Myriad Genetics, Inc.
Q4 2015 Earnings Call Transcript

Published: 12 Aug 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Myriad Genetics Fourth Quarter and Year End 2015 Financial Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Tuesday, August 11, 2015. I would now like to turn the conference over to Scott Gleason. Please go ahead.

[Scott Gleason:]

Thanks, Edison. Good afternoon and welcome to the Myriad Genetics fourth quarter earnings call. My name is Scott Gleason and I am VP of Investor Relations. During the call, we will review the financial results we 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 myriad.com. Presenting for Myriad today will be Mark Capone, President and Chief Executive Officer; and Bryan Riggsbee, Chief Financial Officer. This call can be heard live via webcast at myriad.com. The call is being recorded and will be archived in the Investors section of our website. In addition, there is a slide presentation pertaining to today's earnings call on the Investors section of our website. Please note that some of the information presented 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 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 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 Mark.

[Mark C. Capone:]

Thanks, Scott. Good afternoon and thank you for joining us today. I am pleased to provide an overview of our fourth quarter and full-year financial results and business performance. We made solid progress executing upon our business strategy in a number of key areas throughout the fourth quarter, which is reflected in our financial results. We delivered revenues of just under $190 million, which was above the consensus forecast, and earnings per share of $0.41, which was in line with the consensus forecast. While we did not meet our original financial goals for fiscal year 2015, we did make substantial progress towards our three strategic imperatives – first, transitioning and expanding the Hereditary Cancer business; second, diversifying our product portfolio; and third, increasing our international contribution. Regarding our first strategic imperative, despite two years of competition, we believe we have maintained over 90% Hereditary Cancer market share and demonstrated a two-year compounded annual revenue growth of over 6% for Hereditary Cancer revenue. In addition, we began this fiscal year with 30% myRisk conversion and ended the fourth fiscal quarter with over 72% conversion. Our second strategic imperative is to diversify our product revenues. Much of the shortfall in our original fiscal 2015 guidance was attributed to delayed reimbursement, but the underlying progress in our diversification efforts was significant. In fiscal 2015, we generated a 63% increase in Prolaris volume and delivered a 25% increase in Vectra DA volume. Additionally, myPlan Melanoma (sic) [myPath Melanoma] showed 119% increase in volume, myPlan Lung Cancer was up 205% in volume and ovarian cancer testing volume was up greater than 40% in the second half of the year following the launch of BRACAnalysis CDx, our leading companion diagnostic for Lynparza. Also, we were successful at transferring our first two products from Myriad RBM into stage 1 development, including a product for differentiating bipolar disease from depression and a product to identify early-stage pancreatic cancer. Lastly, our pioneering science was on display with over 140 publications and presentations made throughout the year, including 35 accepted manuscripts. Our third strategic imperative is to increase our international contribution and in fiscal year 2015, we grew our international revenue 72%, with a run rate in the fourth quarter equaling 4% of total revenue. This progress continued in the fourth quarter. With regards to our first strategic imperative, we were pleased to see solid Hereditary Cancer revenue this quarter with, a 3% sequential increase to $164 million. We were again unable to identify any discernible market losses this quarter and we estimate our market share remained at approximately 90% of the market. The Academic and Genetics segment, where most of our share loss has occurred, grew from 7% of revenue last quarter to 8% of revenue this quarter. As a reminder, in the third quarter, we completed the expansion of our myRisk Hereditary Cancer operations. Therefore, in the fourth quarter, we initiated additional physician conversion among our targeted doctors and ended the quarter with 72% of incoming samples being ordered as myRisk compared to 58% at the end of the third quarter. We are very pleased with the pace of conversion and the near-universal acceptance of the product by the physician community, and we are on track to complete the conversion of all of our targeted physician customers by the end of the first quarter. We believe this will result in approximately 80% of incoming hereditary cancer tests ordered as myRisk by the end of the first quarter of fiscal year 2016. The other 20% of our volume comprises non-targeted physicians that order the test infrequently, and therefore, have very limited, if any, sales interaction. We have piloted an outreach program to educate non-targeted physician customers about myRisk when they place orders for legacy tests. Based upon this program, we would expect the percentage of samples ordered as myRisk to continue to increase throughout the end of fiscal 2016. Over time, we will assess whether to continue offering COLARIS and BRACAnalysis through our CLIA laboratory, but will continue to offer BRACAnalysis CDx as a companion diagnostic through our FDA-approved laboratory. We are also making excellent strides on expanding the addressable hereditary cancer market for patients diagnosed with cancer. As a reminder, our goal is to double the size of the oncology segment by expanding indications in four cancers

[R. Bryan Riggsbee:]

Thanks, Mark. I am pleased to provide an overview of our financial results for the fourth quarter. Fourth quarter total revenues were $189.9 million compared to $188.8 million in the same period in the prior year. Importantly, we returned to growth this quarter with revenue increasing 1% year-over-year and 5% on a sequential basis, and looking forward, we believe we are in excellent position to grow on a year-over-year basis throughout each quarter of fiscal year 2016. Hereditary Cancer revenue was $164 million this quarter and was down 3% year-over-year, but increased 3% on a sequential basis. As Mark mentioned, we ended the quarter with 72% of incoming samples being ordered as myRisk, and for the full quarter, myRisk comprised 62% of total hereditary cancer revenue. We were exceptionally pleased to see strong sequential and year-over-year growth at Crescendo this quarter, with total revenue growing 12% sequentially to $11.8 million, compared to $10.5 million in the previous quarter. As Mark noted earlier, total test volumes increased to just under 40,000 and grew 12% sequentially as well. Revenue associated with our Pharmaceutical and Clinical Services business was $11 million and was up 88% year-over-year and 58% sequentially. Our recent German clinic acquisition accounted for a little under $5 million in the quarter compared to approximately $2 million in the previous quarter. Gross margins continued to improve in the fourth quarter and were 80.3% compared to 79.4% during the third quarter. The primary driver of improved gross margin this quarter was improved efficiencies in our myRisk laboratory which was offset by some lower gross margin clinic revenue. Moving on to our operating expenses, research and development expenses were $18.7 million in the fourth quarter and declined 7% relative to the fourth quarter of last year. Our research and development spend in the fourth quarter of last year was exceptionally high, based on the timing of clinical trials and myRisk development costs. GAAP SG&A expense this quarter was $97.5 million and increased 16% relative to last year. The increase in SG&A this quarter is attributable primarily to one-time executive transition costs of approximately $8.3 million in the quarter and the impact of having a full quarter of clinic expenses. As a reminder, the clinic has a relatively neutral impact on our overall profitability. Adjusted operating income was $48.2 million in the fourth quarter and declined 14% relative to the fourth quarter of last year. The decline in operating income is the result of higher investments across our portfolio of products and some declines in profitability associated with the transition to myRisk in our Hereditary Cancer franchise. Adjusted net income was $29.4 million and adjusted earnings per share were $0.41 for the quarter, compared to $37.2 million and $0.48 per share, respectively, in the fourth quarter of last year. Our fully diluted share count decreased sequentially to 72.4 million shares from 73.9 million shares in the prior quarter, driven by our share repurchase program. During the quarter, we used approximately $45 million to repurchase 1.3 million shares of Myriad common stock, which was relatively in line with our free cash flow generation during the quarter. As of the end of the fourth quarter, we had approximately $155 million remaining on our approved share repurchase authorization. I would now like to provide a more detailed look at our updated fiscal year 2016 financial guidance. As Mark mentioned, we are guiding to revenue of $750 million to $770 million and adjusted earnings per share of $1.60 to $1.65. Let me walk through the assumptions that underlie our guidance. First, looking at our Hereditary Cancer business, we are assuming our market losses this year are equivalent to market growth, implying that Hereditary Cancer is flat on a year-over-year basis. To the extent that market growth exceeds market losses or vice-versa, this would represent upside or downside to our forecast. Also, in Hereditary Cancer, we are not assuming any impact from expanded coverage for colon and endometrial cancer patients based upon the recent NCCN guideline expansion. We also are not assuming any additional Prolaris reimbursement beyond very-low- and low-risk patients for Medicare. So any additional coverage for Prolaris, Vectra DA, myPath Melanoma or myPlan Lung Cancer would represent upside to our guidance. Moving on to product-specific guidance, we are guiding to Vectra DA revenues of $50 million to $55 million, implying 14% to 26% year-over-year growth, which assumes only existing reimbursement. For Prolaris, we are guiding to revenue of $10 million to $12 million, which assumes only Medicare coverage for low- and very-low-risk patient populations beginning in the second quarter. Finally, for our Pharmaceutical and Clinical Services segment we are guiding to full-year revenue of approximately $40 million. From a profitability standpoint, we would expect to see continued gross margin improvement throughout the year based upon increased efficiencies in our myRisk laboratory and Medicare reimbursement for Prolaris. From an operating margin standpoint we are targeting adjusted operating margins, which exclude approximately $14 million in amortization of intangible assets tied to the acquisitions of Crescendo Bioscience and Myriad RBM, to be approximately 25% to 26% of revenue. We are assuming a 40% effective tax rate for the year and our guidance does not assume the impact of additional share repurchases, which is equivalent to a fully diluted share count for the full year of approximately 72 million shares. Moving on to our first quarter; we typically see seasonality in this quarter due to the summer vacation season with both our Hereditary Cancer franchise and with Vectra DA. Additionally, as we mentioned earlier on the call, we are not expecting to recognize Prolaris revenue until the second fiscal quarter. Due to this typical seasonality, we are guiding to first quarter revenues of approximately $176 million to $178 million and first quarter earnings per share of approximately $0.34 to $0.36. This degree of seasonality is identical to what we saw in the first quarter of fiscal 2015. Our goal with guidance is to provide transparency into our assumptions for the different components of our business throughout the fiscal year 2016 that will allow investors to clearly measure our progress throughout the year. We look forward to providing a broader update on the five-year financial outlook for the company and our strategic positioning within the global personalized medicine market at our upcoming Investor Day on September 14. There is tremendous opportunity as health care fundamentally changes to reflect the advancements of the genomics age, and we strongly believe Myriad will play a leading role in driving that transition. With that, I would now like to turn the call back over to Scott.

[Scott Gleason:]

Thanks, Bryan. As a reminder, during today's call we use certain non-GAAP financial measures. A reconciliation of the GAAP financial results to non-GAAP financial results and a reconciliation of GAAP to non-GAAP financial guidance can be found under the Investor Relations section of our website. Now we are ready to begin the Q-and-A session. In order to ensure broad participation in today's Q-and-A session, we are asking participants to please only ask one question and one follow-up. Operator, we are now ready for the Q-and-A portion of the call.

[Operator:]

Our first question comes from the line of Bill Quirk with Piper Jaffray. Please proceed.

[Bill R. Quirk:]

Great. Thanks. Good afternoon, everybody. I guess first question for me is regarding myRisk reimbursement. No specific mention of kind of expansion of covered lives or anything like that, Mark. So I was curious, maybe you can fill in some of the blanks there on the reimbursement coverage progression in the quarter. And then I've got a follow-up as well. Thanks.

[Mark C. Capone:]

Good. Thanks, Bill. Yeah, we continue to make progress on myRisk reimbursement. Just as a reminder for everybody on the call, our strategy has been to try to sign long-term contracts, typically three-year contracts, for myRisk so that we can have some additional pricing visibility for a longer period of time, which benefits both us and the payers. We do continue to make progress along that path, and in fact, at Investor Day on September 14, we'll actually quantify that progress for you. But as a reminder, what we had said a couple calls ago is with the Blue Cross Blue Shield Association agreement that we signed, were we able to get all of the affiliates to sign on to that agreement, we would achieve 75% of our private pay revenue as covered. And so we continue to progress towards that, and like I say, I will provide a quantitative update for you at Investor Day.

[Bill R. Quirk:]

Okay, great. And then just as a somewhat related follow-up around reimbursement, you mentioned that you were going to consider pursuing some back-payment for Prolaris regarding CMS. And so I'm just curious, Mark, if you're successful, what sort of numbers are we talking about?

[Mark C. Capone:]

Well, I don't think we're prepared to quantify that, Bill, just obviously given some of the uncertainty around reimbursement and legacy claims. I do think we've given you some information on this call that you can reflect upon. We did say that we did 10,000 tests this year, and we've obviously previously given out data on the percentage of tests that are Medicare and the percentage of tests that are in the low-risk category. So I think that can give you some sense at least of the magnitude of legacy claims that we would look towards from the final date that Palmetto posted the LCD, which was January 15. But again, it would probably be way too early to speculate on the eventual resolution of those claims, but certainly we think it's appropriate to submit those and appeal those.

[Bill R. Quirk:]

Very good. Thank you.

[Operator:]

The next question comes from the line of Doug Schenkel with Cowen & Company. Please proceed.

[Doug A. Schenkel:]

Hey. Good afternoon, guys. Thanks for taking the questions. I'm going to ask a, I guess, one intertwined multipart question on commercial reach and related to it, capital deployment. So the first part is, I believe you guys have identified six commercial channels for your products, of which three are at national coverage status – women's health, rheumatology and oncology. Is this right? And how should we think about the capacity for each of these channels to handle additional products? Any specific metrics you can provide, like revenue per rep in these built-out channels and what the capacity could be would be helpful. And I guess the follow-up is the transition to capital deployment. You guys have spent a lot of money over the last year on share repurchases. Your guidance assumes a flat share count. I'm just wondering if that's how you guys want us to think about things, in the same way you have the last couple of years, or is there a change here? Because if you're – I guess what I'm wondering is should we expect you to be spending more money or deploying more capital pursuant to products that you could bring in to funnel through these channels? Thank you.

[Mark C. Capone:]

Thanks, Doug, I appreciate the question. I'll handle the first one and then I'll have Bryan talk about the capital deployment piece. So you're correct, we have identified six different business units, and the three that you mentioned are – oncology is fully fleshed out in order to get coverage for that entire market, as is the rheumatology team. For the Preventive Care piece, our – we currently have capacity to cover about 50% of the OB/GYN market, so there still remains opportunity to continue to look to expand that sales team in the future. And by reference that's one of the reasons why when I mentioned that we see about 20% of samples coming from non-targeted physicians, a big source of that is actually those OB/GYNs and primary care physicians that we don't currently call on. To your question as to capacity for those three, we have sufficient capacity with those channels to sell all of the products that are currently in our development pipeline, and so I think that's one of the things we see in the future is the ability to generate some significant operating leverage by deploying more products into those channels. And in fact, we will provide some significant additional granularity on this when we go into our September 14. Now to the other three areas; at neuroscience, we don't have any sales team deployed yet. For our dermatology team, for our dermatopathology channel, we still have opportunity to continue to expand that group. There's only eight salespeople for that team, and so you could probably triple the size of that team eventually as we get reimbursement. And for our urology team, we currently have about 40 field salespeople. There still is an opportunity to continue to expand that team to get broader coverage, but again, all of those decisions will hinge on reimbursement so that we ensure that we're generating some operating leverage with those expanded sales teams. So that's the quick rundown on our channels and we will provide a little more detail in September. Bryan, would you – why don't you talk about deployment?

[R. Bryan Riggsbee:]

Yeah. Sure. Thanks, Doug. With respect to capital deployment, we'll be providing some more detail at our Investor Day, generally speaking. However, we have been purchasing shares back at a rate that exceeded our free cash flow for some time. I think for purposes of 2016, what you should model or expect is to see share repurchases more in line with free cash flow. From a guidance perspective, we've never assumed and don't assume in this guidance to have any share repurchase, so that's why we've not included it.

[Operator:]

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

[Unknown Speaker:]

Hey, guys. How are you? This is actually Anthony (39

[Mark C. Capone:]

Yeah, thanks, Anthony. Obviously, the journey for Prolaris has been a long one. We are in constant communication with both Noridian and with Palmetto on the MolDX program. So I think the first thing to recognize that all of these delays from the Palmetto posting on January 15 of the final LCD have really been administrative in nature. Noridian had explained that for billing purposes they were going to have to process another LCD, and so that led to one delay. And this latest delay is a direction from CMS in Baltimore that they wanted to wait until all of the LCDs, the existing LCDs, were converted to ICD-10 codes because there was a substantial amount of work in order to do that and they didn't want to add to the workload by piling on new LCDs, so again, yet another administrative delay. What's important if you look at underneath the comments that we received during all of the public comment period and in fact, the MolDX program summarized many of those comments on a recent document that was posted on their website, have all been very favorable to Prolaris, and in fact, have been very favorable about Prolaris' ability to predict risk across all risk categories, not just necessarily low-risk. So we know that the commentary has been very favorable and because of that and because of the direct communications we've had that in fact the final LCD would be posted in ICD-10 format, it would be effective October 1, and that it will be identical to the draft LCDs. I think those are the things that give us the confidence to include Prolaris in our guidance beginning on October 1.

[Unknown Speaker:]

That's perfect. Yeah. Thank you. And then as a follow-up, I guess with the Pharma and Clinical Services revenue, it seemed like quite a step up. I guess, like what are the assumptions regarding the Pharma and Clinical Services revenue in 2016?

[R. Bryan Riggsbee:]

Yeah, I would – for Pharma and Clinical Service, the increase in the current quarter was entirely driven by the acquisition of the clinic. I think that business has been relatively steady over the last couple of years and I think included in our guidance we had $40 million on one of the slides that showed for the Pharma and Clinical Services. That would be how I would think about it for next year. But the primary driver in the current quarter was the full quarter of the clinic revenue.

[Unknown Speaker:]

Excellent. Thank you, guys.

[Operator:]

Our next question comes from the line of Tycho Peterson with JPMorgan. Please proceed.

[Tycho W. Peterson:]

Hey. Thanks. A couple quick ones. Just on the Hereditary Cancer guidance, you called for flat. Can you maybe just talk what's embedded in that for share versus price from your perspective?

[Mark C. Capone:]

Yeah. Thanks, Tycho. A couple things as we think about Hereditary Cancer guidance for fiscal 2016. Obviously, the three parameters at play here are what's happening in market growth, what's occurring in share and price. So let me touch on the three of those so that you can get some insight into our thinking there. First, from a market growth perspective, one of the things that we saw in 2015 was a year-over-year market growth that was lower than what we had historically seen for the hereditary cancer market. Now, that's not a surprise because the baseline was 2014 which was impacted by some significant tailwinds associated with celebrity publicity. So it probably isn't a total surprise that we saw year-over-year growth in the market, at least to the best that we can determine, slowed in 2015. Now, long term, we continue to believe that this market is underpenetrated, that there is substantial opportunity for growth, but given the year-over-year lower growth in 2015, we thought it was prudent to take that into consideration in our 2016 guidance and contemplate at least in this guidance some market growth lower than what we would have historically seen or what we would hopefully see even further into the future. The second part, as it relates to share, as you can see from our slides and commentary, that we have, to the best of our ability, seen shares stabilize over the last half of the year, but despite that, again, we believe it's prudent to assume that we will have some incremental market share decline throughout fiscal 2016, and so our guidance contemplates some additional share decline throughout the year. Lastly, from a pricing perspective, we can't obviously get into details of pricing in a competitive market. Maybe a couple of things I can point to that you can reflect upon. First is that in fiscal 2015 you saw that – throughout the year we saw increasing gross margins and that was without any additional reimbursement in the rest of our portfolio. And so that gives you some, I think, understanding of pricing stability throughout that transition with myRisk. The second thing I'll point to is that our guidance implies an operating margin of 25% to 26% in fiscal 2016, and that's up over 200 basis points compared to fiscal 2015. So again, I think that points to some understanding of pricing stability that has been factored into our guidance numbers. And that becomes more apparent as we negotiate long-term contracts and fix in pricing for a longer period of time. So I think those are really the puts and takes on the three parameters – market growth, market share and market price, and why we're guiding to Hereditary Cancer revenues that are about 1% growth year-over-year for fiscal 2016.

[Tycho W. Peterson:]

And then maybe just if I could ask one follow-up, it seems like the emphasis on the value of variant databases is growing and there's been maybe more public backlash over the public database. Can you, A, comment on whether you think that's been the case? And should we expect any follow-on studies for you guys highlighting the accuracy of your data compared to what's in the public database? Because the gap seems to be widening a little bit.

[Mark C. Capone:]

Yeah. I think there is certainly increased recognition that the data that is in the public databases is one that needs to be approached with caution. I think people recognize those databases were all originally put together for research purposes, which as you know, Tycho, is a very different application than for clinical purposes, where a patient is going to make some very significant medical management decisions and, therefore, requires a very high level of accuracy. So I think the appreciation is growing that there are some concerns. I think the recent Vale (48

[Tycho W. Peterson:]

Okay. Thank you.

[Operator:]

The next question comes from the line of Dan Leonard with Leerink Partners. Please proceed.

[Dan L. Leonard:]

Thank you. Just a follow-up question on reimbursement. I was wondering if you can comment on the reimbursement levels for the companion diagnostic BRACAnalysis as compared to the traditional BRACAnalysis and your assumptions around that going forward?

[Mark C. Capone:]

Yeah. Thanks, Dan. BRACAnalysis CDx reimbursement right now is identical to the contractor rate we have for the BRACAnalysis germ-line product. So at this point, there are no differences. I know historically that FDA-approved diagnostics, in some cases, have received some pricing premium associated with those, and those are conversations that we will continue to have with payers. But despite that, I think from a standpoint of guidance, we would be expecting BRACAnalysis CDx to continue at the same pricing as BRACAnalysis germ-line. So we're not assuming any premium associated with that in our fiscal 2016 guidance.

[Dan L. Leonard:]

Okay. Thank you.

[Operator:]

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

[Isaac Ro:]

Hey. Good afternoon. Thanks, guys. Another question on Hereditary Cancer, but it was really more on the cost side. Just given that the academic and genetic counselors are kind of considered thought leaders in their communities, I'm just trying to think about how you plan to keep them from influencing PCPs to switch to lower-cost providers, just generally speaking, your thoughts on how you defend and grow the PCP side of the business.

[Mark C. Capone:]

Yeah. Thanks, Isaac. One thing I'll note, I know it was in the script, but worth noting again, that actually in this quarter for the first time in some time, we actually saw the percentage of revenue from the Genetics segment increase from 7% to 8%. And again, by reference, when before we had the advent of competition, the Genetics segment was responsible for about 15% of our revenue. So we actually were able to see some progress in that segment over this past quarter. I think the – as you point out, Isaac, the Community segment is really a fundamentally different segment than that for Genetics. I think in the Genetics segment, we have outstanding health care providers that are clearly experts in the field and feel very capable of assessing different types of panels and have done that with different laboratories. I think in the Community setting, it's really a very different market. In that particular market, you need extensive education for those healthcare providers and they really rely on the extensive field force that we have, with both the sales team, with our genetic counselors that we have in the field, with our medical staff that we have in the field and here in the home office. And so the level of support required for that group is dramatically different, and that's one of the key differentiators that we've been able to provide as opposed to other competitors that just don't have those relationships and that deep expertise that we've developed over the years. So I think the key thing for that segment in order to continue to grow that, as we've seen a really nice growth in the Preventive Care segment, is to continue that – those educational efforts. As I mentioned earlier, we only cover now about 50% of the OB/GYNs and a smaller fraction of the primary care physician base, and so one of the key opportunities will be continue to expand our educational efforts to a broader set of those physicians as we move forward. The other thing is we continue to do things like protocol integration that Bernie Tobin is using with Crescendo that allow us to penetrate deeper into physician offices, because in many cases, while they are testing patients, they're only a fraction of the appropriate patients. So I think it continues to be those types of things. The last thing we have done is some extensive direct-to-patient efforts with social media and other interactive media. That has proven to be very effective at driving patients to inquire with their physicians about opportunities for hereditary cancer testing. We continue to invest heavily in that area and think that area offers continued promise to drive both depth and breadth into those – that Preventive Care channel.

[Isaac Ro:]

That's helpful. Maybe just a follow-up on that same topic, will there be a point where you guys might be willing to talk a little bit about how you guys achieve incremental margins or unit economics that are favorable to the company in the context of getting these educational procedures done? It seems like sort of a more expensive procedure.

[Mark C. Capone:]

Yeah. Thanks, Isaac. In fact, Bryan will spend some time on that at Investor Day on September 14. We'll actually break out our view of margins over the next five years and what we think that might look like. So I do think you'll see some additional granularity there that will answer that specifically.

[Isaac Ro:]

Got it. Thanks very much. I appreciate it.

[Operator:]

The next question comes from the line of Derik de Bruin from Bank of America. Please proceed.

[Derik de Bruin:]

Hi. Good afternoon. So a couple of questions. Where are you including CDx in the model? And I'm just curious on this because if it's in Hereditary Cancer, wouldn't that be sort of adding to the revenue growth in Hereditary Cancer? And then I'm just curious. What is your assumption for the overall hereditary cancer growth market?

[Mark C. Capone:]

Yeah. Thanks, Derik. Good question. We've chosen to include BRACAnalysis CDx in the Hereditary Cancer line, as you suspected. The reason is because the BRACAnalysis product has the same indications for use as BRACAnalysis CDx for all ovarian cancer patients and trying to actually divide that out would probably create more confusion that it would help. And so because of the overlap of indications, we have chosen to include BRACAnalysis CDx in the Hereditary Cancer line item. Now, as we reflect upon 2016 guidance, of course that assumption would reflect the guidance we gave of $638 million to $649 million for Hereditary Cancer revenues. One of the things that we had to take into consideration, and as we outlined on the call, while we did see a very large bolus of incremental ovarian cancer patients going from Q2 to Q3, we saw a 3% increase from Q3 to Q4. And so that's the type of sequential increase that reflected upon our thoughts for guidance for Hereditary Cancer in fiscal 2016.

[Derik de Bruin:]

And the assumption for the growth rate of the market?

[Mark C. Capone:]

Yeah, sorry. And as far as growth rate, we won't provide an actual number. I think the qualitative commentary I gave, Derik, should give you some reflection. Historically, we've always said this market has grown at 10%. Obviously, the growth rate was lower than that, in our view, in fiscal 2015, and so we've factored that lower growth rate into fiscal 2016, but I don't think we feel comfortable providing an exact numerical assumption.

[Derik de Bruin:]

I mean I guess I'm just a little confused because I thought myRisk was supposed to help accelerate the market growth.

[Mark C. Capone:]

I think right now certainly what myRisk has been doing is really converting the existing market, the existing legacy market over to myRisk. What we have said all along is that we expect that the additional indications that myRisk will foster will allow us to grow that market faster. As we pointed out in one slide, we're just in the early stages of contracting with payers for those additional indications and we have not factored that into guidance for 2016. When those additional indications are contracted with payers, then you're right, that will potentially expand our penetration into what is now a larger market, but those were not things we assumed for fiscal 2016 guidance.

[Derik de Bruin:]

Okay. Thank you.

[Operator:]

The next question comes from the line of Peter Lawson with Mizuho. Please proceed.

[Peter R. Lawson:]

Hi. Just wondering if you'd give us any way of breaking out how much of volume is coming from clinical trials for the BRACAnalysis. And then just as an unrelated follow-up, the contribution for 2015 guidance from Europe?

[Mark C. Capone:]

Yeah. Thanks, Peter. We – obviously, the clinical trial volume is confidential. That's something that our partners – we don't have liberty to disclose and so that's something that we won't necessarily make public. We obviously are engaged in a number of clinical trials with partners for a variety of PARP inhibitor indications. We're excited about those, those are things that are continuing in fiscal 2016, and so you're right that those sample volumes are reflected in our numbers, but we haven't disclosed either those volumes or the cost – or the price associated with those tests. And sorry, your second question, Peter, on fiscal 2016?

[Peter R. Lawson:]

Just the contribution from Europe?

[Mark C. Capone:]

Oh, international contribution. Yeah, we – we're not providing specific guidance on the international market. I think for the first time we did provide at least a run rate, so you know that 4% of revenue in fiscal 2015 Q4 was provided by the international market. We are going to give some additional color on our strategy in the international market. Gary King will provide that in September, and so you will get an update on where we see the business evolving for the international market, but we aren't giving specific guidance for the international segment.

[Peter R. Lawson:]

Great. Thank you so much.

[Operator:]

And that is all the time we have for questions. I'll turn it over to you now, Mr. Gleason, for closing remarks.

[Scott Gleason:]

Yeah. 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.

[Operator:]

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