By Joseph Walker
SALT LAKE CITY-- Myriad Genetics Inc. used a patent-protected
monopoly to become one of the most successful and controversial DNA
testing companies in the world. Now, nearly two years after the
Supreme Court struck down its gene patents, Myriad is fighting to
sustain its business model amid growing threats from rivals.
The high court's ruling, which held human DNA couldn't be
patented, introduced competition to Myriad's signature product, a
screening test for mutations in genes called BRCA 1 and BRCA 2 that
can increase a woman's risk of getting breast and ovarian
cancer.
Thanks to a combination of brand loyalty and strong customer
service, Myriad still dominates BRCA screening, which accounts for
more than 80% of its sales. The company performs the tests at its
headquarters here in the foothills of the Wasatch mountain range,
where each morning at 7:30 a.m., a FedEx truck delivers hundreds of
DNA samples from women around the U.S.
But threats loom. Analysts say Myriad's BRCA position is
unsustainable in the face of competition, and predict the company's
market share will gradually erode.
Myriad's efforts to diversify, meanwhile, have hit some
setbacks. In February, Myriad slashed its revenue and earnings
guidance after facing delays in winning health-insurer coverage for
new tests to help treat prostate cancer and rheumatoid arthritis.
The company expects its profit to be about $115 million in the
fiscal year ending June 30, down from $190 million last year, due
to increased product-development costs and other factors.
Myriad's sales surged 27% last year after Angelina Jolie wrote
publicly about testing positive for a BRCA mutation in 2013. But
the benefit of what Myriad calls "celebrity publicity" has waned,
and the company expects revenue to decline by as much as 6% this
year, to a level between $730 million and $740 million.
Myriad's shares have fallen 12% over the past year, and 43% of
its shares are sold short by investors betting the price will fall
further, according to S&P Capital IQ.
As Myriad's founder and longtime chief executive, Peter Meldrum,
prepares to retire at the end of June, newly appointed CEO Mark
Capone says the company's research capabilities, reputation for
accuracy, and relationships with health insurers position it to
thrive in the field of personalized medicine, where doctors tailor
medical treatments for patients based on biological markers such as
DNA mutations.
"We are the leader in that space. I want to continue to be that
leader," Mr. Capone said in an interview at Myriad's headquarters,
where more than 100 wooden plaques in a hallway commemorate the
company's patents, including for the BRCA genes.
Myriad is one of the few companies to turn a consistent profit
from DNA testing. Competitors like Genomic Health Inc. and
Foundation Medicine Inc. both reported net losses last year.
Pricing pressures will increase in 2017, when Medicare plans to
reduce testing payments. Quest Diagnostics Inc. and Laboratory
Holdings Corp. of America, the largest U.S. lab companies, have
begun expanding into high-tech areas like BRCA screening, but the
vast majority of their revenue still comes from less complex
tests.
Mr. Capone and other executives met recently at corporate
headquarters to prepare for this year's meeting of the American
Society of Clinical Oncology, where Myriad aims to present new
research and promote its new screening tests. The company has
rented a 1,200-square-foot exhibitor booth, twice the size it
rented last year. "Competition has driven a little bit of that,
because I refuse to be out-spaced by somebody else," Lloyd Sanders,
general manager for oncology, told the meeting.
Mr. Capone questioned Chief Scientific Officer Jerry Lanchbury
about a study of a new Myriad test called myChoice HRD, aimed at
predicting whether breast-cancer patients will benefit from
chemotherapy. Mr. Capone said study data to be presented at the
meeting looked impressive, but contained ambiguities that could
complicate Myriad's messaging.
"We won't have a scientific answer by June," Mr. Lanchbury
said.
"That's alright," Mr. Capone said. "We just need a commercial
answer."
In an interview, Mr. Capone said Myriad is developing tests for
diabetes, neuropsychiatric disorders and autoimmune conditions. The
company is also "actively looking" for acquisition targets, he
said. In recent years, it has launched more than a half-dozen new
products, including a companion diagnostic for an AstraZeneca PLC
cancer drug.
Last year, Myriad paid $270 million to acquire Crescendo
Bioscience Inc., maker of a blood test to help treat rheumatoid
arthritis. Called Vectra DA, the test detects proteins associated
with disease flare-ups that damage patients' joints even when
they're not feeling pain. But insurers have been reluctant to pay
for the test.
Robert McDonough, head of clinical policy research at health
insurer Aetna Inc., said Myriad hasn't proven patients receiving
the test have better health outcomes than patients who don't.
Despite an influx recently of new diagnostic tests, they often lack
sufficient clinical trial data to prove their worth, Dr. McDonough
said. Still, he expects Myriad should "eventually be able to get it
covered."
Myriad continues its fight to retain customers in its core BRCA
testing business, for which it charges 20% to 40% more than rivals.
Doctors who have stayed loyal say one of Myriad's biggest
advantages is its private database of test results from the 1.5
million people it has screened for BRCA mutations, which they say
helps Myriad return more accurate results.
"I do think their experience and depth of their database give
them an advantage," said Mark Robson, director of Memorial Sloan
Kettering Cancer Center's clinical genetics service, who worked as
an unpaid adviser to Myriad on a non-BRCA related product last
year.
But as the costs of genetic sequencing continue to fall, Myriad
is on a more level playing field with competitors like InVitae
Corp., which raised $102 million in a February initial public
offering. That company charges $1,500 to screen for mutations in
220 genes, including the BRCA genes. Myriad charges around $4,000
for its 25-gene myRisk test.
"The whole field of genetic sequencing has been rendered
generic," said InVitae's chief executive, Randy Scott. "Prices, we
think, are going to start coming down fairly dramatically."
Write to Joseph Walker at joseph.walker@wsj.com
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