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, 1999
--------------
[_] 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 7, 1999, the registrant had 9,411,945 shares of common stock
outstanding.
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
PART I - Financial Information
Page
----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet as of March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Operations for the three and nine months
ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE(S) 14
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999
(Unaudited) June 30, 1998
---------------------------------
Assets
------
Current assets:
Cash and cash equivalents $ 8,334,758 $ 14,595,034
Marketable investment securities 2,986,275 16,267,156
Prepaid expenses 795,502 266,679
Trade accounts receivables, less allowance for doubtful accounts of
$30,302 at March 31, 1999 and $66,000 at June 30, 1998 1,251,728 471,327
Non-trade receivables 85,015 117,053
---------------------------------
Total current assets 13,453,278 31,717,249
---------------------------------
Equipment and leasehold improvements:
Equipment 12,877,213 16,049,721
Leasehold improvements 3,592,161 2,288,241
---------------------------------
16,469,374 18,337,962
Less accumulated depreciation and amortization 6,386,653 5,902,926
---------------------------------
Net equipment and leasehold improvements 10,082,721 12,435,036
Long-term marketable investment securities 31,821,418 22,247,303
Other assets 865,823 992,384
---------------------------------
$ 56,223,240 $ 67,391,972
=================================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 4,063,517 $ 5,121,279
Accrued liabilities 1,411,558 1,938,722
Deferred revenue 396,636 2,722,115
Current portion of notes payable -- 128,843
---------------------------------
Total current liabilities 5,871,711 9,910,959
---------------------------------
Stockholders' equity
Common stock, $0.01 par value, 15,000,000 shares authorized; issued and
outstanding 9,411,945 at March 31 1999 and 9,337,501 at June 30, 1998 94,199 93,375
Additional paid-in capital 92,251,790 91,907,034
Accumulated other comprehensive loss (562) 1,477
Deferred compensation (318,656) (576,446)
Accumulated deficit (41,675,162) (33,944,427)
---------------------------------
Net stockholders' equity 50,351,529 57,481,013
---------------------------------
$ 56,223,240 $ 67,391,972
=================================
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, 1999 Mar. 31, 1998 Mar. 31, 1999 Mar. 31, 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------------------------------------------------------------
Revenues:
Research revenue $ 5,568,774 $ 5,122,404 $ 14,751,802 $ 15,201,336
Genetic testing revenue 1,493,341 566,689 3,617,770 1,501,151
-------------------------------------------------------------------
Total revenues 7,062,115 5,689,093 18,369,572 16,702,487
Expenses:
Research and development expense 6,141,258 5,457,187 17,640,553 16,663,344
Selling, general and administrative
expense 2,699,929 3,308,826 8,015,646 8,315,482
Genetic testing cost of revenue 851,204 351,154 2,233,012 892,739
-------------------------------------------------------------------
Total expenses 9,692,391 9,117,167 27,889,211 25,871,565
-------------------------------------------------------------------
Operating loss (2,630,276) (3,428,074) (9,519,639) (9,169,078)
Other income (expense):
Interest income 557,304 789,229 1,832,994 2,490,588
Interest expense -- (7,045) (6,279) (27,942)
Loss on sale of fixed assets (105,002) (2,333) (37,812) (2,213)
-------------------------------------------------------------------
452,302 779,851 1,788,903 2,460,433
-------------------------------------------------------------------
Net loss ($2,177,974) ($2,648,223) ($7,730,736) ($6,708,645)
===================================================================
Basic and diluted loss per share ($0.23) ($0.28) ($0.82) ($0.72)
===================================================================
Basic and diluted weighted average
shares outstanding 9,411,901 9,312,542 9,382,013 9,276,604
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, 1999 Mar. 31, 1998
(Unaudited) (Unaudited)
------------------------------
Cash flows from operating activities:
Net loss ($7,730,736) ($6,708,645)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,459,738 2,405,172
Loss on sale of equipment 37,812 2,213
Bad debt expense (35,698) --
Increase in trade receivables (744,703) (205,070)
Decrease (increase) in non-trade receivables 32,037 (352,839)
Decrease (increase) in prepaid expenses (528,823) 93,127
Decrease in other assets 126,563 --
Increase (decrease) in accounts payable and accrued
expenses (1,584,926) 857,027
Decrease in deferred revenue (2,325,479) (1,204,046)
-------------------------------
Net cash used in operating activities (10,294,215) (5,113,061)
-------------------------------
Cash flows from investing activities:
Capital expenditures (3,423,445) (2,092,604)
Proceeds from sale of equipment 3,554,479 1,406
Net change in marketable investment securities 3,686,248 4,758,483
-------------------------------
Net cash provided by investing activities 3,817,282 2,667,285
-------------------------------
Cash flows from financing activities:
Net payments of notes payable (128,843) (253,697)
Net proceeds from issuance of common stock 345,500 400,486
-------------------------------
Net cash provided by financing activities 216,657 146,789
-------------------------------
Net decrease in cash and cash equivalents (6,260,276) (2,298,987)
Cash and cash equivalents at beginning of period 14,595,034 15,675,763
-------------------------------
Cash and cash equivalents at end of period $ 8,334,758 $ 13,376,776
===============================
See accompanying notes to condensed consolidated financial statements.
5
MYRIAD GENETICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(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, 1998,
included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1998. Operating results for the three and nine month
periods ended March 31, 1999 may not necessarily be indicative of the
results to be expected for any other interim period or for the full
year.
(2) Comprehensive Loss
------------------
The Company adopted Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income", effective July 1,
1998. SFAS 130 establishes standards for reporting and displaying
comprehensive loss and its components in financial statements. The
components of the Company's comprehensive loss are as follows:
Three Months Ended Nine Months Ended
----------------------------------------------------------------------
Mar. 31, 1999 Mar. 31, 1998 Mar. 31, 1999 Mar. 31, 1998
----------------------------------------------------------------------
Net loss ($2,177,974) ($2,648,223) ($7,730,736) ($6,708,645)
Unrealized gain (loss) on
available-for-sale
marketable investment
securities 33,968 (5,348) (2,039) (8,468)
----------------------------------------------------------------------
Comprehensive loss ($2,144,006) ($2,653,571) ($7,732,775) ($6,717,113)
======================================================================
(3) Net Loss Per Common and Common Equivalent Share
-----------------------------------------------
Basic loss per common share is the amount of net income (loss) for the
period available to each share of common stock outstanding during the
reporting period. Diluted earnings per share is the amount of net
income (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 earnings (loss) per common and common-equivalent share
the net income (loss) and the weighted average common and common-
equivalent shares outstanding were the same for both the basic and
diluted calculation.
6
As of March 31, 1999 and March 31, 1998, there were antidilutive
common stock equivalents of 1,858,918 and 1,492,983, respectively.
Accordingly, these common stock equivalents were not included in the
computation of diluted earnings per share for the periods presented,
but may be dilutive to future basic and diluted earnings per share.
(4) Subsidiaries
------------
In April 1999, the Company announced the formation of Myriad
Pharmaceuticals, Inc. ("Pharmaceuticals"), a wholly owned subsidiary
of the Company. Pharmaceuticals, a Delaware corporation, was
established to develop therapeutic lead compounds for selected common
diseases with large potential markets that are under-served by current
therapeutic options. The new subsidiary will use drug targets
discovered with the Company's protein interaction technology, ProNet,
to identify candidates for pre-clinical development. Pharmaceuticals,
along with Myriad Genetic Laboratories, Inc., the Company's wholly
owned genetic testing facility, and Myriad Financial, Inc., the
Company's wholly owned leasing company, constitute the subsidiaries of
the Company.
7
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, 1999,
the Company had a net loss of $2,177,974 and as of March 31, 1999 had an
accumulated deficit of $41,675,162.
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. The Company is entitled
to receive royalties from sales of therapeutic products sold by Novartis.
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 and again in December
1998, the Company announced expansions of its collaborative research and
development arrangement with Bayer. The expanded collaboration may provide the
Company with additional research funding and potential milestone payments of up
to $137,000,000. The Company is entitled to receive royalties from sales of
therapeutic products sold by Bayer.
In October 1996, the Company announced the introduction of BRACAnalysis, a
comprehensive BRCA1 and BRCA2 gene sequence analysis for susceptibility to
breast and ovarian cancer. In January 1998, the Company announced the
introduction of CardiaRisk, a test for salt sensitive hypertension. The
Company, through its wholly owned subsidiary Myriad Genetic Laboratories, Inc.,
recognized genetic testing revenues of $1,493,341 for the quarter ended March
31, 1999.
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.
In October 1998, the Company entered into a five-year collaboration with
Schering AG, Germany, to utilize the Company's protein interaction technology
("ProNet") for drug discovery and development. Under the agreement, the Company
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 all new drugs
discovered with ProNet. This collaboration may provide the Company with
licensing fees, subscription fees, option payments and milestone fees with a
value of up to $51,000,000.
In November 1998, the Company entered into a 15 month collaboration with
Monsanto Company ("Monsanto"), to utilize ProNet for drug discovery and
development. Under the agreement, Monsanto has the option to extend the
research term for a period of twelve months. If the anticipated milestones,
option payments, license fees and upfront payments are achieved, the value of
the agreement may reach up to $15,000,000. The Company will also receive
royalties on worldwide sales of drugs resulting from the discovery of novel
targets found through use of the ProNet technology.
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
8
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, 1999 and 1998
Research revenues for the quarter ended March 31, 1999 increased $446,370 from
the same quarter of 1998. The increase was attributable primarily to the
expanded scope of the Bayer agreement and the revenue recognized from the
Monsanto agreement. 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. 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.
Genetic testing revenues of $1,493,341 were recognized in the quarter ended
March 31, 1999, an increase of 164% or $926,652 over the same quarter of the
prior year. Genetic testing revenue is comprised of sales of diagnostic tests
resulting from the Company's discovery of disease genes. Sales and marketing
efforts since that time have given rise to the increased revenues in the quarter
ended March 31, 1999. There can be no assurance, however that genetic testing
revenues will continue to increase at the historical rate.
Research and development expenses for the quarter ended March 31, 1999 increased
to $6,141,258 from $5,457,187 for the same quarter of 1998. This increase was
primarily due to an increase in research activities as a result of progress in
the Company's collaborations with Novartis, Bayer, Schering, and Monsanto as
well as those programs funded by the Company. The increased level of research
spending includes ongoing development of the Company's ProNet and mutation
screening technologies and third-party sponsored research programs. Such
expenses may 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,
1999 decreased $608,897 from the same quarter of 1998. During the quarter ended
March 31, 1998, the Company was pursuing a plan to dramatically increase its
sales force. Start-up expenses for the sales staff included training,
relocation, and sales supplies. For the quarter ended March 31, 1999, the
company maintained a steady, well-trained sales force which resulted in fewer
selling expenses. The Company expects its selling, general and administrative
expenses will continue to fluctuate as needed to support its genetic testing
business and its research and development efforts.
Interest income for the quarter ended March 31, 1999 decreased to $557,304 from
$789,229 for the same quarter of 1998. Cash, cash equivalents, and marketable
investment securities were $43,142,451 at March 31, 1999 as compared to
$56,011,501 at March 31, 1998. This decrease in cash and investments,
attributable to expenditures incurred in the ordinary course of business, has
resulted in reduced interest income. Interest expense for the quarter ended
March 31, 1998, amounting to $7,045, was due entirely to borrowings under the
Company's equipment financing facility. The equipment financing facility was
concluded in December 1998. As a result, no interest expense was incurred in
the quarter ended March 31, 1999.
Results of Operations for the Nine Months Ended March 31, 1999 and 1998
Research revenues for the nine months ended March 31, 1999 were $14,751,802 as
compared to $15,201,336 for the same quarter of 1998. Greater research revenue
recognized during the nine month period ended March 31, 1998 versus the current
period is the result of $3,950,000 in research milestones and contract expansion
payments received by the Company in 1998. Excluding the milestone and contract
expansion payment, the Company's ongoing research revenue increased $3,500,466
for the nine months ended March 31, 1999 versus the same period of 1998. This
increase is primarily the result of the expanded scope of the Bayer agreement
and the Monsanto agreement which was signed in November 1998. 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.
9
Genetic testing revenues of $3,617,770 were recognized in the nine months ended
March 31, 1999, an increase of $2,116,619 over the same nine month period of
1998. Genetic testing revenue is comprised of sales of diagnostic tests
resulting from the Company's discovery of disease genes. Sales and marketing
efforts since that time have given rise to the increased revenues in the nine
months ended March 31, 1999. There can be no assurance, however that genetic
testing revenues will continue to increase at the historical rate.
Research and development expenses for the nine months ended March 31, 1999
increased to $17,640,553 from $16,663,344 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, Schering, and Monsanto, as well as those
programs funded by the Company. The increased level of research spending
includes ongoing development of the Company's ProNet and mutation screening
technologies and third-party sponsored research programs.
Selling, general and administrative expenses for the nine months ended March 31,
1999 decreased $299,836 from the nine month period in the prior year. During
the nine month period ended March 31, 1998, the Company was pursuing a plan to
dramatically increase its sales force. Start-up expenses for the sales staff
included training, relocation, and sales supplies. For the nine month period
ended March 31, 1999, the company maintained a steady, well-trained sales force
which resulted in fewer selling expenses. The Company expects its selling,
general and administrative expenses will continue to fluctuate as needed to
support its genetic testing business and its research and development efforts.
Interest income for the first nine months of fiscal year 1999 decreased to
$1,832,994 from $2,490,588 for the same period of fiscal year 1998. Cash, cash
equivalents, and marketable investment securities were $43,142,451 at March 31,
1999 as compared to $56,011,501 at March 31, 1998. This decrease in cash, cash
equivalents and marketable investment securities was attributable to
expenditures incurred in the ordinary course of business, has resulted in
reduced interest income. Interest expense for the nine months ended March 31,
1999, amounting to $6,279, was due entirely to borrowings under the Company's
equipment financing facility.
Liquidity and Capital Resources
Net cash used in operating activities was $10,312,694 during the nine months
ended March 31, 1999 and $5,113,061 during the same period of the prior fiscal
year. Cash used in operating activities is comprised of changes in the
following financial statement accounts: depreciation and amortization, loss on
sale of assets, bad debt expense, trade receivables, non-trade receivables,
prepaid expenses, other assets, accounts payable and accrued expenses, and
deferred revenue. Trade receivables for the nine months ended March 31, 1999
increased $744,703. This increase is primarily attributable to the 164% increase
in genetic testing revenue for the nine month period ended March 31, 1999 as
compared to testing revenue for the nine month period ended March 31, 1998.
Prepaid expenses increased $528,823, from $266,679 to $795,502, during the nine
month period ended March 31, 1999. The increase is primarily due to advance
payments to purchase lab supplies at a discount, advanced royalties, and
insurance premiums. Accounts payable and accrued expenses decreased by
$1,584,926 between June 30, 1998 and March 31, 1999 primarily as a result of
payments for lab supplies and equipment which were accrued into the prior fiscal
year. Deferred revenue, representing the difference in collaborative payments
received and research revenue recognized, decreased from $2,722,115 to $396,636
during the nine months ended March 31, 1999.
The Company's investing activities provided cash of $3,835,761 in the nine
months ended March 31, 1999 and $2,667,285 in the nine months ended March 31,
1998. Investing activities were comprised primarily of capital expenditures for
research equipment, office furniture, and facility improvements and marketable
investment securities. During the nine months ended March 31, 1999, the Company
shifted a portion of its investment in marketable securities to cash and cash
equivalents from longer term investments in order to take advantage of more
favorable interest rates. Also, during the nine month period ended March 31,
1999, the Company entered into a Master Lease Agreement with General Electric
Capital Corporation ("G.E. Capital"). Under this agreement, the Company sold
equipment with a value, net of depreciation, of $3,551,784 ("net book value") to
G.E. Capital. The Company received proceeds from G.E. Capital equal to the net
book value of the equipment.
Financing activities provided $216,657 during the nine month period ended March
31, 1999. The Company reduced
10
the amount of principal owing on its equipment financing facility by $128,843.
Payments on the financing facility were offset by proceeds of $345,500 from the
exercise of options and warrants during the period. Financing activities
provided $146,789 during the nine months ended March 31, 1998. During the
quarter ended March 31, 1998, proceeds received by the Company of $400,486 from
the exercise of options and warrants were offset by payments by the Company of
$253,697 to reduce principal owing on its equipment financing facility.
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, 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 Year 2000 Issue
The Year 2000 Issue is the result of computer programs using a two-digit format,
as opposed to four digits, to indicate the year. Any of the Company's computer
programs or other information systems that have time-sensitive software or
embedded microcontrollers may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations.
State of Readiness and Costs to Address the Year 2000 Issue
During fiscal 1998, the Company completed an initial review ("Phase I") of its
information and non-information technology systems. This review included its
existing and planned computer software and hardware. The Company has made an
initial determination, based on its Phase I review, that the costs and/or
consequences associated with the Year 2000 issue are not expected to have a
material effect on its business, operations or future financial condition.
A second, more in-depth analysis ("Phase II") is currently ongoing. Internally,
Phase II will include the testing of internally developed systems. The internal
portion of Phase II, although well underway, is not expected to be completed
until the end of its 1999 fiscal year. The Company presently believes that with
modifications to existing software and conversions to new software and systems,
the Year 2000 Issue will not pose significant operational problems for its
computer and other information systems. If required, the Company will utilize
both internal and external resources to reprogram, or replace, and test the
software and systems for Year 2000 modifications. Externally, Phase II of the
Company's preparations for the Year 2000 Issue will consist of soliciting and
obtaining certification of Year 2000 compliance from third-party software
vendors and determining the readiness of its significant suppliers and
customers.
Risks of the Year 2000 Issue
If such modifications, conversions and/or replacements are not made, are not
completed timely, or if any of the Company's suppliers or customers do not
successfully deal with the Year 2000 Issue, the Year 2000 Issue could have a
material impact on the operations of the Company. The Company could experience
delays in receiving or sending its genetic testing products that would increase
its costs and that could cause the Company to lose business and even customers
and could subject the Company to claims for damages. Problems with the Year
2000 Issue could also result in delays in the Company invoicing its genetics
testing customers or in the Company receiving payments from them. In addition,
the Company's research and development efforts which rely heavily on the storage
and retrieval of electronic information could be interrupted resulting in
significant delays in discovering genes, the loss of current collaborations, and
the impairment of the Company's ability to enter into new collaborations. The
11
severity of these possible problems would depend on the nature of the problem
and how quickly it could be corrected or an alternative implemented, which is
unknown at this time. In the extreme, such problems could bring the Company to
a standstill.
While management has not yet specifically determined the costs associated with
its Year 2000 readiness efforts, monitoring and managing the Year 2000 Issue
will result in additional direct and indirect costs to the Company. Direct costs
include potential charges by third-party software vendors for product
enhancements, costs involved in testing software products for Year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products which are not enhanced. Indirect costs
will principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and implementing
any necessary contingency plans. Such costs have not been material to date.
Both direct and indirect costs of addressing the Year 2000 Issue will be charged
to earnings as incurred.
Contingency Plan
After evaluating its internal compliance efforts as well as the compliance of
third parties as described above, the Company will develop during calendar year
1999 appropriate contingency plans to address situations in which various
systems of the Company, or of third parties with which the Company does
business, are not Year 2000 compliant. Some risks of the Year 2000 Issue,
however, are beyond the control of the Company and its suppliers and customers.
For example, no preparations or contingency plan will protect the Company from a
downturn in economic activity caused by the possible ripple effect throughout
the entire economy caused by the Year 2000 Issue.
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: the timely
implementation by the Company of its plan to prepare its computer systems for
the Year 2000, the costs to the Company of such preparation, and the timely
conversion by other parties on which the Company's business relies; 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 healthcare insurers and third-party payors; uncertainties as
to the extent of future government regulation of the Company's business;
uncertainties as to whether the Company and its collaborators will be successful
in developing and obtaining regulatory approval for, and commercial acceptance
of, therapeutics based on its discovery of disease-related genes and proteins;
uncertainties as to the Company's ability to develop therapeutic lead compounds,
which is a new business area for the Company; and the risk that markets will not
exist for therapeutic lead compounds that the Company develops or if such
markets exist, that the Company will not be able to sell compounds which it
develops at acceptable prices. 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.
12
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly Report on
Form 10-Q.
Exhibit
Number Description
- ------ -----------
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, 1999.
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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 14, 1999 By: /s/ Peter D. Meldrum
- ------------------ ------------------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: May 14, 1999 /s/ Jay M. Moyes
- ------------------ ------------------------------------------
Jay M. Moyes
Vice President of Finance
(principal financial and accounting officer)
14