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With Strong Q2 Revenues, Myriad Focused on Dx Portfolio, International Growth

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In the second half of its fiscal year 2014, Myriad Genetics will focus on diversifying its portfolio of diagnostics products and growing its international footprint, company officials said during an earnings call this week.

Having launched the myRisk next-generation sequencing-based hereditary cancer panel, the myPath Melanoma test, and the myPlan Lung Cancer test in the last six months in the US, Myriad is setting its sights on Europe. MyPath Melanoma helps physicians differentiate benign and malignant skin lesions and myPlan Lung Cancer helps doctors gauge a patient's risk of death in five years.

CEO Peter Meldrum announced that, given the positive reaction from US oncologists toward the 25-gene MyRisk panel, the company will launch the test in the EU this quarter. Myriad is hoping to transition all its hereditary cancer testing onto the NGS-based panel by the summer of 2015.

"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," Meldrum said. "The second strategic initiative is to grow our business globally. We are seeing meaningful progress in the international market, and have a clear line of sight to several major growth catalysts."

Highlighting that Myriad's international testing business grew by 130 percent in the fiscal year 2014 second quarter compared to the prior year, Meldrum added that the company will also introduce myPath Melanoma in Europe this quarter. In the US, thought leaders and early-access pathologists ordered 600 MyPath Melanoma tests in the first eight weeks of the test's launch.

"We are at a point where our product pipeline will begin contributing meaningfully and will enable us to deliver and diversify our business over the coming years," he told analysts.

For the three months ended Dec. 31, 2013, Myriad reported revenues of $204.1 million, up 37 percent from $149.1 million in the second quarter of 2013. The company's molecular testing revenues similarly rose 39 percent year-over-year, to $196.2 million from $140.7 million, led by its BRCA testing business.

BRACAnalysis and the BRACAnalysis Large Rearrangement Test brought in $141.2 million and $24.7 million in revenues, an increase of 28 percent and 57 percent, respectively. These two tests together accounted for more than 80 percent of the company's total revenues. "Almost all BRACAnalysis tests now have a corresponding BART test," CFO James Evans told analysts during the earnings call.

In past quarters, Myriad's revenues were bolstered by the news that actress Angelina Jolie, based on her BRCA test results, decided to get a double mastectomy. That impact appears not to be waning. Myriad's test revenues in its women's health segment increased 90 percent in the second quarter to $94.6 million, comprising 48 percent of diagnostic revenues. Evans noted that while revenues for the women's health segment "benefited from celebrity publicity early on in the quarter," the impact was "indiscernible by December." He estimated that the so-called "Jolie effect" added between $15 million to $20 million to Myriad's revenues in the quarter.

Meanwhile, Myriad's Colaris and Colaris AP franchise contributed $15.6 million, a 29 percent increase. Since Myriad launched the Myriad myRisk Hereditary Cancer test in September it has garnered revenues of $11.5 million. The other tests in Myriad's portfolio had combined revenues of $3.2 million, up 25 percent year over year.

Myriad also announced this week that it will acquire rheumatoid arthritis-focused diagnostics firm Crescendo Bioscience for $270 million in cash. The acquisition amount will be reduced by $25 million to repay a loan made to Crescendo. The transaction is slated to close by the end of fiscal year 2014.

Crescendo's lead product is Vectra DA, a blood-based test that measures the levels of 12 proteins. Doctors can use this test in conjunction with standard clinical measurements to track disease activity in RA patients. Myriad estimates a $3 billion global market opportunity for Vectra DA, with which Crescendo tested 27,000 patients' samples during the previous quarter.

Myriad updated its financial guidance for the fiscal year ending June 30, now expecting revenues to be in a range of $740 million to $750 million, up from a previous range of $700 million to $715 million.

Tumor BRCA test for Europe

During the quarter, however, Myriad's companion diagnostics services revenues took a 7 percent dip, bringing in $7.9 million compared to $8.5 million in the second fiscal quarter of 2013.

However, as Myriad's numerous collaborations with drug developers mature, CDx services stands to be a bigger contributor to its earnings. For now, Myriad's partnership with AstraZeneca to advance a companion test for the PARP inhibitor olaparib is the project that's furthest along.

Myriad has submitted an investigational device exemption application with the US Food and Drug Administration to use its BRACAnalysis test in Phase III olaparib trials to pick out which ovarian cancer patients have germline BRCA mutations and are most likely to respond to the drug.

However, it's likely that AstraZeneca will launch olaparib first in the EU within the next 12 months, according to Meldrum's projections. "Since physicians will need test results very quickly in order to find patients who may benefit from olaparib, our two-week turnaround time puts us in a strong position to capture an attractive market share of this new market opportunity," Meldrum told analysts.

In the European market, Myriad will also launch a BRCA test that gauges somatic mutations, since patients who may not have inherited a germline mutation may still develop a mutation in their tumor. A somatic mutation would not be picked up by BRACAnalysis, which analyzes blood samples.

Meldrum estimated that a tumor BRCA test would "detect 30 percent more responders to olaparib than conventional germline BRCA testing" using BRACAnalysis. It's unclear if Myriad is planning on developing and launching a similar companion BRCA test in the US market.

Anticipating reimbursement

Myriad recently presented interim results from the PROCEDE 500 clinical utility study for its Prolaris test at a medical conference, which showed that the prognostic prostate cancer diagnostic influenced treatment strategy for the majority of 150 surveyed doctors.

The firm is planning to publish complete results from PROCEDE 500 in a peer-reviewed journal, and is hoping that the study data will convince the Centers for Medicare & Medicaid Services to cover Prolaris for the Medicare population. Meldrum told analysts during the call this week that he anticipates Prolaris will achieve Medicare coverage by the end of the 2014 fiscal year.

In the second quarter, Myriad experienced a hiccup when CMS finalized pricing for BRCA1 testing at $1,438. Originally, when CMS posted its national limitation amount in November at that price, Myriad was informed by Medicare contractors that the listing was an error.

However, in a December notice, CMS finalized the $1,438 amount for code 81211, test for the BRCA1/2 genes, and code 81214 for the BRCA1 gene only. The final pricing amounts to a 49 percent reimbursement cut, since CMS was previously reimbursing BRCA1/2 testing at $2,795.

Less than 10 percent of Myriad's total revenues from BRACAnalysis come from the Medicare population. The company has written to CMS to try to change its mind in this regard, and so have several trade organizations.

"Myriad has submitted reconsideration comments to Medicare voicing our significant concerns surrounding the rationale and process utilized in determining the reimbursement rate for the sequencing of BRCA1 and BRCA2 genes," Mark Capone, president of Myriad Genetic Laboratories, told analysts during the earnings call. "It remains unclear how CMS' actions were consistent with capital regulation, with the requirements for median pricing, and why BRCA 2 is no longer reimbursed."

The American Clinical Laboratory Association, The Coalition for 21st Century Medicine, the California Clinical Laboratory Association, and AdvaMed have also submitted comments to CMS asking the agency to reconsider its pricing for BRCA testing.

CMS is accepting comments on its gapfill payment amounts for BRCA1/2 testing until Feb. 28, and will issue a decision by April.

Impact from competition

The reason for the reduced price for BRCA1/2, according to CMS, is increased market BRCA competition following the US Supreme Court's decision in Association for Molecular Pathology et al. vs. Myriad.

In that case, the court found several of Myriad patent claims in isolated gene sequences patent ineligible, and certain cDNA claims eligible. Following the ruling, several companies introduced BRCA1/2 testing to compete with Myriad, which was the sole provider of BRCA testing for nearly two decades.

"Prior to a Supreme Court decision earlier this year, only one laboratory was providing tests for the BRCA gene. Following the Supreme Court decision, additional laboratories began providing the test," CMS informed in a release a few months ago. "The [Medicare Administrative Contractors] received data on the pricing by the laboratories offering the test. Based on the new information, the MACs submitted pricing information for CPT code 81211 that resulted in a NLA of $1,438.14."

Since the entrance of these competitors, however, Myriad has challenged most of these labs in Utah federal district court, alleging they are infringing the firm's still-valid patents covering BRCA testing. Some have countersued.

In the new competitive landscape, Myriad has also highlighted that its BRCA test is more accurate due to the amount of time its has been on the market, testing 1 million patients, and its faster turnaround time of around two weeks compared to competitors. Capone told analysts during the earnings call that Myriad "saw a modest incremental share loss" – approximately 15 percent of total revenue – in the second quarter due to competition in the BRCA testing space.

"With 90 percent revenue growth this past quarter in the Women's Health market, I'm hard-pressed to find significant market share loss," Meldrum said.

Capone further diminished analysts' concerns about Myriad's ability to lead the hereditary cancer market. "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," he said. "And they appreciate that [with] Myriad's experience, [its] myVariant Classification program, and the very high accuracy that we perform … [we] will provide them the most accurate test."

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