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Patents, Regulation, Reimbursement: Myriad Reflects on Impact of Key Events on Future Business


By Turna Ray

Reporting year-over-year growth in the first quarter, Myriad Genetics officials took time this week to discuss three key material events likely to impact the company's future business: a lawsuit pending in federal appeals court regarding seven of its BRCA patents; the regulation of laboratory-developed tests by the US Food and Drug Administration; and new CPT codes being developed by the American Medical Association.

During an earnings call this week, Myriad CEO Peter Meldrum remained bullish about the company's business expansion and revenue growth prospects, even as it awaits a decision from the US Court of Appeals of the Federal Circuit on the validity of seven of its BRCA patents; considers increased regulatory hurdles to market existing products and launch new tests; and faces uncertainty as to where its tests will fall within AMA's new CPT coding system for molecular diagnostics, which aims to provide more granularity to payors about the technology of genetic tests.

Myriad also announced that it plans to launch a new test for hereditary pancreatic cancer, branded Panexia, by year end. The test, priced at $3,025, will use the BRCA2 and PALB2 genes to gauge patients' risk for pancreatic cancer.

For the three months ended Sept. 30 — the first quarter of its 2011 fiscal year — Myriad's total revenues increased 8 percent to $91.9 million, compared to $85.1 million a year ago, but failed to meet analysts' estimates.

Although the company assured analysts that it was in line to meet its fiscal year 2011 revenue guidance of between $380 million and $400 million, Myriad CEO Peter Meldrum continued to make cautionary statements about the impact of the economic downturn on the sale and adoption of Myriad's tests.

"In discussions with our sales force and after analyzing a number of other metrics that we track closely, it appears that economic conditions and their impact on medical care in the US are not yet improving, which continues to weigh on our industry," Meldrum said during the call.

He cited data collected by Thomson Reuters, indicating that OB-GYN office visits were down 7 percent in July and 4 percent in August, compared to the year-ago period. Additionally, according to a Deutsche Bank report, the number of physician office visits has been declining for the past eight months. "Our own sales force confirms that physician office visits remain soft," Meldrum said.

Despite economic pressures, Myriad officials are optimistic about the firm's revenue prospects for its second fiscal quarter, ending Dec. 31, 2010, since historically that period has been the strongest quarter of the year. "At the end of the calendar year, patients have typically met their deductibles and are more likely to have medical procedures or tests, such as those offered by Myriad," Meldrum said. "Beginning in mid-September and continuing through the month of October, we saw the strong historical uptick in patient sample flows."

Additionally, the company reiterated previous statements about continuing to invest in marketing and growing the indications for its flagship BRACAnalysis test, which accounted for more than 80 percent of Myriad's total revenues during the first quarter.

Myriad sees a $90 million market in the hereditary ovarian cancer segment, a $50 million opportunity in triple-negative breast cancer, and another $50 million segment in ductal carcinoma in situ. With regard to DCIS, the company's ongoing studies suggest that BRCA mutations may be prevalent in this subset of patients. As such, the company plans to work to update treatment guidelines to support BRCA testing in this setting.

In the quarter, revenues from the firm's BRACAnalysis test were $80.7 million, up 7 percent from $75.3 million a year ago. Additionally, the company reported that revenues for Colaris and Colaris AP increased 14 percent to $7.13 million from $6.3 million. Revenues for the company's five additional tests rose 14 percent to $4.1 million, compared to $3.6 million a year ago.

Myriad has taken steps in the last year to enter the companion diagnostics field by working with Abbott and AstraZeneca to conduct BRCA testing in investigational PARP inhibitors they are developing (PGx Reporter 06/30/10). Meldrum said this week that if Myriad is able to launch a companion test, the company stands to "triple the size of the oncology market with the expansion of BRCA test" as a companion test to PARP inhibitors.

During the fiscal first quarter, Myriad's R&D spending rose slightly to $5.8 million from $5.7 million a year ago, while its SG&A costs rose to $39.5 million from $38.7 million a year ago. As of Sept. 30, the company had $508.4 million in cash, cash equivalents, and marketable investment securities.

Legal Uncertainty

Regarding its ongoing case in the federal appeals court, Myriad anticipates that if the court concedes to a US Department of Justice amicus brief issued last week, then it would restore nine of the 15 claims invalidated in the federal district court's March ruling on Association for Molecular Pathology et al. vs. the United States Patent and Trademark Office et al.

The New York Southern District Court earlier this year invalidated 15 claims in seven patents held by Myriad on BRCA genes conferring susceptibility to the hereditary risk of breast and ovarian cancer (PGx Reporter 03/31/10). In that decision, federal district court Judge Robert Sweet determined that isolated DNA containing BRCA1/2 gene sequences could not be patented as described in Myriad's claims because such gene sequences were not markedly different from those sequences naturally occurring in the body in function or in the information they contain. Furthermore, Sweet found that comparisons of DNA sequences are abstract mental processes, which are also unpatentable.

Myriad appealed Judge Sweet's determination in June in the federal court of appeals, asking the higher court to overturn the lower court's finding that its patents are invalid, and that isolated DNA is a product of nature. However, last week the DoJ issued a brief to the appeals court, asserting that Judge Sweet wrongly invalidated Myriad Genetics' composition claims "directed solely to cDNAs," but agreeing with the lower court that genes as they occur in the body are not products of human invention worthy of a patent (see related story).

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"Myriad is generally pleased with the amicus brief [from the DoJ]," Meldrum told analysts on the call. In agreeing that Myriad's cDNA claims were wrongly invalidated, "the DoJ supports three of Myriad's composition-of-matter patent claims on the cDNA sequences of the BRCA1 and BRCA2 genes, and even commented in support of additional patent claims not involved in the litigation as being patent-eligible," Meldrum said.

Additionally, Meldrum said that the DoJ also appears to support overturning the invalidation of six of Myriad's method patent claims, "by indicating that … 'methods of identifying, isolating, and using such DNA molecules may be patented as may any new and useful alteration to those molecules through human intervention.'"

The portion of the DoJ brief Meldrum cited is part of a paragraph describing the broad scope of the Patent Act, and the fact that even if isolated gene sequences as they occur in the body were to no longer be patentable, it would not stop companies from inventing and patenting new ways of isolating genes.

The full paragraph which contains the portion quoted by Meldrum is the following:

"The scope of Section 101 is purposefully wide and its threshold is not difficult to cross. New and useful methods of identifying, isolating, extracting, or using genes and genetic information may be patented (subject to the prohibition against patenting abstract ideas), as may nearly any man-made transformation or manipulation of the raw materials of the genome, such as cDNAs. Thus, the patent laws embrace gene replacement therapies, engineered biologic drugs, methods of modifying the properties of plants or generating biofuels, and similar advanced applications of biotechnology. Crossing the threshold of section 101, however, requires something more than identifying and isolating what has always existed in nature, no matter how difficult or useful that discovery may be."

The above statements may not be as direct a confirmation of Myriad's method claims as the company is hoping. According to Robert Cook-Deegan, director of Duke University's Center for Genome Ethics, Law & Policy, the DoJ's arguments focus on the validity of composition-of-matter claims, not method claims.

Meldrum, although disappointed that the DoJ departs with the US Patent and Trademark's Office's current practices, attempted to reassure investors that the patent office isn't changing its policies as a result of the DoJ's brief in the lawsuit.

Despite the DoJ brief, the USPTO told PGx Reporter that it is not changing its practice of granting patents for isolated genes. David Kappos, USPTO director and undersecretary of commerce for intellectual property, reiterated this sentiment this week at a conference at the Cleveland Clinic.

Reimbursement Unknowns

Meldrum also acknowledged that the AMA's CPT Editorial Panel is developing a two-tiered coding system for molecular diagnostic tests. As previously reported by PGx Reporter, the first tier of codes is for commonly used tests, as well as those for uncommon genetic diseases. The second tier of codes is based on the complexity of the technology and the level of effort involved in performing the test (PGx Reporter 10/10/10).

According to sources familiar with the CPT Editorial Panel's meeting proceedings, Myriad's BRACAnalysis appears to fall in the second tier of codes, since the test utilizes a complex Sanger sequencing-based platform. However, Meldrum noted during the call that "it has yet to be determined which tier Myriad's products would fall in" if this two-tier coding system were adopted.

"It is important to note that the AMA's goal in modernizing the coding system for molecular diagnostic tests is to provide better analyte, disease-specific information for healthcare payors. Therefore, the AMA process is focused solely on the coding methodology," Meldrum noted. "The AMA doesn't set reimbursement prices on the CPT or any other diagnostic codes, and will not establish the reimbursement rate on the new molecular diagnostic coding structure. That will be determined by [the Centers for Medicare & Medicaid Services] when the new codes are put in place."

Myriad claims that approximately 96 percent of its revenue is paid by insurance companies, and 4 percent is paid by private individuals. On average, Myriad is reimbursed by insurers for approximately 92 percent of the $3,340 list price for BRACAnalysis, according to the company's figures.

While Meldrum acknowledged that there "remains some uncertainty around the coding structure," the company believes that the reimbursement levels of its products will not be adversely affected as a result of the new codes.

Regulatory Complexities

Another evolving issue that stands to impact Myriad's products is increased FDA oversight of all laboratory-developed tests, which the FDA is currently crafting. The company remained confident that it will face minimal requirements for its LDTs under any new, risk-based system.

Myriad has previously stated that FDA regulation of LDTs, the category in which all of its tests currently fall, could be advantageous for Myriad, since increased regulation of such tests would delay market entry and development costs for smaller rivals.

Since the FDA has stated that in certain circumstances it will accept retrospective analysis for the regulatory approval of diagnostic tests, Mark Capone, president of Myriad Genetic Laboratories, told analysts during the first-quarter call that the company believes it can garner regulatory clearance through the agency with the retrospective study data it has already gathered on its tests.

Capone admitted, however, that the company might need to conduct prospectively designed studies in some cases, which might cause launch delays and additional costs in coming to compliance with FDA's regulations.