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 March 31, 2000
--------------
OR
[_] 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
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
320 Wakara Way, Salt Lake City, UT 84108
---------------------------------- -----
(Address of principal executive offices) (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 [X] No [_]
As of May 9, 2000 the registrant had 10,450,107 shares of $0.01 par value
common stock outstanding.
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
Page
----
PART I - Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of March 31, 2000 (unaudited) and June 30, 1999 3
Condensed Consolidated Statements of Operations for the three and nine months
ended March 31, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE(S) 15
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000
(Unaudited) June 30, 1999
-------------- -------------
Assets
------
Current assets:
Cash and cash equivalents $ 28,779,764 $ 5,404,944
Marketable investment securities 23,771,921 4,477,138
Prepaid expenses 2,832,963 622,700
Trade accounts receivables, less allowance for doubtful
accounts of $106,446 at March 31, 2000 and $73,439 at
June 30, 1999 2,037,386 1,322,950
Other receivables 209,450 1,855,696
-------------- -------------
Total current assets 57,631,484 13,683,428
-------------- -------------
Equipment and leasehold improvements:
Equipment 15,873,961 13,351,229
Leasehold improvements 3,990,968 3,520,253
-------------- -------------
19,864,929 16,871,482
Less accumulated depreciation and amortization 8,937,732 6,871,981
-------------- -------------
Net equipment and leasehold improvements 10,927,197 9,999,501
-------------- -------------
Long-term marketable investment securities 7,935,494 29,044,377
Other assets 1,374,064 823,634
-------------- -------------
$ 77,868,239 $ 53,550,940
============== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,870,149 $ 2,917,810
Accrued liabilities 2,938,338 1,754,634
Deferred revenue 15,809,163 662,760
-------------- -------------
Total current liabilities 22,617,650 5,335,204
-------------- -------------
Stockholders' equity:
Common stock, $0.01 par value, 15,000,000 shares authorized;
issued and outstanding 10,445,714 at March 31, 2000 and
9,428,732 at June 30, 1999 104,457 94,287
Additional paid-in capital 105,363,201 92,377,949
Accumulated other comprehensive loss (72,309) (68,846)
Deferred compensation (46,754) (247,774)
Accumulated deficit (50,098,006) (43,939,880)
-------------- -------------
Net stockholders' equity 55,250,589 48,215,736
-------------- -------------
$ 77,868,239 $ 53,550,940
============== =============
See accompanying notes to condensed consolidated financial statements.
3
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Mar. 31, 2000 Mar. 31, 1999 Mar. 31, 2000 Mar. 31, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Revenues:
Research revenue $ 7,287,880 $ 5,568,774 $ 18,791,397 $ 14,751,802
Molecular diagnostic
revenue 2,426,886 1,493,341 6,065,043 3,617,770
------------- ------------- ------------- -------------
Total revenues 9,714,766 7,062,115 24,856,440 18,369,572
Expenses:
Molecular diagnostic
cost of revenue 1,068,511 851,204 2,860,598 2,233,012
Research and development
expense 8,333,149 6,141,258 20,325,418 17,640,553
Selling, general and
administrative
expense 3,337,482 2,699,929 9,713,413 8,015,646
------------- ------------- ------------- -------------
Total expenses 12,739,142 9,692,391 32,899,429 27,889,211
------------- ------------- ------------- -------------
Operating loss (3,024,376) (2,630,276) (8,042,989) (9,519,639)
------------- ------------- ------------- -------------
Other income (expense):
Interest income 949,162 557,304 2,259,615 1,832,994
Interest expense -- -- -- (6,279)
Loss on disposition of
assets (14,670) (105,002) (374,752) (37,812)
------------- ------------- ------------- -------------
934,492 452,302 1,884,863 1,788,903
------------- ------------- ------------- -------------
Net loss ($2,089,884) ($2,177,974) ($6,158,126) ($7,730,736)
============= ============= ============= =============
Basic and diluted loss per
share ($0.20) ($0.23) ($0.62) ($0.82)
============= ============= ============= =============
Basic and diluted weighted
average shares
outstanding 10,341,269 9,411,901 9,964,604 9,382,013
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
-------------------------------------
Mar. 31, 2000 Mar. 31, 1999
(Unaudited) (Unaudited)
------------- -------------
Cash flows from operating activities:
Net loss ($6,158,126) ($7,730,736)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,380,404 2,459,738
Loss on disposition of assets 374,752 37,812
Bad debt expense 33,007 (35,698)
Increase in trade receivables (747,443) (744,703)
Decrease in non-trade receivables 1,646,246 32,037
Increase in prepaid expenses (2,210,263) (528,823)
Decrease (increase) in other assets (578,555) 126,563
Increase (decrease) in accounts payable
and accrued expenses 2,136,043 (1,584,926)
Increase (decrease) in deferred revenue 15,146,403 (2,325,479)
------------- -------------
Net cash provided by (used in)
operating activities 12,022,468 (10,294,215)
------------- -------------
Cash flows from investing activities:
Capital expenditures (3,453,707) (3,423,445)
Proceeds from sale of equipment -- 3,554,479
Net change in marketable investment
securities 1,810,637 3,686,248
------------- -------------
Net cash provided by (used in)
investing activities (1,643,070) 3,817,282
------------- -------------
Cash flows from financing activities:
Net payments of notes payable -- (128,843)
Net proceeds from issuance of common stock 12,995,422 345,500
------------- -------------
Net cash provided by financing
activities 12,995,422 216,657
------------- -------------
Net increase (decrease) in cash and cash
equivalents 23,374,820 (6,260,276)
Cash and cash equivalents at beginning of
period 5,404,944 14,595,034
------------- -------------
Cash and cash equivalents at end of period $ 28,779,764 $ 8,334,758
============= =============
See accompanying notes to condensed consolidated financial statements.
5
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
generally accepted accounting principles 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
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, 1999, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1999. Operating results for
the three and nine month periods ended March 31, 2000 may not necessarily
be indicative of the results to be expected for any other interim period or
for the full year.
(2) International Genetic Testing Agreements
----------------------------------------
During the current quarter the Company entered into separate license
agreements with MDS Laboratory Services, a division of MDS Inc., Rosgen
Ltd., and Falco biosystems, Ltd. to perform molecular diagnostic tests in
Canada, the UK and Ireland, and Japan, respectively. These agreements
include upfront payments to the Company totaling $3.3 million, future
license fees, plus revenue and royalties on the sale of the Company's
commercial products. Revenue from each upfront license payment will be
recognized ratably over the life of the applicable license agreement.
(3) Comprehensive Loss
------------------
The components of the Company's comprehensive loss are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31, 2000 Mar. 31, 1999 Mar. 31, 2000 Mar. 31, 1999
------------- ------------- ------------- -------------
Net loss ($2,089,884) ($2,177,974) ($6,158,126) ($7,730,736)
Unrealized gain (loss)
on available-for-sale
marketable investment
securities 13,406 33,968 (3,463) (2,039)
------------- ------------- ------------- -------------
Comprehensive loss ($2,076,478) ($2,144,006) ($6,161,589) ($7,732,775)
============= ============= ============= =============
6
(4) Net Loss Per Common and Common Equivalent 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 and common-equivalent share the net loss and
the weighted average common and common-equivalent shares outstanding were
the same for both the basic and diluted calculation.
As of March 31, 2000 and March 31, 1999, there were antidilutive potential
common shares of 1,542,893 and 1,858,918, respectively. Accordingly, these
potential common shares were not included in the computation of diluted
loss per share for the years presented, but may be dilutive to future basic
and diluted earnings per share.
(5) Segment and Related Information
-------------------------------
The Company's business units have been aggregated into two reportable
segments: (i) research and (ii) molecular diagnostics. 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 molecular diagnostics 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 loss from operations before interest income and
expense and other income and expense. The Company's assets are not
identifiable by segment.
7
Molecular
Research diagnostics Total
----------- ----------- -----------
Three months ended March 31, 2000:
Revenues $ 7,287,880 $ 2,426,886 $ 9,714,766
Depreciation and amortization 600,269 195,722 795,991
Segment operating loss 1,692,460 1,331,916 3,024,376
Three months ended March 31, 1999:
Revenues 5,568,774 1,493,341 7,062,115
Depreciation and amortization 577,945 173,898 751,843
Segment operating loss 1,297,733 1,332,543 2,630,276
Nine months ended March 31, 2000:
Revenues $18,791,397 6,065,043 24,856,440
Depreciation and amortization 1,809,643 570,761 2,380,404
Segment operating loss 3,921,021 4,121,968 8,042,989
Nine months ended March 31, 1999:
Revenues 14,751,802 3,617,770 18,369,572
Depreciation and amortization 2,006,561 579,740 2,586,301
Segment operating loss 5,040,382 4,479,257 9,519,639
(6) Recent Accounting Pronouncements
--------------------------------
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company will
incorporate the guidance of SAB 101 in the first quarter of fiscal 2001.
Management has not yet determined the impact SAB 101 may have on the
financial position or results of operations of the Company.
In March 2000 the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25 (FIN 44). The interpretation clarifies the application of
Opinion No. 25 for certain issues such as the following: (a) the definition
of employee for purposes of applying Opinion No. 25, (b) the criteria for
determining whether a plan qualifies as noncompensatory, (c) the accounting
consequence of various modifications to the terms of a previously fixed
stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Company will incorporate
FIN 44 in the first quarter of fiscal 2001. Management has not yet
determined the impact FIN 44 may have on the financial position or results
of operations of the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leader in the emerging field of genomics, proteomics and gene-based
medicine focusing on the development of therapeutic and diagnostic products. We
have developed, and will continue to expand upon, a number of proprietary
genomic and proteomic databases which permit us, through the use of our
bioinformatics and robotics technologies, to identify human genes and related
proteins that may play a role in the onset or progression of major human
diseases. We formed two wholly owned subsidiaries, Myriad Pharmaceuticals, Inc.
and Myriad Genetic Laboratories, Inc., to commercialize our therapeutic and
diagnostic discoveries. Myriad Pharmaceuticals, Inc. independently and in
conjunction with our collaborative partners, focuses on the discovery and
development of therapeutic products. Myriad Genetic Laboratories, Inc. focuses
on the development of diagnostic products that analyze a person's genetic makeup
to determine whether that person has certain genes and related proteins that we
have discovered are involved in major human diseases. This analysis allows us to
predict that person's risk of developing a specific disease and permits
physicians and their patients to take appropriate therapeutic measures to reduce
the risk.
We have devoted substantially all of our resources to maintaining our research
and development programs, supporting collaborative research agreements,
operating a molecular diagnostic laboratory, establishing genomic sequencing,
high-throughput screening, and drug discovery and development. Our revenues have
consisted primarily of payments received pursuant to collaborative research
agreements, upfront fees, milestone payments, and sales of molecular diagnostic
products. We have yet to attain profitability and, for the quarter ended March
31, 2000, we had a net loss of $2,089,884 and as of March 31, 2000 had an
accumulated deficit of $50,098,006.
In April 1995, we commenced a five-year collaborative research and development
arrangement with Novartis Corporation. The total equity investment, research
funding and potential milestone payments under this collaboration may provide us
with up to $60,000,000. The research phase of the Novartis collaboration was
concluded successfully on schedule in April 2000. We are entitled to receive
royalties from sales of therapeutic products commercialized by Novartis.
In September 1995, we commenced a five-year collaborative research and
development arrangement with Bayer Corporation. The total equity investment,
research funding and potential milestone payments under this collaboration may
provide us with up to $71,000,000. In November 1997 and again in December 1998,
we announced expansions of our collaborative research and development
arrangement with Bayer. The expanded collaboration may provide us with
additional research funding and potential milestone payments of up to
$137,000,000. We are entitled to receive milestone payments and royalties from
sales of therapeutic products commercialized by Bayer.
In October 1996, we announced the introduction of BRACAnalysis(R), a
comprehensive BRCA1 and BRCA2 gene sequence analysis for susceptibility to
breast and ovarian cancer. In January 1998, we announced the introduction of
CardiaRisk(R), which may assist physicians both in identifying which
hypertensive patients are at a significantly increased risk of developing
cardiovascular disease and identifying which patients are likely to respond to
low salt diet therapy and antihypertensive drug therapy. We, through our wholly
owned subsidiary Myriad Genetic Laboratories, Inc., recognized molecular
diagnostic revenues, primarily from BRACAnalysis(R), of $2,426,886 for the
quarter ended March 31, 2000.
In April 1997, we commenced a three-year collaborative research and development
arrangement with Schering-Plough Corporation. The total equity investment,
research funding, license fees and potential milestone payments under this
collaboration may provide us with up to $60,000,000. The research phase of the
Schering-Plough collaboration was concluded successfully on schedule in April
2000. We are entitled to receive milestone payments and royalties from sales of
therapeutic products commercialized by Schering-Plough.
In October 1998, we entered into a five-year collaboration with Schering AG to
utilize our protein interaction technology, ProNet(R), for drug discovery and
development. Under the agreement, we will have an option to co-promote all new
therapeutic products in North America and receive 50% of the profits from North
American sales of
9
all new drugs discovered with ProNet(R). The total research funding, license
fees, subscription fees, option payments and potential milestone payments under
this collaboration may provide us with up to $51,000,000. If we choose to co-
promote a drug developed by Schering AG as a 50% partner, we may be required to
pay funds to Schering AG to establish equal ownership.
In November 1998, we entered into a 15 month collaboration with Monsanto Company
to utilize ProNet(R) for drug discovery and development. In December 1999,
Monsanto exercised its option to extend the research term for an additional 12
months and exercised its option to expand the research funding. The total
research funding, option payments, license fees and potential milestone payments
under this collaboration may provide us with up to $28,000,000. We are entitled
to receive milestone payments and royalties from sales of therapeutic products
commercialized by Monsanto.
In July 1999, we entered into a two-year collaboration and license agreement
with the Novartis Agricultural Discovery Institute, Inc. The genomic
collaboration will focus on the discovery of the genetic structure of cereal
crops. The total upfront payment and research funding under this collaboration
may provide us with up to $33,500,000. Upon completion, we intend to jointly
offer with NADII commercial access to the genomic databases and share equally in
any resulting proceeds.
In October 1999, we announced the expansion of our collaboration with Schering
AG to include research in the field of cardiovascular disease. We also entered
into a Securities Purchase Agreement and a Standstill Agreement with Schering
Berlin Venture Corporation to sell to Schering Berlin 303,030 shares of our
common stock for an aggregate purchase price of $5,000,000.
In December 1999, we entered into a 12 month collaboration with Hoffmann-LaRoche
Inc. to utilize ProNet(R) for drug discovery and development in the area of
cardiovascular disease. The total research funding, license fees and potential
milestone payments under this collaboration may provide us with up to
$13,000,000. We are entitled to receive milestone payments and royalties from
sales of therapeutic products commercialized by Roche.
During the current quarter we entered into separate license agreements with MDS
Laboratory Services, a division of MDS Inc., Rosgen Ltd., and Falco biosystems,
Ltd. to perform molecular diagnostic tests in Canada, the UK and Ireland, and
Japan, respectively. These agreements include upfront payments to us totaling
$3.3 million, future license fees, plus revenue and royalties on the sale of our
commercial products.
We intend to enter into additional collaborative relationships to locate and
sequence genes and discover protein networks associated with other common
diseases as well as to continue to fund internal research projects. We may be
unable to enter into additional collaborative relationships on terms acceptable
to us. 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, increased staffing costs and expansion of our
facilities. However, we cannot be sure that we will ever be profitable.
Additionally, we expect to incur substantial sales, marketing and other expenses
in connection with building our molecular diagnostic business. We expect that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial.
Results of Operations for the Three Months Ended March 31, 2000 and 1999
Research revenues for the quarter ended March 31, 2000 were $7,287,880 as
compared to $5,568,774 for the same quarter of 1999. The increase in research
revenue is primarily attributable to revenue recognized from the NADII
collaboration which began in July 1999. Research revenue from the research
collaboration agreements is recognized as related costs are incurred.
Consequently, as these programs progress and costs increase or decrease,
revenues increase or decrease proportionately.
Molecular diagnostic revenues of $2,426,886 were recognized in the quarter ended
March 31, 2000, an increase of 63% or $933,545 over the same quarter of the
prior year. Molecular diagnostic revenue is comprised of sales of molecular
diagnostic tests. The Company's sales and marketing efforts have given rise to
increased testing volume, resulting in increased revenues for the quarter ended
March 31, 2000. There can be no assurance, however, that
10
molecular diagnostic revenues will continue to increase at the historical rate,
if at all.
Research and development expenses for the quarter ended March 31, 2000 were
$8,333,149 as compared to $6,141,258 for the same quarter in 1999. This
increase was primarily due to an increase in research activities as a result of
the Company's recent collaboration with NADII. The increased level of research
spending also includes the ongoing drug discovery efforts of Myriad
Pharmaceuticals, a wholly-owned subsidiary, continuing development and
utilization of ProNet(R), and third-party sponsored research programs.
Selling, general and administrative expenses for the quarter ended March 31,
2000 were $3,337,482 as compared to $2,699,929 for the same quarter in 1999.
The increase was primarily attributable to costs associated with ongoing
promotion of the molecular diagnostic business, the establishment of
international license agreements, and the related costs of increasing
infrastructure to support increased diagnostic testing volumes. The Company
expects its selling, general and administrative expenses will continue to
fluctuate as needed in support of its molecular diagnostic business and its
research and drug development efforts.
Cash, cash equivalents, and marketable investment securities were $60,487,179 at
March 31, 2000 as compared to $43,142,451 at March 31, 1999. This increase in
cash, cash equivalents, and investments is primarily attributable to the private
sale of approximately $10,000,000 worth of the Company's Common Stock, as well
as the receipt of advance payments from the Company's collaborators. These cash
receipts were offset by expenditures incurred in the ordinary course of
business. As a result of the Company's increased cash position, interest income
for the quarter ended March 31, 2000 was $949,162 compared to $557,304 for the
same quarter in 1999. The loss on disposition of assets of $14,670 in the
quarter ended March 31, 2000 is the result of the Company retiring unproductive
assets.
Results of Operations for the Nine Months Ended March 31, 2000 and 1999
Research revenues for the nine months ended March 31, 2000 were $18,791,397
compared to $14,751,802 for the same period of 1999. The increase in research
revenue is primarily attributable to revenue recognized from the NADII
collaboration which began in July 1999. Research revenue from the research
collaboration agreements is recognized as related costs are incurred.
Consequently, as these programs progress and costs increase or decrease,
revenues increase or decrease proportionately.
Molecular diagnostic revenues of $6,065,043 were recognized in the nine months
ended March 31, 2000, an increase of 68% or $2,447,273 over the same nine month
period of 1999. Molecular diagnostic revenue is comprised of sales of
diagnostic tests. The Company's sales and marketing efforts have given rise to
increased testing volume, resulting in increased revenues for the nine months
ended March 31, 2000. There can be no assurance, however that molecular
diagnostic revenues will continue to increase at the historical rate, if at all.
Research and development expenses for the nine months ended March 31, 2000 were
$20,325,418 compared to $17,640,553 for the same period in the prior year. This
increase was primarily due to an increase in research activities as a result of
the Company's recent collaboration with NADII. The increased level of research
spending also includes the ongoing drug discovery efforts of Myriad
Pharmaceuticals, a wholly-owned subsidiary, continuing development and
utilization of ProNet(R), and third-party sponsored research programs.
Selling, general and administrative expenses for the nine months ended March 31,
2000 were $9,713,413 compared to $8,015,646 for the same period in the prior
year. The increase was primarily attributable to costs associated with ongoing
promotion of the molecular diagnostic business, the establishment of
international license agreements, and the related costs of increasing
infrastructure to support increased diagnostic testing volumes. The Company
expects its selling, general and administrative expenses will continue to
fluctuate as needed in support of its molecular diagnostic business and its
research and drug development efforts.
Cash, cash equivalents, and marketable investment securities were $60,487,179 at
March 31, 2000 as compared to $43,142,451 at March 31, 1999. This increase in
cash, cash equivalents, and investments is primarily attributable to the private
sale of approximately $10,000,000 worth of the Company's Common Stock in October
of 1999, as well as the receipt of advance payments from the Company's
collaborators throughout the nine months ended March
11
31, 2000. These cash receipts were offset by expenditures incurred in the
ordinary course of business. As a result of the Company's increased cash
position, interest income for the nine months ended March 31, 2000 was
$2,259,615 compared to $1,832,994 for the nine month period ended March 31,
1999. Interest expense for the nine months ended March 31, 1999 of $6,279 was
due entirely to borrowings under the Company's equipment financing facility. The
loss on disposition of assets of $374,752 in the nine months ended March 31,
2000 is primarily the result of the Company retiring unproductive assets.
Liquidity and Capital Resources
Net cash provided by operating activities was $12,022,468 during the nine months
ended March 31, 2000 compared to $10,294,215 used in operating activities during
the same period of the prior fiscal year. Trade receivables for the nine months
ended March 31, 2000 increased $747,443. This increase is primarily
attributable to the 68% increase in genetic testing revenue for the nine month
period ended March 31, 2000 as compared to testing revenue for the nine month
period ended March 31, 1999. Other receivables decreased $1,646,246 for the
nine months ended March 31, 2000 primarily as a result of the receipt of
collaborative partner payments for research work performed in prior periods.
Prepaid expenses increased by $2,210,263 during the nine months ended March 31,
2000. The increase is primarily due to advance payments to purchase lab
supplies at a discount. Accounts payable and accrued expenses increased by
$2,136,043, primarily as a result of laboratory supplies and equipment which
were received by the Company in March 2000 but not paid for until after March
31, 2000. Deferred revenue, representing the difference in collaborative
payments received and research revenue recognized, increased by $15,146,403
during the nine months ended March 31, 2000 in large part due to an upfront
payment by NADII and license fees received from new molecular diagnostic license
agreements.
The Company's investing activities used cash of $1,643,070 in the nine months
ended March 31, 2000 and provided cash of $3,817,282 in the nine months ended
March 31, 1999. Investing activities were comprised primarily of capital
expenditures for research equipment, office furniture, and facility improvements
and changes to marketable investment securities. During the nine months ended
March 31, 2000, the Company shifted a portion of its investment in marketable
securities from longer term investments to cash and cash equivalents in order to
take advantage of anticipated favorable interest rates.
Financing activities provided $12,995,422 during the nine months ended March 31,
2000. Proceeds were recognized from two separate financings during the period.
In September 1999, the Company entered into a Subscription Agreement pursuant to
which the Company sold 355,000 shares of the Company's unregistered Common
Stock, $.01 par value per share (the "Shares") for a purchase price of
$4,987,750. The Company has no obligation to register the Shares with the
Securities and Exchange Commission. In conjunction with the Subscription
Agreement, the Company issued a 3-year warrant to purchase an additional 17,750
Shares at a premium of 10%. In October 1999, the Company entered into a
Securities Purchase Agreement and a Standstill Agreement with Schering Berlin to
sell to Schering Berlin 303,030 Shares. Schering Berlin agreed to acquire the
Shares for an aggregate purchase price of $5,000,000. Additional cash was
provided from the exercise of stock options during the nine months ended March
31, 2000.
The Company anticipates that its existing capital resources 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 and drug
discovery and drug development programs; the cost of developing and launching
additional molecular diagnostic tests; results and costs of clinical correlation
testing of the Company's molecular diagnostic tests; the costs of filing,
prosecuting and enforcing patent claims; competing technological and market
developments; payments received under collaborative agreements and 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.
12
Impact of the Year 2000 Issue
The Year 2000 Issue arose because many computer programs use a two-digit format,
as opposed to four digits, to indicate the year. Any of our computer programs or
other information systems may recognize a date using ''00'' as the year 1900
rather than the year 2000, which could result in a system failure or
miscalculations causing disruptions of our operations. We completed our Year
2000 readiness testing during 1999. Testing was performed on all of our critical
systems and any necessary modifications have taken place. Where possible, third-
party certification of Year 2000 readiness was obtained on systems we purchased.
Third-party systems that were not certified by the supplier were tested
internally or upgraded to compliant versions. We have received assurances from
our significant suppliers and customers that they are Year 2000 ready. We have
not experienced any significant Year 2000 problems, either before or after
December 31, 1999.
Certain Factors That May Affect Future Results of Operations
Some of the matters discussed in this report include forward-looking statements.
In some cases you can identify forward-looking statements by terminology such as
"may", "will", "should", "potential", "continue", "expects", "anticipates",
"intends", "plans", "believes", "estimates", and similar expressions. We have
based these forward-looking statements on our current expectations and
projections about future events. We caution investors that actual results may
vary significantly and are subject to a number of factors and uncertainties,
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 we 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; our limited experience
in operating a genetic testing laboratory; our limited marketing and sales
experience and the risk that tests which we have or may develop may not be
marketed at acceptable prices or receive commercial acceptance in the markets
that we are targeting or expect to target; uncertainty as to whether there will
exist adequate reimbursement for our services from government, private
healthcare insurers and third-party payors; uncertainties as to the extent of
future government regulation of our business; uncertainties as to whether we and
our collaborators will be successful in developing and obtaining regulatory
approval for, and commercial acceptance of, therapeutics based on the discovery
of disease-related genes and proteins; uncertainties as to our ability to
develop therapeutic lead compounds, which is a new business area for us; and the
risk that markets will not exist for therapeutic lead compounds that we develop
or if such markets exist, that we will not be able to sell compounds which we
develop at acceptable prices.
These forward-looking statements are made as of the date of this report, and we
assume no obligation to update them or to explain the reasons why actual results
may differ. In light of these assumptions, risks, and uncertainties, the
results and events discussed in the forward-looking statements contained in this
report might not occur.
13
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities.
(c) Sales of Unregistered Securities
--------------------------------
During the three months ended March 31, 2000, the Company issued a total of
19,714 shares of Common Stock to consultants of the Company pursuant to the
exercise of stock options at a weighted average price of $2.44 per share, for
aggregate proceeds of $48,167. During the same period, the Company issued a
total of 22,403 shares of Common Stock to holders of warrants issued to Trautman
Kramer & Company and Freidli Corporate Finance, the placement agents for the
Company's 1995 private placement of Series B convertible Preferred Stock, at a
weighted average exercise price of $14.09 per share, for aggregate proceeds of
$315,700.
No person acted as an underwriter with respect to the transactions set forth
above. In each of the foregoing instances, the Company relied on Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act") or Rule 701
promulgated under the Securities Act for the exemption from the registration
requirements of the Securities Act, since no public offerings were involved.
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
- ------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
14
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 9, 2000 By: /s/ Peter D. Meldrum
----------- ----------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: May 9, 2000 /s/ Jay M. Moyes
----------- --------------------------------------
Jay M. Moyes
Vice President of Finance
(principal financial and chief
accounting officer)
15
MYRIAD GENETICS, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule