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Myriad Genetics, Inc. (NASDAQ:MYGN)

Q1 FY09 Earnings Call

November 4, 2008, 10:00 AM ET

Executives

Peter D. Meldrum - President and CEO

James S. Evans - CFO

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Adrian N. Hobden - President of Myriad Pharmaceuticals, Inc.

Analysts

Matthew Roden - JPMorgan

Michael Yee - RBC Capital Markets

Charles Duncan - JMP Securities

Alastair Mackay - GARP Research

Operator

Ladies and gentlemen, thank you for standing by, welcome to the Myriad Genetics First Quarter 2009 Financial Earnings Results Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Tuesday, November 4, 2008.

I would now like to turn the conference over to Mr. Peter Meldrum, President and CEO. Please go ahead, sir.

Peter D. Meldrum - President and Chief Executive Officer

Thank you. Good morning and welcome to the Myriad Genetics earnings call for our first fiscal quarter ended September 30, 2008. My name is Peter Meldrum, and I am the President and Chief Executive Officer. I am joined today by Jim Evans, our Chief Financial Officer; Gregory Critchfield, President of Myriad Genetic Laboratories; and Adrian Hobden, President of Myriad Pharmaceuticals.

I will begin the discussion this morning with a brief review of the past quarter, and will be followed by Mr. Evans, who will discuss our financial results. Dr. Critchfield will review the company's molecular diagnostic business; and Dr. Hobden will discuss our drug development activities. At the end of the presentation, I will turn the call over to the operator for the question-and-answer period.

Please note that some of the information presented here today may contain projections, or other forward-looking statements regarding future events, or the future financial performance of the company. These statements are based on management's current expectations, and the actual results may differ materially and adversely from those expectations for a variety of reasons.

We refer you to the documents the company files from time-to-time with the Securities and Exchange Commission, specifically the company's Annual Report on Form 10-K, it's quarterly reports on Form 10-Q, and it's current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

This is an historic quarter in Myriad's history. Our first profitable quarter from operations. Even with a significant investment this quarter in drug development and our Southern direct-to-consumer marketing campaign, the company recorded a net profit of $14.5 million, or $0.32 per share. With this first step into profitability, Myriad has embarked on an exciting new journey of sustained profitability. The accomplishment of our goal to achieve profitability is the direct result of the vision, hard work and execution of our more than 1,000 dedicated employees.

We are a cohesive team of men and women, of diverse backgrounds, disciplines, education and nationalities. But we are united in our passion for elucidating the cause of human disease at the molecular level. And then using this information to develop novel products that preserve life and enhance the quality of life.

Despite the current challenging economic environment and our ever increasing revenue base, the company achieved a 53% revenue increase over the first quarter of the prior fiscal year. Our total revenues of over $73 million were dominated by molecular diagnostic sales of $70 million.

We continued to experience strong revenue growth from all five of our molecular diagnostic products. In fact, this quarter everyone of our products exceeded our historical annual compound growth rate of 45%. The growth in our molecular diagnostics business can largely be attributed through an increase in our sales and marketing efforts and the continued physician acceptance and adoption of our products, particularly among Ob/Gyns.

We have completed the expansion of our sales force, to 250 full time talented sales reps, an increase of 25% over last year's headcount. This includes a 150% oncology sales force and the 100% women's healthcare sales force. We will not grow the sales force further this year but may consider an additional expansion in fiscal 2010.

We continue to benefit from our DTC campaign in the Northeast. And while it is still too early to assess the full impact from the Southern DTC campaign. I am please to report that it's off to a great start.

Our weekly sample flow remains strong, and we have not seen any negative impact on sample flow as a result of the current weak economic conditions. Based on our present sample flow I am confident that our molecular diagnostics business will exceed the consensus revenue projection of $309 million for fiscal 2009.

In our present facility without any additional expansion, we have sufficient capacity to generate over $400 million in annual product revenues. In preparation for future growth we have already began construction on a fifth building on the Myriad campus, which will add another 87,000 square feet of lab and office space. This new facility will provide us with sufficient capacity to achieve annual revenues in excess of $1 billion.

To fuel this future growth, Myriad will focus on our strong internally developed product pipeline and an aggressive in licensing program. Evidence of our product acquisition strategy was recently announced with the deal with Saladax where we secured North American rights to their proprietary antibody technology for determining a patient's chemotherapy exposure.

With over $440 million of cash, we are well positioned to take advantage of additional opportunities that may become available as other diagnostic companies struggle to raise money in these difficult economic times.

Over the years Myriad has attracted a talented, dedicated, intelligent team of individuals across the spectrum of managerial, operational, scientific and sales disciplines. This investment in human capital has paid dividends in the financial performance as well as in the worldwide recognition of Myriad as the global leader in the emerging field of molecular diagnostics.

In the coming years we expect this investment to continue to provide handsome returns both to our shareholders and to the overall healthcare system as we pursue our goal of improving patient healthcare.

Now, its my please to turn the call over to our CFO, Jim Evans.

James S. Evans - Chief Financial Officer

Thank you, Pete. It is my pleasure to present a more detailed look at Myriad's financial results for our first fiscal quarter ended September 30, 2008.

Myriad's total revenues for the quarter were $73.6 million as compared to $48.3 million for the same period of the prior year. This significant growth was fueled by the 52% increase year-over-year of molecular diagnostic revenues. Molecular diagnostic revenues for the quarter were $70 million which is an increase of $24 million over the same quarter of our previous fiscal year.

This growth is particularly satisfying given the current state of the economy. As Pete mentioned, we have yet to see an economic impact on our revenue growth. Dr. Critchfield will provide you with some interesting statistics later in his call that I believe indicate that Myriad is in an exceedingly strong position to withstand the current economic downturn.

Annual product revenues of $70 million for the first fiscal quarter comfortably exceeded the average analyst projections of $67.1 million. Gross margins remain a very attractive 86% for the quarter ended September 30, 2008 as compared to 84% gross margins for quarter ended September 30, 2007. We continue to see opportunities on our horizon that will allow gross margin improvements over the next year or two.

Net operating margins for the molecular diagnostic segment climbed to an impressive 46% for the quarter ended September 30, 2008. This result is all the more astounding when you consider that the quarter included $2.3 million of DTC expense.

Previously, our best net operating margin for the quarter was 47%, and now has achieved in a quarter without any DTC spend. If one were to remove the DTC spend the net operating margin for our first fiscal quarter will be a record 49.7%.

Research and development expenses for the quarter ended September 30, 2008 were $17.1 million compared to $26 million in the same quarter of the prior year and compared to $55.2 million for the quarter ended June 30, 2008. This reduction in research and development was directly related to Myriad's discontinuation of all CNS clinical studies and research programs.

We continued to invest in developing new molecular diagnostic products and in the advancement of our drug pipeline. Since we expect to move additional drug candidates into the clinic and advance our current clinical drug programs, as well as develop new molecular diagnostic products, we believe our research and development expenses will continue to fluctuate over the next several quarters.

Selling, general, and administrative expenses for the quarter ended September 30, 2008, were $33.4 million compared to $36.4 million for the prior quarter ended June 30, 2008. The decrease over the prior quarter was primarily attributable to the reduction in advanced marketing spend on Flurizan.

During this first fiscal quarter we increased the number of Ob/Gyn sales representatives by approximately 50. These reps were hired throughout the quarter so the full weight of their ongoing comps was not captured in this quarter's SG&A expense. But of course the positive impact on revenue these additional reps will drive has also not been realized in this quarter's results.

We expect our selling, general, and administrative expenses will continue to fluctuate depending on a variety of factors including the number and scope of new product launches, growth of molecular diagnostic revenue, and future non-cash stock option expense.

Our net income for the quarter ended September 30, 2008 was $14.5 million or $0.30 per share fully diluted. While we first experienced profitability in our June 30, 2008 quarter thanks to our one-time payment from Lundbeck. We are extremely pleased with the level of profitability in Myriad's first profitable quarter as a result of ongoing operations.

Actual net income of $14.5 million more than doubled the terms in first call consensus income of $6.6 million. In these difficult economic times, Myriad continues to maintain a strong balance sheet, cash, cash equivalents and marketable investment securities once again increased over the quarter.

As of September 30, 2008, Myriad's cash, cash equivalents and marketable investment securities were $443 million as compared to $420 million as of June 30, 2008. Our accounts receivable are of high quality, and reimbursements continue to be strong.

To conclude, it is my pleasure to state that Myriad has absolutely no debt and no convertible securities, and that the total number of shares outstanding at September 30, 2008 was a modest 45.4 million or $48.3 million fully diluted shares.

With that, I will now turn the call over to Dr. Greg Critchfield.

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Thank you, Jim. It is a great pleasure to speak with you today about our molecular diagnostics business. As Jim and Pete mentioned, our fiscal '09 first quarter molecular diagnostics revenues were $70 million, a new record representing a 52% increase over the same quarter's revenues last year.

This revenues growth was also an increase over the 49% revenue growth we reported a year ago. Our operating margin for the quarter one fiscal '09 was a record 46%, compared to 40% for the same quarter one year ago.

We are continuing our focus on the growth strategy to increase penetrations in the oncology market, to extend further into women's health market segment and to develop new molecular diagnostic products. We're making excellent progress in all these areas.

Given the large market potential for our current molecular diagnostics products, approximately $1.4 billion per year, and the fact that our current products make a real difference in what physicians give for patients. We anticipate significant further growth in our business from these current products. One of the most important elements in our business has been to secure widespread insurance reimbursement for our tests and at the same time minimizing the out of pocket expense that patients pay for our testing.

The number of insurance plans that have reimbursement from Myriad's testing is over 2,500. This includes fee-for-service plans, managed care plans, and government insurance programs. We have contracted with most of the major managed care plans and the total of managed care cover lies under contract with Myriad is now more than 130 million individuals.

We have received this broad insurance coverage endorsement because our products help insurance companies focus to healthcare resources where they need to be in order to achieve the best outcomes and to help eliminate wasteful spending. Prevention of cancer saves lives and healthcare dollars.

Today 96% of our revenues are covered by third party payors. For individuals with insurance coverage the out of pocket expense for our test is quite modest, only $54.45. Our success in securing this level of insurance coverage is in part a reflection of how insurance plans view these new predictive and personalized medicine tests. It is to the insured economic advantage and to the best interest of their members to cover these powerful tests and use information to better manage the healthcare of their members.

We do not believe that in an economic downturn the modest average out of pocket expense for patients were about $50 for a potential life saving test should become a barrier to ordering one of their test. We have not seen any negative impact from the present economic downturn on the demand for our products. In fact, while our second fiscal quarter is historically our strongest quarter; I have never seen our sample flows this strong so early in the quarter.

The growth of our business continues to benefit from the effects of enhanced professional society guidelines, decreased turnaround times, and sales and marketing efforts focused on expanding the position customer base. Guidelines for MRI screening of BRCA positive patients issued by the American Cancer Society, a new protocol for the genetic predisposition testing for colorectal cancer endorsed by the Society of Gynecological Oncologists, further emphasize the importance of our products.

We are also seeing the effect of focused sales and marketing programs that have increased our physician customer base. We have recently expanded our Ob/Gyn sales force to increase the penetration for our colorectal cancer test in the women's health market.

We now have 100 individuals calling on Ob/Gyns. New Ob/Gyn reps become profitable every bit as rapidly as their oncology counterparts and we are already seeing positive contributions to our revenue growth by these new reps this fiscal year. It is important to emphasize that the Ob/Gyn physician customer is an ideal candidate for our hereditary cancer products given that many women use the Ob/Gyn as their primary care doctor and the Ob/Gyns are accustomed to providing preventive healthcare services to their patients.

As this market segment grows we are experiencing strong growth through the acceptance of both our BRACAnalysis and COLARIS products among Ob/Gyns who use these test to help prevent breast, ovarian and colon and urine cancers.

The BRACAnalysis, consumer awareness campaign is in full swing in Texas and Florida. The campaign's message is, if breast cancer was in your family you need to speak with your doctor. BRACAnalysis is an important bar test that may help you to determine your risk for hereditary breast and ovarian cancer.

We are very early in the campaign, having launched the consumer advertising phase recently in September. Nonetheless, we are seeing interesting trends developing. For example, in some areas, physician practice groups and other healthcare delivery systems are conducting independent advertising following various public awareness messaging to led consumers know where they can have their hereditary cancer risk evaluated.

It will take several months to see a meaningful impact of the campaign and we will conduct a formal ROI analysis as we are doing for the campaign that we ran last year in the Northeast.

In the area of personalized medicine providing information to doctors that helps them to individualize the treatments specifically for patient, Myriad is engaged in both internal product development and in licensing discussions to bring new innovative tests to market.

We recently announced the acquisition of a technology from Saladax Biomedical and we will be discussing more about this product's opportunity at a later date. It serves as a recent example, of Myriad's commitment to personalize medicine.

On molecular diagnostic products make a significant difference in the lives of individuals at high risk for hereditary cancer and in treating cancers.

We look forward to future growth of our current products and launching new innovative products that make a difference for patients. We are pleased to be helping more individuals as our business continues to grow. Thank you.

I would like now to pass the microphone to Dr. Adrian Hobden, Adrian?

Adrian N. Hobden - President of Myriad Pharmaceuticals, Inc.

Thank you, Greg and good morning. We continue to make good progress with our clinical programs with a with Azixa in melanoma and glioblastom. As you may recall, Azixa is a nanomolar inhibitor and rapidly induces apoptosis in dividing cells. The activity against the broad spectrum of tumor types. Primary brain tumors were especially sensitive with anti-tumor activity in the sub nanomolar range.

In our Phase 1 studies, there were several observations, of anti-tumor activity against the number of cancers including melanoma, ovarian and testicular. We also noticed that it disrupts the blood vessels feeding oxygen to the tumors. An observation that we will subsequently able to confirm with detailed studies in mouse xenograft.

Azixa has a remarkable ability to cross the blood brain barrier and accumulate in the brain. We have now examined this phenomenon in two animal species and find that Azixa has up to 30 times higher concentrations in the brain and the plasma. Furthermore, the drug is evenly distributed to all parts of the brain. Surprisingly; there have been no observations in animal studies or in our clinical trials CNS toxicity. As a result of these observations, we have concentrated our resources on metastatic melanoma, where there is a very high instance of brain metastases up to 90% of patients by some estimates.

And on glioblastoma, where patients have relapsed following surgery, radiation and chemotherapy. We are very encouraged with early results from the clinical studies. For example, one patient who had relapsed after numerous treatments for his brain tumor had become disabled by the time he began treatment with Azixa.

After three rounds of treatment with Azixa a total of 20 weeks the patient's tumor had shrunk significantly and he is not able... not only able to walk again but he has gone back to his job as a house builder.

Our clinical development program for Vivecon is progressing very well. Vivecon is a novel maturation inhibitor for the treatment of HIV infection. The Phase 1 study has been completed and Vivecon appears to be very well tolerated. We have been able to reach drug concentrations that exceed levels that we expect to need for effective treatment. We are proceeding to a multiple ascending dose study in HIV positive by treatment naive patients shortly.

In previous earning conference calls, I've mentioned our excitement about on novel HSP90 inhibitor, MPC-3100 that is currently in pre-clinical development. We expect to submit an IND for MPC-3100 shortly.

We continue to be very excited by the pre-clinical data on this compound. HSP90 is a molecular chaperone that stabilizes oncogenic proteins, such as HER2, AKT, and BRC/ABL. HSP90 appears to be essential for the growth and survival of a wide range of tumors.

In addition, oncogenes often acquire mutations that confer drug resistance or inappropriate activation and these mutant forms depend on HSP90 to function. HSP90 inhibitors appear to be most effective when dosed on a daily schedule, which means for practical purposes, an oral drug form is essential.

MPC-3100 is a highly potent and specific inhibitor of HSP90 and has very good oral viability and pharmacokinetics in animals. In head-to-head comparison with competing compounds, they have reduced tumor volume by approximately 50% in a xenograft model without showing any evidence of toxicity.

In contrast, a competitors compound at it's maximum tolerated dose could slow the rate of tumor growth, but was not able to reduce tumor volume.

The standard of care chemotherapy for this type tumor caused significant weight loss, death of some animals and was less efficacious. Coupling this observation with the apparent low toxicity of the compound, we believe the MPC-3100 has the potential to have a profound impact on the treatment of cancer. Thank you for your attention.

I will now handle and go back to Pete.

Peter D. Meldrum - President and Chief Executive Officer

Thank you, Adrian. And I will turn it back to the operator for the question-and-answer period.

Question And Answer

Operator

[Operator Instructions]. Our first question comes from the line of Geoffrey Meacham of JPMorgan. Please proceed with your question.

Matthew Roden - JPMorgan

Hi, this is Matt Roden in for Geoff today, congratulations on the quarter and thanks for taking the questions. First, I was wondering if you could talk a little bit about the South campaign, the DTC and can you tell us, or give us a sense for what inning we are in, in terms of penetration of the market in the South? And then we have a follow-up.

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Okay. The campaign in the South began several months ago in the spring with the first phase which was a physician education phase. Now that phase, lasted through the summer. And then we launched a consumer awareness portion of the campaign in the fall in September.

So we were early in the campaign at this point of time. Remember a patient needs to go and have a conversation with the doctor. Once they are scheduled for an appointment, they sit down with the physician, go through the risks and then decide to have the test. So it takes a period of months from the time that consumer is aware of the BRACAnalysis as a test for hereditary cancer to going and seeing the doctor before the test is or it takes several months.

The South is one of the excellent areas for us to be launching this campaign. One year prior to the campaign we filled in a number of Ob/Gyn sales reps in the South that were there on the ground meeting with physicians and preparing for the campaign that launched a year later.

Matthew Roden - JPMorgan

Great. And then the follow-up is along with that in terms of the marketing spend that goes with driving the sales in the South, can you tell us where we are in terms of what we... the sustainability of the operating margin that we saw in the 46% this quarter?

James S. Evans - Chief Financial Officer

Yes, the expense that we would expect to see in this next quarter should roughly be equal to what we saw in our first fiscal quarter. Maybe a tad bit higher up to the $3 million range but I do believe that we should be able to see our operating margins continue at the levels that we were able to reach in the first quarter.

Matthew Roden - JPMorgan

Great. But I think... that the DTC started in size in September, does that imply that we didn't get a full quarters spend on the DTC reflective in the first quarter?

James S. Evans - Chief Financial Officer

No, not really, we end up paying for quite a bit of the expense prior to the actual running of the ads. And so what we'll see is a little bit more like I mentioned in this current quarter than what we experienced last quarter. But if we look at how the spend went last year, we actually completed the spend pretty much by the end of the December quarter, and had minimal spend in the first calendar quarter, even though the campaign continued it through March and so I think we should see fairly consistent spend in this current quarter.

Matthew Roden - JPMorgan

Okay, thanks a lot.

Operator

Our next question comes from the line of Michael Yee of RBC Capital Markets. Please proceed with your question.

Michael Yee - RBC Capital Markets

Great, thanks and congratulation on the good quarter as well. My question, I guess regarding the Northeast campaign or at least the Northeast region, can you better characterize for us the pull through in terms of order flow that you saw on the quarter and kind of compare to the prior quarter and then I have a follow up.

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Yes, let me make sure I understand your question Michael. We had pull through of all of our tests, as you may know in the physician aware and the physician education portion on the campaign. Doctors are taught how to evaluate patients for all hereditary cancer products that Myriad has. The campaign focuses on BRACAnalysis. What we saw is that Ob/Gyns were ordering a large number of other tests in addition to the BRACAnalysis test when the campaign ran. So we are seeing the same quality, the picture now in the South that we saw in the Northeast.

Michael Yee - RBC Capital Markets

So it's definitely falling through on the additional products as well?

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Yes it is.

Michael Yee - RBC Capital Markets

Okay. And then follow-up in terms of margins, where do you think these operating margins can go to and over what timeframe and what do you think about the imprint leverage there?

James S. Evans - Chief Financial Officer

As I look forward I think that we should be able to continue to see improvements both on the gross margin level as well the net operating margins and I could see them working up to at least 50% levels over time. It will depend on our ability to integrate new technologies into the lab. We continue to evaluate the DTC spend to see if we are getting the return that we are hoping to see through those efforts or if it makes sense to make our marketing investments in other areas. But through the determination of how we are going to progress with our marketing and sales efforts and what we are able to do in improving the process is in the lab should drive improvements to that operating margin.

Michael Yee - RBC Capital Markets

Great, thanks guys.

Operator:Our next question comes from the line of Annabel Samimy of UBS. Please proceed with your question.

Analyst:Hi, this is Stacy [ph] in for Annabel, thanks for taking the question. Back to the Northeast campaign or the Southern campaign, what are the differences between this campaign versus the one you performed in the Northeast? I mean anything from for what you are doing versus what you are also seeing?

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Great question. First of all the campaign itself is substantially similar to what we did in the Northeast. It focuses on women with a strong family or personal history of breast or ovarian cancer. And it looks that they need to have a conversation with the doctor. That part of the campaign is unchanged. What we are seeing though is there is greater uptake among physician practice groups and among network health systems, who are very involved now to see the value of this campaign and many of them are conducting their own activities to try and make consumers in their regions aware of the importance of following through and where they can get their hereditary risk assessment with our products.

So we see that as a salient difference in the two areas. The other thing that's important to note is that as each year goes by, there's greater awareness among the public of the value of genetic testing, there's greater awareness among physicians of the value of these tests. And so we expect that to also have a positive impact as we move forward.

Unidentified Analyst

Thank you.

Operator

Our next question comes from the line of Charles Duncan of JMP Securities. Please proceed with your question.

Charles Duncan - JMP Securities

hanks guys for taking the question, and congratulations on a very nice quarter. I had a question regarding the sustainability of the PM product demand, given the current economy. I think I saw the added cover on the out of pocket expense $54 or so on average seems pretty low to me, lower than I had anticipated. Can you give me some additional color with regard to perhaps the percentage of patients that are fully reimbursed for the task, and is that changing as perhaps a mix of patients changes slightly from one of currently diagnosed to perhaps those patients that come from the gynecologist?

Peter D. Meldrum - President and Chief Executive Officer

Thank you, Charles. As Greg mentioned 96% of our revenues are paid by insurance. So the out of pocket cost to patients is very small, and as Greg mentioned, it's about $55 per patient. We also don't get a lot of pushback from insurers, in terms of the price of the task.

In fact, if you look at last quarter, our average reimbursement was about 92% of list price. So we do offer a small discount to insurers for the... the volumes that they give us, but we really don't discount our tests heavily. And I think in large a part that's the cost benefit, the value of the test in terms of managing a patient's healthcare and assisting the physician and the patient to better prevent or delay the onset of their cancer.

And as we mentioned in the earnings call, I think because of the utility of the test, and because of the very low out of pocket to the patient. We really have seen no impact whatsoever given the current economic environment on our revenues. In fact, as Greg mentioned we have really never seen stronger revenue growth here certainly in the quarter for this second fiscal quarter ending December 31st. So we are very excited about the test that Myriad offers and anticipate a very strong year.

Charles Duncan - JMP Securities

Thanks Pete. And question do you feel that you have some pricing flexibility, it seems like you do and then regarding the gross strategy going forward, any additional color on the type of the next test and the timing of the next test that you anticipate being able to launch?

Peter D. Meldrum - President and Chief Executive Officer

The Company has a very strong pipeline of seven or eight products under development, several of those are predictive medicine products, a number are personalized medicine products. Now the company's goal is to launch at least one new molecular diagnostic product each year for the foreseeable future. And we do anticipate launching an additional product before the end of this calendar year. That product will be in the oncology sector and we're very exited about the potential of not only that product but all of the products in our product pipeline.

Charles Duncan - JMP Securities

Thanks Pete for the added color.

Operator:Our next question comes from the line of Kevin DeGeeter of Oppenheimer. Please proceed with you questions.

Analyst:Hi, good morning guys, this is actually Chris Walter [ph] in for Kevin. Just a question on the DTC campaign, you mentioned that you are still seeing some spill over from some of the other products, in terms of the increase you are seeing in growth, just wondering maybe if you can quantify the growth of some of those other products, and maybe talk about some of the drivers of growth?

Peter D. Meldrum - President and Chief Executive Officer

As I mentioned on the call, all five of our products in the predictive medicine arena exceeded our historical annual compound growth rate of 45%. So everything that Myriad offers exceeded that growth rate. Our strongest product are fastest growing product was COLARIS.

It had an exceptional quarter and our second fastest growing product was TheraGuide 5-FU, but even our flagship product BRACAnalysis exceeded that 45% historical growth rate. So we really are seeing across the board very strong uptake in demand for all of Myriad's products.

Unidentified Analyst

Great thanks a lot for taking that question.

Operator

Our next question comes from the line of Alastair Mackay of GARP Research Group. Please proceed with your question.

Alastair Mackay - GARP Research

I am wondering with the three ongoing Azixa adaptive trials can you say what the enrolments looks like right now and if not a more general question is if you could describe when it is that you see the data and as the patients progress through the trial?

James S. Evans - Chief Financial Officer

Yes, we haven't discussed the enrolment numbers at the moment. In terms of your question, second question the trial is an open label trial. So we obviously see the data on the patients that they go as they go through the trial. But from a point of view of analysis, we are limited by certain period even though it's an adapted design. So we can adjust to you know get a positive result in the patient and to call it good and do an analysis both the statistical significance we have to have a certain number of patients enrolled in each of the study before we can do the analysis and decide whether we should we achieve success or we need put more patients and or we don't have response. And so we have defined once during the trial. We have yet to do one of those analysis.

Alastair Mackay - GARP Research

Okay thanks. And then changing gears a bit, I wonder if on the genetic analysis side, you could give us any insight into the possible transitions from seeing your sequencing to any of the different variants of NextGen sequencing as it relates to the five nucleic acid tests?

Gregory C. Critchfield - President of Myriad Genetic Laboratories, Inc.

Yes, as you know Myriad conducts capillary sequencing, as this is a highly optimized system in our hands. A very automated and of course is a major contributor to the gross profit margins and the profitability of the business. But we continue to look at new generation, next generation sequencing technologies.

It's a very high bar for them to replace our current platform. We have a very focused and very dedicated internal technology development group it looks at those and at some point in time, it will make sense for us to transition over to newer generation sequencing platforms, right now the current platform performs extremely well, the... this is the highest sensitivity, highest specificity genetic test available of this kind anywhere in the world and we're very pleased with the performance of the current technologies. But we will continue to look and at the right time, when it makes an improvement, and is beneficial for the company, we would move forward to another platform.

Alastair Mackay - GARP Research

Okay, thanks very much.

Operator:Our next question comes from the line of William Ho of Banc of America. Please proceed with your question.

A:William T. Ho: Banc of America Securities: Hi, guys, thanks for taking my question. Congratulations on the quarter again, just to get a little additional clarity with respect to, I guess the risks concerning I guess reimbursement and the current macro economic environment, should unemployment pick up a littler bit from where we're at, how much elasticity is there in the market and how much do you think it could potentially I guess impact sales as well is there any ability to have a price increase at this time?

Peter D. Meldrum - President and Chief Executive Officer

Thank you, Will. We don't formally announce price increases but I will confirm that the company did have a price increase effective September 1st. The company will increase the prices of its products as you are aware of from time-to-time and we recently had a price increase. So we wouldn't anticipate another price increase for some time.

Also as I mentioned there is such a strong cost benefit argument, we get very strong support from insurers both HMOs, private insurers and Medicare, Medicaid. So that insurance coverage is very much in place, and very supportive of our test. Myriad's test are somewhat unique, generally when you develop a new drug or a new healthcare product, you'd cost to healthcare system money. And various products actually save the healthcare system money.

For a $3,000 test, you can identify patients who have a heightened risk for cancer, and then take preventive action to actually prevent the disease, and save hundreds of thousands of dollars treating that patient over the rest of their lifetime.

So the arguments for testing using Myriad's products are very strong. You do raise a good point, and that is in this weak economic environment, there have been a substantial number of individuals who've lost their job. We wouldn't anticipate to see that impact however for some time. Traditionally, most of those individuals will remain on Cobra, and keep their insurance for about 18 months.

So as we mentioned in this call, we haven't seen any negative impact whatsoever due to the current economic downturn on demand for our products or revenues. And that's not only last quarter which we just reported but end of this quarter, ending December 31st as well. And given the availability of Cobra, I wouldn't think we would see in this fiscal year a significant impact given the current recessionary environment.

A:William T. Ho: Great, thanks Pete. Congratulations once again.

Peter D. Meldrum - President and Chief Executive Officer

Thank you.

Operator

Our next question is a follow-up from the line of Charles Duncan of JMP Securities. Please proceed with your question.

Charles Duncan - JMP Securities

Hi guys. Thanks for taking the follow-up. I had a question regarding the business model, kind of strategic moves that you recently announced. Really nice profitability this quarter, the achievement have been, has that changed your perspective, next steps and can you give us some update on the incremental progress and perhaps time lines?

Peter D. Meldrum - President and Chief Executive Officer

Thank you, Charles. The company is 100% committed toward the separation of the molecular diagnostic core business from our pharmaceutical opportunity and feels it's the best way to grow our pharmaceutical business and our molecular diagnostic business is as too independent and completely separate organizations.

So the company is moving forward with spinning off the pharmaceutical business from our core molecular diagnostic business. The fact of this was a very successful quarter, does not impact our decision at all. We do feel that it's in the best interest of both businesses and our shareholders that the company very aggressively move forward and implementing the spin-off transaction. I'm pleased to report that I think we are ahead of schedule in terms of the various items that we need to undertake to accomplish the separation of these two businesses.

And I feel very confident that we'll be able to achieve a separation of the molecular diagnostic and pharmaceutical businesses in the first half of next year.

Charles Duncan - JMP Securities

Okay, thanks Pete.

Operator

Ladies and gentlemen we have now reached the end of our allotted time for the question-and-answer session. I will now turn the call back over to Mr. Meldrum.

Peter D. Meldrum - President and Chief Executive Officer

Thank you. And thank you for everyone for attending the Myriad Genetics earnings call for our first fiscal quarter of 2009. And we appreciate your continued support and the interest in Myriad. And this does end the conference call. Thank you.

Operator

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. And ask that you now please disconnect your lines. .

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Source: Myriad Genetics, Inc. F1Q09 (Qtr. End 09/30/08) Earnings Call Transcript
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