Hello, ladies and gentlemen. Thank you for standing by, welcome to Myriad Genetics' first quarter 2018 financial earnings conference call. During today's call, all participants will start in a listen-only mode, but later we'll conduct a question and answer session. At that time, you can register for questions by dialing one followed by the four. That's one, four on your telephone keypad. If you'd like to speak to the operator at any time during the conference, you can do so by dialing star zero. Please note, today's conference call is being recorded, it is now my pleasure to introduce Scott Gleason. Please go ahead, sir.
Thanks, David. Good afternoon, welcome to the Myriad Genetics fiscal first quarter 2018 earnings call. My name is Scott Gleason, I am the VP of Investor Relations. During the call, we will review the financial results we've released today, after which we'll 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, 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 investor section of our website. In addition, there's a slide presentation pertaining to today's call on the investor section of our website, which we have filed following the call on Form 8-K.
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, 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, 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'm pleased to turn the call over to Mark.
Thanks, Scott. I would like to start today's call by providing key business financial highlights from the first quarter of fiscal 2018, after which Bryan will provide an overview of our financial results guidance, I will finish by providing additional details pertaining to the ongoing execution of our business strategy. The first quarter was a strong start to the fiscal year exceeded our expectations on both the top and bottom line, with total revenue of $190 million adjusted earnings per share of $0.26. These results were primarily attributed to continued strong hereditary cancer volumes and GeneSight growth, with both exceeding our forecasts. During the quarter, we again made significant strides on our five critical success factors of stabilizing hereditary cancer revenue, growing new product volume, expanding reimbursement for our new products, increasing international RNA kit revenue, improving profitability with Elevate 2020.
From an hereditary cancer perspective, we continued to see strong sample trends and exceeded the 3% volume growth contemplated in guidance, which represents the third straight quarter of year-over-year volume growth. In addition, hereditary cancer pricing was in line with expectations following the signing of long-term contracts in the second half of fiscal year 2017. This past quarter, we launched riskScore, which we believe represents the fourth major epoch in hereditary cancer testing. From a strategic perspective, riskScore broadens our competitive moat while potentially facilitating deeper penetration into the preventive care segment. Based upon the timing of the riskScore launch late in the first quarter, it is still too early to quantify the impact, we continue to believe that riskScore will be a positive catalyst for our hereditary cancer business.
Related to our new product volume growth, test volume grew at a double-digit rate in the fiscal first quarter, with GeneSight leading the way. New product volume achieved a record high and now represents almost 70% of sample volume. Additionally, we saw continued upward trends with EndoPredict in the U.S. and achieved a volume run rate consistent with 2% market share. From a reimbursement perspective, this quarter represented a significant tipping point for a number of our products. First, GeneSight achieved statistical significance for the two gold standard clinical outcomes of response and remission in the 1,200-patient prospective randomized controlled trial. This is a landmark event in our company's history, we believe will pave the way for broader GeneSight adoption and payer coverage.
To facilitate more rapid reimbursement, we will begin confidential discussions with payers on the data prior to the full data release, which is being submitted for presentation at the American Psychiatric Association meeting in May. Additionally, with Prolaris, our Medicare LCD has now become effective, and we will be reimbursed on favorable intermediate patients in the fiscal second quarter. With Vectra DA, we signed a coverage with evidence development agreement with CareFirst, the 18th largest payer in the country, that will provide coverage for patients enrolled in a demonstration study. If this study is successful, the publication will be added to our clinical utility dossier, which could facilitate even broader commercial payer coverage. With the addition of the CareFirst collaboration, we now have agreements for Vectra DA demonstration studies with five of the top 20 payers in the U.S.
In international markets, we launched our first payer demonstration study for GeneSight with Sun Life Financial in collaboration with the Canadian Centre for Addiction and Mental Health. As a reminder, the Canadian market opportunity is over 1 million treatment-resistant depressed patients. Additionally, we submitted BRACAnalysis CDx in Japan for regulatory and marketing approval in metastatic breast cancer. This represents a market opportunity of more than 10,000 patients per year. Finally, Elevate 2020 is off to a strong start. Operating expenses declined over $7 million sequentially in the first quarter, the majority of which was related to Elevate 2020 initiatives. We are well on track to achieving our $17 million target of incremental operating income in fiscal year 2018. Overall, our results in the quarter were strong, even more importantly, the transformation of the company is accelerating.
With growing hereditary cancer volumes and stable future pricing, along with pivotal new product milestones, we remain confident in our ability to deliver on our long-term strategic financial goals. With that, I will now turn the call over to Bryan to provide a detailed assessment of our fiscal results in the fourth quarter and additional commentary on our fiscal year 2018 guidance.
Thanks, Mark. I would like to start by providing a more in-depth overview of our fiscal first quarter financial results. First quarter total revenues were $190.2 million, compared to $177.5 million in the same period in the prior year, an increase of 7%. This represents our fourth straight quarter of delivering positive year-over-year revenue growth. Hereditary cancer revenue in the quarter was $127 million and was down 9% on a year-over-year basis, which was ahead of forecast. We expect year-over-year pricing headwinds will moderate as we transition through the year, based upon the timing of the signing of long-term contracts in fiscal year 2017 and the Anthem out-of-network decision, which impacted the second half of fiscal year 2017. Looking at the components of revenue, our volume growth exceeded our 3% volume growth assumption in our guidance, while pricing was in line with expectations.
GeneSight revenue in the quarter was a new record at $28.8 million and grew 54% year-over-year on an adjusted basis and 12% sequentially. Volume in the quarter achieved a new record despite the impact from seasonality. The strength of the business is underscored by the fact that we set a new record number with more than 12,000 physicians ordering GeneSight in the first quarter. Vectra DA revenue in the first quarter was $16 million, but as anticipated, included approximately $4 million of revenue benefit due to the Medicare revenue carryover from the fourth quarter and a change to a new accrual-based accounting system consistent with ASC 606 guidelines. Excluding these items, Vectra DA revenue would have been up 5% on a year-over-year basis. Prolaris revenue in the fiscal first quarter was $2.9 million, which was flat on a year-over-year basis.
Prolaris volumes continued to grow in the double digits in the fiscal first quarter, with the mix increasing toward intermediate-risk patients in anticipation of the expanded Medicare LCD. Prolaris revenue in the first quarter saw no material impact from the favorable intermediate LCD, which became effective on September 25th. EndoPredict revenues in the first quarter were $1.9 million and increased 12% year-over-year. For the first time, we saw meaningful revenue in the United States. However, European EndoPredict revenue was flat year-over-year due to reimbursement delays in France. Lastly, revenue associated with our pharmaceutical and clinical services business was $11.4 million and declined 8% year-over-year due to timing of various clinical trials. I now would like to discuss our financial metrics for the quarter. Gross margins were 77.4% in the first quarter, which was flat with the first quarter of last year.
While gross margins were detrimentally impacted by the hereditary cancer pricing headwind, these were offset by efficiencies in our hereditary cancer production process, improved gross margins with GeneSight, and incremental new product reimbursement. Moving on to our operating expenses, GAAP research and development expenses were $17.8 million in the first quarter, compared to $19.4 million in the fiscal first quarter of last year. On a non-GAAP basis, our adjusted research and development expense was $17.6 million compared to $19.2 million last year and declined 8% year-over-year. The decline in research and development spending was largely due to the completion of the GeneSight randomized clinical study and consolidation of research programs to focus on reimbursement studies for existing commercial products. GAAP SG&A expense this quarter was $115.2 million, compared to $111.9 million in the first quarter of last year.
Adjusted SG&A expense this quarter was $104.9 million, compared to $96.7 million in the first quarter of fiscal year 2017. As a reminder, the fiscal first quarter of last year only included one month of expense from the Assurex acquisition. If a full quarter of expenses were included, total operating expenses would have declined on a year-over-year basis, reflecting the progress we made with our integration efforts and Elevate 2020 initiatives to date. On a sequential basis, adjusted operating expenses declined by over $7 million, mostly related to the impact of our Elevate 2020 programs. This quarter, we also recognized a $73.2 million benefit based upon the non-payment of the GeneSight clinical milestone in our GAAP operating expenses. Since this was a one-time event, we excluded this gain in our non-GAAP financials.
Adjusted earnings per share were $0.26 for the first quarter compared to $0.23 in the first quarter of last year, an increase of 13%. Our fully diluted share count increased sequentially with 70.4 million shares outstanding, which reflects the increase in our share price and the resulting dilution based upon the treasury method of accounting for the dilutive effect of employee stock options. We continue to prioritize debt repayment as a near-term use of cash. This quarter, we used cash to reduce the balance of our credit facility by $25 million compared to an outstanding balance at the end of the first quarter of $74 million. We anticipate making a milestone payment of up to $85 million associated with the Assurex acquisition, and that will be paid in the fiscal third quarter of this year.
We will continue to pay down the balance on our credit facility at a rate roughly in line with our free cash flow and expect to have fully paid down the balance on our credit facility by the end of calendar year 2018, freeing up capital for additional potential acquisitions and share repurchases. Our cash and cash equivalent balance at the end of the first quarter was $198 million, which was relatively in line with our cash balance at the end of the fourth quarter. We continue to generate meaningful free cash flow with non-GAAP free cash flow in the quarter of approximately $23 million. Moving on to our financial guidance. We are maintaining our financial guidance for the year, which calls for revenues of $750 million to $770 million and adjusted earnings per share of $1.00 to $1.05.
In addition, we are guiding the second fiscal quarter revenue of $187 million to $189 million and adjusted earnings per share of $0.22-$0.24. I would now like to discuss the relevant drivers of our revenue guidance. First, from a hereditary cancer perspective, results outperformed expectations in the first quarter based upon better than anticipated volume growth, which exceeded our 3% target for the year. As a reminder, we expect the year-over-year pricing declines to moderate as the year progresses due to the timing of contracts negotiated throughout last fiscal year. Given that pricing is in line with expectations, if this volume trend persists, it will lead to upside to our financial guidance for the full fiscal year.
Additionally, as we announced, we have now submitted our U.S. PMA application for BRACAnalysis CDx as a companion diagnostic for LYNPARZA in metastatic breast cancer, with approval anticipated in the third quarter. As a reminder, upon approval, there are approximately 125,000 metastatic breast cancer patients that would immediately be eligible for testing. As a result, if this submission is approved, this new indication could drive upside to our fiscal year guidance. In addition, our guidance does not contemplate any revenue from BRACAnalysis CDx in Japan, and if approved, could also represent upside to guidance. GeneSight revenue was slightly ahead of expectations in the fiscal first quarter. If the recent positive randomized controlled trial leads to coverage decisions in fiscal year 2018, this could represent upside to guidance.
As a reminder, GeneSight coverage from our largest commercial payer would represent $40 million in incremental annual revenue and $0.36 in incremental annual earnings per share. With Vectra DA, the proposed calendar year 2018 PAMA rates are higher than our current Medicare rates. If these rates are finalized as proposed, this could represent upside to Vectra DA revenue in the second half of fiscal year 2018. For EndoPredict, the increased adoption trajectory in the U.S. market could represent upside to our forecast if this trend were to continue throughout the fiscal year. Also, we have not assumed any reimbursement for myPath Melanoma. Positive coverage decisions would represent upside to guidance. Finally, for our pharmaceutical and clinical services segment, we continue to anticipate relatively flat revenue on a year-over-year basis.
From a cost perspective, I am pleased to announce that we are on track in terms of achieving our targeted $17 million in increased operating profit under our Elevate 2020 program. This quarter, we undertook several additional initiatives, including the realignment of our R&D organization under centralized leadership, which should increase efficiency and reduce duplicative functions. We also implemented new mileage and expense tracking software applications for our field sales teams, which will automatically log expenses and increase field selling time. Finally, as part of our digital integration strategy, we put in place new software systems for our customer service teams that reduce manual data entry and improve efficiency. We also launched three lab operations projects that will lead to lower cost of goods sold in fiscal 2019. I am very pleased with the pace and magnitude of savings generated by the Elevate 2020 program.
Looking at the fiscal second quarter, we are forecasting relatively flat revenue of $187 million-$189 million and non-GAAP earnings per share of $0.22-$0.24. I would like to provide some additional rationale for the second quarter guidance. From a sequential standpoint, the second quarter will face a $5 million headwind from Vectra DA, given the non-recurring revenue recognized in the fiscal first quarter and the normal seasonality associated with the two tests per year Medicare utilization limit. Additionally, we expect stable sequential hereditary cancer revenues as increased volumes will be offset by a slight decline in pricing since some of the new payer contracts took effect during the middle of the first fiscal quarter. Our guidance contemplates a decline in pharmaceutical services revenues based upon the timing of various clinical contracts.
These headwinds will be mostly offset by anticipated revenue growth in GeneSight, Prolaris, and EndoPredict on a sequential basis. In conclusion, we are very encouraged by the strong start to fiscal year 2018, which puts us in a strong position relative to our full-year financial guidance. More importantly, as we execute on our strategy, the progress we are making is positioning the company for significant revenue and earnings growth. With that, I would now like to turn the call over to Mark.
Thanks, Bryan. I would now like to provide some additional details on important clinical data and our performance for the first quarter, beginning with hereditary cancer. The most important event in the first quarter was the launch of riskScore, which has been extremely well-received by patients, genetic counselors, and physicians. As a reminder, for patients of European descent, riskScore now provides a definitive breast cancer risk for 100% of patients, whereas only 10% of patients receive definitive risks after testing with myRisk. As one Boston gynecologist stated, and I quote, "riskScore is amazing and a major advancement. No other laboratory provides us with this type of support and makes this type of investment in our patients." End quote.
While it's too early to quantify the impact of riskScore, we remain very encouraged by the qualitative feedback and will provide additional color during our fiscal second quarter 2018 earnings call. At the National Society of Genetic Counselors meeting, we presented our first major validation of the SNP panel associated with riskScore. In a cohort of 17,205 women of European descent, the SNP panel was highly predictive of breast cancer risk, with a P value of 10 to the minus 50. Our combined riskScore validation, which includes both the SNP panel and the Tyrer-Cuzick model, will be presented at the San Antonio Breast Cancer Symposium in December. Lastly, we saw progress towards continuing to expand the indications for use for myRisk, as NCCN now recommends hereditary cancer testing for all metastatic prostate cancer patients.
Each year, there are approximately 26,000 men diagnosed with metastatic prostate cancer. This represents a significant new market opportunity. Moving on to GeneSight, I would like to begin by reviewing the design of our recently completed large prospective study. To be eligible for the study, patients had to have treatment-resistant major depressive disorder with moderate to severe depression, having failed on at least one previous antidepressant. The target enrollment population of the study was 1,200 patients. Patients were randomized to either a GeneSight-guided therapy arm or a treatment as usual arm. In the study, the patients, central raters, and site raters were blinded as to the GeneSight test results and whether a patient was in the GeneSight or control arm of the study.
The primary goal was to assess the HAM-D17 scores at four and eight weeks compared to baseline and to calculate three endpoints: % of patients in remission, % of patients that are responders, and the % symptom reduction. Symptom reduction is defined as the % reduction in HAM-D17 scores. Remission is defined as HAM-D17 scores less than or equal to seven, and response is defined as a 50% reduction in HAM-D17 compared to baseline. We believe the data from this study clearly demonstrates the clinical utility of the GeneSight test. We saw an improvement in depressive symptoms for the entire cohort, which was approaching statistical significance. More importantly, in the two most critical endpoints for physicians and payers, response and remission, we achieved a high degree of statistical significance.
Lastly, the improvement in remission, response, and symptoms continued throughout the 24-week study period, demonstrating the durability of the benefit through that period. It is important to understand why remission and response are considered the gold standard outcome for antidepressant studies. Symptom reduction is representative of patients feeling somewhat better, but only when these symptoms have been reduced by at least 50% or when the symptoms of depression are gone, is a patient able to resume a normal, productive life. Both the American Psychiatric Association depression guidelines and the American College of Neuropsychopharmacology consensus statement echo this sentiment.
To quote the APA guidelines, "The overall goals of treatment of major depressive disorder should focus on alleviating functional impairments and improving quality of life, in addition to achieving symptom resolution and episode remission." From the ACNP guidelines, I quote, "Treatments with a greater likelihood of attaining remission, a more rapid onset of remission, or a higher probability of sustaining remission have clear therapeutic advantages, given the implications of remission for function and prognosis." End quote. The clinical outcomes of remission and response are rarely obtained in pharmaceutical studies at the eight-week timeframe, even when drug is compared to placebo. In this study, the GeneSight arm was not compared to a placebo, but to an active drug arm with medications selected by physicians that could be modified at their discretion. This was a very high bar for an antidepressant study.
For GeneSight to achieve clinically meaningful and statistically significant improvements in the remission and response endpoints certainly exceeded our expectations. While a symptom reduction in the entire cohort did not quite achieve statistical significance, we can look to the Pine Rest and La Crosse studies to understand the dynamics of this endpoint. In these previous studies, the symptom improvement was confined mostly to the subset of patients entering the study on the wrong medication. This makes sense because when a patient entered the study on a green medication, meaning the physician happened to guess correctly, you would not expect to see a benefit from GeneSight. In La Crosse, 24% of patients entered the study on a red medication, and in Pine Rest, 30% entered the study on a red medication. Therefore, the symptom reductions in this subset can be masked when evaluating the entire study population.
What is important is that in the most recent RCT, a significant number of patients experienced response and remission, and we believe these patients drive sufficient clinical and health economic benefit to justify using GeneSight for all treatment-resistant depressed patients. This is a landmark study, and we will now begin sharing this data with commercial payers under non-disclosure agreements as we intend to present the full data set at the American Psychiatric Association meeting in May of 2018. This prospective randomized controlled trial data is considered level 1 evidence, and when combined with the supporting evidence from 3 additional clinical studies and multiple health economic studies, we are encouraged about the prospect for near-term commercial coverage decisions. This is supported by a recent publication in Psychological Medicine, which highlighted GeneSight as the only pharmacogenomic test for psychotropic medicines that was ready for application in clinical practice.
In other encouraging GeneSight news, we recently announced data from a second major study called IMPACT, which reported initial results this quarter. This study enrolled nearly 9,000 patients and was conducted in Canada, along with the Canadian Centre for Addiction and Mental Health. The endpoints are designed to evaluate GeneSight performance in two different indications: depression and general anxiety disorder, with both psychiatrists and primary care physicians. One of the most important goals of this study is to lay the groundwork for an expansion into general anxiety disorder, or GAD, which affects 60 million patients in the U.S. This indication represents a patient population that is larger in aggregate than the depression indication. Importantly, a poster was recently presented at the World Congress of Psychiatric Genetics in October from the IMPACT Study, which showed that GeneSight improved anxiety symptom severity in 210 patients with generalized anxiety disorder.
Anxiety symptoms, which were measured using the GAD-7 scale, improved 45% in patients receiving congruent therapy versus 26% for patients receiving non-congruent therapy. The result was statistically significant with a p-value of .03. At the same conference, we also disclosed data on general anxiety disorder patients from a Medco data set. A major area of concern for patients with anxiety is the use of benzodiazepine drugs, which are addictive and have seen a 400% increase since 1996. The Medco data showed that patients tested with GeneSight had a 25% reduction in these drug counts. A second analysis of the Medco data set showed that patients with general anxiety disorder saved, on average, $6,747 in prescription costs with congruent versus non-congruent therapy, and the result was statistically significant.
The combination of these studies will form the basis of our accelerated efforts to expand the GeneSight indication for use to patients with general anxiety disorder. Another encouraging development for GeneSight included the addition of the test to the Florida Best Practice Psychotherapeutic Medication Guidelines for adults with major depressive disorder. This guideline committee is used by Florida Medicaid to inform medical policy decisions. Florida has about 4 million Medicaid enrollees, and we estimate approximately 800,000 are currently utilizing psychotropic medications. Furthermore, we initiated a Canadian payer demonstration study in collaboration with the Centre for Addiction and Mental Health and Sun Life, which insures approximately one in five Canadians. The demonstration study will evaluate the ability of GeneSight to improve both clinical and health economic outcomes in patients with anxiety and depression. One of the major cost savings to be evaluated in this study is absenteeism associated with short-term disability.
According to the Gallup-Healthways Well-Being Index, in the U.S., absenteeism associated with depression is estimated to cost approximately $23 billion per year, and lower workplace productivity is estimated to cost approximately $79 billion per year. In another study, direct and indirect costs for a treatment-resistant depressed patient were estimated to be more than $20,000 per year, which was published in the journal Psychiatric Services in Advance. The successful Optum health economic study for GeneSight has been submitted for publication, which we expect to occur in the second half of fiscal year 2018. The results from this study were very consistent with previous health economic studies, showing significant cost savings for patients with treatment selection guided by GeneSight. This data demonstrates less than a one-year payback using GeneSight, which is highly unusual for new technologies.
Maybe most importantly, these savings do not include the substantial indirect savings, which is of high interest to self-funded employers. As a reminder, coverage by UnitedHealthcare could represent more than $40 million of annual incremental revenue. With GeneSight now having amassed an extensive dossier for treatment-resistant depressed patients and having demonstrated success in a GAD prospective clinical study, we continue to believe this product can materially transform our financial performance in the future. I would like to transition to Vectra DA. This year at the American College of Rheumatology meeting, we are presenting several key studies. First, in a study based upon six different patient cohorts and 748 patients, Vectra DA was shown to be the best predictor of radiographic progression.
In a meta-analysis comparing high versus low scores, the Vectra DA test demonstrated a relative risk for radiographic progression of 5.1 that was highly statistically significant, while DAS28-CRP or CRP alone demonstrated relative risks of only 1.4 and 1.6, respectively. In an additional study with a cohort of 1,411 patients from five different U.S. patient registries, Vectra DA once again demonstrated that it was the best disease activity measure. This data showed that Vectra DA was four times better at predicting radiographic progression than DAS28. Moreover, Vectra DA significantly outperformed every conventional measure of disease activity. We will be presenting a new clinical utility study in 60,596 patients that demonstrates how rheumatologists utilize the Vectra DA score to appropriately guide therapy decisions in patients.
The study found that in patients who are naive to biologics, rheumatologists were 2.2 times more likely to recommend a biologic for patients with a high Vectra DA score compared to those with a low Vectra DA score. Additionally, for patients already on a biologic, rheumatologists were 2.6 times more likely to change therapy on patients with high Vectra DA scores compared to those with a low Vectra DA scores. This data clearly demonstrates that physicians appropriately adjust treatment for patients based upon a Vectra DA score. Additionally, we recently announced that we signed a Vectra DA coverage with evidence development agreement with CareFirst, the 18th largest commercial payer in the country. Patients in this study will receive coverage in a real-world clinical utility study that compares the outcomes for patients being treated with or without the guidance of Vectra DA.
With the addition of the CareFirst collaboration, we currently have agreements to conduct demonstration studies with five of the top 20 payers. As these studies complete, they will add to the already significant clinical utility evidence for Vectra DA and facilitate expanded coverage. Moving on to EndoPredict, we achieved another important milestone this quarter by once again demonstrating superiority in a study comparing the test to Oncotype DX. As a reminder, in the TransATAC cohort, EndoPredict was shown to have four times the prognostic power of Oncotype DX and substantially better performance in node-positive breast cancer. This second study was recently presented at the World Congress of Controversies in Breast Cancer and consisted of 387 women determined to be at intermediate risk by the Nottingham Prognostic Index, with a primary endpoint of predicting breast cancer recurrences.
The study showed that EndoPredict markedly outperformed the first-generation test across the 10-year follow-up period, with two times the prognostic power. In addition, EndoPredict was the only test that provided statistically significant prognostic power for late-stage metastases in the five to 10-year timeframe. This once again highlights the difference in EndoPredict as a second-generation test. With longer outcome data used in the development of the test, genes were included in the EndoPredict signature that are known to specifically predict late-stage recurrence. This is extremely important to patients and physicians because approximately 50% of the recurrences in node-negative ER-positive breast cancer happen after five years. Finally, I would like to provide an update on our companion diagnostic program. We achieved an important goal with the submission of the BRACAnalysis CDx supplemental PMA in conjunction with AstraZeneca's LYNPARZA submission for HER2-negative metastatic breast cancer.
We are anticipating approval in the third quarter of this year. As a reminder, upon approval, we anticipate that 125,000 patients will be immediately eligible for testing. Every year, there are approximately 60,000 patients that are diagnosed or progress with HER2-negative metastatic breast cancer. This represents a substantial market opportunity for BRACAnalysis CDx test and could lead to significant volume increases in the hereditary cancer business. As evidence for this point, UnitedHealthcare recently modified their hereditary cancer eligibility criteria to include all metastatic breast cancer patients, as, and I quote, "Those patients are increasingly being considered for PARP inhibitor therapy." End quote.
As I mentioned previously, beyond the U.S. market, we have submitted BRACAnalysis CDx in Japan for review by the Pharmaceuticals and Medical Devices Agency and marketing approval by Ministry of Health, Labour and Welfare as a companion diagnostic to LYNPARZA for use in HER2-negative metastatic breast cancer patients. Japan represents a new potential companion diagnostic market for us, with greater than 10,000 breast cancer patients per year that would be eligible for testing under this new indication. Overall, I am highly encouraged by our performance and strategic momentum in the first fiscal quarter of 2018. Hereditary cancer volumes are experiencing notable growth with predictable long-term pricing. Additionally, new product volume is experiencing double-digit growth with market progress towards expanded reimbursement for GeneSight, Vectra DA, and Prolaris. Finally, the Elevate 2020 program is ahead of schedule and is optimizing our cost structure to make the company more efficient and profitable.
Overall, we believe we are clearly on track to meet our long-term strategic goals and to remain the diversified global leader in personalized medicine. With that, I am pleased to turn the call back over to Scott for Q&A.
Thanks, Mark. As a reminder, during today's call, we use certain non-GAAP financial measures. A reconciliation of GAAP financial measures 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're ready to begin the Q&A session. In order to ensure broad participation in today's Q&A session, we're asking participants to please ask only one question and one follow-up. Operator, we're now ready for the Q&A portion of the call.
Certainly. Ladies and gentlemen, if you'd like to queue up for a question, you can do so by dialing one, four, that's one followed by the four on your telephone keypad right now. You're going to hear three tones to acknowledge your request. Please remember, if you are using a speakerphone, to lift up the handset from the receiver before entering that request. All right. Once again, if you'd like to queue up for questions, you can do so by dialing one, four, that's one followed by the four on your telephone keypad right now. First question coming from the line of Jack Meehan from Barclays. You may now proceed.
Hi. Thanks. Good afternoon. I wanted to start with the hereditary cancer testing performance in the quarter. In the slide deck, you talk about the five volume drivers that drove the better performance. Was there one that you think was most meaningful of them? Was there any impact from the hurricanes in the quarter to call out?
Yeah. Thanks, Jack. It's probably difficult to tease out of the five we mentioned, which might be the most impactful. I think we've seen all of those have an impact. Obviously, a number of those initiatives are ones that we launched last fiscal year, we continue to see those play out. I do think the two that are on there that are, of course, new is riskScore. I mentioned qualitatively, it's been very well received by physicians and by patients. Too early to quantitate that, we certainly have been very pleased with the acceptance of that. I think the other one that continues to, I think, get more notice is just quality concerns that physicians have with other laboratories. I think as testing volumes have increased from other laboratories, those concerns have only increased.
We are seeing noticeable, probably differences or concerns being raised by people about some of those quality differences. We, of course, saw an incident this past quarter that raised that even further. I think that would be the one thing that I would say was different in that quarter, has been increasing over time. From a hurricane perspective, obviously, if patients are not going in to see the doctor or doctor's offices are closed, which of course was the case in Southern Texas and in Florida, that obviously does impact volumes. I know other laboratories have called that out. We certainly saw some impact with that. As you can see, we were able to really just grow our way right through any hurricane impact.
Great. Maybe just as a follow-up, thinking about guidance for the rest of the year, I know there's a number of upside drivers that you've laid out, you had a nice quarterly beat, $8 million on revenue versus the midpoint of guidance. Was there any thought about taking up guidance? What's the caution that you guys are thinking about right now? Thanks.
Hey, Jack. This is Bryan. A couple of things. One is when we look at the quarter, we certainly had the $4 million positive in there relative to Vectra DA. When we look at the sequential Q1 to Q2, we have that to deal with. Just in terms of how things played out in the quarter and how we feel about the rest of the year, our perspective is just that we're one quarter into the year at this point. We'll re-look our guidance after we get through Q2 and see how we feel about it at that point.
All right. Moving to our next question. We have a question from the line of Doug Schenkel from Cowen. You may now proceed.
Hi. Good afternoon. I just want to ask a few more questions on HCT volumes. One question in multiple parts. First, it looks like volume was up 5%-6% year-over-year, at least by our math. Second, I just want to confirm that full-year guidance still assumes that HCT volume growth is only around 3% in spite of the strong momentum coming out of Q1. Third, I was wondering if there was any impact from pre-authorization efforts amongst some payers that picked up during the quarter. Fourth, along those lines, is there any concern that Anthem-related volumes could take another step down due to pre-authorization efforts and your out-of-network status? Thank you.
Thank you, Doug. I got all those. If not, obviously follow up on those. From a volume standpoint, our commentary is just that we exceeded the 3% goal that we had set, and you're right, that is the goal that we had set for the year when we put our guidance together, was 3%. We exceeded that in the first quarter, and we're pleased with the strength of the volume growth that we saw in that first quarter. Other than that, we're not necessarily providing any additional granularity on volume, just to say that we did beat our expectations there. From a pre-authorization perspective, one of the things, obviously, we have seen these tests under pre-authorization for many, many years. We have more than a decade's worth of experience of ensuring that there's appropriate pre-authorization. Anything for Myriad is particularly new.
I know for some other companies that this may be new, but I think we've got lots of experience in working through that. We are seeing some payers use now more automated forms of pre-authorization. I think there's been some upsides to that in certain payers. We actually see the move to automated pre-authorizations will actually reduce the amount of documentation that's required, so that's obviously more efficient. I think we have seen instances where there's been at least one payer in particular that saw some speed bumps associated with their implementation of some more automated pre-authorization processes. Our belief are those things are ultimately going to take care of themselves. It's not unusual for us to see that when a new pre-authorization process is implemented. Our belief is that we'll be able to work with those payers to ensure that those processes become more efficient.
We're not looking at the pre-authorizations as really having any material impact on our business.
All right, we'll move to our next question. It's coming from the line of Amanda Murphy from William Blair. You may now proceed.
Hi. Thanks. Good afternoon. I just had a couple on GeneSight. Thank you for all the detail there. I was curious, there was obviously a bit of confusion around the data and whatnot. There's clearly a lot of physicians using it, but there seems to be some question around how incremental, I guess, the test is in terms of treatment paradigm. I was just hoping you could rationalize the two, just in terms of the growth in doctor usage versus how incremental it is. I realize it's preliminary at this point with the data just coming out, but just wondering what your conversations have been like with private payers to date. What are they looking for? Are they looking for peer-reviewed data, or would they consider evaluation of the top line? Thanks.
Thanks, Amanda. Well, first of all, I think what we've seen with GeneSight is continued strong utilization from a number of physicians, and frankly, it's because they see significant benefit in the test. Remember, these are treatment-resistant depressed patients. They have not responded to therapy. They have not entered remission, and the doctors are looking for any kind of assistance they can have in order to figure out what's the most appropriate medication for a patient that ultimately could return that patient to normal functioning. They have seen tremendous value from GeneSight. The fact that we continue to see repeat orders, record numbers of physicians, is a really very clear indicator of how much value they see in their patients. Because they see when they modify medication according to GeneSight, patients respond, patients remit, and patients get better.
I think that's what underscores the type of volume growth that we've seen. GeneSight is real-world experiences that underscore their belief in how well the product has performed. I think that the other thing I could mention is just what feedback we've already gotten from the field from doctors that have seen the top-line results. It has been, to a large extent, extremely positive. In fact, I note there was an analyst note on to this regard as well. Doctors are very pleased that it hit remission and response rates. Those are the things in the quotes we've got back from doctors are, "Those are the things I'm worried about.
Those are the things that are in guidelines." The fact that this product has met those endpoints is just confirmation that I've been doing the right thing and need to look for more patients for utilization of GeneSight. The responses have largely been very encouraging from what we've seen from doctors, and as you might expect, totally in line with the guidelines that are from their medical professional societies. I think the only questions we've got is, they'd like further understanding of why symptoms approach statistical significance, and we hit remission and response. When we remind them of the fact that in previous studies that the benefit for symptom reduction was confined to a subset of patients, they recognize how, when analyzing the entire cohort, that the benefit of subset could be masked somewhat by that.
From their perspective, that's actually not new because they've seen this in the Pine Rest studies, they've seen this in the La Crosse study. I think the feedback from the field has really been encouraging at this point. From a private payer perspective, I think it's a little early. Obviously, we just got the data, and we'll just begin some of those discussions now. We know in anticipation of the results from the clinical study, we asked private payers what type of information they would see. Almost universally, what they'd ask for is to show us the remission and response rates, because from their perspective, they understand those are the patients that ultimately are going to drive health economic benefit. We'll be prepared to provide that type of information then from an NDA perspective.
I think one of the things that they know in this study that we referenced in here is worth looking at when you look at the total cost savings, direct and indirect, for patients that are treatment-resistant depressed patients, it costs $20,000 a year. If you can move that patient to remission, that saves $20,000 per year. If you can move that patient to a responder, that saves a payer $10,000 a year. That's why they really focus on those two subsets of patients, those that remit and those that respond, because the savings associated with those are so significant. We'll bring all that data to them and we'll see what the response is.
To be clear for our guidance, we have assumed that these payers are going to wait to see a publication, which we don't expect to happen until the end of this fiscal year. That's the assumptions that are factored into our guidance, is that they would want to wait to see those publications. To the extent that they're comfortable with the data prior to that, it of course represents upside. We're not assuming that in our guidance.
Just one quick follow-up. In terms of the payer coverage, do you expect them to also want to do sort of internal demonstration studies as we're seeing with some of the other assays, in addition to seeing the peer-reviewed publication? It seems like that's a trend these days, curious on expectations for GeneSight there too.
I think with the size of this large prospective study with multiple health economic studies in very large data sets, the Medco data set of over 10,000, that again, real-world data that shows exactly what the cost savings were. We'll also, of course, have the Optum data published as well, that will show, again, in a real-world study, the significant numbers of savings. I think when you combine the power of those data sets, it's not clear that any additional data would be required by a payer. Our expectation would be that they'll take that data in its entirety and use that to make a coverage decision. That's generally a more exhaustive dossier than they've made previous decisions on.
We think it's sufficient for them to make a coverage decision without that and recognize with less than a 1-year payback, these insurers are incented to cover GeneSight because they're going to see that return pretty quickly. The last thing I'll say from a payer perspective that they're highly sensitized to is much of their book of business is for fully insured employers. For United, for example, 70% of their book of business are fully insured employer groups. To employers, mental health costs are a very significant driver of overall expenses. To the extent that a payer can bring a program to a self-insured company helping to control costs, that's a very big competitive advantage for those payers as they approach other self-insured employers.
We see a real interest, not only from payers to do that, but also from PBMs that are looking for ways to differentiate their services and expand their market shares within the managed care space. I think for all those reasons, we would expect them to be able to make a decision without additional data.
Got it. Thanks very much.
Quick reminder, everyone, if you'd like to queue up for questions, you can do so by dialing 14. That's one followed by the four on your telephone keypad. Next question coming from the line of Tycho Peterson from J.P. Morgan. You may now proceed.
Hey, thanks. Mark, I actually want to follow up on some of those GeneSight questions. First, the milestone payment was dependent on the HAMD score. Why was it pegged to that as opposed to the response remission at eight weeks, given that the latter is the more clinically important one? Second, I know there are about 25 other secondary endpoints. Anything to note in those and anything on remission and response at week 12 that came out in the data? The third is, on the payer front, if the improvement is primarily centered on patients that were on the wrong medication, judged by GeneSight as the baseline or the red bin patients , is there any risk that the private payers may set more restrictive reimbursement criteria in order to get a greater mix of REDvent patients in the patient pool?
In other words, maybe increasing the number of failed prior medication trials as opposed to CMS, which just has one.
Okay. Thank you, Tycho. Once again, I will do my best to hit those all, and if not, ask a follow-up, please. First, just to be clear, response, remission, and symptoms are all based on HAMD-17. I just want to make sure there's clarity with that for everybody. All of those measures are looking at reductions in HAMD-17 scores. In the case of remission, you're looking at HAMD reduced from the entry point over 17 all the way down to below seven. For response, you're looking at that HAMD-17 score below a 50% reduction in that. Symptoms is merely a continuous variable and looking at any reduction in symptoms. The reason that the clinical trial milestone was tied to symptoms is that in historical antidepressant studies, symptom reduction as a continuous variable is generally the easiest endpoint to hit.
That was certainly the perception in this case. We agreed that we would accept that as the singular milestone payment for this particular agreement was that on that symptom reduction. Now, obviously, the fact that the benefits were largely confined to a subset of patients were known, and that was obviously all in the data in Pine Rest-La Crosse, and that data was available. We accepted that as the sole endpoint because in a traditional antidepressant study, it is the easiest endpoint to meet. I think what is important to note is it was not the endpoint because it was the most important. It was really because as we negotiated the deal, it was perceived as the easiest. I think that's an important distinction. As to the other secondary endpoints, you're right, there's a plethora of those, Tycho.
Those are things that will come out as we do the full data analysis at APA. We're not really in a position to talk about those right now, but those additional endpoints will come out in additional analysis. As to the 12-week endpoint, the 8-week endpoint was the primary endpoint for the evaluation of those 3, remission response and symptom reduction. That's because up through that week, the study was fully blinded. At week 12 is when the unblinding occurred. Then, of course, from week 12 all the way out to week 24, it was unblinded. Week 8, that's why that was used as the primary endpoint is because of the full blinding up until week 8. Week 8 is traditionally an endpoint that's probably used most frequently in antidepressant studies.
The last, I think from a reimbursement perspective, while the benefits were largest in the red group, there were some benefits in those previous two studies to patients that entered the study in the yellow category as well. I think what's important is there's no way to distinguish those patients without a genetic test. Same thing would true, for example, hereditary cancer, if we use that as an analogy. Only 7% of hereditary cancer patients are positive when they're tested with a myRisk panel. Of course, there's no way to anticipate who those positive patients are prior to the test. The same thing is true in this case. There's no way necessarily to determine who might be on red bin medications and who might not. There are 55 different medications that are on the report.
There's no real way to discern or try to force patients to go through many different medications prior to finding the right one. Remember, every time a patient fails on a medication, the chance of them achieving remission declines significantly. The more barriers you put in front of a patient as to when they get the right medication, the bigger obstacle you have to that patient ever getting better and ever saving the healthcare system. Remember, these are patients that are also in a very difficult part of their life, right? They've had depression. They can't get it treated. You don't want to delay their chance to be well. That's when they hurt themselves or others. You really want to make sure you get them very quickly to better, because the longer that takes, the less likely it is to ever happen.
That's why I think Medicare has one medication. That's why the study used one medication, and we would expect payers to be consistent with that because there's no better way to identify patients that are appropriate.
Okay, just one quick follow-up on the GeneSight volume growth. How much were from new psychiatrists versus existing psychiatrists ordering more?
Yeah, I think it's both. We haven't discerned that, haven't given that level of detail, but it's both, Tycho. We continue to see very nice repeat ordering pattern. We continue to open new store sales. We continue to see growth in those areas. One of the things that's probably inferred by your question as well is how much of that might be in the primary care setting, and very little of that is primary care. Our call point right now is mostly psychiatry. Of course, as we get reimbursement, we will expand into the primary care market. That more than doubles the market opportunity for this, and we haven't even scratched the surface in that primary care market. Those are things that we'll continue to plan as we look to reimbursement here in the near term.
Okay, thanks.
Next question coming from the line of Bill Quirk from Piper Jaffray. You may now proceed.
Great. Thanks. Afternoon, everybody. Couple of questions. First, Mark, certainly recognize that riskScore is very early, but do you have any even anecdotal evidence of perhaps some physicians who had moved to a competitor that are now open to reconsidering MyRisk, for example? Secondly, again for Mark, just thinking about the Optum study and also just United's recent decision not to cover GeneSight. I'm just trying to figure out, did United get a look at the Optum data, or did they make that decision prior to being able to see that? Just trying to figure out what's going on there. Lastly, for Bryan, if I'm doing the math right here, it looks like a 24% tax rate. What should we be thinking about that moving forward? Thanks.
Thanks, Bill. I appreciate the question. From a riskScore standpoint, we have definitely seen very positive feedback. We've seen physicians that certainly had contemplated or been using others that have decided that the product we're providing with riskScore is a much better option for their patients. We definitely have anecdotal evidence already of that happening, and very positive commentary. We'll see how the numbers play out here, but I couldn't be more pleased with the launch of riskScore and what this has meant for the quality of conversations.
Our biggest opportunity, since generally our market shares are so high in that segment, really is deeper penetration into the market, and we've heard a lot of very positive commentary to that effect as well, because they really feel like their discussions with patients 100% of the time now end with a very clear plan of action. That still represents the biggest opportunity, considering the low penetration we have in that market already. From an Optum standpoint, Optum's study obviously has not been published yet, United would not have considered that as they were approaching their decision. There's a number of studies that would not have been considered by United. Obviously, the recent RCT, the IMPACT study, none of those would have been considered in what was a look-back by United.
All of those three studies represent opportunities for us to re-approach United and ask them to reevaluate their coverage decision. Taxes, Bryan?
Yeah. Bill, the tax rate is 24%. We actually guided on our last call to a non-GAAP rate of 23% for the year. Obviously, there's some fluctuation from quarter to quarter, but we believe we're right in line this quarter, and we're consistent. We haven't updated that 23%.
Okay. Got it. Thank you.
All right, gentlemen, there are no further questions registered. I'll turn the call back over to you.
Thank you. 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.