Myriad Genetics' (MYGN) CEO Peter Meldrum on Q3 2014 Results - Earnings Call Transcript

| About: Myriad Genetics, (MYGN)

Myriad Genetics (NASDAQ:MYGN)

Q3 2014 Earnings Call

May 06, 2014 4:30 pm ET


Scott Gleason -

Peter D. Meldrum - Chief Executive Officer, President and Director

Mark Christopher Capone - President of Myriad Genetic Laboratories Inc

James S. Evans - Chief Financial Officer, Principal Accounting Officer and Treasurer


William R. Quirk - Piper Jaffray Companies, Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

Amanda Murphy - William Blair & Company L.L.C., Research Division

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Andrew L. Jones - Stephens Inc., Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Jonathan P. Groberg - Macquarie Research


Ladies and gentlemen, thank you for standing by, and welcome to the Myriad Genetics' third quarter 2014 financial earnings call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, May 6, 2014. I'd now like to turn the conference over to Mr. Scott Gleason, VP of Investor Relations. Please go ahead, sir.

Scott Gleason

Thanks, Jamie. Good afternoon, everyone, and welcome to the Myriad Genetics' Third Quarter Fiscal Year 2014 Earnings Call. My name is Scott Gleason, Vice President of Investor Relations here at Myriad Genetics.

During the call, we will review the financial results we've released today. After which, we will host a question-and-answer session. If you have not had a chance to review the earnings release, it can be found in the Investor Relations section of our website at

Presenting for Myriad today will be Pete Meldrum, President and Chief Executive Officer; Mark Capone, President, Myriad Genetics Laboratories; and Jim Evans, our Chief Financial Officer.

This call can be heard live via webcast at The call is being recorded and will be archived in the Investors section of our website.

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 events or results may differ materially and adversely from the 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, its quarterly report on Form 10-Q and its 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.

With that, I'll now turn the call over to Pete.

Peter D. Meldrum

Thank you, Scott. I'm pleased to announce that Myriad once again delivered double-digit top and bottom line growth this quarter. Third quarter revenues were $182.9 million, an increase of 17% year-over-year. Fully diluted earnings per share for the third quarter were $0.48, which included a one-time noncash charge associated with the acquisition of Crescendo Bioscience.

In order to facilitate a more complete analysis of the company's operating results and allow for comparison of results across historical reporting periods, we are providing additional information to investors that excludes the noncash acquisition expense. Therefore, our adjusted earnings per share for the third quarter were $0.60, an increase of 31% over the same quarter of the prior year.

Given our stronger-than-anticipated third quarter financial results, I am pleased to announce that we are once again increasing our financial guidance for the 2014 fiscal year. We are now projecting revenues of $770 million to $775 million, representing 20% -- 26% revenue growth over fiscal year 2013.

On the bottom line, we are projecting adjusted earnings per share of $2.37 to $2.40, representing 34% to 35% year-over-year growth. Jim will provide more details surrounding our financial guidance later on in the call.

I am very pleased with our strong financial performance in the third quarter, which supports our focus of growing and diversifying our business to achieve the goal of building a world-class leading molecular diagnostic company, providing exceptional patient care across all major diseases.

I will begin by focusing my remarks today on Myriad's efforts to advance our strategic initiatives of expanding our core hereditary cancer market, growing our international business and launching new life-saving products. We achieved a major milestone this quarter by signing a transformational payor contract with UnitedHealthcare for our myRisk Hereditary Cancer test. Mark will talk in more detail about the contract later on in the call, but we see this contract as a strong validation of the clinical importance of myRisk.

United is our second largest payor and is a leader in hereditary cancer testing and personalized medicine. This 3-year contract not only provides for myRisk coverage for all UnitedHealthcare members but also provides coverage for myRisk update testing for those patients who have been previously tested by one of Myriad's single cancer tests.

Our continued confidence in obtaining universal myRisk reimbursement stems from several key studies that we will be publishing over the coming months, including another clinical validation of myRisk, several clinical utility studies and the health economic model for myRisk. Armed with this extensive and persuasive data, we are optimistic that we will be announcing additional myRisk coverage decisions over the next few quarters.

I am also pleased to note that the Society of Gynecological Oncology recently updated their guidelines to include language highlighting the advantages of cancer gene panels. These advantages include a reduction in health care costs, an improvement in efficiency and an increase in sensitivity with a more informative test result.

The new guidelines also acknowledge the fact that a negative test is more reassuring to patients because it eliminates concerns about an inherited risk for all known cancer genes, not just a couple of genes. We will continue to work with guideline organizations to update recommendations surrounding cancer panel tests such as myRisk.

Finally, I'm pleased to note that we remain on track to fully convert our hereditary cancer business to myRisk by December of 2015.

We have also made significant progress in the expansion of our core hereditary cancer testing market, and we're very pleased to see the National Comprehensive Cancer network update their professional guidelines surrounding hereditary colon cancer testing. The new guidelines represent a significant expansion of our addressable market opportunity for assessing risk of developing colon cancer or endometrial cancer.

Under the new guidelines, 30% of colon cancer patients and 100% of endometrial cancer patients now qualify for our myRisk hereditary cancer test. This change nearly doubles the incident market to 90,000 patients per year in the United States.

In the asymptomatic market, the new guidelines dramatically expand the number of patients from approximately 3 million Americans to more than 9 million individuals. The hereditary colon and endometrial cancer market now represents a $1.5 billion market opportunity in the United States and a $3 billion market opportunity globally.

More importantly, we are less than 1% penetrated in the asymptomatic market and only about 10% penetrated in the oncology market, which means there is room for significant growth.

Additionally, the new guidelines eliminates the requirement for microsatellite instability and immunohistochemistry pretesting prior to performing the genetic testing. Historically, pretesting has been an impediment to adoption among physicians and compliance among patients and has generated additional complexity in the ordering process.

We believe the removal of these pretesting requirements will increase patient access and streamline the test ordering and billing process for patients. We have already begun talking to private payors about this new guideline changes.

We are very pleased to see that one of our commercial partners, AstraZeneca, received priority review status for olaparib from the FDA. AstraZeneca has been granted a PDUFA date of October 3, 2014, setting them up for a potential approval in the United States later this calendar year. In support of AstraZeneca, we submitted the first module of our PMA to the FDA on BRACAnalysis CDx, our companion diagnostic for olaparib.

As Mark will discuss in more detail later on in the call, we are already seeing increased interest in ovarian cancer testing as we move closer to the important milestone of the first companion diagnostic for a PARP inhibitor receiving FDA approval.

In addition to ovarian cancer, AstraZeneca recently announced that it is initiating 3 clinical studies in breast cancer, including indications for metastatic cancer and a neoadjuvant and adjuvant therapy. Combined, these indications reflect 80% to 90% of all newly diagnosed breast cancer patients, potentially tripling our core breast cancer oncology market.

Beyond breast and ovarian cancer, AbbVie recently announced a Phase III study in non-small cell lung cancer using BRACAnalysis CDx. This indication of approximately 170,000 patients per year in the United States represents an entirely new market opportunity for Myriad.

In fact, based upon the clinical trial information on, our pharmaceutical collaborators are investigating PARP inhibitors in almost every major solid tumor cancer, including the 3 largest cancers: breast cancer, lung cancer and prostate cancer.

The approval of PARP inhibitors across multiple cancers will further position Myriad as a leading global diagnostic company and represent a market opportunity for our BRACAnalysis CDx test of over $1 billion annually in the United States.

And now I'd like to discuss our international business. We continue to make meaningful progress as revenues once again increased more than 100% this quarter. While there are several reasons to be optimistic surrounding our international business, we believe one of the most notable catalysts is the potential approval of olaparib in the European market later this calendar year. The approval of PARP inhibitors in Europe will alter the European landscape for BRACA testing in several important ways.

First, Myriad will be launching the first tumor-based BRACA test in Europe later this year. Tumor BRAC testing will pick up both somatic and germ line mutations, which will identify 30% more patients that may benefit from olaparib, thus expanding the market size for olaparib by 30%.

We believe this more informative tumor test will make it highly attractive to physicians, patients and payors alike. Additionally, the availability of olaparib will create the need for much more rapid turnaround times.

Myriad's turnaround time of 7 to 10 days is a significant competitive advantage compared to the current 3 to 6 months of other European labs. Physicians are unlikely to accept waiting up to 6 months for a result before beginning olaparib treatment for their patient.

Finally, our competitors' reliance on public databases with high VUS and error rates will further restrict patient access to this life-saving medicine. The initial indication for olaparib in Europe will be in platinum-sensitive ovarian cancer, which represents a $100 million market opportunity for Myriad. However, the market size will increase significantly if PARP inhibitors are approved for other cancers.

In the area of new product introductions, our pipeline has never been stronger. Looking out 5 years, we believe that revenues from our pipeline products have the potential to be at least as large as our entire Hereditary Cancer testing business today.

One of the most important components of our future product growth will come from the recent acquisition of Crescendo. As you are aware, we completed the acquisition of Crescendo on February 28, and immediately began the integration of our 2 businesses.

Our research team has identified several complimentary areas of research collaboration with the Crescendo team. Our managed care team is also working with Crescendo to utilize our established managed care relationships to begin expanding private insurance coverage for Vectra DA, and we are optimistic that we can ramp private payor coverage over the next 12 to 18 months.

During the third quarter, Crescendo expanded its base of ordering doctors, and now over 25% of all rheumatologists are routinely ordering Vectra DA for some of their patients in their practice.

In addition to myRisk, 3 of Myriad's internally developed products, including Prolaris, myPath Melanoma and BRACAnalysis CDx, are poised to be significant growth drivers during the next calendar year. We recently submitted the clinical utility study for Prolaris to Medicare, which completes our dossier, and we are waiting to hear back from Medicare on a coverage decision. We also anticipate receiving FDA approval for BRACAnalysis CDx this year, and are preparing to support AstraZeneca's olaparib product launch in the United States, which could occur later this calendar year.

Finally, we will be submitting a dossier to Medicare for myPath Melanoma next year. Each of these 3 products has the potential to generate global revenues of over $100 million in the next 5 years.

Finally, I would like to mention that during the quarter, we also announced initial results from a landmark study of immune system response through our research collaboration with the prestigious Institut Pasteur using our TruCulture product. The study looked at establishing baseline readings of normal immune system activity and comparing those baseline readings with immune system responses to different stimuli associated with infectious diseases, autoimmune disorders and cancer.

The TruCulture system provide a low-cost platform to perform clinical studies on patients, and its point of care collection capabilities make it an ideal platform for these studies. We are currently exploring commercial collaborations with pharmaceutical companies in the areas of cancer immunotherapy, vaccine response and autoimmune disease therapy.

In conclusion, I am very proud of the Myriad team and the progress we have made as a company. We are expanding the markets for our core hereditary cancer products, penetrating our international markets and perhaps most importantly, we are diversifying our business across multiple disease states and launching new innovative tests in billion-dollar global markets. Myriad now has commercial products in oncology, dermatology, urology and rheumatology, as well as women's health.

It is now my pleasure to turn the call over to Mark to provide a broader operational update.

Mark Christopher Capone

Thanks, Pete. I am happy to provide a more in-depth look at our operational performance in the third quarter. First, I would like to provide a recap of our segment performance during the third quarter, followed by some additional color on the myRisk Hereditary Cancer conversion strategy, progress on our diversification efforts through new product introductions and finally provide an update on our legacy Hereditary Cancer market.

Starting with our business segment performance. Our Women's Health segment continues to perform exceptionally well and posted year-over-year growth of 53%. We remain very optimistic about our ability to continue to drive strong growth in the Women's Health channel as we remain less than 5% penetrated in a $50 billion asymptomatic patient market for hereditary breast, ovarian and colon cancers.

This quarter, our oncology revenues were down 4% year-over-year. However, it is important to note that all of our Medicare revenues are recognized in the Oncology segment, which was impacted by the Medicare price reduction. We estimate this impact reduced year-over-year revenue by 6%. In the absence of this price reduction, revenues in the Oncology segment would have increased by 2%. As you are aware, Medicare recently increased its calendar year 2014 price for BRACAnalysis by 37%. Consequently, going forward, this impact will be less significant.

Our myRisk launch is proceeding exceptionally well. Starting in February, we began recruiting additional physicians to use the test. Given the time for our enrollment, training and lab processing, we started to see the revenue impact from these new providers in the second half of the quarter. Additionally, in late March, we expanded the enrollment process for myRisk to all of our genetics customers. We expect to see more meaningful increases in myRisk revenues starting in the fourth quarter and continuing to gain momentum as we work toward our goal of full conversion by the summer of 2015.

Our data supporting the use of myRisk continues to expand significantly. We have submitted the 2 pivotal prevalence studies for publication and have also successfully completed 2 clinical utility studies. In addition, I am pleased to announce that we will have 6 presentations on myRisk data at ASCO, including 2 podium presentations.

As Pete mentioned, a major step in the conversion process occurred with the signing of our first major private payor contract for myRisk with UnitedHealthcare. We believe this contract is a strong validation that private payors appreciate the importance of the increased sensitivity of myRisk with no additional costs.

I would like to provide some additional details on the format of the United contract as it is representative of terms for future contracts as well.

First, the contract is for a period of 3 years and, unlike our historical contracts, cannot be terminated by either party over that 3-year period. This provision gives both companies pricing stability for an extended period of time.

Second, the contract covers myRisk testing for all patients that meet United's current hereditary cancer testing criteria. Third, while we cannot discuss pricing with individual payors, the contract is consistent with our goal of providing the higher-value myRisk test at no additional cost, relative to our legacy single-syndrome Hereditary Cancer tests.

Additionally, this contract provides for update testing for legacy BRACAnalysis and COLARIS patients who want to be tested for the additional myRisk genes. This opens up a new market for Myriad of more than 1 million previously tested patients who will now have access to the most advanced technology available. We are excited to continue our pioneering work with UnitedHealthcare and look forward to signing additional similar agreements with other payors in the coming quarters.

We are also making significant progress in our myRisk laboratory operations. The vast majority of our myRisk reports now have a turnaround time less than the critical 14-day window for surgical decision-making. Additional laboratory expansions are underway, and we are ramping our training regimen to ensure our sales force, customer service and clinical support specialists are ready to support customers on a much broader basis. This is in support of our planned full commercial myRisk launch this fall.

Overall, I'm very pleased with the progress our team is making on the myRisk strategy, and we remain on track to achieve full myRisk adoption by the summer of 2015. This is also a very exciting time for our urology division as we saw a 24% sequential growth in Prolaris samples during the third quarter. In addition, we are preparing for a more expansive launch of Prolaris in coordination with our expected receipt of Medicare reimbursement coverage.

During the third quarter, we submitted our finalized dossier to Medicare, including data from our recently published PROCEDE 500 clinical utility study. We are pleased with the outcome of this pivotal study, which analyzed 305 patients and showed a 65% change in physician behavior based upon on the inclusion of the Prolaris score in clinical decision-making. We also recently completed a second clinical utility study called PROCEDE-1000 and expect to have clinical outcomes in the fourth quarter.

These clinical utility studies have been incorporated in an extensive health economic model that demonstrates a significant savings to the health care system, which will also be submitted to Medicare during pricing discussions.

In May, at the upcoming American Urology Association meeting, we will be presenting 3 Prolaris studies and an additional study pertaining to our renal cell carcinoma prognostic product that is under development. One of these studies includes a second pivotal prostate cancer biopsy validation study with over 750 patients correlated to the gold standard endpoint of disease-specific mortality. This data is consistent with the 11 other completed clinical studies with more than 6,000 patients, which have all demonstrated that Prolaris is the most significant predictor of tumor aggressiveness and disease-specific death.

We also continued to see exceptional physician demand for myPath Melanoma, and we received over 1,000 patient samples this quarter. We dramatically expanded the numbers of doctors ordering myPath Melanoma this quarter from 35 ordering physicians in the second quarter to 90 in the third quarter.

Since dermatopathology is a small channel, this represents about 6% of the potential 1,500 dermatopathologists in the country. Additionally, we are working diligently to build a robust set of supporting clinical data around myPath Melanoma.

Our initial verification study was presented at the International Society of Dermatopathology meeting in March, showing the test at an 89% sensitivity and 91% specificity on differentiating melanoma from benign skin lesions. I am pleased to announce that our first clinical validation study has been accepted for presentation at the upcoming ASCO Meeting in June, and we expect the data to be similar to what we saw in our verification cohort.

We have completed our initial clinical utility study and developed pharmacoeconomic data to support the economic value of the test to the health care system. This favorable health economic model will be presented at the Association of Value-Based Cancer Care meeting this week.

Our initial retrospective clinical utility study was presented at the USCAP Annual Meeting in March, demonstrating over a 33% change in medical management based upon the myPath Melanoma test result. We continue to believe that we will have all of the necessary data to submit a reimbursement dossier to payors by end of fiscal year '15, thereby opening access to this $1 billion global market.

In addition, we are making significant progress with our myPlan Lung Cancer launch. Commercial interest in the test grew during the quarter, and we are in the process of expanding the supporting clinical data to obtain reimbursement. Our first health economic study has been accepted for presentation at the upcoming International Society for Pharmacoeconomics and Outcomes Research meeting in early June.

Additionally, we have a second health economic study that has been accepted for publication at the upcoming ASCO meeting. Furthermore, as part of our early access launch, we are enrolling patients in our first clinical utility study. The completion of these studies will pave the way for our dossier submission for reimbursement.

We have also seen some promising developments in our companion diagnostic portfolio. We recently announced that we have submitted the first data module to the FDA in support of our premarket approval application in concert with AstraZeneca's new drug application for olaparib.

As Pete mentioned, AstraZeneca has announced that olaparib has received priority review by the FDA and could be available by the end of this fiscal year. Only those ovarian cancer patients who carry a BRCA mutation will likely benefit from olaparib therapy. So it is important to know a patient's BRCA status in order to have access to, and guide, future therapy.

We have historically tested only 25% of ovarian cancer patients each year in the United States, but would expect this number to increase dramatically if olaparib is approved later this year. In anticipation of these developments, the Society of Gynecological Oncologists, in the third quarter, reemphasized their professional guidelines recommending genetic testing for all ovarian cancer and endometrial cancer patients. To prepare for this launch, we have recently been expanding our outreach efforts to gynecological oncologists.

Transitioning to reimbursement. A significant positive industry event occurred with the passage of the Protecting Access to Medicare, or PAMA, Act that included provisions for pricing of all tests under the clinical laboratory fee schedule. This new legislation eliminated the ability of CMS to reprice codes under the clinical laboratory fee schedule based upon technology changes. Therefore, the Medicare pricing for integrated BRACAnalysis will remain the same until calendar year 2017.

In 2017, existing lab fee schedule codes will be priced based upon the weighted median reimbursement rates of all private payors submitted during 2016. Additionally, there are some provisions in the new law that are very favorable for the pricing encoding of new advanced diagnostic tests, following a coverage determination by Medicare.

Overall, we view this legislation as a major positive in reducing reimbursement uncertainty and incenting innovation.

Finally, I would like to provide an update from our legacy Hereditary Cancer business. In the third quarter, we saw only a small additional decrease in market share in the genetic segment that represents 15% of our business. As a reminder, 100% of our genetics revenues are recognized in Oncology. So this segment has disproportionately felt the impact of competition. We believe our increased selling efforts into this channel, as well as the introduction of myRisk, will stabilize our future market share.

Additionally, from a reimbursement perspective, we again saw no material change in our average selling price or in network status with major providers. Our goal is to convert our payor contracts to myRisk with longer-term durations, as we have demonstrated with UnitedHealthcare. This, coupled with the recent legislative changes for clinical laboratory fee schedule pricing, will provide long-term reimbursement stability for our entire portfolio of products.

In conclusion, we are making outstanding progress with our myRisk Hereditary Cancer conversion strategy, as well as our other new product launches.

As a company, we have made a conscientious effort to dramatically expand our research efforts, and we are now seeing the dividends of that strategy in terms of our rapidly expanding product pipeline. Given the contribution we expect from these new products, coupled with the successful transition of our Hereditary Cancer market, we remain confident in our ability to continue to deliver strong growth in future years.

With that, I will now turn call over to Jim for a financial update.

James S. Evans

Thanks, Mark. I'm pleased to provide an overview of our financial results in the third quarter followed by a more detailed look at our 2014 financial guidance. Third quarter total revenues came in at $182.9 million, representing top line growth of 17%. Molecular diagnostic revenue in the quarter was $176.2 million, up 19% year-over-year.

As we mentioned earlier in the call, our Women's Health revenues were $80.7 million, up 53% year-over-year. We are very pleased with the continued strength of our Women's Health business. Oncology revenue declined $3.4 million year-over-year to $92.4 million. Contributing factors to the year-over-year decline in Oncology revenue include a $6 million reduction in Medicare reimbursement associated with the CMS price cut, which was subsequently increased by 37% beginning April 1, 2014, and a typical seasonality of our business during the winter quarter. Companion diagnostic revenue in the third quarter was $6.7 million, and Crescendo added an incremental $3.1 million, which represents a single month of sales, as the acquisition closed at the beginning of March.

We believe, going forward, the best way to gauge the performance of our Hereditary Cancer testing franchise is to look at the aggregate growth of our Hereditary Cancer tests, including BRACAnalysis, BART, COLARIS, COLARIS AP and myRisk, since the individual product growth rates are no longer comparable on an apples-to-apples basis.

Looking at our revenues this way, this quarter our overall Hereditary Cancer franchise grew approximately 16% year-over-year. Hereditary Cancer revenues consisted of BRACAnalysis and BART revenue of $140.7 million; COLARIS and COLARIS AP revenue of $14.4 million; and myRisk Hereditary Cancer revenues of $14.5 million. Other revenues were $3.5 million and grew 25% relative to the third quarter of last year.

Before moving further into the income statement, I want to discuss some onetime noncash charges Myriad incurred during the third quarter as a result of the acquisition of Crescendo Bioscience. First, we incurred approximately $12.6 million in onetime noncash charges associated with acceleration of Crescendo employee stock options and change of control bonuses tied to the closing of the transaction on February 28. These were made out of the $270 million purchase proceeds so it did not cost Myriad anything. However, GAAP accounting requires us to record this on our books as opposed to acquisition expense. Additionally, as with most acquisitions, we will have a noncash amortization charge going forward associated with the purchase of intangible assets in the transaction. This noncash charge was approximately $900,000 in the third quarter and will be approximately $2.7 million per quarter on an ongoing basis. This, combined with the amortization of intangible assets acquired in the Rules-Based Medicine combination, will result in total amortization of intangible assets from acquisitions of approximately $3 million quarterly.

Following the lead of most public companies that complete sizable acquisitions, and in order to provide investors with additional information that may be useful in analyzing the company's past and future operating performance, we will begin breaking out these noncash amortization charges separately and reporting adjusted EPS. We believe this will give a better reflection of the true earnings power of the company and provides a better comparison with historical periods. Therefore, our earnings guidance going forward will also be adjusted to exclude these noncash charges.

Now moving down the income statement. Our adjusted gross margins declined 130 basis points year-over-year to 85.7%, as expected principally due to the inclusion of revenue from Crescendo, which at current volumes has lower margins. We anticipate some further decline in our gross margins as Crescendo becomes a larger part of our product mix. As we enter into additional long-term contracts, such as the United contract, we expect gross margins similar to our single cancer tests at volume.

However, at our current economies of scale, the margins are lower for our myRisk test. Adjusted research and development expense was $9.5 million, which excluded approximately $3.9 million in noncash charges. Our R&D expense will continue to fluctuate based on the timing of clinical trials and receipt of research samples, with a goal to spend approximately 9% of sales.

Adjusted SG&A was $78.1 million, which excludes approximately $9.5 million in noncash charges. Our adjusted SG&A was relatively flat quarter-over-quarter. Our adjusted operating margin was 37.8% in the quarter, an increase of 40 basis points on a year-over-year basis, primarily due to the lower R&D expense in the third quarter.

Total adjusted operating income was $69.1 million, an increase of 19% year-over-year. Our tax rate this quarter was 36%, which was lower than our prior quarter due to the exercise of employee stock options during the quarter and a lower blended state tax rate. Adjusted net income for the quarter was $46.2 million, an increase of 21% year-over-year. Our fully diluted share count decreased to 76.4 million shares, based primarily on our share repurchase activity during the quarter.

The benefit of our share repurchases was offset some this quarter as a result of the higher stock price, which has a dilutive effect as more employee stock options moved into the money. Our adjusted EPS was $0.60 for the quarter, which was up 30% compared to the $0.46 adjusted EPS we posted in the third quarter of last year.

Moving to the balance sheet. We ended the quarter with $277.7 million in cash and cash equivalents, which translates into $3.64 in cash per fully diluted share.

We utilized approximately $245 million for the purchase of Crescendo Bioscience, an additional $42 million in cash to repurchase approximately 1.6 million shares during the third quarter.

We continue to believe our stock price is not reflective of the long-term value of the company, and we will consequently continue our stock repurchase program at current valuation thresholds. As of the end of the March quarter, we had approximately $231 million remaining on our current share repurchase authorization. We'll have more than sufficient cash on hand to complete the authorization.

Now I would like to provide a more detailed look at our 2014 financial guidance. We are once again revising our 2014 revenue guidance upward and are now calling for revenues of $770 million to $775 million, reflecting 26% revenue growth. This guidance includes an assumption of approximately $13 million in revenue from Crescendo this year and reflects the recent increase in Medicare pricing for BRACAnalysis, and assumes no material declines in private pay pricing. On the bottom line, we are also raising our annual financial guidance and are now calling for adjusted EPS of $2.37 to $2.40, representing earnings growth of 34% to 35%. As a reminder, our adjusted EPS excludes noncash charges associated with acquisitions.

Finally, we have received a great deal of investor inquiries surrounding Crescendo, so we would like to provide you with some additional visibility to aid you in your modeling for fiscal year 2015. We anticipate revenues from Crescendo will be approximately $60 million in fiscal 2015, and we believe the acquisition will be approximately $0.20 dilutive next fiscal year.

We expect the dilution to moderate throughout the year and that Crescendo will be accretive in fiscal year 2016 and beyond.

And with that, I will now turn the call back over to Scott for Q&A.

Scott Gleason

Thanks, Jim. As a reminder, during today's call, we used certain non-GAAP financial measures. A reconciliation of the GAAP financial measures to non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website.

Now we're ready to begin the Q&A session. [Operator Instructions] Operator, we are now ready for the Q&A portion of the call.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Bill Quirk with Piper Jaffray.

William R. Quirk - Piper Jaffray Companies, Research Division

First question from me is regarding the UNH contract. We're talking about the 1 million patients that have already gone through the BRACAnalysis product and the fact that they may be eligible for myRisk. Help us think a little bit about the terms here for Myriad there? Is it something where you're charging a discounted price for the balance of myRisk? Is this essentially like performing a brand-new test for someone? Just help us think about the logistics there.

Mark Christopher Capone

Yes. Thanks, Bill. So as I mentioned, we have a million patients. Obviously, a percent of those are UnitedHealthcare patients, and that percent is roughly consistent with their share of the overall managed care market in the U.S. We don't talk about any of the pricing details as it relates either to myRisk or what we call the myRisk update. And so we can't necessarily get into any of those details, but as you mentioned, those patients do represent an additional market that historically we've not been able to tap into. I think with the 50% to 60% increase in sensitivity that we've seen with the myRisk test, we have certainly seen an increasing level of interest from health care providers to contact those patients that have been historically tested, and particularly those that had initially been identified as higher-risk. And so we think, over the coming months, that we will see physicians reach out to some of those legacy patients and provide them the opportunity for updated testing.


Our next question comes from the line of Derik De Bruin with Bank of America.

Derik De Bruin - BofA Merrill Lynch, Research Division

So I'm a little bit curious on the Prolaris volumes. Like can you give us a little bit more color on that, and sort of like how we sort of should think about the increase in Prolaris once you sort of get CMS approval, reimbursement for this? I'm just curious how you're thinking about that and the growth trajectory in that product.

Mark Christopher Capone

Thanks, Derik. As I mentioned in my comments, we've continued to see very nice growth in Prolaris. We saw a 24% sequential growth in samples for Prolaris this quarter. As you're probably aware, Medicare is really the most important segment for Prolaris. That represents probably about 65% of patients, which is why we put significant emphasis on obtaining Medicare approval. What we've historically seen in molecular diagnostics is that when Medicare approval is obtained, that you see an inflection point in utilization of testing, and we would anticipate the same thing with Prolaris when we ultimately get reimbursement. As a result of that, we've already begun looking at expansion of our field sales force in anticipation of that, and we're looking to double that field sales force, which then should allow us to significantly increase our penetration into the urologists that prescribe Prolaris. So we do anticipate an inflection point. We haven't provided specific guidance around that, but you can see we've already seen very nice sequential growth even without Medicare reimbursement.


Our next question comes from the line of Eric Criscuolo with Mizuho.

Eric Criscuolo - Mizuho Securities USA Inc., Research Division

Just filling in for Peter Lawson tonight. I guess, just on the R&D, it was substantially lower than what we had estimated and substantially below run rate. Now I know you've said that obviously R&D timing comes into play, but were there any programs in particular that got pushed out into later time periods that are going to hit the P&L in the coming quarters?

Peter D. Meldrum

Thank you for the question. No, there's nothing unique or unusual about this quarter. As Jim mentioned on the conference call, R&D is dependent upon our receipt of samples, upon the timing of clinical studies and our work with both our pharmaceutical partners and our internal product development. So it does fluctuate from quarter-to-quarter. We still feel fairly confident that it will not exceed 9%, which has certainly been our goal as a percent of revenues, and are very excited about the industry-leading product pipeline that the company has. We do have about a dozen programs, new products under development in the pipeline, and again, there's quite a bit of fluctuation in terms of getting samples to do the clinical validation studies around those new products. But no, nothing unusual that would anticipate an increase, an abnormally unusual increase in future quarters.


[Operator Instructions] Our next question comes from the line of Amanda Murphy with William Blair.

Amanda Murphy - William Blair & Company L.L.C., Research Division

So I have some questions on the growth rates of the 2 sides of the business: the OB/GYN and the Oncology. So I believe you said that the celebrity publicity factor was out of the numbers now. So I'm curious, first, should we look at the run rate as sustainable with that market expansion? Maybe just provide a little bit more color there. And on Oncology, you mentioned, obviously, the Medicare cuts but also some market share losses. Just looking for a little more color on -- if you could quantify that incremental amount.

Mark Christopher Capone

Yes. Thanks, Amanda. As we mentioned, that we have, in fact, seen any of the effects from publicity really dissipated at the end of last quarter. I think we feel very confident about that. As you know, we've done a number of public awareness campaigns over the lifetime of the company, and we carefully monitor certain indicators of those awareness campaigns. The patterns we saw during this celebrity publicity period were identical to what we've seen historically, although the magnitude was certainly greater than what we've seen. But it's very clear from assessing those patterns that the effects dissipated by the end of last quarter. So you are right, this quarter is more reflective of true year-over-year without the impact from celebrity publicity. The OB/GYN segment grew 53%. We're obviously quite pleased with that. Prior to the impact from celebrity publicity, we had been seeing growth rates in the year-over-year, 30% to 40%. So while this is slightly higher than what we had seen, it's still within the realm of what we've historically seen in the OB/GYN segment. As mentioned, we are still very under-penetrated in that segment. There are still substantial opportunities for growth, and with the current changes in the colon cancer and endometrial guidance -- guidelines from NCCN, that actually expands the potential market size for OB/GYN. So we still continue to believe there is significant opportunity for growth there. As you mentioned in Oncology, we did see year-over-year revenue decline, but in the absence of the Medicare changes, would have seen a slight increase of about 2% year-over-year. This segment does bear the full brunt of the competitive pressures that we have seen, although we continue to see that market share loss really reside in that 15% of our business that is the genetic segment. We also continue to think there are opportunities for growth in the Oncology segment. As I mentioned, we are doing a couple of initiatives to try to shore up market share in that genetic segment through additional call points or additional expansions into the genetics segment, the sales team that calls on the genetic segment, so we will continue to focus on that. The other thing that we have seen is that segment is particularly interested in panel testing. And so making myRisk available to that segment is very important because it now allows them to use 1 laboratory for either single syndrome or for panel testing. And lastly, in the Oncology segment, we still continue to believe that there are opportunities to expand the indications with myRisk, potentially doubling the size of the patient population that would be eligible for Hereditary Cancer testing.

Peter D. Meldrum

And let me just add, Amanda, to that. I think the new guideline changes at the NCCN around colon cancer and endometrial cancer testing could have a potential significant positive impact on the growth in both businesses, but certainly, in Oncology, as those guidelines are incorporated in private pay reimbursement.


Our next question comes from the line of Sung Ji Nam with Cantor.

Sung Ji Nam - Cantor Fitzgerald & Co., Research Division

I just had a question on your guidance for Crescendo for the remainder of the year. You did roughly $3 million this quarter, and it seems like you're expecting kind of a flattish quarter sequentially for fourth quarter. So you've seen a lot of significant sequential growth, at least in volume, over the last several quarters. I was kind of wondering if there is more -- if I'm reading too much into that or if there might be something else going on as you're trying to integrate that business into your core business.

Peter D. Meldrum

Yes. I think you're probably are trying to read maybe a little too much into that. We're forecasting about $13 million in revenue, which is an increase over the March quarter. But as Jim pointed out for our fiscal guidance in 2015, we're showing about $60 million in revenue growth. Crescendo finished their calendar year in 2013 with total revenues of $27 million, so both what we're forecasting in the fourth fiscal quarter and for fiscal 2016 is a significant increase over Crescendo's current run rate and historical revenues. We're very excited about Crescendo. We think it represents a significant opportunity for Myriad as we not only move and diversify into a new disease indication, but look at a product that truly will dramatically improve the quality of life of patients with a chronic disease like rheumatoid arthritis. So we remain very excited and anticipate a very good revenue contribution in growth from Crescendo going forward in the future.


Our next question comes from the line of Dan Leonard with Leerink.

Daniel L. Leonard - Leerink Swann LLC, Research Division

I know you don't want to talk specifics around the UNH pricing, but can you at least talk about pricing in context to some of your prior commentary that prior payors -- private payors are -- were more receptive to your economic arguments and lower the U.S. and that sort of thing? And then for my follow-up, could you comment on whether or not the companion diagnostic-branded BRAC, if that would be part of this agreement, as well? Or if that would be a separate negotiation?

Mark Christopher Capone

Yes. Thanks, Dan. Yes, you're correct. We can't necessarily talk about details in pricing, but we can maybe provide some commentary on that. First, when we initially laid out that myRisk strategy, I think we mentioned at that point, our goal was that we would provide substantial increase in information for no additional cost, and you can see this contract is consistent that. Payors are very receptive to the economic models. First of all, around our legacy-testing BRACAnalysis, specifically, and so when you layer on a 50% to 60% increase in sensitivity at no additional cost, I think the health economics for the payor even become that much more pronounced, and so, they have been very receptive. I think this is a true validation of that with UnitedHealthcare, which would be viewed as a pioneer in Hereditary Cancer testing for quite some time. So I think we're very pleased that we are able to demonstrate that and provide that as a model for future contracts with other payors. Specifically to BRACAnalysis CDx, which will be the branded name for the new companion diagnostic that will have premarket authorization from the FDA. Because that product has not yet been approved, we have not specifically engaged with payors on contracting for that new product, but we will certainly do so as we approach the approval and launch of BRACAnalysis CDx. It is a different product and we can explore different coding and pricing and reimbursement that are consistent with the value that, that new product brings to the marketplace.


Our next question comes from the line of Drew Jones with Stephens.

Andrew L. Jones - Stephens Inc., Research Division

On the colorectal side, can you give us some color on historical cancellation rates there given the ITC prerequisite test and just how the updated guidance might change that?

Mark Christopher Capone

Yes. Thanks, Drew. We haven't talked specifically about cancellation. I think actually what you saw with this test was not so much an impact of cancellation, but more the fact that when a health care provider, specifically in the Oncology segment would identify a patient with colon cancer that had a family history, guidelines were such that they were really required to do tumor-based testing before they could ever order genetic testing. And so we would actually never see those tests in our laboratory because if the tumor test was done and the tumor test came out negative, then there was never genetic testing ultimately pursued with that test. This new guideline recognizes the fact that, first of all, those tumor tests aren't as sensitive. Secondly, now that the recommendation is that you should test all of the mismatch repair genes, which are all 4 of those, that tumor testing actually no longer becomes viable as a pretest and that you should move directly to a genetic test. And so these are tests we would have never historically seen, but will now be ordered directly from Myriad without a prescreen. So that's why we believe this offers the opportunity, as Pete mentioned, for expansion in the Oncology segment for colorectal cancer testing.

Peter D. Meldrum

And let me just add to what Mark has said, and I'm in complete agreement with Mark. I don't think it will have any impact on our cancellation rates. I think those have historically remained consistent and should, going forward, in the future. These are just patients we never got to see because of the microsatellite instability testing requirement. And going through that procedure, you see a dropoff in compliance both at the physician level and at the patient level, in terms of advancing onto genetic testing. So this new guideline change, I view as extremely important and extremely beneficial in terms of patient health care and treating colon and endometrial cancer. I think we're going to see much better patient access and utilization of the testing in the future, but it really is a situation of we never got to see these patients in the first place, as opposed to any impact on our cancellation rate.


Our next question comes from the line of Isaac Ro with Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

I just wanted to start off, hoping that you could comment on what visibility you have regarding the number of payors or the percentage of payors that you deal with who are now providing reimbursement for more than one BRAC test. And just taking that in context of the comments you had earlier regarding the fact that you really haven't seen a ton of share loss here, and obviously, you've been able to negotiate with United for a variety of things. So I'm just trying to get a sense of if we look now versus a few months ago or a year ago, the percentage of payors who are now paying effectively for multiple versions of BRAC.

Mark Christopher Capone

Thanks, Isaac. That's really a visibility we wouldn't have. What I can say is that from our perspective, as I mentioned, that, we've seen no change in network status, no change in average selling prices. Whether or not they've contracted or paid for other laboratory tests, there's no insight I could probably have on exactly what they might be doing there. I think what we've continued to see is because they value the accuracy of the Myriad test and because we've been able to show to payors that, that additional accuracy can save a payor $2,600 per patient, we continue to see broad access in all payors with no change in network status, and we would expect that to continue.


Our next question comes from the line of Jon Groberg with Macquarie.

Jonathan P. Groberg - Macquarie Research

It's just one question and then a quick follow-up. So on -- it's just little bit on the Oncology side. And -- but you mentioned the OB/GYN, how you think you're still very underpenetrated. Could you maybe give an update of where you think you are on the penetration side on Oncology? Just given that it was a bit of a slower grower there, even if you adjust for the price decline and whatever you think the competitive impact is? And then the second question is on use of cash. I know you bought back a lot of stock, but it seems like the Crescendo acquisition is something that could be a real positive, and I'm just curious, kind of your appetite for looking at other types of deals and using your cash more for M&A than buybacks.

Mark Christopher Capone

Yes. Thanks, Jon. I'll talk about the Oncology side and then Pete will talk about use of cash. From an Oncology perspective, we view that as the entire Hereditary Cancer portfolio, which includes breast cancer, colon cancer and endometrial cancer, all of those cancers that currently have indications. So across the entire Hereditary Cancer portfolio, we're about 33% penetrated. As Pete mentioned, part of the reason that we're at 33% is because the colon cancer side, we've been relatively underpenetrated versus the breast cancer side of the business. And so that offers some significant opportunity, particularly as we transition to myRisk. So about 33% penetrated across all of Hereditary Cancer.

Peter D. Meldrum

With regard to our capital deployment strategy, you're correct in pointing out that even after we have repurchased about 3/4 of $1 billion worth of company stock and have completed the Crescendo transaction, so there's no additional funds that would be needed toward that, the company still has $277 million cash in the bank, and that's plenty of cash to continue our current share repurchase program. But also, we will continue to look at opportunities to grow the company through acquisitions and mergers. Our first priority, certainly, is to grow the business both by investing in R&D and, again, we've committed about 9% of revenues to the internal product development, as well as M&A. But we will have plenty of cash left over to continue the share buyback because we still do believe the stock is undervalued.

James S. Evans

I guess I'd also throw in that we do have a very clean balance sheet. No debt on the balance sheet at the current time. So that leaves us completely wide open to be able to take advantage of opportunities that come along through the cash balance we have on hand or the ability to lever if we need to.


Thank you. That does conclude the question-and-answer portion of the conference. Mr. Gleason, I'll turn the conference back to you to continue on your closing remarks.

Scott Gleason

Thank you, Jamie. This concludes our earnings call. A replay will be available via webcast on our website for one week. Thank you, again, for joining us this afternoon.


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

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