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Acquisition, Expansion, Diversification: Myriad Looks to Evolve Beyond Cancer Diagnostics

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By Turna Ray

Beating Wall Street
forecasts and reporting 13 percent growth in third-quarter revenues, Myriad Genetics this week outlined plans to expand beyond the cancer diagnostics market, gain a leadership position in companion diagnostics, and establish a presence in Europe.

Myriad officials outlined this growth strategy during a conference call to discuss the company's financial results for the fiscal third quarter. The call came less than a week after Myriad announced its plan to acquire diagnostic developer Rules-Based Medicine — a move that will likely be a core component of its ongoing expansion plans.

The deal, worth $80 million and expected to close by May 31, bolsters Myriad's cancer diagnostics portfolio; provides access to outcomes-linked patient samples to support diagnostic validation studies; and allows the company to develop diagnostics for new markets including neuroscience, infectious disease, and inflammatory conditions. RBM's 20 partnerships with major drug developers around biomarker discovery and companion diagnostic development also fulfill Myriad's stated intent to be a major player in the companion diagnostics market.

The acquisition is also likely to bolster the confidence of some investors who feel that the growth of Myriad's flagship BRACAnalysis product is plateauing and that the company should accelerate adoption of other tests (PGx Reporter 03/09/2011).

In the past, Myriad has said it is investigating options for taking its business to Europe. During this week's call, company officials said that Myriad has decided to begin marketing its tests in France, Italy, Spain, Germany, and Switzerland, and is on track to establish a European presence by 2012.

For the three months ended March 31, Myriad reported $102.4 million in revenue, compared to $90.8 million a year ago, which outperformed Wall Street forecasts for $98.2 million in revenue.

BRACAnalysis remained the company's primary revenue driver, contributing $90.3 million. While this was an absolute increase over $79.8 million in BRACAnalysis revenues a year ago, sales of the test comprised 88 percent of total revenues in both the current and prior-year periods.

Colaris and Colaris AP products grew 7 percent year over year to $7.4 million, while the six other products in Myriad's portfolio saw a 14 percent increase in revenues to $4.7 million.

The company over past quarters has focused on further penetrating the diagnostic markets for ovarian cancer, triple-negative breast cancer, and ductal carcinoma in situ. According to Myriad CEO Peter Meldrum, the company saw 13.5 percent growth in the uptake of its tests by oncologists in the third quarter. This was bolstered by increased marketing efforts, though the company was also able to avoid the negative impact from increases in health insurance plan deductibles.

Myriad saw around 11 percent growth in the OB-GYN market, which "was impacted more by the resetting of deductibles, because it's more of a discretionary plan," Meldrum said.

Myriad increased third-quarter R&D spending by 14 percent, to $6.7 million from $5.9 million during the fiscal third quarter of 2010. The company's SG&A spending rose to $42.8 million, up 5 percent from $40.8 million.

As of March 31, the company had $451.5 million in cash, cash equivalents, and marketable investment securities.

During the conference call, CFO James Evans said the company is raising its full-year 2011 revenue guidance to between $396 million and $402 million from $380 million to $395 million.

Following the release of Myriad's third-quarter earnings, several analysts issued positive reports, citing the RBM acquisition, the company's European growth plans, and the increase in BRACAnalysis revenues as promising developments. However, analysts remain uncertain about the company's future prospects, due to ongoing legal challenges against its BRCA gene patents and ambiguity as to how the American Medical Association's new molecular diagnostic CPT codes will impact the reimbursement outlook for the company's tests.

Last year, a federal district court invalidated several of Myriad's patents related to the BRACAnalysis test. The Federal Circuit Court of Appeals heard oral arguments in Myriad's appeal on April 4, but the judges' questions revealed little about which way the court might be leaning (PGx Reporter 04/06/2011).

Regarding AMA's new CPT coding structure for molecular tests, David Ferreiro of Oppenheimer wrote in a note: "Whether BRACAnalysis will be included on the lab fee schedule or the physician fee schedule remains a key question that could be answered in the coming months."

Under AMA's proposed CPT coding structure, Myriad's BRACAnalysis and Colaris tests are listed under category 1 test codes. Tier 1 codes represent "the majority of commonly performed clinical molecular analyses," according to AMA, which intends to put its proposed two-tier CPT coding system into effect by 2012 (PGx Reporter 03/16/2011). At that point, the current practice of code "stacking" will no longer be permitted.

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"We're going to the committee and a determination is being made as to whether or not [the codes for BRACAnalysis and Colaris] will go to the physician fee schedule or the clinical fee schedule," Meldrum said during the call. "We believe that BRACAnalysis is appropriate for the clinical fee schedule, as there really is no physician interpretation or interaction with that test."

According to experts, whether a test is reimbursed under the physician fee schedule or the lab fee schedule could impact the test's reimbursement amount. The AMA intends to hold public hearings on the CPT coding structure in July. "We anticipate that pricing information will be made available publicly this fall," Meldrum said.

Over the years, there has also been some speculation as to whether Myriad plans to migrate its testing platform onto next-generation sequencing technologies. Currently, Myriad's BRCA test employs a combination of Sanger sequencing and PCR methods.

During the earnings call, Meldrum noted that while the company has Illumina HiSeq and Roche 454 machines in its laboratories and is interested in upgrading to new sequencing technologies in the future, the company will not make that move until it is certain that these new technologies are clinically valid and accurate in a commercial setting.

Acquiring New Capabilities

By bringing RBM under its aegis, Myriad is looking to step out of its core oncology focus and develop tests in psychiatry, infectious diseases, and inflammatory conditions. Additionally, Myriad plans to leverage RBM's existing relationships with drug developers to gain additional revenue from biomarker discovery deals and Rx/Dx collaborations.

Traditionally, Myriad has expertise in discovering RNA and DNA biomarkers. Now with access to RBM's multiplex immunoassay technology, Myriad can grow its capabilities into protein-based biomarker discovery.

"Multiplex immunoassay technology will enable us to screen large sets of patient samples, from both diseased and non-diseased populations, against RBM's exclusive portfolio of biomarker assays," Meldrum said in the call. "The combination of this powerful protein-based biomarker platform coupled with Myriad's leadership in DNA and RNA biomarker discovery is expected to accelerate our discovery and development of new molecular diagnostic products."

Meldrum believes that the RBM acquisition will start to be accretive in two years. He highlighted several tests in RBM's mental health product portfolio that Myriad will focus on commercializing in the near term. The leading test in RBM's portfolio is VeriPsych, which is a 51 biomarker-based blood test that helps psychiatrists distinguish schizophrenics from normal individuals.

"The US military has already shown a strong interest in using this test," Meldrum said. The test is currently being offered through RBM's CLIA lab in Austin, Tex.

RBM is also developing a psychiatric differential diagnostic test that helps psychiatrists categorize patients between schizophrenia, biopolar disorder, and major depression disorder, so patients can receive the appropriate treatment. "These conditions are currently diagnosed by psychiatrists using subjective measures and [patients] are often misdiagnosed upon initial evaluation," Meldrum noted, adding that Myriad anticipates this test will be ready for commercial launch in the next two years.

In other disease segments, RBM is developing products for the early detection of kidney damage in diabetic patients, an early detection test for kidney transplant rejection, and a test to predict a hepatitis C patient's response to the interferon alpha class of drugs.

Under the terms of the acquisition, Myriad plans to bring 160 RBM employees under its umbrella. The company will be renamed Myriad RBM Inc. Myriad will continue RBM's diagnostics discovery and development activities from its facilities in Austin, while its commercial operations will be moved to Myriad Genetic Laboratories in Salt Lake City, Utah.

Regarding companion diagnostic deals, Myriad has inked several agreements to apply its BRACAnalysis test to personalize treatment with PARP inhibitors under development at AstraZeneca, Abbott, and BioMarin (PGx Reporter 04/13/2011).

RBM's existing relationships with 20 pharmaceutical firms will now provide Myriad with links to Allergan, Amgen, Bayer, Biogen Idec, Boehringer Ingelheim, GlaxoSmithKline, Johnson & Johnson, Lilly, Merck, Novartis, Pfizer, Roche, and others.

"Through these collaborations, RBM has obtained companion diagnostic rights to many of the drugs in development," Meldrum said. "In addition to diagnostic rights, RBM gives us access to patient samples with outcome data from multiple disease indications."

The Move Overseas

Upon completing its market research into the resources and strategy necessary to enter the European market, Myriad has decided to establish a presence in five countries: France, Italy, Spain, Germany, and Switzerland. According to Gary King, Myriad's executive VP for international operations, after evaluating 100 potential distributors and laboratories in Europe, Myriad "did not find a partner or acquisition [opportunity] that could provide coverage, clinical expertise, or significant near-term revenue."

As such, Myriad has decided to build its own European reference laboratory in Munich and build direct education and marketing capabilities in the target countries. One reason for the Munich location is the fact that Germany requires in-country testing for insurance reimbursement of tests. Myriad's European headquarters will be located in Switzerland.

Myriad picked these countries because "genetic predisposition and personalized testing is accepted clinically and reimbursed at high levels," King said. Additionally, many of these countries also have a large private insurance market, which might help in establishing payment policies for Myriad's tests.

Myriad estimates the molecular diagnostics market in Europe to be three-quarters the size of the US market, with growth opportunities most immediately in oncology and pharmacogenomics. However, in Europe the current use of genetic predisposition testing is much lower than in the US, which provides Myriad an opening to establish a leadership position.

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Lower genetic predisposition testing in Europe "may be due to the lack of organization or a large company such as Myriad supporting local clinical education, or the ability of local laboratories to provide quality testing within a reasonable turnaround time," King observed, adding that the company plans to invest in local clinical education and build patient and doctor awareness of such testing in European markets.

Myriad believes it can improve testing quality and services to customers currently receiving BRCA testing in its target markets. Based on Myriad's survey of 200 practitioners using a BRCA test, the company found that it takes an average of six months, and as long as 12 months, to obtain results from current test providers.

"Due perhaps to this long turnaround time, the results of the BRCA test are not able to be incorporated into initial surgical decision making as they are in the US," King said. Also, King claimed that the quality of tests performed overseas is lower than test results through Myriad, since "the variants of unknown significance reported range from 20 percent to 40 percent depending on the European laboratory doing the testing."

Myriad is anticipating its BRCA test will be priced competitively to other tests on the European market. King estimates that currently available BRCA tests cost between €1,500 ($2,240) and €2,500 ($3,700). Myriad charges $3,340 for BRACAnalysis in the US. "Myriad's turnaround time of less than two weeks, unknown variant rate of 2 percent to 3 percent, and a similar selling price, compares favorably to these metrics," King said.

According to King, Myriad has begun recruiting technical, management, and clinical staff in Europe. The European laboratory will be completed later this year.

King said the company is hoping to have an established presence in the five target countries by 2012 and expects to spend around $5 million to fund activities related to the expansion.


Have topics you'd like to see covered in Pharmacogenomics Reporter? Contact the editor at tray [at] genomeweb [.] com.

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