Welcome to the Myriad Genetics fiscal 2009 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, August 25, 2009. I would now like to turn the conference over to Mr. Peter Meldrum, President and Chief executive officer of Myriad Genetics. Please go ahead, sir.

Good afternoon, and welcome to the Myriad Genetics earnings call for our fiscal fourth quarter and year ended June 30, 2009. My name is Peter Meldrum, and I am the company's President and Chief Executive Officer. I'm joined today by Jim Evans, our Chief Financial Officer and Gregory Critchfield, President of Myriad Genetic Laboratories. I will begin the discussion this afternoon with a brief review of the past year and will be followed by Mr. Evans who will discuss our financial results. Dr. Critchfield will review the company's molecular diagnostic business. At the end of the presentation, I will turn the conference call back to the operator for a 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 actual events or results may differ materially and adversely from these 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 reports on Form 10-Q, and its current report 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. As you know, at fiscal year end, we successfully completed the spinoff of our research and pharmaceutical business, Myriad Pharmaceuticals. All of the shares of Myriad Pharmaceuticals have been distributed to our shareholders and Myriad Genetics now has no ownership in Myriad Pharmaceuticals. As part of the spinoff, we transferred $188 million to Myriad Pharmaceuticals. However, this has still left us with a very strong cash balance of nearly $400 million. According to…

Thank you, Pete and good afternoon, everyone. It is my pleasure to present a more detailed look at Myriad's financial results for our fourth fiscal quarter and our fiscal year ended June 30, 2009. To begin, I will point out some important differences in how we are reporting our statements of operations as a result of the spin off of our research and pharmaceuticals businesses, known as Myriad Pharmaceuticals, or MPI. In the presentation of our results for the fourth quarter and fiscal year, revenues and expenses for MPI are netted for each reporting period and shown on one line as discontinued operations. Accordingly, revenues and expenses on the income statement reflect solely the activities of the molecular diagnostic company, and are totaled as net income from continuing operations. Earnings or loss per share are calculated for continuing operations, discontinued operations, and in total. I would also like to note that the results from continuing operations that we reported today differ somewhat from those calculated by some analysts, based on the MPI FORM 10 data. The cause of the difference is in the allocation of overhead expenses. For the Form 10, the SEC required us to show what MPI would have looked like as a standalone company over the past number of years. We were therefore required to allocate various G&A expenses to MPI, based on reasonable proxies, such as square footage or headcount. The results that are in today's release and in the 10-K that we will file shortly, move actual revenues and expenses directly incurred by MPI to discontinued operations. All overhead expenses, for example, human resources, legal and accounting, facilities maintenance, et cetera, have been retained by Myriad Genetics and are reflected in the continuing operations numbers. Going forward with the separation of MPI and its employees,…

Thank you, Jim. It is a pleasure to speak with you today about our molecular diagnostics business. As Jim and Pete mentioned, we achieved fiscal 2009 revenues of $326.5 million, a 47% year-over-year increase. We are continuing our focus on increasing penetration in the oncology market, and expanding further into the women's health market segment. As Pete mentioned, studies have shown that because of the recession, women are cancelling their annual physicals, delaying going to the doctor for preventive care and skipping medical tests. We believe that this is the primary reason for the slowdown that we experienced during the second half of the 2009 fiscal year. Additionally, during the current difficult economic environment, United Healthcare recently institute a prior notification requirement for BRACAnalysis. We have been working very closely with United Healthcare to assist physicians was UHC's prior notification policy. United Healthcare has agreed that Myriad can act on behalf of the patient and ordering physician to initiate the insurance notification directly with UHC. United Healthcare has agreed that physicians do not need to complete any special forms or extra genealogy charts, but that the current Myriad test request form is adequate for their purposes. The reimbursement criteria they are used by United Healthcare are consistent with the 2009 National Comprehensive Cancer Network or NCCN guidelines for affected patients, and an expanded version of the U.S. Preventive Services Task Force guidelines for unaffected patients. It is important to note that United Healthcare did not tighten their reimbursement criteria for BRACAnalysis. Therefore, we currently do not believe that United Healthcare's prior notification requirement will have a significant impact on our revenues. In fact, we are seeing an overall improvement in the patient reimbursement criteria from insurers. Recently, professional medical society criteria for our tests have been expanded and insurers generally…

Thank you, Greg and I'll turn the call over to the operator for the question and answer portion.

(Operator Instructions) Our first question comes from the line of Geoff Meacham with JPMorgan.

Thanks for taking the question. I know that July, August are seasonally light months, given the summer holidays, but is there anything you can tell us about the current quarter, just in sort of broad brush strokes, how it compares to probably the past two?

Really not prepared to talk too much about this quarter. Historically, the summer quarter has been a weaker quarter for the company, because of the vacation periods. Women go on vacation, physicians go on vacation, genetic counselors go on vacation. Typically, we see a smaller revenue flow in July and August primarily because of the vacation, and a much stronger revenue growth in September, so it is very difficult to comment on this particular quarter given that we have no insight yet really into September, which is a key driver of the quarter.

Okay, then a follow-up to that. Have you guys seen any economic impact on oncology revenues for BRCA, specifically? Obviously that's pretty clear with the OB/GYN segment?

Greg can expand on this a little bit, but yes, we have seen an impact on our oncology revenues, particularly for BRAC analysis. Do we believe to the recession? As I mentioned, it's not nearly as significant as what we've seen in the OB/GYN sector, but we've definitely seen a slowdown across both sectors.

Yeah, again, Geoff, I'll reiterate what I said earlier. The reason that we believe there is less impact on the Oncology segment is that the decisions are more critical for immediate decision making that the doctor and patient need in order to treat the disease, because the oncologist is seeing people that have cancer, there's a need to get that information in order to know what to do next. It's less urgent in the OB/GYN segment of the market, and we believe that's one of the key reasons that is more susceptible to the recessionary effect.

Just one final question for Jim. Can you talk about how much of the SG&A spend during the fiscal fourth quarter was non-recurring from the spinoff, et cetera, and then maybe anything about SG&A run rate for the year, if you guys can talk about that.

Well, in the fourth quarter, we had just shy of $1 million of spin costs. I think it's somewhere between $700,000 and $1 million of cost associated with the spin, and so taking that out, the fourth quarter obviously does not have the full impact of the increase of the sales force, nor does it have the additional spend that we are going to have for the programs that Greg has listed out. Now, the one fortunate thing is the DTC campaign in the Midwest, we knew was going to be less expensive than what we have historically encountered in the southern area and the Northeast, just because of the current economic environment and air time and those types of things being less expensive. There will be an impact obviously to our SG&A for those additional programs that we will be initiating in order to spur revenue growth.

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

My question was related to the direct-to-consumer campaign in the Midwest. Can you characterize that region relative to the Southeast as well as the Northeast, in terms of key metrics that you look at such as population density or the types of physicians that you're dealing with, et cetera and give us some sense as to what the potential is for the Midwest relative to the Southeast and Northeast, and then also let us know what other regions you're targeting that you think may be interesting growth potential going forward.

As far as size goes, it's approximately the same size as the Northeast region that we conducted back in 2007. So that's 12%, 13%, roughly. What we do is look at the major Metro areas. We target areas where we have good medical infrastructure, where we have knowledge of insurance reimbursement, and where we have salespeople that are concentrated. One of the key elements of success that we have is making sure that experienced sales reps are the ones that are present while we're conducting the campaign and as you know we hired a head last year in our expansion to make sure that we had people in the Midwest region ahead of time. So, those are some of the elements we look for. There are other areas that could be future campaign areas. We have not done a campaign in the West Coast yet. That's one area that we are looking at. There are few other segments in the U.S. that we have also been looking at. All of the factors I mentioned are part of our analysis for deciding where to go next.

Thanks, Greg and a follow-up for Pete. You mentioned global leadership, that's intriguing. Can you give me some sense as to any specific initiatives to become more of a global company?

The Company is very interested in expanding its products outside the U.S. As you're aware, about 95% of our revenues to-date comes from U.S. and we have only a U.S. sales force. We see significant market opportunity in Europe and other parts of the world and are looking right now at the potential of developing facilities and sales forces in territories outside the U.S.

Is there any timelines on that initiative, Pete? Is that in the year or over the course of time?

The European market is probably the largest near term opportunity for the company. It's a very exciting one, but it's a challenging one because there really is no Pan-European reference laboratory like iQuest or LabCorp here in the U.S. In fact, some European countries, for example, France, don't allow the shipment of DNA across their company borders. So we would have to establish laboratory facilities in each of the major market countries and of course and of course each of those countries will have different requirements in terms of language and cultural issues with those sales forces and marketing materials. So I would say that this is an initiative that the company is very committed to and over the next two to three years, hopefully we'll make progress toward achieving that goal.

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

A couple of questions. Thinking about the September quarter, I know as was previously stated, somewhat of a slower quarter, typically you guys grow high single digits. Should we think about the September quarter as something that can reflect previous trends or would you suggest that the ongoing economic headwinds would make September a weaker relative quarter than what we've seen? I'm just trying to understand how much the economy is still impacting things.

Unfortunately, Michael, we don't give guidance on a quarter-by-quarter basis. We have indicated that we are comfortable with the annual consensus numbers that the research analysts have put out there. As I mentioned with Jeff's call, once we're past the September, the vacation period is a key driver to determining the success of the September first fiscal quarter for the company and obviously since it's not September, we don't have any insight into that.

It's so, so that brings me to my derivative question which is, it's not to press you on this but if we haven't gotten into September, we haven't seen September and you're acknowledging that there's low visibility and we don't really know, how do we have confidence on $392 million or what you're projecting as consensus? How do we know that, if we're not really sure, as we haven't got out of the summer yet?

Not quite sure how to answer that, other than to say that management is comfortable with the $392 million revenue figure for fiscal year 2010.

Okay, last question. Remind me if I didn't catch it. What was the molecular diagnostic operating margin this quarter and where do you think you can get it, given the types of investments you guys are going to put into further promotion this year?

Well, the operating margin is right around 40% for the quarter, and that's looking at just the continuing operations or the operating for the molecular diagnostic company as it's currently broken out in the financials. As we've said previously, I'll just quickly go back through, from information that's in the 10-K going back over a number of years, you'll see that operating margins increased from 14% in 2006, to 22% in 2007 to 28% in 2008 to almost 40% in 2009. So we see that we've been able to make significant improvements in those operating margins over time and as I've said in the past, we do think that we will be able to continue to see improvements in those margins with the leverage that we have, both on our R&D and our selling, general and administrative cost. That will allow us to move up toward the 50% mark.

Our next question comes from the line of Bill Quirk with Piper and Jaffray.

Thanks good afternoon. First off Greg, glad to see you guys are incentivizing the sales force to shift towards harvesting more tests from existing accounts rather than the I guess the mix of both looking at new and existing accounts. How long should we be thinking about this approach? Is this a fiscal 2010 approach? Is this a, we're going to have it in place as long as the economy continues to sputter? How should we thing about that?

Well certainly, we put it in place right now at this point in time, we believe that there's a tremendous opportunity as I mentioned to allow physicians to become better educated so that they incorporate more testing into their practice. I think that as a focus, this is going to be something that's going to be an ongoing focus for Myriad even beyond this. We always see a physician may try out a few test initially and becomes comfortable with it. Then understands and then looks for more patients in his or her practice to whom these tests would apply. So it's a general trend that you see. The number of people that are ordering at a high frequency today is far greater than it was last year and it's greater than it was the year before. So this is something that we're always striving for. The goal is that patients be, who are appropriate for testing, be identified and be given access to these potentially life saving technologies. So we're always driving toward that.

Okay, understood. Then Peter, not to pick on guidance but one quick question. Your commentary around the bottom line, the $1.44. There is a bit of a disagreement, shall we say, in terms of the sell side community, about half of us have fully taxed numbers in there from a GAAP standpoint, the other half don't. The $1.44, I guess, is you're thinking about your numbers, are you assuming that now we are 12 months past profitability in the operating basis that we'll continue to not have to recognize GAAP taxes? How should we think about that?

Let me take a stab at that, then I'll ask Jim to chime in as well. Based on discussions we've had with our auditors, Ernst & Young, we believe that the company will not recognize for either book or income tax purposes income taxes in fiscal 2010. The $1.44 fully diluted earnings per share number would be an after-tax number, reflecting the fact that the company will pay a very small tax, based primarily upon AMT, alternative minimum tax.

Yes, as we had these discussions with them, it's something that we'll look at on a quarterly basis, but they don't think that we would have a serious review of our ability to disregard income tax from a GAAP basis until fourth quarter of next year, when the audit goes on again, we'll take another very hard look at that and see if it would then be the time to remove the allowance against the tax asset and book that onto our books and then have an income tax expense going forward. So yes, I believe we have a number of quarters before that will impact us.

Our next question comes from the line of Ashim Anand with Natixis Bleichroeder. Please proceed with your question.

Thanks, guys and congrats on a good quarter. I was wondering if you can comment on your products which have direct applications in personalized medicine that is Prezeon, OnDose, in terms of OnDose, how is the penetration going and in terms of Prezeon, if you can comment on, if you guys have worked on it's indication expansion in personalized medicine?

Let me address that and I'll ask Greg to chime in as well. Prezeon of course is a very exciting personalized medicine product. It's one of the most important anti-oncogenes ever discovered, involved in major pathways that are the target of a number of cancer therapies. I have cautioned investors however that Prezeon needs more clinical data to support the product and as a result, the company is in the process, both internally within Myriad, and in collaboration with our academic collaborators, doing clinical studies to support the clinical utility of P10 as a progression and survival predictor, as well as identifying individuals who would respond or not respond to drugs in both the colon and breast cancer areas. With regards to OnDose, that is different than P10 in that we think the uptake for OnDose will be more rapid than our historical products. The clinical utility we think is very compelling. In a clinical trial published in the Journal of Clinical Oncology, we saw in the control arm, which was dosed using the standard body surface area dosing procedures, a substantial increase in adverse effects, compared to the OnDose treated patients. We saw that the life expectancy was six months longer for OnDose treated patients than the Body Surface Area treated patients. Again this is not a clinical study comparing a new drug or comparing a Avastin to the current therapy. This is giving the same drug to both patients, you're just using OnDose, an optimal dose and your improving the life expectancy and reducing the side effects. Because of that, we're very excited about OnDose and have seen throughout the summer a very positive response from oncologists in the ordering of OnDose. So, its uptake is matching our lofty expectations for the product. I will caution investors, however, that OnDose is still a brand-new product and so even though we're seeing exceptional uptake, the numbers are still very small. The product only having been launched about four months ago.

I concur with all of Pete's comments and I would again remind everyone that it takes time for a physician to become educated and to understand what these products do. Our belief is there is an enormous opportunity with personalized medicine. Everyone knows someone that has taken a drug and it hasn't worked or a drug has caused an adverse reaction in someone taking it. We all know cases like this and we've all experienced them. So, there's a huge benefit in getting patients on the right drugs and getting patients so they can take drugs more safely and optimizing therapy and it will take time to develop those but we're very excited about these products.

Our next question comes from the line of Ian Sanderson with Cowen and Company. Please proceed with your question.

Based on your comfort with the consensus revenue number for fiscal 2010, versus the current run rate, we're looking at adding somewhere around $50 million of incremental revenues. What are you assuming in terms of where the majority of those revenues come from? Whether is it the oncology setting or the OB/GYN setting?

The OB/GYN setting is still our fastest growing market segment but as Greg mentioned we're seeing continued growth in the oncology as well. As Jim pointed out, we moved into the primary care, women's healthcare market opportunity only about three years ago. At that time, of course we were 100% oncology and we have seen over the years that go from 100% of our revenues being oncology to now about 70% of our revenues being oncology and we think throughout fiscal 2010 that number will continue to drop as we bring on more and more revenues from the OB/GYN sector. So despite the recession, because of the rapid growth in the OB/GYN, we do think that that will still be a faster growing segment for this year.

Within the OB/GYN segment, are you seeing greater use in the academic setting versus the community setting?

We see use increasing in both. Remember that the great majority of OB/GYN practices are not in academic centers. Most communities have OB/GYNs that are taking care of women's primary healthcare needs. So that is where our sales force is. I would expect that that's the greatest segment of the segment, if you will, where we expect to see growth.

Our next question comes from the line of Amanda Murphy with William Blair. Please proceed with your question.

Hi, just a few questions. I'm curious, as you are out there with your sales reps and talking with OB/GYNs, have you seen any indication that doctors are becoming more comfortable doing the test in office, versus referring it out at this point?

Yes, a very good question. In fact, we've been through this kind of thing before. When we moved from the academic genetic centers into the oncology practices, the same question was posed in those days. In fact, what we saw is that as physicians became educated about these products, they became comfortable with ordering the test within their own practice and we see the same trends are being established now in OB/GYN physicians. Many of them are very, very comfortable just ordering based on what they know and we're educating them and their staff. That's the reason that we have the educational initiatives in place, to allow them to make that choice. By the way, it's better for the patient, in that the patient doesn't have to make an extra appointment, they don't have to go see somebody, there's much less attrition and there's better follow-through with the ongoing care of the patient because it is ultimately the physician that will take care of the patient after the results come in. So we see that as a trend that's going to continue and more and more people will be ordering within their offices.

I believe the United also expanded their access for patients to genetic counseling. Is that accurate and is that something that you think could accelerate that trend at all, if other insurers kind of adopt the same policy?

Well, I think that there are many insurance companies that make that one of the avenues. What's really important for a patient, however, is that depending on where the patient lives, depending on who their physician is; as they may not have access to all of those things. So what we as a company are doing is making sure that there are multiple channels through which a patient can receive genetic education. They can get it from their primary care doctor. They can get it from an advanced practice nurse in the doctor's office. They can get it sometimes from a genetic counselor. All by building capacity in all these areas we are able to better serve the needs of patients and make sure they get the access to testing.

Our next question comes from the line of Bruce Cranna with Leerink Swann and Company.

This is actually Kelley in for Bruce this afternoon. Thanks very much for taking the call. So just a question back on the guidance, it looks like the guidance implies about a 20% growth for fiscal '10. What really gives you the confidence there? I know you've talked about the DTC campaigns, the ACOG, the economy. What makes you guys think that you can really get that way and do you think maybe it's stronger in the back half of the year or just what gives you the confidence that number is attainable?

Very good question, thank you. As we mentioned at the beginning of the call, the company has spent a lot of time and effort understanding to the best we can the cause of the weakness that we've seen in the June and March quarters. We do feel that it is primarily as a result of the recession and primarily as a result of impacting our OB/GYN sector with women postponing annual physicals or delaying diagnostic preventative testing procedures. We do anticipate that until this economy improves, we're going to continue to face this recessionary headwind. What I guess gives us confidence in achieving the consensus guidance that research analysts have put out there, is the fact that when we look at the growth within the oncology sector and the OB/GYN sector, and look at the new initiatives that we put forth in terms of accelerating the hiring of our sales force, reinitiating the campaign in the south and accelerating the Midwest DTC campaign. All of those factors, we think, hit at many of the causes of the slowdown as a result of recession and should provide benefit to the company.

Okay, and then the pacing question. Do you think it will be a gradual ramp, so bigger in back half of the year as the DTC campaigns either payoff, or the ACOG guidelines really start to show through on the top line?

Well, it's hard for me to comment on that, other than to say some of the initiatives that we've instituted will take some time to bear fruit. For example, the sales force as Greg mentioned usually takes around six months before they're at breakeven and fully up to speed, and so that benefit certainly would be greater in the second half of fiscal 2010 than it would be in the first half of the year. We have accelerated the DTC campaign, so I think you will see a bigger impact, particularly in the second quarter, but again the biggest impact I think we are facing is the recession and I'm not going to try to predict when the country is going to come out of the recession. Some feel that the recession has already bottomed out, and we certainly hope that's the case.

Okay, and then one final question. The 20% growth rate that we are kind of looking at in fiscal '10 off of the consensus number here, do you think we'll see greater strength or greater contribution to revenue growth from the BRCA test or from COLARIS or MELARIS or something like that, can you give us a little bit of either clarity or guidance looking forward?

Our, BRCA is certainly our largest selling product and it's still growing well, so it will, being our largest product have the biggest impact on revenues for fiscal 2010. Most of the other tests are growing faster than BRAC. They're of course growing of a smaller revenue base so that's easier to do, and will contribute as well. So I think we'll see growth in fiscal 2010 from all of our products that Myriad has launched.

Our next question comes from the line of Junaid Husain with Soleil Securities. Please proceed with your question.

Peter, Jim, a few questions for you on the sales and market front. Are you still looking to hire more sales reps. Are you basically done on the sales hiring front for 2010?

No, we are completed for the entire year. We were able to accelerate the hiring of the 50 sales reps that we had planned to hire this year and we will not be hiring any additional sales reps this fiscal year.

Then Jim, in broad strokes could you give us a sense for expenses associated with the DTC campaign say on a per geography basis?

Well, we have said that we were expecting the DTC campaign in the Midwest to run around $6 million. That compares to the $8 million that we had seen in the previous campaign areas that we had done. As far as the cost impact of the expansion of the Southern DTC campaign, as you recall, that was like I said about an $8 million campaign for the full seven months. We are reinitiating that campaign, running from basically September through the end of the year. So, you can kind of look at the type of run rate. Again, taking into consideration the current economic situation and the cheaper air time that will have an impact on driving that same sort of run rate down to what we're going to be experiencing we think more in the Midwest, those types of levels but for that shorter period.

Yeah we are seeing the same benefit in the South in its reinitiation that we saw in the Midwest in terms of being able to get advertising time cheaper than we had previously because of the current economy. So, I agree with Jim's assessment. Both campaigns, if they ran a full seven months, should be in the $6 million ballpark. Of course, the South will be three months shorter than that. So, I think you can do the math. Please do remember, though the point that I made in my remarks earlier that we feel that the increase in revenues from these initiatives will generate profitability for the company that should cover the cost. So, we're not seeing an impact of this investment in boosting our revenue growth. We're not anticipating an impact on the bottom line.

Sir, we've come to the end of our allotted time. I now turn the call back over to you.

Thank you and I want to thank everyone for listening in and participating on the earnings call for Myriad Genetics. This does conclude our remarks and conclude the call. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.