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Despite Impending Challenges, Myriad Offers Rosy Projections at Investor Conference

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By Turna Ray

Despite significant legal and regulatory challenges on the horizon, Myriad Genetics remained on message at an investor meeting this week, maintaining that none of these hurdles will impact the company's business going forward.

In March, a federal district court invalidated several of Myriad's patent claims on isolated BRCA1 and BRCA2 gene sequences and diagnostic methods for its flagship BRACAnalysis test, which assesses hereditary breast and ovarian cancer risk (PGx Reporter 03/31/10).

BRACAnalysis is covered by 23 patents in the US and by five patents in Europe. The lawsuit brought against Myriad, University of Utah, and the US Patent and Trademark Office by the Association for Molecular Pathology, the American Civil Liberties Union, and the Public Patent Foundation challenges 15 out of 179 claims in seven of those patents. Myriad has previously told investors that the outcome of this trial will not materially impact its business or sales of BRACAnalysis (PGx Reporter 03/10/10).

Myriad President Mark Capone repeated this position this week at the UBS Global Life Sciences Conference in New York. "As our general counsel likes to say, at the beginning of this process we had 23 patents, at the end of this process we should have 23 patents," Capone said.

The other area of uncertainty for Myriad, as well as other laboratory-test developers, is the US Food and Drug Administration's stated intention to increase oversight of LDTs, which have been traditionally overseen under the Centers for Medicare & Medicaid Services' Clinical Laboratory Improvement Amendments. However, the specter of impending FDA regulation doesn't worry Myriad, since company officials expect that most of its tests will escape additional FDA scrutiny and be "grandfathered in," Capone said.

These rosy projections may amount to a bit of posturing on the part of Myriad officials for an investor audience, since its business, at least in the short run, has been strained by the economic slowdown.

For its 2010 fiscal year ended June 30, Myriad reported revenues of $363 million. Although this was an 11 percent increase over $327 million it posted in fiscal year 2009, it represents a slowdown relative to the average year-over-year growth rate of around 40 percent that it has seen for the past seven years. During fiscal year 2009, for example, the company's revenues increased 47 percent over the previous year (PGx Reporter 08/11/10).

The company attributes lower growth margins to unemployment, underemployment, and reduced customer confidence. Due to these factors, people are seeing their doctors less and are increasingly sensitive to out-of-pocket costs for medical procedures such as hereditary breast and ovarian cancer genetic testing, which may not be reimbursed if the insurer feels that the test has been given to the wrong subset of patients (see related story, this issue).

Myriad's stock has been steadily declining since the gene patenting suit was filed last year. A 52-week average of the company's stock price shows a high of $29.84 on Sept. 21, 2009, and a low of $14.11 on July 30. Following the company's presentation at the UBS conference on Sept. 21, the company's stock price closed at $16.22, down $0.47 from the prior day.

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Although Myriad has eight marketed tests in its portfolio, BRACAnalysis is by far the company's most mature product, comprising nearly 90 percent of its revenues. The company has said previously that it intends to counter the impact of the weak economy by launching direct-to-consumer advertising campaigns in certain locales, focus its sales force to increase BRACAnalysis testing among OB-GYNs, and increase physician-to-physician educational activities.

Additionally, as a long-term growth strategy, Myriad is focusing on expanding into the European market in the next two years and is working with pharmaceutical partners to break into the companion diagnostics space.

Lawsuit Update

Myriad is appealing the federal district court's decision regarding its patents in the Federal Circuit Court of Appeals. "We stand confident that we should be able to get a reasonable review," Capone said. "Many patent lawyers agree that there is a good chance that this decision could be overturned at the Court of Appeals."

As Myriad and the defendants await word from the Federal Circuit with regard to a timeline for oral arguments, the company is gathering briefs from experts supporting its case.

Capone projected at UBS that the appellate court's decision will likely come next spring, with oral arguments being heard from both parties sometime later this year.

He also suggested that the legal costs for this case won't put much of a dent in the company's finances. Myriad has a fixed budget of $200,000 for legal activities. Since the gene patenting lawsuit is a high-profile case, Myriad seems to be getting legal representation for a bargain, "since the lawyers want their names on it," Capone added.

Regulation Schmegulation

Although many test developers have been sweating bullets over how FDA's evolving plan to regulate LDTs will impact their businesses, Myriad is playing it cool, even though all of its tests fall into the LDT category.

At the UBS conference, Capone maintained that wherever FDA's regulation over LDTs lands, the company's tests will not be materially impacted. "Myriad's view is that many of our tests will probably be grandfathered by the time this regulation is completed," he said, adding, "We think we're in a good position to flourish in a regulated LDT environment."

What's more, the company sees FDA regulation over LDTs as potentially advantageous from a competitive standpoint. "If anything, this probably just provides a barrier to entry for some of the other companies that are less well capitalized than Myriad," Capone said.

At a July meeting on its proposed LDT regulation, the FDA indicated it is considering downgrading in risk classification certain regulated tests as a way to manage its limited resources; phasing in regulation of LDTs that aren't currently regulated; collaborating with the National Institutes of Health to develop a test registry that could serve FDA's purposes for keeping an eye on all test developers; and possibly enlisting the help of third-party inspectors to help the agency with its increasing regulatory burden (PGx Reporter 07/21/10).

Currently, FDA regulates medical devices according to a three-tiered risk categorization system, with class III devices conferring the highest risk. Capone believes that LDTs will also be regulated based on a similar risk classification system.

FDA officials have said that they decided to lift the agency's three-decade-long practice of "enforcement discretion" over LDTs because these types of tests have grown in use, are being aggressively marketed to a broader consumer base, and are developed by multiple entities, not just at a single lab.

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Myriad's test is not sold direct-to-consumer, but requires a physician's prescription. Still, the company does engage in DTC marketing of its test. Myriad, in trying to penetrate into the women's healthcare market with BRACAnalysis, believes that as many as 6 million women should be tested and OB-GYNs should be performing between one and two tests per week.

However, FDA's regulatory actions against DTC genomics firms such as Pathway Genomics signal its belief that broadly marketing a test to consumers can elevate its risk to public health, thus requiring marketing approval from the agency. In the case of Myriad, several insurers have expressed concern that the company's aggressive marketing push for BRACAnalysis may be leading to unnecessary testing. Payors have tracked that 20 percent of requests for BRACAnalysis within their systems don't meet treatment guidelines from professional societies.

If a BRACAnalysis test shows a woman to be mutation-positive for BRCA1 and BRCA2 genes, then she has an 82 percent risk of developing breast cancer and a 44 percent risk of getting ovarian cancer. The preventative strategies for these women can include therapeutic intervention, but can also be as invasive as prophylactic radical mastectomy or a prophylactic oophorectomy.

The prospect of women taking unnecessary invasive action can be particularly troubling when one considers that broad marketing of a test may increase the number of women being exposed to false-positive or false-negative test results. There have been reported instances of women who have gotten mastectomies based on a BRACAnalysis test result, and have found out later that the test results were wrong. Conversely, studies have found that a proportion of women at high hereditary risk for breast and ovarian cancer have been deemed mutation-negative by BRACAnalysis, but ultimately developed cancer.

Given these issues, it remains to be seen whether FDA feels that aggressive marketing of a physician-prescribed test, such as BRACAnalysis, increases its public health risk.

Ultimately, if Myriad has to file for marketing clearance for its products through FDA, then the company plans to proceed in a least-burdensome manner. Capone noted that the agency has indicated a willingness to accept retrospective studies for such clearance.

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