Myriad Genetics (MYGN) 10-Q 2002 Q3 Quarterly report

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MYRIAD GENETICS, INC. INDEX TO FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                            to                            

Commission file number: 0-26642

MYRIAD GENETICS, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	87-0494517 (I.R.S. Employer Identification No.)
320 Wakara Way, Salt Lake City, UT (Address of principal executive offices)	84108 (Zip Code)

Registrant's telephone number, including area code:(801) 584-3600

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        As of May 8, 2002 the registrant had 23,782,623 shares of $0.01 par value common stock outstanding.

MYRIAD GENETICS, INC.

INDEX TO FORM 10-Q

PART I—Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and June 30, 2001
	Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2002 and 2001 (unaudited)
	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2002 and 2001 (unaudited)
	Notes to Condensed Unaudited Consolidated Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
PART II—Other Information
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURE(S)

MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

			(Unaudited) March 31, 2002			June 30, 2001
Assets
Current assets:
	Cash and cash equivalents		$	58,567,795		$	35,936,817
	Marketable investment securities			21,229,251			91,282,481
	Prepaid expenses			4,250,768			4,219,037
	Trade accounts receivable, less allowance for doubtful accounts of $455,000 at Mar. 31, 2002 and $255,000 at June 30, 2001			7,151,988			3,634,370
	Other receivables			208,633			314,571
	Related party receivables			520,286			1,811,517
		Total current assets		91,928,721			137,198,793
Equipment and leasehold improvements:
	Equipment			23,595,298			21,425,910
	Leasehold improvements			3,987,424			3,721,345
				27,582,722			25,147,255
	Less accumulated depreciation and amortization			15,334,676			12,416,209
		Net equipment and leasehold improvements		12,248,046			12,731,046
Long-term marketable investment securities				45,859,507			18,735,670
Other assets				3,633,370			3,479,846
			$	153,669,644		$	172,145,355
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	5,306,775		$	9,657,385
	Accrued liabilities			3,079,801			3,082,799
	Deferred revenue			10,545,041			19,843,373
		Total current liabilities		18,931,617			32,583,557
Stockholders' equity:
	Common stock, $0.01 par value, 60,000,000 shares authorized; issued and outstanding 23,775,411 at Mar. 31, 2002 and 23,441,659 at June 30, 2001			237,754			234,417
	Additional paid-in capital			201,637,870			198,800,273
	Accumulated other comprehensive income			(159,928	)		363,583
	Accumulated deficit			(66,977,669	)		(59,836,475	)
		Total stockholders' equity		134,738,027			139,561,798
			$	153,669,644		$	172,145,355

See accompanying notes to condensed consolidated financial statements.

MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended						Nine Months Ended
			(Unaudited) Mar. 31, 2002			(Unaudited) Mar. 31, 2001			(Unaudited) Mar. 31, 2002			(Unaudited) Mar. 31, 2001
Revenues:
	Research revenue		$	5,803,255		$	6,652,289		$	20,583,255		$	22,409,558
	Predictive medicine revenue			7,255,065			4,914,950			19,140,794			11,930,856
		Total revenues		13,058,320			11,567,239			39,724,049			34,340,414
Costs and expenses:
	Predictive medicine cost of revenue			2,848,591			2,149,029			7,685,614			5,181,389
	Research and development expense			8,739,952			8,428,402			25,613,701			26,570,236
	Selling, general and administrative expense			5,911,925			4,247,554			17,616,859			12,271,188
		Total costs and expenses		17,500,468			14,824,985			50,916,174			44,022,813
		Operating loss		(4,442,148	)		(3,257,746	)		(11,192,125	)		(9,682,399	)
Other income (expense):
	Interest income			1,076,435			2,057,167			4,426,146			5,477,560
	Other			(5,655	)		(27,465	)		(215	)		(283,113	)
		Net loss before taxes		(3,371,368	)		(1,228,044	)		(6,766,194	)		(4,487,952	)
Income taxes				125,000			500,000			375,000			500,000
		Net loss	$	(3,496,368	)	$	(1,728,044	)	$	(7,141,194	)	$	(4,987,952	)
Basic and diluted loss per share			$	(0.15	)	$	(0.07	)	$	(0.30	)	$	(0.22	)
Basic and diluted weighted average shares outstanding				23,763,165			23,219,841			23,616,804			22,646,020

See accompanying notes to condensed consolidated financial statements.

MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Nine Months Ended
				(Unaudited) Mar. 31, 2002			(Unaudited) Mar. 31, 2001
Cash flows from operating activities:
Net loss				$	(7,141,194	)	$	(4,987,952	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				3,275,273			2,735,937
	Loss on disposition of assets				215			283,113
	Bad debt expense				200,000			100,000
	Changes in operating assets:
		Trade receivables			(3,717,618	)		(1,253,403	)
		Other receivables			105,938			121,292
		Related party receivables			1,291,231			—
		Prepaid expenses			(31,731	)		1,043,624
		Other assets			(958,524	)		—
		Accounts payable and accrued expenses			(4,353,608	)		(808,918	)
		Deferred revenue			(9,298,332	)		(4,845,890	)
			Net cash used in operating activities		(20,628,350	)		(7,612,197	)
Cash flows from investing activities:
	Capital expenditures				(2,617,488	)		(4,024,914	)
	Proceeds from sale of (investments in) other companies				630,000			(2,700,000	)
	Net change in marketable investment securities				42,405,882			(11,840,427	)
			Net cash provided by (used in) investing activities		40,418,394			(18,565,341	)
Cash flows from financing activities:
	Net proceeds from issuance of common stock				2,840,934			66,163,825
			Net cash provided by financing activities		2,840,934			66,163,825
Net increase in cash and cash equivalents					22,630,978			39,986,287
Cash and cash equivalents at beginning of period					35,936,817			56,214,736
Cash and cash equivalents at end of period				$	58,567,795		$	96,201,023

See accompanying notes to condensed consolidated financial statements.

MYRIAD GENETICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1)    Basis of Presentation

        The accompanying condensed consolidated financial statements have been prepared by Myriad Genetics, Inc. (the "Company") in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements. The financial statements herein should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2001, included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. Operating results for the nine month period ended March 31, 2002 may not necessarily be indicative of the results to be expected for any other interim period or for the full year.

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(2)    Comprehensive Loss (Unaudited)

        The components of the Company's comprehensive loss are as follows:

	Three Months Ended Mar. 31,						Nine Months Ended Mar. 31,
	2002			2001			2002			2001
Net loss	$	(3,496,368	)	$	(1,728,044	)	$	(7,141,194	)	$	(4,987,952	)
Unrealized gain (loss) on available-for-sale securities		(506,171	)		198,779			(523,511	)		348,849
Comprehensive loss	$	(4,002,539	)	$	(1,529,265	)	$	(7,664,705	)	$	(4,639,103	)

(3)    Net Loss Per Common Share

        Loss per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive potential common shares outstanding during the period. Stock options and warrants are considered to be potential common shares.

        Basic loss per common share is the amount of loss for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of loss for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the period.

        In calculating loss per common share the net loss and the weighted average common shares outstanding were the same for both the basic and diluted calculation.

        As of March 31, 2002 and 2001, there were antidilutive potential common shares of 4,213,852 and 3,942,576, respectively. Accordingly, these potential common shares were not included in the computation of diluted loss per share for the periods presented, but may be dilutive to future basic and diluted earnings per share.

(4)    Segment and Related Information

        The Company's business units have been aggregated into two reportable segments: (i) research and (ii) predictive medicine. The research segment is focused on the discovery and sequencing of genes related to major common diseases, marketing of subscriptions to proprietary database information, and the development of therapeutic products for the treatment and prevention of major diseases. The predictive medicine segment provides testing to determine predisposition to common diseases.

        The accounting policies of the segments are the same as those described in the basis of presentation (note 1). The Company evaluates segment performance based on results from operations before interest income and expense and other income and expense. The Company's assets are not identifiable by segment.

		Research		Predictive medicine		Total
Three months ended Mar. 31, 2002:
	Revenues	$	5,803,255	$	7,255,065	$	13,058,320
	Depreciation and amortization		725,412		483,146		1,208,558
	Segment operating loss		3,480,427		961,721		4,442,148
Three months ended Mar. 31, 2001:
	Revenues		6,652,289		4,914,950		11,567,239
	Depreciation and amortization		662,306		296,722		959,028
	Segment operating loss		2,106,415		1,151,331		3,257,746
Nine months ended Mar. 31, 2002:
	Revenues		20,583,255		19,140,794		39,724,049
	Depreciation and amortization		2,157,618		1,117,655		3,275,273
	Segment operating loss		8,113,235		3,078,890		11,192,125
Nine months ended Mar. 31, 2001:
	Revenues		22,409,558		11,930,856		34,340,414
	Depreciation and amortization		1,919,186		816,751		2,735,937
	Segment operating loss		4,989,752		4,692,647		9,682,399

	Three Months Ended Mar. 31,						Nine Months Ended Mar. 31,
	2002			2001			2002			2001
Total operating loss for reportable segments	$	(4,442,148	)	$	(3,257,746	)	$	(11,192,125	)	$	(9,682,399	)
Interest income		1,076,435			2,057,167			4,426,146			5,477,560
Other		(5,655	)		(27,465	)		(215	)		(283,113	)
Income taxes		(125,000	)		(500,000	)		(375,000	)		(500,000	)
Net loss	$	(3,496,368	)	$	(1,728,044	)	$	(7,141,194	)	$	(4,987,952	)

(5)    Collaborative Research Agreements

        In March of 2002 we formed a drug discovery collaboration with Abbott Laboratories to identify novel drug targets for the diagnosis and treatment of depression. The collaboration will merge our integrated drug target identification and validation technologies with Abbott's drug discovery and development expertise. The agreement provides Abbott with license rights and specifies an upfront payment to Myriad, plus guaranteed research funding and potential milestones totaling approximately $34 million plus royalties.

        Also in March of 2002 we formed a $24 million research collaboration with E.I. du Pont de Nemours and Company (DuPont) to understand the genetics that drive the proprietary products of Pioneer Hi-Bred International, Inc., a subsidiary of DuPont. During this two-year collaboration, we will apply our high-speed genomic sequencing capability and bioinformatics expertise to deliver molecular genetic information to Pioneer.

(6)    Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141,Accounting for Business Combinations and No. 142,Accounting for Goodwill and Other Intangible Assets (SFAS 141 and SFAS 142). SFAS 141 is effective for the Company beginning July 1, 2001 and establishes accounting and reporting standards for business combinations and prohibits the use of the pooling-of-interests method of accounting for those transactions after June 30, 2001. SFAS 142 is effective for the Company beginning July 1, 2002 (though early adoption is permitted) and establishes accounting and reporting standards for goodwill and intangible assets whereby entities will no longer amortize goodwill and certain intangibles, but will test for impairment at least annually. The impact of adopting SFAS 141 and SFAS 142 is not expected to be material to the financial statements.

        Statement of Financial Accounting Standards No. 143,Accounting for Asset Retirement Obligations (SFAS 143) was issued in June 2001 and is effective for the Company beginning July 1, 2002. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The impact of adopting SFAS 143 is not expected to be material to the financial statements.

        Statement of Financial Accounting Standards No. 144,Accounting for the Impairment of Long-Lived Assets (SFAS 144) was issued in August 2001 and is effective for the Company beginning July 1, 2002. SFAS 144 establishes new standards related to the accounting and reporting for the impairment or disposal of long-lived assets. The impact of adopting SFAS 144 is not expected to be material to the financial statements.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        We are a fully integrated biopharmaceutical company engaged in the discovery, development and marketing of novel therapeutic and predictive medicine products. Through our wholly owned subsidiary, Myriad Pharmaceuticals, Inc., we focus on internal drug discovery and development within the areas of cancer and viral disease, but also identify potential drug targets in other disease areas, which we intend to develop and commercialize in collaboration with major pharmaceutical companies. Through our wholly owned subsidiary, Myriad Genetic Laboratories, Inc., we also develop and market predictive medicine products that assess an individual's risk of developing a specific disease.

        We have strategic alliances with major pharmaceutical or multinational companies, including Abbott Laboratories, Bayer Corporation, E.I. du Pont de Nemours and Company, Hitachi Ltd., Hoffmann-LaRoche Inc., Novartis Corporation, Pharmacia AB, Schering AG, and Schering-Plough Corporation. In addition, in April 2001, Hitachi, Ltd., Oracle Corporation and we formed Myriad Proteomics, Inc., a stand-alone, independently financed corporation that is 49.9% owned by us. Myriad Proteomics was established to map the full human complement of protein interactions and protein complexes, and intends to market a proprietary map of the human proteome to pharmaceutical and biotechnology companies for therapeutic and predictive product development.

        In March of 2002 we formed a drug discovery collaboration with Abbott Laboratories to identify novel drug targets for the diagnosis and treatment of depression. The collaboration will merge our integrated drug target identification and validation technologies with Abbott's drug discovery and development expertise.

        Also in March of 2002 we formed a research collaboration with DuPont to understand the genetics that drive the proprietary products of Pioneer Hi-Bred International, Inc., a subsidiary of DuPont. During this two-year collaboration, we will apply our high-speed genomic sequencing capability and bioinformatics expertise to deliver molecular genetic information to Pioneer.

        We have devoted substantially all of our resources to maintaining our research and development programs, undertaking drug discovery and development, and operating our predictive medicine business. To date, our revenues have consisted primarily of research payments received pursuant to collaborative agreements, upfront fees, milestone payments, and sales of predictive medicine products. We have yet to attain profitability and, for the three months ended March 31, 2002, we had a net loss of $3.5 million. As of March 31, 2002 we had an accumulated deficit of $67.0 million.

        We recognize revenue from research contracts in accordance with the terms of the contract and the related research activities undertaken. This includes recognizing research revenue from research contracts over time as research is performed using the percentage-of-completion method based on costs incurred relative to total estimated contract costs. We recognize predictive medicine revenue upon completion of the test and communication of the results to the referring medical practitioner. Revenue related to technology license fees in those cases in which we have continuing involvement is recognized over the period of continuing involvement. We recognize revenue from up-front payments related to our marketing agreements ratably over the life of the agreement.

        We expect to incur losses for at least the next several years, primarily due to expansion of our research and development programs, expansion of our drug discovery and development efforts, costs related to our preclinical and clinical activities, launch of new predictive medicine products and expansion of our facilities. Additionally, we expect to incur substantial sales, marketing and other expenses in connection with building our predictive medicine business. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial.

Critical Accounting Policies

        Critical accounting policies are those policies which are both important to the portrayal of a company's financial condition and results and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are as follows:

•

revenue recognition; and



•

investment in Myriad Proteomics, Inc.

        Revenue Recognition.    We apply the provisions of Staff Accounting Bulletin No. 101, Revenue Recognition (SAB No. 101), to all of our revenue transactions. We recognize revenue from research contracts in accordance with the terms of the contract and the related research activities undertaken. This includes recognizing research revenue from research contracts over time as research is performed using the percentage-of-completion method based on costs incurred relative to total estimated contract costs. Payments we receive under these agreements cover our direct costs and an allocation for overhead and general and administrative expenses. Payments received on uncompleted long-term research contracts may be greater than or less than incurred costs and estimated earnings and have been recorded as other receivables or deferred revenues in the accompanying consolidated balance sheets.

        Revenues related to technology license fees when continuing involvement or services by us are required, are recognized over the period of continuing involvement. Up-front payments related to marketing agreements are recognized ratably over the life of the agreement.

        Investment In Myriad Proteomics.    In April 2001, we announced the formation of a new alliance with Hitachi, Ltd. (Hitachi), Friedli Corporate Finance A.G. (Friedli) and Oracle Corp. (Oracle) to map the human proteome. The newly-formed entity, Myriad Proteomics, Inc. (Myriad Proteomics), intends to market its proprietary database to pharmaceutical and biotechnology companies for therapeutic and diagnostic product development. We contributed technology to Myriad Proteomics in exchange for a 49 percent ownership interest and Hitachi, Friedli and Oracle contributed a combined $82 million in cash in exchange for the remaining 51 percent ownership in Myriad Proteomics.

        We are accounting for our investment in Myriad Proteomics using the equity method. Because our initial investment in Myriad Proteomics consisted of technology with a financial statement carrying value of $-0- on our financial statements, and given the uncertainty of the realizability of the difference between the $82 million carrying amount and our proportionate share of the net assets of Myriad Proteomics, our initial investment in Myriad Proteomics was recorded as $-0- and no gain was recognized.

        As part of the formation of Myriad Proteomics, we entered into administrative and scientific outsourcing agreements with Myriad Proteomics. These agreements expire on June 30, 2002. Charges to Myriad Proteomics for services incurred related to the administrative and scientific outsourcing agreements are based on actual time and expenses that we incur on behalf of Myriad Proteomics.

Results of Operations for the Three Months Ended March 31, 2002 and 2001

        Research revenues for the quarter ended March 31, 2002 were $5.8 million compared to $6.7 million for the same quarter of 2001. Research revenue is comprised of research payments received pursuant to collaborative agreements, amortization of upfront fees and milestone payments. This decrease of 13% in research revenue is primarily attributable to greater emphasis on our internal research and drug development programs, performing research for Myriad Proteomics, Inc. (a 49.9% owned affiliate), and the successful completion of the Bayer and TMRI collaborations in December 2001. Research revenues for the quarter ended March 31, 2002 included $0.8 million related to the sale of intellectual property. Research revenue from our research collaboration agreements is generally recognized as related costs are incurred. Consequently, as these programs progress and costs increase or decrease, revenues increase or decrease proportionately.

        Predictive medicine revenues for the quarter ended March 31, 2002 were $7.3 million, an increase of 48% or $2.3 million over the same quarter of 2001. Predictive medicine revenue is comprised of sales of predictive medicine products and fees and royalties from our predictive medicine product marketing partners. Increased sales and marketing efforts and wider acceptance of our products by the medical community have resulted in increased revenues for the quarter ended March 31, 2002. However, there can be no assurance that predictive medicine revenues will continue to increase at historical rates.

        Research and development expenses for the quarter ended March 31, 2002 were $8.7 million compared to $8.4 million for the same quarter in 2001. The increase of 4% was primarily due to increased costs associated with our ongoing clinical trial for Flurizan™, and was partially offset by reimbursement for research we performed for Myriad Proteomics, Inc. as part of a scientific outsourcing agreement. For the quarter ended March 31, 2002, research and development expenses were reduced by $1.3 million as a result of these scientific outsourcing services.

        Selling, general and administrative expenses for the quarter ended March 31, 2002 were $5.9 million compared to $4.2 million for the same quarter in 2001. Selling, general and administrative expenses consist primarily of salaries, commissions and related personnel costs for sales, marketing, executive, legal, finance, accounting, human resources and business development personnel, allocated facilities expenses and other corporate expenses. The increase of 39% was primarily attributable to the increase in our sales force to 106 full-time employees as of March 31, 2002, compared to 53 full-time employees as of March 31, 2001. We expect this larger sales force to enable us to increase awareness of our predictive medicine business. We expect our selling, general and administrative expenses will continue to fluctuate dependent on the number and scope of new product launches and our drug discovery and development efforts.

        Cash, cash equivalents, and marketable investment securities decreased $15.1 million or 11% from $140.8 million at March 31, 2001 to $125.7 million at March 31, 2002. This decrease in cash, cash equivalents, and marketable investment securities is primarily attributable to increased expenditures for our internal drug development programs and other expenditures incurred in the ordinary course of business. As a result of the Company's decreased cash position and declining interest rates, interest income for the quarter ended March 31, 2002 was $1.1 million compared to $2.1 million for the same quarter in 2001, a decrease of 48%.

Results of Operations for the Nine Months Ended March 31, 2002 and 2001

        Research revenues for the nine months ended March 31, 2002 were $20.6 million compared to $22.4 million for the nine months ended March 31, 2001. Research revenue is comprised of research payments received pursuant to collaborative agreements, upfront fees and milestone payments. This decrease of 8% in research revenue is primarily attributable to greater emphasis on our internal research and drug development programs, performing research for Myriad Proteomics, Inc. (a 49.9% owned affiliate), and the successful completion of the Bayer and TMRI collaborations in December 2001. Research revenues for the nine months ended March 31, 2002 included $0.8 million related to the sale of intellectual property. Research revenue from our research collaboration agreements is generally recognized as related costs are incurred. Consequently, as these programs progress and costs increase or decrease, revenues increase or decrease proportionately.

        Predictive medicine revenues for the nine months ended March 31, 2002 were $19.1 million, an increase of 60% or $7.2 million over the nine months ended March 31, 2001. Predictive medicine revenue is comprised of sales of predictive medicine products and fees and royalties from our predictive medicine product marketing partners. Increased sales and marketing efforts and wider acceptance of our products by the medical community have resulted in increased revenues for the nine months ended March 31, 2002. However, there can be no assurance that predictive medicine revenues will continue to increase at historical rates.

        Research and development expenses for the nine months ended March 31, 2002 were $25.6 million compared to $26.6 million for the nine months ended March 31, 2001. The decrease of 4% was primarily due to reimbursement for research we performed for Myriad Proteomics, Inc. as part of a scientific outsourcing agreement, and was partially offset by increased costs associated with our ongoing clinical trial for Flurizan™. For the nine months ended March 31, 2002, research and development expenses were reduced by $4.7 million as a result of these scientific outsourcing services.

        Selling, general and administrative expenses for the nine months ended March 31, 2002 were $17.6 million compared to $12.3 million for the nine months ended March 31, 2001. Selling, general and administrative expenses consist primarily of salaries, commissions and related personnel costs for sales, marketing, executive, legal, finance, accounting, human resources and business development personnel, allocated facilities expenses and other corporate expenses. The increase of 44% was primarily attributable to the increase in our sales force to 106 full-time employees as of March 31, 2002, compared to 53 full-time employees as of March 31, 2001. We expect this larger sales force to enable us to increase awareness of our predictive medicine business. We expect our selling, general and administrative expenses will continue to fluctuate dependent on the number and scope of new product launches and our drug discovery and development efforts.

        Cash, cash equivalents, and marketable investment securities decreased $15.1 million or 11% from $140.8 million at March 31, 2001 to $125.7 million at March 31, 2002. This decrease in cash, cash equivalents, and marketable investment securities is primarily attributable to increased expenditures for our internal drug development programs and other expenditures incurred in the ordinary course of business. As a result of the Company's decreased cash position and declining interest rates, interest income for the nine months ended March 31, 2002 was $4.4 million compared to $5.5 million for the nine months ended March 31, 2001, a decrease of 19%.

Liquidity and Capital Resources

        Net cash used in operating activities was $20.6 million during the nine months ended March 31, 2002 compared to $7.6 million used in operating activities during the same period of the prior fiscal year. Trade receivables increased $3.7 million between June 30, 2001 and March 31, 2002, primarily due to the 60% increase in predictive medicine sales during the same period. Related party receivables decreased $1.3 million between June 30, 2001 and March 31, 2002, due to reimbursement for services provided to Myriad Proteomics, Inc. Other assets increased $0.9 million between June 30, 2001 and March 31, 2002, primarily due to the acquisition of patents. Accounts payable and accrued expenses decreased by $4.4 million between June 30, 2001 and March 31, 2002, primarily as a result of payments for equipment and lab supplies that were purchased previously. Deferred revenue, representing the difference in collaborative payments received and research revenue recognized, decreased by $9.3 million between June 30, 2001 and March 31, 2002.

        Our investing activities provided cash of $40.4 million in the nine months ended March 31, 2002 and used cash of $18.6 million in the nine months ended March 31, 2001. Investing activities were comprised primarily of changes to marketable investment securities and capital expenditures for research equipment. During the nine months ended March 31, 2002, we shifted a portion of our investments from marketable investment securities to cash and cash equivalents due to changes in interest rates. During the nine months ended March 31, 2002 other assets decreased $0.6 million due to the sale of part of our investment in a privately held biotechnology company.

        Financing activities provided $2.8 million during the nine months ended March 31, 2002, due to the exercise of stock options.

        On November 9, 2002, we filed a Form S-3 shelf registration statement with the Securities and Exchange Commission for the sale of up to $250 million of various types of securities, which the SEC declared effective on November 21, 2002. The registered shares are available for sale at our discretion.

        We believe that with our existing capital resources, we will have adequate funds to maintain our current and planned operations for at least the next two years, although no assurance can be given that changes will not occur that would consume available capital resources before such time. Our future capital requirements will be substantial and will depend on many factors, including:

•

the progress of our preclinical and clinical activities;



•

the progress of our research and development programs;



•

the progress of our drug discovery and drug development programs;



•

the cost of developing and launching additional predictive medicine products;



•

the costs of filing, prosecuting and enforcing patent claims;



•

the costs associated with competing technological and market developments;



•

the payments received under collaborative agreements and changes in collaborative research relationships;



•

the costs associated with potential commercialization of our discoveries, if any, including the development of manufacturing, marketing and sales capabilities; and



•

the cost and availability of third-party financing for capital expenditures and administrative and legal expenses.

        Because of our significant long-term capital requirements, we intend to raise funds when conditions are favorable, even if we do not have an immediate need for additional capital at such time.

Effects of Inflation

        We do not believe that inflation has had a material impact on our business, sales, or operating results during the periods presented.

Quantitative and Qualitative Disclosures About Market Risk

        The Company maintains an investment portfolio in accordance with its Investment Policy. The primary objectives of the Company's Investment Policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company's Investment Policy specifies credit quality standards for the Company's investments and limits the amount of credit exposure to any single issue, issuer or type of investment.

        The Company's investments consist of securities of various types and maturities of three years or less, with a maximum average maturity of 12 months. These securities are classified either as available-for-sale or held-to-maturity. Available-for-sale securities are recorded on the balance sheet at fair market value with unrealized gains or losses reported as part of accumulated other comprehensive loss. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Gains and losses on investment security transactions are reported on the specific-identification method. Dividend and interest income are recognized when earned. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary results in a charge to earnings and establishes a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method.

        The securities held in the Company's investment portfolio are subject to interest rate risk. Changes in interest rates affect the fair market value of the available-for-sale securities. After a review of the Company's marketable securities as of March 31, 2002, the Company has determined that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair market value of the Company's marketable investment securities would be insignificant to the consolidated financial statements as a whole.

Certain Factors That May Affect Future Results of Operations

        The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this Quarterly Report, and they may also be made a part of this Quarterly Report by reference to other documents filed with the Securities and Exchange Commission, which is known as "incorporation by reference."

        Words such as "may," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, among other things: our inability to further identify, develop and achieve commercial success for new products and technologies; the possibility of delays in the research and development necessary to select drug development candidates and delays in clinical trials; the risk that clinical trials may not result in marketable products; the risk that we may be unable to successfully finance and secure regulatory approval of and market our drug candidates; our dependence upon pharmaceutical and biotechnology collaborations; the levels and timing of payments under our collaborative agreements; uncertainties about our ability to obtain new corporate collaborations and acquire new technologies on satisfactory terms, if at all; the development of competing systems; our ability to protect our proprietary technologies; patent-infringement claims; and risks of new, changing and competitive technologies and regulations in the United States and internationally.

        In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only of the date of this Quarterly Report or the date of the document incorporated by reference in this Quarterly Report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to the Company or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

PART II—Other Information

Item 1. Legal Proceedings.

        Neither the Company nor any of its subsidiaries is a party to any material legal proceedings.

Item 2. Changes in Securities and Use of Proceeds.

        None.

Item 3. Defaults Upon Senior Securities.

        None.

Item 4. Submission of Matters to a Vote of Security Holders.

        None.

Item 5. Other Information.

        None.

Item 6. Exhibits and Reports on Form 8-K.

(b)

Reports on Form 8-K

        We filed a Current Report on Form 8-K, on March 12, 2002, to disclose that we had publicly disseminated a press release announcing that we had entered into a new collaboration with Abbott Laboratories to identify novel genes and drug targets for the diagnosis and treatment of depression.

        We filed a Current Report on Form 8-K, on April 30, 2002, to disclose that we had publicly disseminated a press release announcing that we had entered into a new collaboration with DuPont to better understand the genetics that drive the proprietary products of Pioneer, a subsidiary of DuPont.

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MYRIAD GENETICS, INC.
Date: May 13, 2002	By:	/s/  PETER D. MELDRUM
		Peter D. Meldrum President and Chief Executive Officer
Date: May 13, 2002	By:	/s/  JAY M. MOYES
		Jay M. Moyes Vice President of Finance Principal financial and chief accounting officer