repair DNA damage and as a result, would respond more robustly to DNA-damaging oncologics. Last year, Myriad published data showing that the HRD test score correlates with loss of heterozygosity in tumor cells in a number of cancer cell lines (PGx Reporter 10/17/2012).
"We have now signed HRD [test] collaborations with two major pharmaceutical companies, in addition to our publicly announced collaboration with PharmaMar," Meldrum said.
During the fourth quarter, Myriad's Colaris and Colaris AP tests garnered $14.5 million in revenues, a 26 percent jump from Q4 2012. Meanwhile, Myriad's other molecular tests brought in $3.1 million, a 16 percent increase from the fourth quarter of 2012.
Products in Myriad's oncology segment contributed $100.2 million, a 19 percent increase over the fourth quarter in 2012. Revenue from the women's health segment totaled $65.8 million, representing 51 percent growth year over year.
Myriad's net income for the fourth quarter was $44.1 million, compared to $29.1 million for Q4 2012. Its net income for the year was $147.1 million, up from $112.2 million for FY 2012.
The firm's R&D expense during the quarter was $14.6 million, up 21 percent from $12.1 million for the fourth quarter last year, while its SG&A spending for the fourth quarter jumped 26 percent to $71.5 million from $56.6 million.
The firm's R&D spending for the year increased 26 percent to $53.7 million from $42.6 million, and its SG&A expenses jumped 21 percent to $251.8 million from $208.4 million.
Myriad ended the quarter with $531.1 million in cash, cash equivalents, and marketable investment securities, representing a 17 percent increase year over year.