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Posting 11 Percent Revenue Growth in FY2011, Myriad Focuses on Growing MDx Pipeline

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By Turna Ray

Following a fiscal year
in which it recorded double-digit revenue growth, Myriad Genetics is setting its sights on growing its internal pipeline, bolstered by recently inked licensing deals and the acquisition of Rules-Based Medicine in May.

"We've made it our priority to increase our internal investment in research and development to continue to deliver new transformative, molecular diagnostic products, which assess a person's risk of disease, guide treatment decisions, and improve a patient's quality of life," Myriad CEO Peter Meldrum said during a call to discuss the company's fourth-quarter and fiscal year 2011 earnings. Myriad's future growth strategy will combine internal development, licensed technologies, and acquisitions, Meldrum added.

For the three months ended June 30, Myriad's total revenues rose 14 percent to $107.4 million. For the full fiscal year, the company netted revenues of $402 million, an 11 percent climb from the $363 million the company reported in FY2010.

Myriad posted a profit of $26 million, or $.30 per share, for the quarter, a 51 percent decline from $53.2 million, or $.54 per share, a year ago. Full-year profits slid 34 percent to $100.7 million, or $1.10 per share, from $152.3 million, or $1.54 per share, in full-year 2010.

During FY2011, molecular diagnostic testing revenue comprised $400 million of total sales. Within this, $283 million came from sales of oncology products, a 9 percent increase over the previous year, and tests in the women's health category generated revenues of $117 million, a 15 percent increase.

Revenues for BRACAnalysis, Myriad's flagship product, rose 10 percent to $353 million in FY2011 from $320 million in the previous year. Revenue for Myriad's colorectal cancer tests, Colaris and Colaris AP, grew slightly to $29 million from $27 million in the prior year. Myriad's six other diagnostic tests together generated $18 million in revenue, representing a 16 percent year-over-year increase.

In the past year, the company focused on growing its colon cancer franchise by adding eight people to its specialty sales force. This group will be in charge of expanding the market for Myriad's colon cancer tests, Colaris, Colaris AP, OnDose, and TheraGuide. If this initial team continues to be successful in increasing sales of these tests, Myriad may add more sales personnel to its colon cancer business, company officials said.

Additionally, following the $80 million acquisition of Rules-Based Medicine in May, Myriad grew its companion diagnostics capabilities, adding $2 million to its FY2011 revenues (PGx Reporter 05/04/2011).

Myriad projected that revenue growth in the next year will likely be driven by further penetration into the European market, in which the company plans to invest $6 million; greater sales of its products through the addition of 20 people to its existing sales force; increased awareness of its products in the West coast through an advertising campaign using social networks and blogs; and two new product launches.

In FY 2012, Myriad is planning to launch a molecular test in melanoma using technology licensed from Melanoma Diagnostics in December (PGx Reporter 12/15/2010). Meldrum noted that of the 3 million skin biopsies performed each year in the US, approximately 10 percent of them yield unclear results. Myriad is hoping that a molecular test can provide doctors with more certainty about whether a skin lesion is malignant.

The second product Myriad will launch in FY2012 is a new needle biopsy based indication for its prostate cancer test Prolaris. Myriad launched the 46-gene signature prostate cancer recurrence test in March 2010. At the American Society of Clinical Oncology's annual meeting this year, Myriad researchers presented data showing that needle biopsy-based analysis by Prolaris predicted prostate cancer death more accurately than did Gleason score and prostate-specific antigen screening test.

There are several products in Myriad's R&D portfolio that promise to contribute to revenues in the coming years. For example, the company is developing a tissue-based breast cancer test to gauge whether a patient's tumor has lost BRCA function. This test is currently being used by three drug developers to personalize treatment with DNA-damaging PARP inhibitors (PGx Reporter 04/13/2011).

A lung cancer prognosis test under development at Myriad might also help doctors determine the aggressiveness of a patient's disease and decide whether treatment with chemotherapy is warranted. Additionally, the company is advancing a test that predicts whether hepatitis C patients will respond to the interferon alpha class of drugs.

The Rules-Based Medicine acquisition will enable Myriad to launch molecular diagnostics products to help doctors differentiate between schizophrenic, depressed, and bipolar patients. Additionally, the company is developing a test that will help doctors predict the best drug to prescribe to patients with depression. According to Meldrum, the molecular diagnostics opportunities in psychiatry will likely not be realized until 2013.

From a licensing deal with Chronix Biomedical in May, Myriad has gained technologies to develop early-detection cancer diagnostics that it is planning to apply to prostate, breast, and colon cancers (PGx Reporter 05/11/2011). "If successful, we believe this represents a substantial market opportunity for the company," Meldrum said.

Lastly, Meldrum said the company is developing a hereditary cancer screening test based on next-generation sequencing technology. "This will include a large panel of genes with increased sensitivity to determine an individual's risk for developing any hereditary cancer," he said. "We envision this product to be the natural progression of our current cancer specific products."

Myriad's detailed plan to grow its internal pipeline comes as some analysts have been questioning whether the company is too dependent on its BRACAnalysis breast cancer franchise.

Last month, in deciding Association for Molecular Pathology et al. v. US Patent and Trademark Office et al., the US Federal Circuit Court of Appeals ruled partially in favor of Myriad in upholding the company's patents on composition-of-matter claims underlying BRACAnalysis (PGx Reporter 08/03/2011). However, the federal court invalidated five out of six method claims named in the suit.

During this week's call Meldrum said that the court's decision will not impact the IP position for BRACAnalysis and downplayed the fact that the company had lost several of the broadest method patents for the test. According to Meldrum, Myriad still has more than 230 method claims covering processes that were not affected by the federal court's ruling.

Based on the financial results and future diagnostic pipeline, Goldman Sachs increased its stock estimates for Myriad in 2012 from $1.23 per share to $1.28 per share, while maintaining its sell rating for the firm. In a note, Goldman analyst Isaac Ro identified several "risks to the upside," including better-than-expected BRCAnalysis penetration during FY2011, favorable patent litigation results from the federal appeals court, patient testing volumes increasing over the previous year, and better-than-expected growth in new tests.

Wall Street has also been keeping a close watch on pending changes in the reimbursement landscape that may impact BRACanalysis and other molecular diagnostics — specifically, whether such tests will fall under the Centers of Medicare and Medicaid Services' clinical laboratory fee schedule or the physician fee schedule. CMS has said that it will not make a decision on which genetic tests will fall under CLFS and will continue to utilize current procedural terminology, or CPT, code stacking for the time being (PGx Reporter 06/20/2011).

As such, investment firm Oppenheimer & Co. has decided to maintain its performance rating for Myriad at $22. Noting that Myriad's business stands to grow through increased investments in European markets and adding new tests to its pipeline, "we remain concerned about the potential negative impact from CPT coding reform," wrote Oppenheimer's David Ferreiro in a note.

In FY2011, Myriad spent $27.8 million on R&D, a 27 percent increase from $21.9 million in FY2010. SG&A spending rose to $169.8 million, a 5 percent increase from $161.4 million in the prior year.

The company finished 2011 with $417.3 million in cash, cash equivalents, and marketable investment securities.

Myriad gave guidance for 2012 of between $445 million and $465 million in revenues — representing an increase of between 11 percent and 16 percent over 2011 revenues.


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