CEO SUMMARY: In today’s lab testing marketplace, the hot ticket is to introduce a proprietary or patent-protected molecular test for cancer. The sales and marketing model inspiring many of these new lab testing companies is that used by Myriad Genetics, Inc. since it introduced its BRACAnalysis test for breast cancer back in 1996. A new report by William Blair & Company, LLC, analyzes Myriad’s successes. Pathologists and lab administrators will find useful insights about techniques they can use to market their own specialized lab testing services.
IN THE LABORATORY INDUSTRY, one of the fastest-growing sectors is that of proprietary or patent-protected diagnostic tests. This is particularly true for predictive genetic tests that target specific types of cancer.
At the head of this class is Myriad Genetics, Inc., of Salt Lake City, Utah. In 1996, it launched its patent-protected BRACAnalysis assay. Designed to predict a patient’s risk of breast and ovarian cancer based on mutations in the BRCA1 and BRCA2 genes, this assay is a major source of revenue for Myriad Genetics. It also markets six other genetic tests that either evaluate a patient’s risk for developing colorectal cancer and melanoma, or assess a patient’s response to certain oncology drugs.
As one of the first companies to launch a predictive genetic test for a specific type of cancer, Myriad Genetics now has more than 13 years of results and data. In fact, Myriad may be one of the best business case studies on how to successfully launch and build demand for a genetic test that is predictive for a specific type of cancer.
Of course, Myriad’s patent on the BRCA genes is not without controversy. Early this year, on May 12, the company was sued by the American Civil Liberties Union (ACLU) and the Public Patent Foundation. The lawsuit was filed in United States District Court for the Southern District of New York in Manhattan, on behalf of four laboratory associations and numerous individual plaintiffs. The lawsuit charges that the patents held by Myriad and the University of Utah Research Foundation are unconstitutional and invalid.
$3,000 Predictive Genetic Test
Meanwhile, Myriad continues to build its business and promote its BRACAnalysis test, for which it charges $3,000. One source of useful insights into Myriad’s marketing strategies comes from a report recently issued by two financial analysts at William Blair & Company, LLC. Blair is bullish on Myriad’s prospects for continued strong growth in specimens, revenue, and profits.
“Myriad’s strong intellectual property position (consisting of 312 issued patents, including those the company owns and has licensed) has afforded the company with a monopoly position, particularly for its BRACAnalysis test for inherited breast and ovarian cancer risk,” stated the report, which was written by Blair analysts Amanda Murphy and David Kittle. “This competitive advantage has allowed Myriad to sustain pricing power (including the ability to implement price increases) as well as high gross margins (80%-plus).”
Murphy and Kittle believe that several elements work in Myriad’s favor. Demographics is one such factor. “Myriad operates in large, growing markets, which are driven by demographics (an aging population that is living longer) and continued growth in the prevalence of cancer (the number of patients living with the disease),” they wrote.
A second factor is that its proprietary laboratory tests are supported by strong clinical data. This has fueled Myriad’s growth in two significant ways. One, it facilitated the incorporation of Myriad’s cancer predisposition tests into many professional organizations’ clinical practice guidelines. In turn this encouraged adoption by physicians (particularly in the oncologist community).
For instance, the Blair report notes how, in April, the American College of Obstetrics and Gynecology (ACOG) updated its guidelines to include screening for BRCA mutations for patients who have not yet been diagnosed but who have a family history of cancer. Myriad’s BRCA screening test also has been recommended by the American Society of Clinical Oncology, the National Comprehensive Cancer Network, and the Society of Gynecologic Oncologists.
The third factor is how such clinical data have supported broad reimbursement by payers. Some 130 million patients are insured by managed care plans that cover the BRACAnalysis test, the report said. And, among insurers, such as Blue Cross Blue Shield, that do not have formal contracts with Myriad, the company still gets a high rate of reimbursement of 92% of the list price from payers for its tests.
The fourth factor identified by Murphy and Kittle is that Myriad is work- ing to expand use of the BRCA test by the “underpenetrated” ob-gyn market. The Blair analysts observed that “Myriad has focused on testing for patients diagnosed with cancer; however, cancer risk assessment for the asymptomatic population is the larger opportunity.”
More Sales Reps For Growth
Myriad’s sales and marketing strategies were identified in the Blair report, providing pathologists and lab executives with useful insights on how the company expects to expand use of its BRACAnalysis and other tests.
Myriad will attack the ob-gyn segment by expanding its sales force and launching advertising campaigns in the Midwest. “We believe Myriad is still early in its adoption by ob-gyns and expect increased use in these markets to help sustain longer-term earnings growth of 25% or more,” the report said. “The pull-through opportunity in the ob-gyn market and the continued adoption by oncologists should help the company diversify beyond BRCA1/2 screening and sustain longer-term earnings growth of 25% or more.”
The sales force expansion will be substantial. In the first quarter of this year, Myriad doubled the number of salespeople who call on ob-gyns by having 100 of its 250-member sales force focus specifically on the ob-gyn market.
The company also accelerated hiring of sales staff. It brought in 50 more sales representatives to focus on the ob-gyn market. According to Blair, Myriad currently has a total of 300 sales reps; 150 are assigned to the ob-gyn market and 150 are focused on the oncology market. Given that it usually takes about four to six months for these sales professionals to break even, the Blair analysts predict they could contribute to Myriad’s profits in the first half of 2010.
Lab managers and pathologists may con- sider that the most interesting factor in the Myriad story is how it uses regional marketing campaigns to target consumers and physicians. In these campaigns, the company first conducts a five-to six-month physician education component. This is followed by five-to six-month long direct-to-consumer (DTC) advertising program.
“Myriad’s previous DTC campaigns (launched in the Northeast in 2007 and in the South in 2008) have been successful in driving ob-gyn use of testing,” wrote Murphy and Kittle, who estimate that DTC advertising in the Northeast helped Myriad increase the number of physicians ordering the test in that region by 78%.
At this time, physician and DTC marketing campaigns are taking place in the Midwest, an area that represents 15% of Myriad’s current revenues. The Blair report notes that Myriad plans to end this effort on March 31, 2010. Myriad also relaunched its DTC campaign in Texas and Florida. It began August 17 and is scheduled to run through the end of the year.
13-Year Track Record
Myriad Genetics now has 13 years of sustained success in building demand for its high-priced BRACAnalysis test. For that reason, any number of biotech companies and equity investors consider it the prototype for how a company should launch and support a campaign to promote a patent-protected or proprietary genetic test.
This is equally true for anatomic pathology (AP) groups. Myriad’s experience over the past 13 years provides evidence that employing sales reps to build AP case referrals can be a profitable use of capital. Many community hospital-based pathology groups are reluctant to fund such a sales program, even as Myriad and a number of other national pathology companies find it profitable to send sales reps into their communities to solicit case referrals.
Another area in which Myriad is a pioneer is the use of direct-to-consumer advertising to build awareness of a diagnostic test. It conducted its first DTC campaign for the BRACAnalysis test between September 2002 and February 2003. Advertisements were run in Denver and Atlanta. At the time, Myriad’s willingness to advertise a predictive genetic test for cancer to the public caused quite a stir among healthcare ethicists.
Those concerns turned out to be unfounded. Meanwhile, Myriad likes the results generated by these DTC advertising campaigns. For the past seven years, it has conducted a series of regional DTC promotions.
This is evidence for pathologists and lab managers that DTC advertising campaigns can be a cost-effective way to build public awareness about a predictive genetic test for cancer. In coming years, the laboratory testing profession can expect to see other companies with proprietary diagnostic tests use DTC advertising campaigns as a way to increase case referrals.
Finally, Blair analysts Murphy and Kittle believe that demand for Myriad’s diagnostic tests will remain strong. They predict double digit growth in specimen volume and revenues for Myriad during 2009 and through 2011. They estimate that the company, which had molecular test revenue of $43.3 million in 2004, will generate revenue of $481.4 million in 2011.