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, 2001
--------------
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 11, 2001 the registrant had 23,265,453 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, 2001
(unaudited) and June 30, 2000 3
Condensed Consolidated Statements of Operations for the three
and nine months ended March 31, 2001 and 2000 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2001 and 2000 (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
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE(S) 17
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2001 June 30, 2000
-------------------- --------------------
Assets
------
Current assets:
Cash and cash equivalents $ 96,201,023 $ 56,214,736
Marketable investment securities 31,851,402 24,286,955
Trade accounts receivables, less allowance for
doubtful accounts of $245,000 at March 31, 2001
and $145,000 at June 30, 2000 3,505,557 2,352,154
Prepaid expenses 1,635,360 2,678,984
Other receivables 277,655 398,947
--------------------- ---------------------
Total current assets 133,470,997 85,931,776
--------------------- ---------------------
Equipment and leasehold improvements:
Equipment 20,636,181 16,965,545
Leasehold improvements 3,485,680 4,005,729
--------------------- ---------------------
24,121,861 20,971,274
Less accumulated depreciation and amortization 11,606,467 9,719,556
--------------------- ---------------------
Net equipment and leasehold improvements 12,515,394 11,251,718
Long-term marketable investment securities 12,778,982 8,154,153
Other assets 3,479,846 1,037,658
--------------------- ---------------------
$162,245,219 $106,375,305
===================== =====================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,421,861 $ 4,262,359
Accrued liabilities 2,937,437 4,905,857
Deferred revenue 14,654,552 19,500,442
--------------------- ---------------------
Total current liabilities 23,013,850 28,668,658
Stockholders' equity:
Common stock, $0.01 par value, 60,000,000 shares
authorized; issued and outstanding 23,260,811 at
March 31, 2001 and 21,866,482 at June 30, 2000 232,608 218,666
Additional paid-in capital 196,385,286 130,235,403
Accumulated other comprehensive income (loss) 263,409 (85,440)
Accumulated deficit (57,649,934) (52,661,982)
--------------------- ---------------------
Total stockholders' equity 139,231,369 77,706,647
--------------------- ---------------------
$162,245,219 $106,375,305
===================== =====================
See accompanying notes to condensed consolidated financial statements.
3
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended March 31, Nine months Ended March 31,
----------------------------------------------- -----------------------------------------
2001 2000 2001 2000
------------------- ------------------- ------------------ --------------------
Revenues:
Research revenue $ 6,652,289 $ 7,287,880 $ 22,409,558 $ 18,791,397
Predictive medicine revenue 4,914,950 2,426,886 11,930,856 6,065,043
------------------- ------------------- ------------------ --------------------
Total revenues 11,567,239 9,714,766 34,340,414 24,856,440
Costs and expenses:
Predictive medicine cost of
revenue 2,149,029 1,068,511 5,181,389 2,860,598
Research and development
expense 8,428,402 8,333,149 26,570,236 20,325,418
Selling, general and
administrative expense 4,247,554 3,337,482 12,271,188 9,713,413
------------------- ------------------- ------------------ --------------------
Total expenses 14,824,985 12,739,142 44,022,813 32,899,429
------------------- ------------------- ------------------ --------------------
Operating loss (3,257,746) (3,024,376) (9,682,399) (8,042,989)
Other income (expense):
Interest income 2,057,167 949,162 5,477,560 2,259,615
Other (27,465) (14,670) (283,113) (374,752)
------------------- ------------------- ------------------ --------------------
Net loss before taxes (1,228,044) (2,089,884) (4,487,952) (6,158,126)
Income taxes 500,000 -- 500,000 --
------------------- ------------------- ------------------ --------------------
Net loss ($1,728,044)) ($2,089,884) ($4,987,952) ($6,158,126)
=================== =================== ================== ====================
Basic and diluted loss per share ($0.07) ($0.10) ($0.22) ($0.31)
=================== =================== ================== ====================
Basic and diluted weighted
average shares outstanding 23,219,841 20,682,538 22,646,020 19,929,208
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Ended
------------------------------------------------
(Unaudited) (Unaudited)
March 31, 2001 March 31, 2000
-------------------- ---------------------
Cash flows from operating activities:
Net loss ($4,987,952) ($6,158,126)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,735,937 2,380,404
Loss on disposition of assets 283,113 374,752
Bad debt expense 100,000 33,007
Increase in trade receivables (1,253,403) (747,443)
Decrease in other receivables 121,292 1,646,246
(Increase) decrease in prepaid expenses 1,043,624 (2,210,263)
Increase in other assets -- (578,555)
Increase (decrease) in accounts payable and
accrued expenses (808,918) 2,136,043
Increase (decrease) in deferred revenue (4,845,890) 15,146,403
-------------------- ---------------------
Net cash provided by (used in) operating
activities (7,612,197) 12,022,468
-------------------- ---------------------
Cash flows from investing activities:
Capital expenditures (4,024,914) (3,453,707)
Investment in pharmaceutical company (2,700,000) --
Net purchases/sales of marketable investment
securities (12,189,276) 1,810,637
-------------------- ---------------------
Net cash used in investing activities (18,565,341) (1,643,070)
-------------------- ---------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 66,163,825 12,995,422
-------------------- ---------------------
Net cash provided by financing activities 66,163,825 12,995,422
-------------------- ---------------------
Net increase in cash and cash equivalents 39,986,287 23,374,820
Cash and cash equivalents at beginning of period 56,214,736 5,404,944
-------------------- ---------------------
Cash and cash equivalents at end of period $ 96,201,023 $ 28,779,764
===================== ====================
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
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, 2000, included in the Company's Annual
Report on Form 10-K and Amendment No. 1 to Form 10-K on Form 10-K/A for the
year ended June 30, 2000. Operating results for the three and nine month
periods ended March 31, 2001 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 March 31, Nine months Ended March 31,
-------------------------------------------- ------------------------------------------
2001 2000 2001 2000
------------------- ------------------- ------------------- -------------------
Net loss ($1,728,044) ($2,089,884) ($4,987,952) ($6,158,126)
Unrealized gain (loss) on
available-for-sale securities 198,779 13,406 348,849 (3,463)
------------------- ------------------- ------------------- -------------------
Comprehensive loss ($1,529,265) ($2,076,478) ($4,639,103) ($6,161,589)
=================== =================== =================== ===================
(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.
6
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, 2001 and 2000, there were antidilutive potential common
shares of 3,942,576 and 3,085,786, 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.
Predictive
Research medicine Total
--------------------- ------------------- ----------------
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
Three months ended Mar. 31, 2000:
Revenues 7,287,880 2,426,886 9,714,766
Depreciation and amortization 600,269 195,722 795,991
Segment operating loss 1,642,460 1,331,916 3,024,376
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
Nine months ended Mar. 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
7
Three Months Ended Nine months Ended
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Mar. 31, 2001 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2000
------------------ ----------------- ----------------- ------------------
Total operating loss for
reportable segments ($3,257,746) ($3,024,376) ($9,682,399) ($8,042,989)
Interest income 2,057,167 949,162 5,477,560 2,259,615
Other (27,465) (14,670) (283,113) (374,752)
Taxes (500,000) - (500,000) -
------------------- ------------------ ------------------ -------------------
Net loss ($1,728,044) ($2,089,884) ($4,987,952) ($6,158,126)
=================== ================== ================== ===================
(5) Subsequent Events
-----------------
In April 2001 the Company announced the formation of a new alliance with
Hitachi, Ltd., Friedli Corporate Finance A.G., and Oracle Corp. to map the
human proteome. The newly-formed entity, Myriad Proteomics, Inc., will
market its proprietary database and a set of proteomic materials to
pharmaceutical and biotechnology companies for therapeutic and diagnostic
product development. The Company will contribute technology valued at $82
million to the alliance and receive a 50 percent ownership interest in
Myriad Proteomics, Inc. Hitachi, Oracle, and Friedli will contribute a
combined $85 million in cash in exchange for the remaining 50 percent
interest in Myriad Proteomics, Inc.
(6) Recent Accounting Pronouncements
--------------------------------
In December 2000, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition, (SAB 101) to
provide guidance on the recognition, presentation and disclosure of revenue
in financial statements; however, SAB 101 does not change existing
literature on revenue recognition. SAB 101 explains the staff's general
framework for revenue recognition, stating that four criteria need to be
met in order to recognize revenue. The four criteria, all of which must be
met, are the following:
. There must be persuasive evidence of an arrangement;
. Delivery must have occurred or services must have been rendered;
. The selling price must be fixed or determinable; and
. Collectibility must be reasonably assured.
The Company will adopt SAB 101 during the quarter ended June 30, 2001. The
Company has evaluated its current revenue recognition policy and believes
it is in compliance with this guidance.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leader in the emerging field of proteomics and gene-based medicine
focusing on the development of therapeutic and predictive medicine products. We
have developed, and will continue to expand upon, a number of proprietary
proteomic technologies which permit us, through the use of our bioinformatics
and robotics systems, to identify 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 discoveries and predictive
medicine discoveries, respectively. Myriad Pharmaceuticals, Inc. focuses on the
discovery and development of therapeutic products. Myriad Genetic Laboratories,
Inc. focuses on the development of predictive medicine products that assess a
person's risk of developing a specific disease and permits physicians and their
patients to take appropriate health care measures to reduce the risk.
In April 2001 we announced the formation of a new alliance with Hitachi, Ltd.,
Friedli Corporate Finance A.G., and Oracle Corp. to map the human proteome. The
collaboration will take place within Myriad Proteomics, Inc., a newly formed
Delaware corporation of which we own 50 percent. Myriad Proteomics will market
its proprietary database and a set of proteomic materials to pharmaceutical and
biotechnology companies for therapeutic and diagnostic product development.
We have devoted substantially all of our resources to maintaining our research
and development programs, supporting collaborative research agreements,
operating a predictive medicine business and undertaking drug discovery and
development. 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, 2001, we had a net loss of $1,728,044 and
as of March 31, 2001 had an accumulated deficit of $57,649,934.
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, December 1998, and December
2000, we announced expansions of our collaborative research and development
arrangement with Bayer. The expanded collaboration and extensions may provide us
with additional research funding and potential milestone payments of up to
$137,000,000. We granted Bayer an exclusive worldwide license to human
therapeutic products developed from this collaboration. We are entitled to
receive royalties from sales of therapeutic products commercialized by Bayer for
a term of ten years following the first commercial sale or 20 years following
discovery of a disease gene, whichever is longer. We have received approximately
$37,000,000 in non-refundable research payments to date under this agreement.
In October 1996, we announced the introduction of BRACAnalysis(R), a
comprehensive predictive medicine test for 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. In September 2000, we announced the launch of
COLARIS(TM), a predictive medicine test for colon cancer and uterine cancer. We,
through our wholly owned subsidiary Myriad Genetic Laboratories, Inc.,
recognized predictive medicine revenues of $4,914,950 for the three months ended
March 31, 2001.
In October 1998, we entered into a five-year collaboration with Schering AG, to
utilize 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 percent of the profits from North American sales of
9
all new drugs discovered using ProNet(R). Outside of North America, we granted
Schering AG an exclusive license to therapeutic products developed from this
collaboration. 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 percent partner, we are required to pay funds to Schering
AG to establish equal ownership. If we do not choose to co-promote a drug
developed under this collaboration, Schering AG will receive a worldwide
exclusive license to therapeutic products developed from this collaboration from
which we may receive future royalty payments. Royalty terms are tied to either
the life of any patents that may result from this research or ten years
following the first commercial sale of a therapeutic product, whichever is
longer. In October 1999, we received $5,000,000 in the form of an equity
investment and announced the expansion of our collaboration with Schering AG to
include research in the field of cardiovascular disease.
In November 1998, we entered into a 15 month collaboration with Pharmacia
Corporation to utilize ProNet(R) for drug discovery and development. We granted
Pharmacia non-exclusive access to proteins contained in the pathways analyzed
under the collaboration and an option to obtain an exclusive, worldwide license
to therapeutic products developed from this collaboration. In December 1999,
Pharmacia 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. In addition, we
are entitled to receive royalties from sales of therapeutic products
commercialized by Pharmacia for a term of the later of 15 years from the first
commercial sale or the life of any resulting patent. We received approximately
$1,000,000 in non-refundable research payments under this agreement, of which
the research portion was successfully concluded during the current quarter.
In July 1999, we entered into a two-year collaboration and license agreement
with Syngenta. The genomic collaboration focuses on the discovery of the
genetic structure of cereal crops. We will have joint ownership with Syngenta
to all data developed under this agreement and a right to receive 50 percent of
all proceeds derived from the sale of the data. Myriad and Syngenta each have a
royalty-free worldwide co-exclusive right for commercial use of any resulting
data. Myriad and Syngenta each intend to jointly offer commercial access to the
genomic databases and share equally in any resulting proceeds. In January 2001
we announced completion of DNA sequencing of the entire rice genome ahead of
schedule. Remaining collaboration funding will be used to expand the scope of
the existing agreement to include the use of our ProNet(R) technology. We have
received approximately $33,500,000 in non-refundable research payments to date
under this agreement.
In December 1999, we entered into an 18 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 granted Roche exclusive access to proteins contained in the
pathways analyzed under this collaboration and an option to obtain an exclusive,
worldwide license to the therapeutic and diagnostic products developed from this
collaboration. In addition, we are entitled to receive royalties from sales of
therapeutic products commercialized by Roche for a term of ten years from the
first commercial sale. We have received approximately $500,000 in non-
refundable research payments to date under this agreement.
In May 2000, we entered into a three-year strategic alliance with Hitachi Ltd.
Under the terms of the agreement, we will work with Hitachi to commercialize the
ProNet(R) technology together in Japan and Hitachi will establish a designated
ProNet(R) facility to expedite the discovery of novel protein-protein
interactions for Japanese customers. We granted Hitachi an exclusive, royalty-
bearing license in Japan to the ProNet(R) database and technology. Total
payments under this collaboration are expected to provide us with $26,000,000.
In addition, we are entitled to receive royalties from sales of the database in
Japan
10
and from sales of therapeutic products commercialized by Hitachi. We are
entitled to receive royalties for a period of ten years. We have received
approximately $7,500,000 in non-refundable research payments to date under this
agreement.
In December 2000, we acquired from Encore Pharmaceuticals, Inc. worldwide,
exclusive rights to develop, manufacture, and market a drug aimed at the
prevention and treatment of prostate, colon, and other cancers. The compound,
which will be known as MPC-7869, has completed Phase IIa human clinical trials,
demonstrating a promising safety profile in both healthy individuals and
prostate cancer patients. We made an equity investment in Encore of $2.7
million, paid $300,000 in non-equity funding, and agreed to pay Encore future
development milestones and a royalty on any future sales of the drug.
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. We expect to incur substantial sales, marketing and other expenses
in connection with building our predictive medicine business. Additionally, we
intend to enter into further collaborative relationships to identify disease
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 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, 2001 and 2000
Research revenues for the quarter ended March 31, 2001 were $6,652,289 as
compared to $7,287,880 for the same quarter of 2000. The decrease in research
revenue of 9% is primarily attributable to greater emphasis on our internal
research and drug development programs and reduced research collaboration
expenses. 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.
Predictive medicine revenues of $4,914,950 were recognized in the quarter ended
March 31, 2001, an increase of 103% or $2,488,064 over the same quarter of the
prior year. Our sales and marketing efforts, together with the increased demand
as a result of wider acceptance of the test by the medical community, have
resulted in increased testing volume and increased revenues for the quarter
ended March 31, 2001. There can be no assurance, however, that predictive
medicine revenues will continue to increase at the historical rate, if at all.
Research and development expenses for the quarter ended March 31, 2001 were
$8,428,402 as compared to $8,333,149 for the same quarter in 2000. This
increase was primarily due to an increase in research activities as a result of
the ongoing internal drug discovery efforts of Myriad Pharmaceuticals, our
wholly-owned subsidiary.
Selling, general and administrative expenses for the quarter ended March 31,
2001 were $4,247,554 as compared to $3,337,482 for the same quarter in 2000.
The increase of 27% was primarily attributable to costs associated with the
ongoing sales and promotion of our predictive medicine products. We expect our
selling, general and administrative expenses will continue to fluctuate as
needed in support of our research and drug development efforts and our
predictive medicine business.
Cash, cash equivalents, and marketable investment securities increased
$80,344,228 or 133% from $60,487,179 at March 31, 2000 to $140,831,407 at March
31, 2001. This increase in cash, cash equivalents, and marketable investment
securities is primarily attributable to the private sale of an aggregate of
approximately $87 million worth of our Common Stock, as well as the receipt of
advance payments from our collaborators. These cash receipts were offset by
expenditures incurred in the
11
ordinary course of business. As a result of our increased position in interest-
bearing investments, interest income for the quarter ended March 31, 2001 was
$2,057,167 compared to $949,162 for the same quarter in 2000. The loss on
disposition of assets of $27,465 in the quarter ended March 31, 2001 is the
result of retiring unproductive assets. Income taxes of $500,000 represent
withholdings by the Japanese government on collaboration payments from Hitachi.
Results of Operations for the Nine months Ended March 31, 2001 and 2000
Research revenues for the nine months ended March 31, 2001 were $22,409,558 as
compared to $18,791,397 for the same period in 2000. The increase in research
revenue of 19% is primarily attributable to revenue recognized from our new
collaborations, including Hitachi and a fully established Syngenta project.
These increases were partially offset by a greater emphasis on our internal
research and drug development programs. 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.
Predictive medicine revenues of $11,930,856 were recognized in the nine months
ended March 31, 2001, an increase of 97% or $5,865,813 over the same period in
the prior year. Our sales and marketing efforts, together with the increased
demand as a result of wider acceptance of the test by the medical community,
have resulted in increased testing volume and increased revenues for the nine
months ended March 31, 2001. There can be no assurance, however, that
predictive medicine revenues will continue to increase at the historical rate,
if at all.
Research and development expenses for the nine months ended March 31, 2001 were
$26,570,236 as compared to $20,325,418 for the same period in 2000. This
increase of 31% was primarily due to an increase in research activities as a
result of the ongoing internal drug discovery efforts of Myriad Pharmaceuticals,
our wholly-owned subsidiary.
Selling, general and administrative expenses for the nine months ended March 31,
2001 were $12,271,188 as compared to $9,713,413 for the same period in 2000.
The increase of 26% was primarily attributable to costs associated with the
sales and ongoing promotion of our predictive medicine products, including
COLARIS(TM), a predictive medicine test for colon and uterine cancer launched in
September 2000. We expect our selling, general and administrative expenses will
continue to fluctuate as needed in support of our research and drug development
efforts and our predictive medicine business.
Cash, cash equivalents, and marketable investment securities increased
$80,344,228 or 133% from $60,487,179 at March 31, 2000 to $140,831,407 at March
31, 2001. This increase in cash, cash equivalents, and marketable investment
securities is primarily attributable to the private sale of an aggregate of
approximately $87 million worth of our Common Stock, as well as the receipt of
advance payments from our collaborators. These cash receipts were offset by
expenditures incurred in the ordinary course of business. As a result of our
increased position in interest-bearing investments, interest income for the nine
months ended March 31, 2001 was $5,477,560 compared to $2,259,615 for the same
period in 2000. The loss on disposition of assets of $283,113 in the nine
months ended March 31, 2001 is the result of retiring unproductive assets.
Income taxes of $500,000 represent withholdings by the Japanese government on
collaboration payments from Hitachi.
Liquidity and Capital Resources
Net cash used in operating activities was $7,612,197 during the nine months
ended March 31, 2001 compared to $12,022,468 provided by operating activities
during the same period of the prior fiscal year. Trade receivables for the nine
months ended March 31, 2001 increased $1,253,403. This increase is
12
primarily attributable to increased predictive medicine revenue for the nine
month period ended March 31, 2001. Prepaid expenses decreased by $1,043,624
during the nine months ended March 31, 2001 due to the use of lab supplies
previously purchased. Accounts payable and accrued expenses decreased by
$808,918, primarily as a result of payments for equipment and lab supplies that
were accrued in the prior year. Deferred revenue, representing the difference in
collaborative payments received and research revenue recognized, decreased by
$4,845,890 during the nine months ended March 31, 2001.
Our investing activities used cash of $18,565,341 and $1,643,070 in the nine
months ended March 31, 2001 and 2000, respectively. Investing activities were
comprised primarily of changes to marketable investment securities, plus capital
expenditures for research equipment and an equity investment in Encore
Pharmaceuticals, Inc. During the nine months ended March 31, 2001, we shifted a
portion of our investments from cash and cash equivalents to marketable
investment securities in order to take advantage of favorable interest rates.
Financing activities provided $66,163,825 during the nine months ended March 31,
2001. In August 2000 we sold 350,000 shares of our Common Stock in a private
placement for an aggregate purchase price of $22 million. In October 2000 we
sold an additional 400,000 shares of our Common Stock in a private placement for
an aggregate purchase price of $41 million. We subsequently registered these
750,000 shares with the Securities and Exchange Commission, as required under
the respective registration rights agreements. Additional cash was provided
from the exercise of stock options during the nine months ended March 31, 2001.
We anticipate that our existing capital resources will be adequate 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 progress of our research
and development programs and drug discovery and drug development programs; the
cost of human clinical trials and regulatory approval of our drug candidates;
the cost of developing and launching additional predictive medicine products;
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 our 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 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.
Quantitative and Qualitative Disclosures About Market Risk
We maintain an investment portfolio in accordance with our Investment Policy.
The primary objectives of our Investment Policy are to preserve principal,
maintain proper liquidity to meet operating needs and maximize yields. Our
Investment Policy specifies credit quality standards for our investments and
limits the amount of credit exposure to any single issue, issuer or type of
investment.
Our 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
income (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
13
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 our 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 our marketable securities as of March
31, 2001, we have determined that in the event of a hypothetical ten percent
increase in interest rates, the resulting decrease in fair market value of our
marketable investment securities would be insignificant to our financial
statements as a whole.
Certain Factors That May Affect Future Results of Operations
Some of the matters discussed in this Quarterly Report on Form 10-Q include
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. 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 and development of
therapeutic products and the discovery and development of predictive medicine
products; 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;
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; difficulties inherent in developing
predictive medicine products; our limited experience in operating a predictive
medicine business; our limited marketing and sales experience and the risk that
predictive medicine products 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 products from government, private healthcare
insurers and third-party payors; and uncertainties as to the extent of future
government regulation of our business.
These forward-looking statements are made as of the date of this report and
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 Quarterly Report on Form 10-Q might not occur. We
undertake no duty to update any of these forward-looking statements after the
date of this report to conform these statements to actual results or to changes
in our expectations, except as required by law.
14
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.
(c) Sales of Unregistered Securities
--------------------------------
During the three months ended March 31, 2001, the Company issued a total
of 82,874 shares of Common Stock, $0.01 par value per share, to a
director of the Company and a consultant pursuant to the exercise of
stock options at a weighted average price of $1.51 per share.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from the Securities Act of
1933 ("Securities Act") registration requirements set for in Sections
3(b) and 4(2) of the Securities Act, and any regulations promulgated
thereunder, relating to sales by an issuer not involving any public
offering, or (ii) in the case of certain options to purchase shares of
commons stock and shares of common stock issued upon the exercise of
options, such offers and sales were made in reliance upon an exemption
from registration under Rule 701 promulgated under Section 3(b) of the
Securities Act. No underwriters were involved in the foregoing sales of
securities.
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
--------
(10.1) Lease Agreement, dated March 31, 2001, between Boyer Research Park
Associates VI, by its general partner, The Boyer Company, L.C. and the
Company.
(10.2) Agreement, dated March 31, 2001, between Boyer Research Park Associates
VI, by its general partner, The Boyer Company, L.C. and the Company.
(10.3) License Agreement, dated December 7, 2000, between Encore
Pharmaceuticals, Inc. and the Company. The Company has omitted from this
Exhibit 10.3 portions of the License Agreement
15
for which the Company has requested confidential treatment from the
Securities and Exchange Commission. The portions of the 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.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 31, 2001.
16
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 15, 2001 By: /s/ Peter D. Meldrum
------------ -----------------------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: May 15, 2001 By: /s/ Jay M. Moyes
------------ ------------------------------------------------
Jay M. Moyes
Vice President of Finance
Principal financial and chief accounting officer