UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
[ ] 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
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MYRIAD GENETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0494517
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
320 Wakara Way, Salt Lake City, UT 84108
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 584-3600
390 Wakara Way, Salt Lake City, Utah
------------------------------------
(Former address, if changed since last report)
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 [X] No [ ]
As of November 5, 1996, the registrant had 8,730,725 shares of common
stock outstanding.
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
Page
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PART I - Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet as of
September 30, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations for
the three months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for
the three months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE(S) 12
2
MYRIAD GENETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, 1996
(Unaudited) June 30, 1996
---------------- ---------------
Assets
------
Current assets:
Cash and cash equivalents $ 14,844,580 $ 13,235,680
Marketable investment securities 37,202,471 37,212,454
Non trade receivables 16,987 79,066
Prepaid expenses 96,478 88,423
--------------- --------------
Total current assets 52,160,516 50,615,623
--------------- --------------
Equipment and leasehold improvements:
Equipment 10,682,763 9,097,484
Leasehold improvements 893,224 863,306
Construction in progress 810,108 810,108
--------------- --------------
12,386,095 10,770,898
Less accumulated depreciation and
amortization 1,739,501 1,375,366
--------------- --------------
Net equipment and leasehold
improvements 10,646,594 9,395,532
Long-term marketable investment securities 14,781,997 19,554,646
Other assets 41,668 41,696
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$ 77,630,775 $ 79,607,497
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,498,770 $ 2,193,285
Accrued liabilities 943,145 786,791
Deferred revenue 5,905,595 5,661,376
Current portion of notes payable 316,860 308,658
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Total current liabilities 9,664,370 8,950,110
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Notes payable, less current portion 389,252 471,640
Stockholders' equity
Common stock, $0.01 par value, 15,000,000
shares authorized; issued and outstanding
8,726,498 shares on September 30, 1996 and
8,702,215 shares on June 30, 1996 87,265 87,022
Additional paid-in capital 87,040,930 87,015,215
Fair value adjustment on available-for-sale
marketable investment securities (4,971) (67,865)
Deferred compensation (1,774,880) (1,907,513)
Accumulated deficit (17,771,191) (14,941,112)
--------------- --------------
Net stockholders' equity 67,577,153 70,185,747
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$ 77,630,775 $ 79,607,497
=============== ==============
See accompanying notes to condensed consolidated financial statements.
3
MYRIAD GENETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
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Sept. 30, 1996 Sept. 30, 1995
(Unaudited) (Unaudited)
--------------- ---------------
Research revenue $ 2,195,781 $ 1,012,900
Expenses:
Research and development expense 4,094,743 2,381,159
Selling, general and administrative expense 1,759,959 408,186
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Total expenses 5,854,702 2,789,345
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Operating loss (3,658,921) (1,776,445)
Other income (expense):
Interest income 848,494 275,223
Interest expense (19,652) (27,045)
Loss on sale of fixed assets - (74,636)
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828,842 173,542
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Net loss ($2,830,079) ($1,602,903)
=============== ===============
Net loss per share ($0.32) ($0.32)
=============== ===============
Weighted average shares outstanding 8,712,829 5,067,328
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
------------------
Sept. 30, 1996 Sept. 30, 1995
(Unaudited) (Unaudited)
--------------- ---------------
Cash flows from operating activities:
Net loss ($2,830,079) ($1,602,903)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 496,768 445,705
Decrease (increase) in non-trade receivables 62,079 (1,306,343)
Increase in other assets (8,027) (138,470)
Increase (decrease) in accounts payable
and accrued expense 461,839 (473,524)
Increase in deferred revenue 244,219 1,550,000
--------------- ---------------
Net cash used in operating activities (1,573,201) (1,525,535)
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Cash flows from investing activities:
Capital expenditures (1,615,197) (460,705)
Net change in marketable investment
securities 4,845,526 (12,638,301)
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Net cash provided by (used in)
investing activities 3,230,329 (13,099,006)
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Cash flows from financing activities:
Net payments of notes payable (74,186) (66,793)
Net proceeds from issuance of common stock 25,958 -
Net proceeds from issuance of preferred stock - 9,982,723
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Net cash (used in) provided by
financing activities (48,228) 9,915,930
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Net increase (decrease) in cash and cash
equivalents 1,608,900 (4,708,611)
Cash and cash equivalents at beginning of
period 13,235,680 11,885,736
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Cash and cash equivalents at end of period $ 14,844,580 $ 7,177,125
=============== ===============
See accompanying notes to condensed consolidated financial statements.
5
MYRIAD GENETICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed unaudited consolidated financial statements
have been prepared by Myriad Genetics, Inc. (the "Company") in
accordance with generally accepted accounting principles for interim
financial information and pursuant to the applicable rules and
regulations of the Securities and Exchange Commission. The condensed
unaudited consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All material 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, 1996, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1996. Operating
results for the three-month period ended September 30, 1996 may not
necessarily be indicative of the results to be expected for any other
interim period or for the full year.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since inception, the Company has devoted substantially all of its resources to
maintaining its research and development programs, establishing a genetic
testing laboratory, and supporting collaborative research agreements. To date,
the Company has not received any revenues from the sale of products. Revenues
received by the Company primarily have been payments pursuant to collaborative
research agreements. The Company has been unprofitable since its inception and,
for the quarter ended September 30, 1996, the Company had a net loss of
$2,830,079 and as of September 30, 1996 had an accumulated deficit of
$17,771,191.
In August 1995, the Company completed a three-year collaborative research and
development agreement with Eli Lilly and Company to locate and sequence the
BRCA1 breast and ovarian cancer gene. This agreement provided the Company with
research funding and may in the future provide certain additional payments upon
the attainment of research and regulatory milestones and royalty payments based
on sales of any products resulting from the collaboration. The Company did not
recognize revenue from this agreement during the quarter ended September 30,
1996.
In April 1995, the Company commenced a five-year collaborative research and
development arrangement with Ciba-Geigy Corporation ("Ciba"). This
collaboration provides the Company with an equity investment, research funding
and potential milestone payments totalling $60,000,000. The Company is entitled
to receive royalties from sales of therapeutic products sold by Ciba. The
Company recognized $1,085,069 in revenue under this agreement for the quarter
ended September 30, 1996.
In September 1995, the Company commenced a five-year collaborative research and
development arrangement with Bayer Corporation ("Bayer"). This collaboration
provides the Company with an equity investment, research funding and potential
milestone payments of up to $71,000,000. The Company is entitled to receive
royalties from sales of therapeutic products sold by Bayer. The Company
recognized $1,170,712 in revenue under this agreement for the quarter ended
September 30, 1996.
The Company intends to enter into additional collaborative relationships to
locate and sequence genes associated with other common diseases as well as
continuing to fund internal research projects. There can be no assurance that
the Company will be able to enter into additional collaborative relationships on
terms acceptable to the Company. The Company expects to incur losses for at
least the next several years, primarily due to expansion of its research and
development programs, increasing staffing costs and expansion of its facilities.
Additionally, the Company expects to incur substantial sales, marketing and
other expenses in connection with launching its genetic predisposition testing
business. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial.
The Company devoted significant resources during the quarter to the beta testing
and validation of the Company's BRACAnalysis/TM/ genetic predisposition test for
mutations of the BRCA1 and BRCA2 breast and ovarian cancer genes, as well as
building its sales and marketing force in preparation for the commercial launch
of the test. The Company announced the commercial launch of BRACAnalysis/TM/ on
October 30, 1996. There can be no assurance that the Company will succeed in
achieving market acceptance for the BRACAnalysis/TM/ test.
Results of Operations
Three Months Ended September 30, 1996 and 1995
Research revenues for the quarter ended September 30, 1996 increased $1,182,881
from the same quarter of 1995. The increase was attributable to a full quarter
of both the Ciba and Bayer research collaboration agreements providing ongoing
research funding in 1996. For the first fiscal quarter in 1995, both research
collaboration agreements were in their start-up phase. Research revenue from
the research collaboration agreements is recognized as related costs are
incurred.
7
Research and development expenses for the quarter ended September 30, 1996
increased to $4,094,743 from $2,381,159 for the same quarter of 1995. This
increase was primarily due to an increase in third party research programs
funded by the Company, increased depreciation charges due to the purchase of
additional equipment, the hiring of additional personnel and the increased use
of laboratory supplies and reagents to meet the demands of the additional
research collaboration agreements. The Company also incurred increased
development expenses during the quarter related to the beta testing and
validation of the Company's BRACAnalysis/TM/ genetic predisposition test for
mutations of the BRCA1 and BRCA2 breast and ovarian cancer genes. When the
BRCA1 and BRCA2 test moves from the development stage to production, the Company
expects research and development expenses to decrease as expenses related to the
test are classified as cost of sales. There can be no assurance that the
Company will be able to produce the test in a timely fashion or at acceptable
quality levels and prices.
Selling, general and administrative expenses for the quarter ended September 30,
1996 increased $1,351,773 from the same quarter of 1995. The increase was
attributable to additional administrative, marketing and education personnel,
market research activities, education material development, facilities-related
costs and deferred compensation related to grants of stock options and warrants.
The Company expects its general and administrative expenses will continue to
increase in support of its research and development efforts and genetic
predisposition testing business.
Interest income for the quarter ended September 30, 1996 increased to $848,494
from $275,223 for the same quarter of 1995. This increase was primarily due to
the increased funds available for investment, which funds were raised in the
Company's initial public offering in October 1995, and in connection with
entering into the Company's research and development collaborations with Ciba
and Bayer in April 1995 and September 1995, respectively. Interest expense for
the quarter ended September 30, 1996, amounting to $19,652, was due entirely to
borrowings under the Company's equipment financing facility, which are secured
by equipment and have a repayment term of 48 months from the date of funding.
The net loss increased to $2,830,079 for the quarter ended September 30, 1996
from $1,602,903 for the same quarter in 1995.
Liquidity and Capital Resources
Net cash used in operating activities was $1,573,201 during the quarter ended
September 30, 1996 and $1,525,535 during the same quarter of 1995. Non-trade
receivables decreased $62,079 between June 30, 1996 and September 30, 1996
primarily as a result of the write-off an uncollectable receivable. Accounts
payable and accrued expenses increased $461,839 between June 30, 1996 and
September 30, 1996 as a result of the Company's purchase during the quarter of
equipment to be installed in the Company's new genetic testing facility.
The Company's investing activities provided cash of $3,230,329 in the three
months ended September 30, 1996 and used cash of $13,099,006 in the three months
ended September 30, 1995. Investing activities in the quarter ended September
30, 1996 were comprised primarily of capital expenditures for research
equipment, office furniture, and facility improvements and reinvestment of
marketable investment securities from long-term investments to short-term cash
equivalents. During the quarter ended September 30, 1995, the Company had
shifted its investment in marketable securities from short-term cash equivalents
to long-term investments.
Financing activities used $48,228 during the quarter ended September 30, 1996.
The Company reduced the principal on its equipment financing facility by
$74,186. This decrease was offset by proceeds of $25,958 from the exercise of
stock options. Financing activities provided $9,915,930 during the quarter
ended September 30, 1995. The Company reduced the principal on its equipment
financing facility by $66,793 and received an equity investment of approximately
$10,000,000 from Bayer during that time.
The Company anticipates that its existing capital resources, including the net
proceeds of its initial public offering and interest earned thereon, will be
adequate to maintain its 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. The Company's
future capital requirements will be substantial and will depend on many factors,
including progress of the Company's research and development programs, the
results and cost of clinical correlation testing of the Company's genetic tests,
the costs of filing, prosecuting and enforcing patent claims, competing
8
technological and market developments, payments received under collaborative
agreements, changes in collaborative research relationships, the costs
associated with potential commercialization of its gene discoveries, if any,
including the development of manufacturing, marketing and sales capabilities,
the cost and availability of third-party financing for capital expenditures and
administrative and legal expenses. Because of the Company's significant long-
term capital requirements, the Company intends to raise funds when conditions
are favorable, even if it does not have an immediate need for additional capital
at such time.
Certain Factors That May Affect Future Results of Operations
The Company believes that this report on Form 10-Q contains certain forward-
looking statements as that term is defined in the Private Securities Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties which
could cause actual results to differ materially from those described in the
forward-looking statements. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including, but not limited to, the following: intense
competition related to the discovery of disease-related genes and the
possibility that others may discover, and the Company may not be able to gain
rights with respect to, genes important to the establishment of a successful
genetic testing business, difficulties inherent in developing genetic tests once
genes have been discovered; the Company's limited experience in developing a
genetic testing laboratory; the Company's limited marketing and sales experience
and the risk that any tests which the Company develops may not be able to be
marketed at acceptable prices or receive commercial acceptance in the markets
that the Company expects to target; uncertainty as to whether there will exist
adequate reimbursement for the Company's services from government, private
healthcare insurers and third-party payors; and uncertainties as to the extent
of future government regulation of the Company's business. As a result, the
Company's future development efforts involve a high degree of risk. For further
information, refer to the more specific risks and uncertainties disclosed
throughout this Quarterly Report on Form 10-Q.
9
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any litigation in any court, and management is not
aware of any contemplated proceeding by any governmental authority against the
Company.
Item 2. Changes in Securities.
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.
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q.
Exhibit
Number Description
- ------ -----------
10.1 Patent and Technology License Agreement dated September 26, 1996
among the Board of Regents of The University of Texas System, The
University of Texas M.D. Anderson Cancer Center and the Company. The
Company has excluded from this Exhibit 10.1 portions of the Patent
and Technology License Agreement for which the Company has requested
confidential treatment from the Securities and Exchange Commission.
The portions of the Patent and Technology License Agreement for
which confidential treatment has been requested are marked "[ ]" and
such confidential portions have been filed separately with the
Securities and Exchange Commission.
10.2 Lease Agreement, dated October 12, 1995, between The Boyer Research
Park Associates V, by its general partner, The Boyer Company and
the Company.
10.3 Amendment to Lease Agreement, dated March 29, 1996, between The
Boyer Research Park Associates V, by its general partner, The Boyer
Company and the Company.
10.4 Letter Agreement, dated March 4, 1996, among The University of Utah,
Genetic Epidemiology and the Company regarding Extension of Standard
Research Agreement and Form of License Agreement between the Company
and The University of Utah, effective January 1, 1993, as amended
(Genes Predisposing to Cancer). The Company has omitted from this
Exhibit 10.4 portions of the Letter Agreement for which the Company
has requested confidential treatment from the Securities and
Exchange Commission. The portions of the Letter Agreement for which
confidential treatment has been requested are marked "[ ]" and such
confidential portions have been filed separately with the Securities
and Exchange Commission.
10
11.1 Statement Regarding Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
11
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: November 8, 1996 By: /s/ Peter D. Meldrum
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Peter D. Meldrum
President and Chief Executive Officer
Date: November 8, 1996 /s/ Jay M. Moyes
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Jay M. Moyes
Vice President of Finance
(principal financial and accounting officer)
12
MYRIAD GENETICS, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Patent and Technology License Agreement dated September 26, 1996
among the Board of Regents of The University of Texas System, The
University of Texas M.D. Anderson Cancer Center and the Company. The
Company has excluded from this Exhibit 10.1 portions of the Patent
and Technology License Agreement for which the Company has requested
confidential treatment from the Securities and Exchange Commission.
The portions of the Patent and Technology License Agreement for
which confidential treatment has been requested are marked "[ ]" and
such confidential portions have been filed separately with the
Securities and Exchange Commission.
10.2 Lease Agreement, dated October 12, 1995, between The Boyer Research
Park Associates V, by its general partner, The Boyer Company L.P.
and the Company.
10.3 Amendment to Lease Agreement, dated March 29, 1996, between The
Boyer Research Park Associates V, by its general partner, The Boyer
Company L.P. and the Company.
10.4 Letter Agreement, dated March 4, 1996, among The University of Utah,
Genetic Epidemiology and the Company regarding Extension of Standard
Research Agreement and Form of License Agreement between the Company
and The University of Utah, effective January 1, 1993, as amended
(Genes Predisposing to Cancer). The Company has omitted from this
Exhibit 10.4 portions of the Letter Agreement for which the Company
has requested confidential treatment from the Securities and
Exchange Commission. The portions of the Letter Agreement for which
confidential treatment has been requested are marked "[ ]" and such
confidential portions have been filed separately with the Securities
and Exchange Commission.
11.1 Statement Regarding Computation of Net Loss Per Share
27.1 Financial Data Schedule
13