Myriad Genetics' CEO Presents at Bank of America Merrill Lynch Health Care Conference (Transcript)

| About: Myriad Genetics, (MYGN)

Myriad Genetics, Inc. (NASDAQ:MYGN)

Bank of America Merrill Lynch Health Care Conference Call

May 16, 2012 7:20 pm ET


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


Derik de Bruin – Bank of America Merrill Lynch

Derik de Bruin – Bank of America Merrill Lynch

Merrill Lynch 2012 Health Care Conference. I’m Derik De Bruin, the Life Sciences Tools & Diagnostics analyst. It’s my pleasure to introduce our company, Myriad Genetics. Today from Myriad we have Pete Meldrum, Chief Executive Officer and Jim Evans, Chief Financial Officer.

There will be a short presentation and a follow-up by Q&A. And with that, I’ll turn over to Pete. Pete?

Peter D. Meldrum

Thank you, Derik, and welcome to Myriad Genetics presentation. I will point out that I may be making some forward-looking statements, so please consult our Securities Filings, in particular the 10-Q and 10-K and 8-K reports.

Myriad Genetics is a leading molecular diagnostic company focused on the development and discovery of transformative products that benefit patients and stays alive. These tests are involved in affecting an individual’s risk of developing cancer and other major diseases later in life, products that guide treatment decisions so that the patient can get the right drug at the right time, and with the right dose and assessing risk of progression, so that we don’t over treat patients, but can aggressively treat those patients who have a more aggressive form of disease.

Myriad has a very broad portfolio of products, nine innovative tests that the company has launched and are commercially selling. And that’s backed up by a very strong product pipeline. The thirteen industry-leading under tests under development across multiple disease indication.

However, these products are sold by Myriad’s own 360 person sales force, and most of our sales are here in the United States, that Myriad has just recently opened up laboratory in Europe, and is now selling its products internationally. And today we have benefitted over 1 million patients who have experienced one of Myriad’s nine medical tests.

We finished our series fiscal quarter which ended March 31, 2012 with very strong revenue growth of $129.2 million, that’s 23% increase over the prior year. Very strong operating margins of 36%, and generated $40 million in cash, adding to our already $467 million cash balance.

The company does have a very strong cash balance, and we’re in the process of implementing our fourth $100 million stock repurchase program.

If you look at healthcare in United States today, it very is very effective, but unfortunately it’s not very efficient. And healthcare is faced with rising costs, treatments that are not always effective and many patients who don’t find the treatment, and situations where there is unnecessary treatment given to patients, and very fragmented decision making issue facing healthcare today.

Myriad’s products address all of these issues. We have predictive medicine products like BRACAnalysis that assesses a women’s risk of developing cancer later in life, so that actions can be taken to either prevent the disease or at least catch the disease at an earlier stage, when it's more treatable, lowering the cost of the healthcare care for that patient.

We have personalized medicine products like OnDose that identify individuals that will respond to drug and they can identify the ultimate dose for those patients, so they do get the right drug at the right time, and with the right dose. And we have prognostic medicine products like Prolaris that can assess how aggressive a man's prostate cancer is likely to be, because most men have a slow-growing, indolent form of the disease that don't require aggressive therapy, and there are too many radical prostatectomy, too much overtreatment of men with prostate cancer, again contributing to the rise of healthcare cost.

So Myriad’s products are addressing the major issues facing healthcare today, and clearly saves not only lives, but the healthcare system significant financial cost. Myriad has three significant growth drivers that the company is currently implementing.

Firstly, we are growing and expanding our existing markets, and I’ll talk briefly about that. In the near term we will see significant opportunities from Europe for the opening of our new laboratories in Munich, Germany; and in the midterm we’re both focused on launching new tests like our Prolaris product and other tests in 13 products pipeline.

As we look at growing a distinct test within the company, our lead product is BRACAnalysis, which assesses a woman’s risk for developing breast and ovarian cancer later in life. We recently expanded that market increasing the market size about 50%. With the addition of triple negative breast cancer and carcinoma in situ as well as focusing more on the ovarian cancer aspect. This has been complemented with a social media and interactive marketing campaign. And last quarter we saw a 17% growth in BRACAnalysis. And this market represent over $1 billion annually just in United States, not counting our European operations.

We're also very much focused on growing COLARIS, which is our second largest product. COLARIS assesses an individual’s risk of developing either colon cancer or a women’s risk of developing endometrial cancer. And we have put together a specialty colorectal cancer sales force team that has contributed to the 51% year-over-year revenue growth we find below this last quarter.

I might point out that that's the second quarter in a row where we’ve seen greater than 60% revenue growth in this product. The COLARIS product has a $400 million market opportunity. And our newest product, Prolaris, assesses a man’s risk for dying with prostate cancer, differentiates between those individuals that have a very aggressive form of prostate cancer and man that have the slower growing indolent form of the disease where treatment may not be appropriate and watchful waiting or active surveillance may be a more appropriate course of action. This market represents a $700 million annual market opportunity.

As I mentioned, Myriad recently opened its laboratories in Europe. We have offices in Paris, Milan, Madrid, Munich and Zurich. Our headquarters are in Zurich and our main laboratory operations are in Munich, Germany. We have the grand opening of the labs a few months ago and we are now expecting samples and generating revenue from our European operation.

We’re very fortunate that three of our products already have reimbursement in all five of the major market countries that we’re currently operating in, those being Germany, France, Italy, Spain and Switzerland. And the products that have received reimbursement are BRACAnalysis, COLARIS and COLARIS AP our largest selling product. We are working on Prolaris and PREZEON and very excited about the potential for Prolaris in the European market as well.

As I mentioned, we have an industry leading pipeline of 13 different products that we’re working on, and this is across multiple disease indication. In neurology, where we're looking at psychiatric disorders like schizophrenia, bipolar disorder and major depression, metabolic disorders such as diabetes and certainly very strong in the oncology setting with the lung cancer product as well as bladders cancer and an early colon cancer detection product. And we’re very strong across a number of other disease indications like urology, with our Prolaris product and dermatology with a melanoma diagnostic product, which will be the next product that Myriad will launch commercially later next fiscal year.

The company has enjoyed very strong revenue growth over the years, about a 29% CAGR over the last five years and very strong operating income results as well.

As I mentioned we finished our third fiscal quarter on March 31 with a 27% increase in revenues [$229 million]. We maintained an 87% gross profit margin and invested heavily in research with a strong product pipeline. Research expense actually expanded by 76%. We still maintained a strong net operating profit and earnings per share.

We once again updated our guidance for the year. Our original revenue guidance was $445 million to $465 million and we’ve increased our $692 million to $696 million which represented 22% to 23% revenue growth this year. And we increased our earnings per share from $1.20 to $1.25; to $1.29 to $1.31 a 17% to 19% increase over the last fiscal year.

In conclusion, then Myriad is in a very strong financial position with significant cash flow and a strong cash balance, and we are investing that cash heavily in our business both expanding the business geographically to Europe, and then later to Latin America. But also with the launch of new product that cause multiple disease indication.

We are growing our existing tests and market and are very pleased with BRACAnalysis and Prolaris have retained significant growth recently, similar to lead product expanding as I mentioned markets, internationally and developing very deep pipeline of sales to launch future products later on as the company continues to grow.

We’re also very involved in companion diagnostics and we have collaborations with over 20 major pharmaceutical companies working with them in their new chemical entities to develop diagnostics that would identify individuals who would respond to those drug thereby improving the probability of the drug moving successfully through human clinical studies.

And lastly as I mentioned, we have been repurchasing stock at the date we bought back $340 million of Myriad’s stock, and we have authorized another $160 million in that stock repurchase program.

At this point in time, then, I would be happy to take any questions.

Question-and-Answer Session

Derik de Bruin – Bank of America Merrill Lynch

Thanks, Pete. I just launched coverage on the stock on Friday, and certainly I got an interesting feedback on it. There is lot of controversies on the name of one of them being the issues of reimbursement, and particularly as people kind of look at BRACA the changes there would struck me when you’re kind of doing work on the company is that, you’re still getting purely get pricing in Europe these products, I mean you’re getting like €3000 in Germany, and the mid-areas where there may not be as protection there is certainly more competition local laboratory, how do you see the whole reimbursement today playing out, how do you see the pricing going out now?

Peter D. Meldrum

Well, I feel very good about the pricing of Myriad’s products. As the healthcare costs continue to rise, it’s important to remember that our products actually save the healthcare system money. An ounce of prevention is worth a pound of cure. And it's much cheaper to identify individuals at risk for cancer and then prevent the cancer than to ignore that, have the person get cancer and treat personal cancer for the rest of their lives.

So we’re very fortunate that we’re on the right side of the equation and that we do save the overall healthcare system, money. I think it’s also important to note that, as we look at healthcare costs in the future, more and more emphasis is being put on cost effective medicine, and Myriad has done a number of Phase IV pharmacoeconomics studies to support our products. Cost-effective medicine is defined usually at about $50,000 for a quality life that you save and BRACAnalysis has been looked at, now three different times by independent investigators.

And based on the most recent study published, it’s about 30,000 just over 30,000 per quality life you’ll save, almost half of what would be considered cost effective medicine.

Likewise, COLARIS or other major product has been shown to be as cost-effective as Pap smears and mammogram. So I think we’re very fortunate that not only do our product saves the healthcare system money, but all of them are cost effective and that should, I think benefit reimbursement, not only here in the United States, but in Europe, where groups like NICE do look at cost-effective medicine very closely.

Derik de Bruin – Bank of America Merrill Lynch

What about Prolaris? I mean, it certainly is, I think, one of the more interesting drugs that or one of the interesting tests you’ve launched lately. It’s different than your other tests, it’s a gene expression-based test as opposed to a DNA sequencing-based test, could you talk a little bit about where you’re kind of in launch process and what you think is going to take to kind of get that reimbursement and also any of the pharmacoeconomics studies you’ve got going on with that?

Peter D. Meldrum

Well, Prolaris is a product we’re very excited about. Prostate cancer is a different cancer. It's a slow-growing cancer, typically, unlike most of the other cancers. And in fact most men if they live long enough will get prostate cancer, and most men will not die of prostate cancer. Typically you would die of a heart attack or a stroke long before prostate cancer became a problem.

Yeah, in some cases, prostate cancer can be very aggressive and in fact prostate cancer will kill about 30,000 men in the United States each year. So it's very difficult for a man to make a decision, because he doesn’t know if he has the aggressive form and that could take his life or the slow-growing indolent form of the disease. And Myriad's Prolaris test identifies, based on looking at cell cycle progression genes, genes that actually are involved in cell division and cell growth and cancer is uncontrolled cell growth, can identify whether the man has a slow-growing form or the more aggressive form of the disease.

This is a product that we've done more clinical studies on than any other product that Myriad has launched. We have nine clinical studies in over 3,000 patients with prostate cancer, and we have very good clinical data not only in postprostatectomy cancer patients but also preprostatectomy. So we would cover both newly diagnosed men with prostate cancer, and there's about 240,000 men in the United States diagnosed with prostate cancer every year, but also men who have had their prostate removed and are wondering if the disease has a high likelihood of recurring, and there's about 1 million men living in the United States who have undergone a prostatectomy.

So I think the value and the clinical utility of the test is one that should facilitate reimbursement. It's also interesting to note that, based on the studies that Myriad has done, only about 20% of the men diagnosed with prostate cancer actually have an aggressive form that would warrant either radiation therapy or radical prostatectomy, and yet the vast majority of men undergo aggressive therapy, and that's unnecessary surgeries that not only cost the healthcare system money but reduce the quality of life of men, because frequently after undergoing radiation or a radical prostatectomy a man could suffer side effects of either incontinence or impotence.

So I think this would be a product that would be very receptive to not only Medicare but private insurers, as well. Myriad recently launched the preprostatectomy product and are in discussions right now with all of those major healthcare providers and Medicare, and we're very hopeful that we'll have good results with the reimbursement of Prolaris. Typically, this takes about a year to 18 months to get reimbursement, and so hopefully during that period of time we'll be able to achieve reimbursement for Prolaris.

Derik de Bruin – Bank of America Merrill Lynch

Great. Any questions from the audience? Okay. You recently acquired Rules-Based Medicine, a companion diagnostic business. Could you talk a little bit about what attracted you to that business and where -- I guess, when can we start potentially seeing some news flowing from the products out from the department?

Peter D. Meldrum

Myriad did recently acquire a company called Rules-Based Medicine and really three reasons drove that acquisition. First of all, Myriad is very strong in understanding nucleic acid technology, so we're very good at sequencing DNA and looking at RNA expression.

But the triple crown of biomarkers includes DNA, RNA and protein, and Myriad historically has not been strong in protein analytic. RBM is probably a world leader in the analysis of protein and the ability to multiplex and look at multiple protein simultaneously. They have developed over 550 assays that they can survey in the discovery map from a single patient's drop of blood.

So, with the acquisition of RBM, Myriad now has the full complement of technologies that will lead to future biomarkers for not only companion diagnostics but other molecular diagnostic opportunities. The second reason for the acquisition was we're very aggressively moving into the companion diagnostic space. Myriad, through its discovery of the PTEN gene, has a very strong position in a new class of cancer therapeutics called (inaudible) kinase inhibitors, of which PTEN is a predictor of response to those drug, and through the discovery of the BRCA1 and BRCA2 gene, the new PARP inhibitor class, which again tend to be responsive in BRCA positive patients. But with the acquisition of RBM, they have about 20 major pharmaceutical collaborations across multiple disease indications that are in various stages of early drug discovery, Phase I, Phase II clinical studies.

So, it greatly expanded our franchise in the companion diagnostic arena. And we really see that as a significant opportunity of future growth for the company. The days of the pharmaceutical product treating all patients, I think is over and the FDA as well as the pharmaceutical companies recognize that a better strategy would be to identify in early-stage drug development, biomarkers that would identify patients who would likely respond to the drug with fewer side effects, thus treating those patients effectively and improving the probability that the drug will be successful through the review process. So, that really adds a lot to Myriad.

The third reason is that RBM do their own internal research has developed products that can assess a patient's risk of schizophrenia for example, whether or not a psychotic episode is caused, in fact, by schizophrenia or by a drug-induced psychosis or something else.

Our products that can differentiate between a patient having either bipolar disease or major depression, and those diseases are difficult early on to differentiate and yet a very different class of drugs to treat both of those diseases. And products that assess kidney damage in type 2 diabetic patient. So, the third reason was it strengthened our product pipeline and expanded us beyond just the oncology and women's health sector that we're currently in.

Derik de Bruin – Bank of America Merrill Lynch

So, which obviously goes to the question of diversifying the business away BRACA, BRACA's about somewhere in the [80%-ish] range of sales of the total company. Some of the discussion around the business obviously concerns that as the BRACA patent estate begins to expire in the future what happens to the competitive landscape there. So first of all, you kind of address what you're doing to expand the product life cycle of BRACA? And how do you going to see the whole competitive landscape going out in the BRACA space?

Peter D. Meldrum

Well, BRACAnalysis is our lead product. It is just over 80% of our total revenues. We have a very strong patent protection on the BRACAnalysis product, 23 issued patent here in the United States, and between now and 2018. The company is also invested heavily in understanding and characterizing the mutations in the BRCA1 and BRCA2 gene and has developed a very strong data base of mutations that allow us to accurately assess a woman's risk of developing breast cancer later in life. And when the patents do expire in about 2018, we think we will retain significant competitive advantage with that database and just the experience we've had in testing women for hereditary breast cancer risk.

But Myriad also sees the industry evolving, and if you look at our product pipeline on the slide that I just showed has a product there called hereditary cancer test. And this hereditary cancer panel really goes beyond just a single disease test like susceptibility to breast cancer or susceptibility to colon cancer, and is now looking more at a variety of cancers that could be analyzed, a panel of genes that could assess risk from multiple cancers in an individual patient. So, I think by 2018, the company and the whole industry would be moving more toward bladder cancer panels and (inaudible) maybe just single disease.

Derik de Bruin – Bank of America Merrill Lynch

So when you look at 2018, what's kind of your assumption for what percentage of revenues will – BRACA be, if it’s not 82% at that time?

Peter D. Meldrum

Well, BRACA is again our flagship product, but even as our flagship product grew 17% last quarter, so it’s doing very well and has a lot of headroom for future growth. But as I mentioned, our second leading product, COLARIS, grew 51%. And if you look at all of the other products that Myriad has they are growing 34%. So even though BRACA is continuing to grow, of the other products are growing faster, and BRACA is becoming a smaller and smaller part of our revenue.

We haven’t given long-term guidance, so it would be hard for me to answer your questions. But certainly by 2018, it will be a much smaller part of our total revenue mix given the growth that we’re seeing in all of the other product and the extensive product pipeline that we have. And I think with the expansion into Europe, as well, that's further diversification from the BRACAnalysis product.

Derik de Bruin – Bank of America Merrill Lynch

You currently enjoyed very high growth margin in the business and that though we’re using technologies, which a lot of people consider last-generation genetic analysis technologies. Is there any advantage to the business you go to the newer generation technologies and may be when you look at (inaudible) it is probably being – it will be based on a platform that's doing mostly target analysis, using the next technology. But can you talk about how you see the landscape kind of evolving for technology in this space?

Peter D. Meldrum

I think it’s important for investors to differentiate between a commercial clinical step from which a patient will make life effecting decisions and a research tool to study genes and role genes play in human disease. And certainly some of the next generation technologies are very exciting, very appropriate for research, but most of those technologies just are not accurate enough for an actual clinical laboratory setting and for use on patients to affect their healthcare management.

Myriad continues to upgrade and improve its technology. We currently have a very strong, very accurate platform for our tests, but are looking at advancing that technology platform as new technologies and new opportunities come on board. It certainly benefits Myriad to lower the cost of DNA sequencing and hopefully at the same improve the accuracy, and so we certainly will be doing that. But again, many of the things that are exiting, that we read about in terms of next generation sequencing are just not accurate for clinical laboratory testing, and are still probably several years away from doing that. Now, that is, though, within the time frame of a hereditary cancer panel. And one of the advantages of the next-generation sequencing is we can sequence many genes at what today would be the cost of maybe sequencing just one or two. And that certainly we will make that type of product a reality in the future.

Derik De Bruin – Bank of America Merrill Lynch

So, as we kind of wind down here, Pete, as you go out with investors and speak with analysts, like, what do you think is biggest misconception on Myriad? What's misunderstood?

Peter D. Meldrum

That's kind of hard to say. I think one of the misconceptions, so I mentioned that BRACAnalysis we have 23 issued patents. Within those 23 issued patents we have 500 claims, both composition of matter claims, method of use claims, correlation claims. And I think a lot of investors are focused on the current litigation with the ACLU on the patenting of genes themselves. And while this is a very important, potentially landmark court case, it only involves 15 of our 500 patent claims. So it’s really the outcome of this particular litigation will not have material impact on the operations of the company, and I’m not sure that's fully appreciated by shareholders.

Derik De Bruin – Bank of America Merrill Lynch

And with that we'll end. Thank you for attending.

Peter D. Meldrum

Thank you.

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