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, 1998
--------------
[_] 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 584-3600
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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 8, 1998, the registrant had 9,324,562 shares of common stock
outstanding.
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
Page
----
PART I - Financial Information
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet as of March 31, 1998 and June 30, 1997 3
Condensed Consolidated Statements of Operations for the three months and nine months
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the three months and nine months
ended March 31, 1998 and 1997 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 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE(S) 13
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Mar. 31, 1998
(Unaudited) June 30, 1997
-------------- -------------
Assets
------
Current assets:
Cash and cash equivalents $ 13,376,776 $ 15,675,763
Marketable investment securities 16,681,724 31,952,315
Prepaid expenses 353,133 446,260
Trade receivables 388,236 183,166
Non-trade receivables 647,806 294,967
-------------- -------------
Total current assets 31,447,675 48,552,471
-------------- -------------
Equipment and leasehold improvements:
Equipment 15,003,617 13,124,937
Leasehold improvements 2,277,798 2,075,308
-------------- -------------
17,281,415 15,200,245
Less accumulated depreciation and amortization 5,189,181 3,189,724
-------------- -------------
Net equipment and leasehold improvements 12,092,234 12,010,521
Long-term marketable investment securities 25,953,001 15,449,360
Other assets 50,979 50,979
-------------- -------------
$ 69,543,889 $ 76,063,331
============== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,219,036 $ 2,559,035
Accrued liabilities 1,351,280 1,154,254
Deferred revenue 4,495,381 5,699,427
Current portion of notes payable 217,943 342,796
-------------- -------------
Total current liabilities 9,283,640 9,755,512
-------------- -------------
Notes payable less current portion - 128,844
Stockholders' equity
Common stock, $0.01 par value, 15,000,000 shares authorized; issued
and outstanding 9,324,562 shares March 31 1998, 9,222,552 shares
June 30, 1997 93,246 92,226
Additional paid-in capital 92,005,204 91,605,739
Fair value adjustment on available-for-sale marketable investment
securities (3,086) 5,382
Deferred compensation (979,079) (1,376,980)
Accumulated deficit (30,856,036) (24,147,392)
-------------- -------------
Net stockholders' equity 60,260,249 66,178,975
-------------- -------------
$ 69,543,889 $ 76,063,331
============== =============
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, 1998 Mar. 31, 1997 Mar. 31, 1998 Mar. 31, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- ------------- ------------- ---------------
Revenues:
Research revenue $ 5,122,404 $ 2,584,007 $ 15,201,336 $ 7,497,528
Genetic testing revenue 566,689 157,678 1,501,151 191,738
--------------- ------------- ------------- ---------------
Total revenues 5,689,093 2,741,685 16,702,487 7,689,266
Expenses:
Research and development expense 5,457,187 4,215,871 16,663,344 13,355,768
Selling, general and administrative
expense 3,308,826 2,393,108 8,315,482 6,150,175
Genetic testing cost of revenue 351,154 108,696 892,739 132,979
--------------- ------------- ------------- ---------------
Total expenses 9,117,167 6,717,675 25,871,565 19,638,922
--------------- ------------- ------------- ---------------
Operating loss (3,428,074) (3,975,990) (9,169,078) (11,949,656)
Other income (expense):
Interest income 789,229 787,695 2,490,588 2,522,972
Interest expense (7,045) (15,690) (27,942) (53,081)
Gain/(loss) on sale of fixed assets (2,333) (21,559) (2,213) (29,551)
--------------- ------------- ------------- ---------------
779,851 750,446 2,460,433 2,440,340
--------------- ------------- ------------- ---------------
Net loss ($2,648,223) ($3,225,544) ($6,708,645) ($9,509,316)
=============== ============= ============= ===============
Net loss per share (Note 2) ($0.28) ($0.36) ($0.72) ($1.08)
=============== ============= ============= ===============
Weighted average shares outstanding 9,312,542 8,991,088 9,276,604 8,814,534
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net loss ($2,648,223) ($3,225,544) ($6,708,645) ($9,509,316)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 831,231 670,310 2,405,172 1,779,490
Increase in trade receivables (76,073) - (205,070) -
Loss on sale of equipment 2,333 21,559 2,212 29,551
Increase in non-trade receivables (438,635) (243,514) (352,838) (288,344)
Decrease (increase) in prepaid expenses (80,191) (154,018) 93,127 (401,063)
Increase (decrease) in accounts payable
and accrued expenses 229,409 (771,720) 857,027 (459,713)
Decrease in deferred revenue (580,319) (55,237) (1,204,046) (16,878)
-------------- ----------- ----------- -----------
Net cash used in operating activities (2,760,468) (3,758,164) (5,113,061) (8,866,273)
-------------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (650,739) (1,395,244) (2,092,604) (3,956,108)
Proceeds from sale of equipment 505 14,750 1,406 22,250
Net change in marketable investment securities (163,357) 6,268,436 4,758,483 16,080,153
-------------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (813,591) 4,887,942 2,667,285 12,146,295
-------------- ----------- ----------- -----------
Cash flows from financing activities:
Net payments of notes payable (86,793) (78,148) (253,697) (228,433)
Net proceeds from issuance of common stock 28,871 407,062 400,486 431,149
-------------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities (57,922) 328,914 146,789 202,716
-------------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (3,631,981) 1,458,692 (2,298,987) 3,482,738
Cash and cash equivalents at beginning of period 17,008,757 15,259,726 15,675,763 13,235,680
-------------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 13,376,776 $16,718,418 $13,376,776 $ 16,718,418
============== =========== =========== ============
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 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 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, 1997,
included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1997. Operating results for the three and nine month
periods ended March 31, 1998 may not necessarily be indicative of the
results to be expected for any other interim period or for the full
year.
(2) Earnings per Share
------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"). SFAS 128 became effective for the consolidated
financial statements for interim and annual periods ending after
December 15, 1997. Accordingly, the Company has adopted SFAS 128 for
all quarters ended after December 31, 1997.
SFAS 128 establishes a different method of computing earnings (loss)
per share than was required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS 128, entities with
publicly held common stock are required to present both basic earnings
(loss) per share and diluted earnings (loss) per share. Given the
Company's current loss position, basic and diluted loss per share are
equal and consistent with net loss per share presented in prior
quarters.
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 and operating a
genetic testing laboratory, and supporting collaborative research agreements.
Revenues received by the Company primarily have been payments pursuant to
collaborative research agreements and sales of genetic tests. The Company has
been unprofitable since its inception and, for the quarter ended March 31, 1998,
the Company had a net loss of $2,648,223 and as of March 31, 1998 had an
accumulated deficit of $30,856,036.
In April 1995, the Company commenced a five-year collaborative research and
development arrangement with Novartis Corporation ("Novartis"). This
collaboration provides the Company with an equity investment, research funding
and potential milestone payments of up to $60,000,000. In March 1998, the
Company and Novartis discovered the CHD1 gene, a novel gene that may play an
important role in cardiovascular disease. The gene discovery represents a
significant milestone in the Novartis-Myriad research collaboration and
triggered a $500,000 milestone payment from Novartis to the Company. The
Company is entitled to receive royalties from sales of therapeutic products sold
by Novartis. The Company recognized $2,295,861 in revenue under this agreement
for the quarter ended March 31, 1998.
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. In November 1997, the Company
announced an expansion of its collaborative research and development arrangement
with Bayer. The expanded collaboration provides the Company with additional
research funding and potential milestone payments of up to $54,000,000 or a
total potential of up to $125,000,000. The Company is entitled to receive
royalties from sales of therapeutic products sold by Bayer. The Company
recognized $1,576,543 in revenue under this agreement for the quarter ended
March 31, 1998.
In October 1996, the Company announced the introduction of BRACAnalysis(TM), a
comprehensive BRCA1 and BRCA2 gene sequence analysis for susceptibility to
breast and ovarian cancer. The Company, through its wholly owned subsidiary
Myriad Genetic Laboratories, Inc., began accepting testing samples on a
commercial basis on October 30, 1996. Genetic testing revenues of $566,689 were
recognized for the quarter ended March 31, 1998.
In April 1997, the Company commenced a three-year collaborative research and
development arrangement with Schering Corporation ("Schering"). The three-year
term may be extended for two additional one-year periods. This collaboration
provides the Company with an equity investment, license fees, research funding
and potential milestone payments totalling up to $60,000,000. The Company is
entitled to receive royalties from sales of therapeutic products sold by
Schering. The Company recognized $1,250,000 in revenue under this agreement for
the quarter ended March 31, 1998.
In October 1997, the Company announced that Schering has licensed the
therapeutic rights to the MMAC1 gene. The MMAC1 gene has been associated with
advanced cancers of the brain, prostate, breast, kidney, and skin. During the
quarter ended March 31, 1998, the Company demonstrated the tumor-suppressor
activity of the MMAC1 gene, which triggered an additional $500,000 milestone
from Schering to the Company. To-date, the Company has recognized milestones
totalling $2,500,000 from Schering associated with the MMAC1 gene. The Company
may receive additional drug development milestone payments and royalties on
therapeutic products based on the MMAC1 gene and its pathway. Myriad has
retained the rights to the molecular diagnostic potential of the MMAC1 gene.
In January 1998, the Company announced the introduction of a new genetic test,
CardiaRisk(TM), to be performed by its wholly owned subsidiary, Myriad Genetic
Laboratories, Inc. CardiaRisk(TM), which identifies a mutation in the AGT gene,
will assist physicians both in (i) identifying which hypertensive patients are
at a significantly increased risk of developing cardiovascular disease and (ii)
identifying which patients are likely to respond to low salt diet therapy and
antihypertensive drug therapy.
7
Additionally, in January 1998 the Company announced the successful use of its
ProNet(TM) protein interaction technology in discovering three new genes. The
MMSC1 gene appears to interact directly with the MMAC1 brain and prostate cancer
gene. The CtIP gene was linked to the pathway of the BRCA1 breast and ovarian
cancer gene, and the MKK3 gene acts as a tumor suppressor in lung cancer. These
genes are believed by the Company to provide new avenues for developing cancer
therapies.
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, increased staffing costs and expansion of its facilities.
Additionally, the Company expects to incur substantial sales, marketing and
other expenses in connection with building its genetic testing business. The
Company expects 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, 1998 AND 1997
Research revenues for the quarter ended March 31, 1998 increased $2,538,397 from
the same quarter of 1997. The increase was attributable primarily to the
achievement of certain research milestones and the Company's new and expanded
corporate research collaboration agreements. During the quarter ended March 31,
1998, the Company recognized $1,000,000 in research milestones consisting of
$500,000 from Novartis and $500,000 from Schering. During the same period, the
Company recognized $750,000 in research funding from Schering under an agreement
initiated in April 1997. Research revenue from the research collaboration
agreements is recognized as related costs are incurred. Consequently, as these
programs progress and costs increase, revenues increase proportionately.
Genetic testing revenues of $566,689 were recognized in the quarter ended March
31, 1998, an increase of $409,111 over the same quarter of 1997. Genetic
testing revenue is comprised of sales of diagnostic tests resulting from the
Company's discovery of the BRCA1 and BRCA2 breast and ovarian cancer genes. The
tests for genetic predisposition to breast and ovarian cancer were launched by
the Company in October 1996 with the first commercial test received in November
1996. Sales and marketing efforts since that time have given rise to the
increased revenues in the quarter ended March 31, 1998.
Research and development expenses for the quarter ended March 31, 1998 increased
to $5,457,187 from $4,215,871 for the same quarter of 1997. This increase was
primarily due to an increase in research activities as a result of progress in
the Company's collaborations with Novartis, Bayer and Schering as well as those
programs funded by the Company. The increased level of research spending
includes third party research programs, increased depreciation charges related
to purchasing of additional research equipment, the hiring of additional
research personnel and the associated increase in use of laboratory supplies and
reagents. The Company also incurred expenses related to milestones achieved by
its academic collaborators. Such expenses will likely increase to the extent
that the Company enters into additional research agreements with third parties.
Selling, general and administrative expenses for the quarter ended March 31,
1998 increased $915,718 from the same quarter of 1997. The increase was
primarily attributable to costs associated with the ongoing promotion of
BRACAnalysis(TM), including the expansion of the Company's internal sales staff
from 8 to 23 employees. The increase is also a result of additional
administrative, marketing and education personnel, market research activities,
educational material development, and facilities-related costs. The Company
expects its selling, general and administrative expenses will continue to
increase in support of its genetic predisposition testing business and its
research and development efforts.
Interest income for the quarter ended March 31, 1998 increased to $789,229 from
$787,695 or 0.2% for the same quarter of 1997. The Company has been able to
maintain its cash reserves at a relatively constant level as a result of its
ongoing collaborative research agreements, entering new collaborative
agreements, achieving research milestones, and sales of its genetic tests. As a
result, interest income has not changed significantly from the prior year.
Interest expense for the quarter ended March 31, 1998, amounting to $7,045, was
due entirely to borrowings under the
8
Company's equipment financing facility.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND 1997
Research revenues increased to $15,201,336 in the first nine months of fiscal
year 1998 from $7,497,528 in the first nine months of fiscal year 1997. The
increase was attributable primarily to the achievement of certain research
milestones and the Company's new and expanded corporate research collaboration
agreements. During the nine months ended March 31, 1998, the Company recognized
$3,000,000 in research milestones consisting of $500,000 from Novartis and
$2,500,000 from Schering. During the same period, the Company recognized
$2,250,000 in research funding from Schering under an agreement initiated in
April 1997, and $950,000 in research funding from the November 1997 Bayer
project expansion.
Genetic testing revenues of $1,501,151 were recognized in the nine months ended
March 31, 1998, an increase of $1,309,413 over the same nine month period of
1997. Genetic testing revenue is comprised of sales of diagnostic tests
resulting from the Company's discovery of the BRCA1 and BRCA2 breast and ovarian
cancer genes. The tests for genetic predisposition to breast and ovarian cancer
were launched by the Company in October 1996 with the first commercial test
received in November 1996. Sales and marketing efforts since that time have
given rise to the increased revenues in the nine months ended March 31, 1998.
Research and development expenses for the nine months ended March 31, 1998
increased to $16,663,344 from $13,355,768 for the prior year. This increase was
primarily due to an increase in research activities as a result of the Company's
collaborations with Novartis, Bayer, and Schering, as well as those programs
funded by the Company. The increased level of research spending includes third
party research programs, increased depreciation charges related to purchasing
additional research equipment, the hiring of additional research personnel and
the associated increase in use of laboratory supplies and reagents. The Company
also incurred expenses related to milestone payments achieved by an academic
collaborator during the nine months ended March 31, 1998.
Selling, general and administrative expenses for the nine months ended March 31,
1998 increased by $2,165,307 from the nine month period in the prior year. The
increase was primarily attributable to costs associated with the ongoing
promotion of BRACAnalysis(TM) as well as additional administrative, sales,
marketing and education personnel, market research activities, educational
material development, and facilities-related costs. The Company expects its
selling, general and administrative expenses will continue to increase in
support of its genetic predisposition testing business and its research and
development efforts.
Interest income for the first nine months of fiscal year 1998 decreased to
$2,490,588 from $2,522,972 for the first nine months of fiscal year 1997. This
decrease was primarily due to less funds being available for investment which
funds were spent in the ordinary course of business. The Company has been able
to maintain its cash reserves at a relatively constant level as a result of its
ongoing collaborative research agreements, entering new collaborative
agreements, achieving research milestones, and sales of its genetic tests. As a
result, interest income has not changed significantly from the prior year.
Interest expense for the nine months ended March 31, 1998, amounting to $27,942,
was due entirely to borrowings under the Company's equipment financing facility.
The loss on sale of fixed assets of $2,213 in the nine months ended March 31,
1998 and $29,551 in the nine months ended March 31, 1997 is the result of the
sale of out-dated equipment.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2,760,468 during the quarter ended
March 31, 1998 as compared to net cash used in operating activities of
$3,758,164 during the same quarter of the prior year. Trade receivables were
established during fiscal year 1998 as a result of the Company allowing terms
for payment for its BRACAnalysis(TM) breast and ovarian cancer predisposition
tests. In the prior fiscal year, a majority of tests were prepaid by the
customer. Non-trade receivables increased $438,635 between December 31, 1997 and
March 31, 1998, primarily as a result of milestone payments due from the
Company's collaborative partners. Prepaid expenses increased $80,191 during the
quarter ended March 31, 1998. The increase is primarily the result of royalties
paid by the Company in
9
advance in order to secure a more favorable royalty rate. Accounts payable and
accrued expenses increased between December 31, 1997 and March 31, 1998 as a
result of increased accruals for unbilled work provided by the Company's
research collaborators. Deferred revenue, representing the difference in
collaborative payments received and research revenue recognized, decreased
$580,319 during the quarter ended March 31, 1998.
The Company's investing activities used cash of $813,591 in the three months
ended March 31, 1998 and provided cash of $4,887,942 in the three months ended
March 31, 1997. Investing activities were comprised primarily of capital
expenditures for research equipment, office furniture, and facility improvements
and marketable investment securities. During the quarter ended March 31, 1998,
the Company shifted a portion of its investment in marketable securities from
cash and cash equivalents to longer term investments in order to take advantage
of more favorable interest rates.
Financing activities used $57,922 during the quarter ended March 31, 1998. The
Company reduced the amount of principal owing on its equipment financing
facility by $86,793. Payments on the financing facility were offset by proceeds
of $28,871 from the exercise of options and warrants during the period.
Financing activities provided $328,914 during the quarter ended March 31, 1997.
During the quarter ended March 31, 1997, proceeds received by the Company of
$407,062 from the exercise of options and warrants were offset by payments by
the Company of $78,148 to reduce principal owing on its equipment financing
facility.
The Company anticipates that its existing capital resources, including the net
proceeds of its October 1995 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 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.
IMPACT OF THE YEAR 2000 ISSUE
The Company has completed a review of its existing and planned computer software
and hardware and has determined that the costs and/or consequences associated
with the Year 2000 issue are not expected to have a material effect on the
Company's business, operations or future financial condition.
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 operating a
genetic testing laboratory; the Company's limited marketing and sales experience
and the risk that tests which the Company has or may develop may not be able to
be marketed at acceptable prices or receive commercial acceptance in the markets
that the Company is targeting or expects to target; uncertainty as to whether
there will exist adequate reimbursement for the Company's services from
government, private health care 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.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 17, 1997, OncorMed, Inc. ("OncorMed") filed an action in the United
States District Court of the District of Columbia alleging infringement by the
Company of patent number 5,654,155 entitled "Consensus Sequence of the Human
BRCA1 Gene" issued to OncorMed by the U.S. Patent and Trademark Office
("USPTO"). The action is seeking a permanent injunction and unspecified
damages. On December 8, 1997, the Company filed an answer and counterclaim.
On December 2, 1997, the Company filed an action against OncorMed in the United
States District Court for the District of Utah alleging infringement of patent
number 5,693,473 entitled "Linked Breast and Ovarian Cancer Susceptibility Gene"
issued to the Company on December 2, 1997 by the USPTO. The action is seeking a
preliminary and permanent injunction and unspecified damages. On December 29,
1997, OncorMed filed an answer and counterclaim.
On January 20, 1998, the Company filed an action against OncorMed in the United
States District Court for the District of Utah alleging infringement of patent
number 5,709,999 entitled "Linked Breast and Ovarian Cancer Susceptibility Gene"
issued to the Company on January 20, 1998 by the USPTO. The action is seeking a
preliminary and permanent injunction and unspecified damages. On February 10,
1998, OncorMed filed an answer and counterclaim.
On January 20, 1998, OncorMed filed an action against the Company in the United
States District Court for the District of Columbia alleging incorrect
inventorship of patent numbers 5,093,473 and 5,709,999. The action is seeking
to correct inventorship and seeks unspecified damages. The Company moved to
dismiss the action on February 9, 1998.
The Company believes that it has valid defenses to the OncorMed actions listed
above, and all cases are, and will continue to be vigorously defended.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of any of these cases.
Management believes, however, that the ultimate outcome of all of these cases
should not have a material effect on the Company's financial position.
ITEM 2. CHANGES IN SECURITIES.
(c) Sales of Unregistered Securities
--------------------------------
During the three months ended March 31, 1998, the Company issued a total of
3,371 shares of Common Stock to consultants of the Company pursuant to the
exercise of stock options at a weighted average exercise price of $3.50 per
share. During the same period, the Company issued a total of 19,934 shares of
Common Stock to various holders of warrants issued to Spencer Trask Securities
Incorporated, the placement agent for the Company's 1993 private placement of
Series A Convertible Preferred Stock, at a weighted average exercise price of
$7.00 per share.
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.
(d) Use of Proceeds
---------------
The Company filed its initial Form SR with the Securities and Exchange
Commission on January 15, 1996 reporting for the period from October 5, 1995
(the effective date of the Company's registration statement for its initial
public offering) through January 5, 1996. The Company filed through July 1997
amendments to its Form SR covering each subsequent six month period on a timely
basis. Since November 1997, the Company has included information concerning use
of proceeds in its Forms 10-Q, the most recent of which was filed February 13,
1998 for
11
the quarter ended December 31, 1997 ("December 31, 1997 Form 10-Q"). The
following schedule reflects as of March 31, 1998 an estimate of the amount of
net offering proceeds received by the Company from its initial public offering
used for each of the purposes listed below (and reflects only the changes to the
information provided by the Company in its December 31, 1997 Form 10-Q).
Direct or indirect payments to anyone other than
directors, officers, persons owning ten percent or
more of any class of equity securities of the
Company, and affiliates of the Company (of which
there were no such payments).
- ------------------------------------------------------------------------------------------------------------------
Construction of plant, building and facilities $ 1,429,926
- ------------------------------------------------------------------------------------------------------------------
Purchase and installation of machinery and equipment $11,663,072
- ------------------------------------------------------------------------------------------------------------------
Cash and investments $ 2,127,339
- ------------------------------------------------------------------------------------------------------------------
Genetic discovery research expenses $ 8,610,089
- ------------------------------------------------------------------------------------------------------------------
Diagnostic test development and operation expenses $15,580,994
- ------------------------------------------------------------------------------------------------------------------
General and administrative expenses $ 9,751,772
- ------------------------------------------------------------------------------------------------------------------
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
- ------ -----------
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 March 31, 1998.
12
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 12, 1998 By: /s/ Peter D. Meldrum
----------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: May 12, 1998 /s/ Jay M. Moyes
-------------------------------------
Jay M. Moyes
Vice President of Finance and Chief
Financial Officer
(principal financial and accounting
officer)
13
MYRIAD GENETICS, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11.1 Statement Regarding Computation of
Net Loss Per Share
27.1 Financial Data Schedule
14