UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 November 10, 1999, the registrant had 10,116,269
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 Sheets as of
September 30, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1999
and 1998 4
Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 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 9
PART II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE(S) 16
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, 1999
(Unaudited) June 30, 1999
--------------- ---------------
Assets
------
Current assets:
Cash and cash equivalents $ 15,677,896 $ 5,404,944
Marketable investment securities 8,692,710 4,477,138
Prepaid expenses 398,809 622,700
Trade accounts receivables, less allowance for doubtful accounts of $92,162
at September 30, 1999, $73,439 at June 30, 1999 1,581,621 1,322,950
Other receivables 5,273,627 1,855,696
--------------- ---------------
Total current assets 31,624,663 13,683,428
--------------- ---------------
Equipment and leasehold improvements:
Equipment 14,075,669 13,351,229
Leasehold improvements 3,739,171 3,520,253
--------------- ---------------
17,814,840 16,871,482
Less accumulated depreciation and amortization 7,595,036 6,871,981
--------------- ---------------
Net equipment and leasehold improvements 10,219,804 9,999,501
Long-term marketable investment securities 22,103,074 29,044,377
Other assets 1,186,616 823,634
--------------- ---------------
$ 65,134,157 $ 53,550,940
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,977,327 $ 2,917,810
Accrued liabilities 2,244,945 1,754,634
Deferred revenue 10,146,394 662,760
--------------- ---------------
Total current liabilities 14,368,666 5,335,204
--------------- ---------------
Stockholders' equity
Common stock, $0.01 par value. Authorized 15,000,000 shares; issued and
outstanding 9,807,213 on September 30, 1999 and 9,428,732 on
June 30, 1999 98,072 94,287
Additional paid-in capital 97,045,003 92,377,949
Accumulated other comprehensive loss (68,873) (68,846)
Deferred compensation (177,739) (247,774)
Accumulated deficit (46,130,972) (43,939,880)
--------------- ---------------
Net stockholders' equity 50,765,491 48,215,736
--------------- ---------------
$ 65,134,157 $ 53,550,940
=============== ===============
See accompanying notes to condensed consolidated financial statements.
3
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
--------------------------------
Sept. 30, 1999 Sept. 30, 1998
(Unaudited) (Unaudited)
-------------- --------------
Research revenue $ 5,247,645 $ 4,646,516
Molecular diagnostic revenue 1,614,286 913,470
-------------- --------------
Total revenues 6,861,931 5,559,986
Costs and expenses:
Molecular diagnostic cost of revenue 802,931 602,872
Research and development expenses 5,786,801 5,817,490
Selling, general and administrative expenses 3,021,986 2,555,415
-------------- --------------
Total costs and expenses 9,611,718 8,975,777
-------------- --------------
Operating loss (2,749,787) (3,415,791)
Other income (expense):
Interest income 573,789 696,219
Interest expense -- (2,371)
Other (15,094) 19,441
-------------- --------------
558,695 713,289
-------------- --------------
Net loss ($2,191,092) ($2,702,502)
============== ==============
Basic and diluted loss per common share ($0.23) ($0.29)
============== ==============
Basic and diluted weighted average shares outstanding 9,432,737 9,342,942
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
--------------------------------
Sept. 30, 1999 Sept. 30, 1998
(Unaudited) (Unaudited)
-------------- --------------
Cash flows from operating activities:
Net loss ($2,191,092) ($2,702,502)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 793,727 840,594
Loss on sale of assets 609 11,937
Bad debt expense 18,723 9,000
Increase in trade receivables (277,394) (207,617)
Decrease in other receivables 1,569,750 31,942
Decrease (increase) in prepaid expenses 223,891 (492,637)
Decrease (increase) in other assets (362,982) 42,188
Decrease in accounts payable and accrued expenses (949,015) (1,449,690)
Increase (decrease) in deferred revenue 9,483,634 (589,416)
-------------- --------------
Net cash provided by (used in) operating activities 8,309,851 (4,506,201)
============== ==============
Cash flows from investing activities:
Proceeds from sale of equipment -- 2,595
Capital expenditures (944,604) (984,921)
Net change in marketable investment securities 2,725,704 137,755
-------------- --------------
Net cash provided by (used in) investing activities 1,781,100 (844,571)
============== ==============
Cash flows from financing activities:
Net payments of notes payable -- (91,467)
Net proceeds from issuance of common stock 182,001 77,777
-------------- --------------
Net cash provided by financing activities 182,001 (13,690)
============== ==============
Net increase (decrease) in cash and cash equivalents 10,272,952 (5,364,462)
Cash and cash equivalents at beginning of period 5,404,944 14,595,034
-------------- --------------
Cash and cash equivalents at end of period $ 15,677,896 $ 9,230,572
============== ==============
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, 1999, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1999. Operating results for
the three-month period ended September 30, 1999 may not necessarily be
indicative of the results to be expected for any other interim period or
for the full year.
(2) Collaborative Research Agreement
--------------------------------
In July 1999, the Company entered into a $33,500,000 collaboration and
license agreement related to genomic research. Under the agreement, the
Company received an upfront payment of $11,500,000 and will receive an
additional $22,000,000 of research funding over the two-year term. Upon
completion of the project, the Company will share any profits from the sale
of the discovered information equally with its collaborator.
(3) Common Stock
------------
In September 1999 the Company entered into a Subscription Agreement
pursuant to which the Company sold 355,000 shares of the Company's
unregistered Common Stock, $.01 par value per share (the "Shares") for a
purchase price of $4,987,750. The Company has no obligation to register the
Shares with the Securities and Exchange Commission. In conjunction with the
Subscription Agreement, the Company issued a 3-year warrant to purchase an
additional 17,750 Shares at a premium of 10%. Proceeds from the stock sale
were received October 5, 1999 and reflected as an "Other Receivable" on the
Condensed Consolidated Balance Sheet for the period ended September 30,
1999.
(4) Subsequent Events
-----------------
In October 1999, the Company announced the expansion of its collaboration
with Schering to include research into the field of cardiovascular disease.
The Company also entered into a Securities Purchase Agreement and a
Standstill Agreement with Schering Berlin Venture Corporation ("Schering
Berlin") to sell to Schering Berlin 303,030 Shares. Schering Berlin agreed
to acquire the Shares for an aggregate purchase price of $5,000,000 which
represents a premium to the 20 day trailing average share price.
(5) Segment and Related Information
-------------------------------
The Company's business units have been aggregated into two reportable
segments: (i) research and (ii) molecular diagnostics. The research segment
is focused on the discovery and sequencing of genes related to major common
diseases, marketing of subscriptions to proprietary database information,
and the development of therapeutic products for the treatment and
prevention of major diseases. The molecular diagnostics segment provides
testing to determine predisposition to common diseases.
The accounting policies of the segments are the same as those described in
the basis of presentation (note 1). The Company evaluates segment
performance based on loss from operations before interest income and
6
expense and other income and expense. The Company's assets are not
identifiable by segment.
Molecular
----------
Research diagnostics Total
---------- ----------- -----
Three months ended September 30, 1999:
Revenues $ 5,247,645 $ 1,614,286 $ 6,861,931
Depreciation and amortization 608,603 185,124 793,727
Segment operating loss 1,586,948 1,162,839 2,749,787
Three months ended September 30, 1998:
Revenues 4,646,516 913,470 5,559,986
Depreciation and amortization 638,622 201,972 840,594
Segment operating loss 1,634,920 1,780,871 3,415,791
1999 1998
---- ----
Total operating loss for reportable segments ($2,749,787) (3,415,791)
Unallocated amounts:
Interest income 573,789 696,219
Interest expense -- (2,371)
Other (15,094) 19,441
----------- -----------
Net loss ($2,191,092) ($2,702,502)
=========== ===========
(6) 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 Three Months Ended
September 30, 1999 September 30, 1998
(unaudited) (unaudited)
------------------ ------------------
Net loss ($2,191,092) ($2,702,502)
Unrealized gain (loss) on available-for-sale (27) 93,078
marketable investment securities
----------------- ------------------
Comprehensive loss ($2,191,119) ($2,609,424)
================= ==================
7
(7) Net Loss Per Common and Common Equivalent Share
-----------------------------------------------
Loss per common share is computed based on the weighted-average number of
common shares and, as appropriate, dilutive potential common shares
outstanding during the period. Stock options and warrants are considered to
be potential common shares.
Basic loss per common share is the amount of loss for the period available
to each share of common stock outstanding during the reporting period.
Diluted earnings per share is the amount of loss for the period available
to each share of common stock outstanding during the reporting period and
to each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during
the period.
In calculating loss per common and common-equivalent share the net loss and
the weighted average common and common-equivalent shares outstanding were
the same for both the basic and diluted calculation.
For the three months ended September 30, 1999 and September 30, 1998, there
were antidilutive potential common shares of 2,017,645 and 2,155,178,
respectively. Accordingly, these potential common shares were not included
in the computation of diluted loss per share for the years presented, but
may be dilutive to future basic and diluted earnings per share.
8
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
molecular diagnostic laboratory, and supporting collaborative research
agreements, and more recently establishing a high throughput screening and drug
development facility. Revenues received by the Company primarily have been
payments pursuant to collaborative research agreements, upfront fees, milestone
payments, and sales of molecular diagnostics. The Company has been unprofitable
since its inception and, for the quarter ended September 30, 1999, the Company
had a net loss of $2,191,092 and as of September 30, 1999 had an accumulated
deficit of $46,130,972.
In April 1995, the Company commenced a five-year collaborative research and
development arrangement with Novartis Corporation ("Novartis"). This
collaboration may provide 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 an 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 which may 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. The Company,
through its wholly owned subsidiary Myriad Genetic Laboratories, Inc.,
recognized molecular diagnostic revenues, primarily from BRACAnalysis, of
$1,614,286 for the quarter ended September 30, 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
may provide 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 ("Schering AG"), 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. If the Company chooses to co-
promote the drug as a 50 percent partner, the Company may be required to pay
funds to Schering AG to establish equal ownership.
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 an additional 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.
9
In July 1999, the Company entered into a two-year collaboration and license
agreement with the Novartis Agricultural Discovery Institute, Inc. ("NADII").
The genomic collaboration will focus on the discovery of the genetic structure
of cereal crops. The collaboration will provide the Company with an upfront
payment and research funding of up to $33,500,000. Upon completion, NADII and
the Company intend to jointly offer commercial access to the genomic databases
and share equally in any resulting proceeds.
In September 1999 the Company entered into a Subscription Agreement with Peter
Friedli to sell to Mr. Friedli 355,000 shares of unregistered Common Stock of
the Company, $.01 par value per share (the "Shares"). Mr. Friedli acquired the
Shares for a purchase price of $4,987,750. The Company has no obligation to
register the Shares with the Securities and Exchange Commission. In conjunction
with the Subscription Agreement, Mr. Friedli was issued a 3-year warrant to
purchase an additional 17,750 Shares at a premium of 10%.
The Company intends to enter into additional collaborative relationships to
locate and sequence genes and discover protein networks 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
molecular diagnostic business. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial.
Subsequent Event
In October 1999, the Company announced the expansion of its collaboration with
Schering to include research into the field of cardiovascular disease. The
Company also entered into a Securities Purchase Agreement and a Standstill
Agreement with Schering Berlin Venture Corporation ("Schering Berlin") to sell
to Schering Berlin 303,030 Shares. Schering Berlin agreed to acquire the Shares
for an aggregate purchase price of $5,000,000 which represents a premium to the
20 day trailing average share price.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 and 1998
Research revenues for the quarter ended September 30, 1999 were $5,247,645 as
compared to $4,646,516 for the same quarter of 1998. The increase in research
revenue is primarily attributable to revenue recognized from the NADII
collaboration which began in July 1999. Research revenue from the research
collaboration agreements is recognized as related costs are incurred.
Consequently, as these programs progress and costs increase or decrease,
revenues increase or decrease proportionately.
Molecular diagnostic revenues of $1,614,286 were recognized in the quarter ended
September 30, 1999, an increase of 77% or $700,816 over the same quarter of the
prior year. Molecular diagnostic revenue is comprised of sales of diagnostic
tests resulting from the Company's discovery of disease genes. The test for
genetic predisposition to breast and ovarian cancer was launched by the Company
in October 1996 and the test for heart disease and hypertension risk was
launched by the Company in January 1998. Sales and marketing efforts since that
time have given rise to the increased revenues for the quarter ended September
1999. There can be no assurance, however that molecular diagnostic revenues
will continue to increase at the historical rate.
Research and development expenses for the quarter ended September 30, 1999 were
$5,786,801 as compared to $5,817,490 for the same quarter of 1998. As projects
mature and more information is collected in the laboratory, less expensive
automated analysis tools take on a more significant role. New projects such as
NADII can therefore utilize the available manpower from the more mature projects
made available by the shift toward automated analysis tools. The net result is
little change in research and development expense although future research and
development expenses may increase based on the nature of future projects.
10
Selling, general and administrative expenses for the quarter ended September 30,
1999 were $3,021,986 as compared to $2,555,415 for the same quarter of 1998.
The increase was attributable to costs associated with the ongoing promotion of
BRACAnalysis as well as additional administrative, sales, marketing and
education personnel, market research activities, education material development,
and facilities-related costs. During the quarter ended September 30, 1999, the
company wrote off an asset resulting in a one-time expense of $344,531. The
Company expects its selling, general and administrative expenses will continue
to fluctuate as needed in support of its molecular diagnostic business and its
research and development efforts.
Interest income for the quarter ended September 30, 1999 was $573,789 as
compared to $696,219 for the same quarter of 1998. Cash, cash equivalents, and
marketable investment securities were $47,700,355 at September 30, 1998 as
compared to $46,473,680 at September 30, 1999. 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 September 30, 1998, amounting to $2,371, was due entirely to
borrowings under the Company's equipment financing facility.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8,309,851 during the quarter
ended September 30, 1999 as compared to net cash used by operating activities of
$4,506,201 during the same quarter of 1998. Trade receivables for the three
months ended September 30, 1999 increased $277,394. This increase is primarily
attributable to the increase in molecular diagnostic revenue for the quarter
ended September 30, 1999 as compared to testing revenue for the quarter ended
June 30, 1999. Other receivables decreased $1,569,750 between June 30, 1999 and
September 30, 1999 primarily as a result of payments received by the Company for
the sale of leasehold improvements, and the receipt of collaborative partner
payments for research work performed in prior periods. Prepaid expenses
decreased $223,891 during the quarter ended September 30, 1999. The decrease is
primarily due to advance royalties and insurance premiums being expensed during
the quarter. Other assets decreased as a result of the Company writing down an
asset to its current value. Accounts payable and accrued expenses decreased
$949,015 between June 30, 1999 and September 30, 1999 primarily as a result of
payments for lab supplies and equipment which were accrued into the prior
quarter. Deferred revenue, representing the difference in collaborative
payments received and research revenue recognized, increased $9,483,634 during
the quarter ended September 30, 1999 as a result of an upfront payment from
NADII to the Company.
The Company's investing activities provided cash of $1,781,100 in the three
months ended September 30, 1999 and used cash of $844,571 in the three months
ended September 30, 1998. Investing activities were comprised primarily of
capital expenditures for research equipment, office furniture, and facility
improvements and marketable investment securities. During the quarter ended
September 30, 1999, the Company shifted a portion of its investment in
marketable investment securities to cash and cash equivalents from longer term
investments in order to provide for ongoing corporate expenditures.
Financing activities provided $182,001 during the quarter ended September 30,
1999 from the exercise of stock options during the period. During the quarter
ended September 30, 1998, the Company reduced the principal on its equipment
financing facility by $91,467. This decrease was offset by proceeds of $77,777
from the exercise of stock options.
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
11
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
The Company has substantially completed its Year 2000 readiness testing.
Testing was performed on all of the Company's critical systems and any necessary
modifications have taken place. Where possible, third-party certification of
Year 2000 readiness was obtained on systems purchased by the Company. Third-
party systems which were not certified by the supplier were tested internally or
upgraded to compliant versions. The Company has received assurances from its
significant suppliers and customers that they are Year 2000 ready.
Risks of the Year 2000 Issue
If critical systems fail due to a lack of Year 2000 readiness, 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
molecular diagnostic 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 molecular diagnostic 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 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.
The Company estimates direct and indirect costs associated with it Year 2000
readiness did not exceed $100,000. Direct costs include charges by third-party
software vendors for product enhancements, costs involved in testing software
products for Year 2000 compliance and resulting costs for enhancements to non-
compliant products. Indirect costs principally consist of the time devoted by
existing employees in monitoring software vendor progress, testing enhanced
software products and implementing any necessary contingency plans. Both direct
and indirect costs of addressing the Year 2000 Issue have been charged to
earnings as incurred.
Contingency Plan
The Company is considering 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
12
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
molecular diagnostic business; difficulties inherent in developing genetic tests
once genes have been discovered; the Company's limited experience in operating a
molecular diagnostic 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; 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 the 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.
13
PART II - Other Information
Item 1. Legal Proceedings.
The Company is not a party to any legal proceedings.
Item 2. Changes in Securities.
On September 30, 1999, the Company entered into a Subscription Agreement
pursuant to which the Company sold 355,000 shares of the Company's unregistered
Common Stock, $.01 par value (the "Shares") for an aggregate purchase price of
$4,987,750. The sale of the Shares was made overseas to a foreign investor and
was exempt from registration under Regulation S of the Securities Act of 1933
(the "Securities Act"). In connection with this transaction, the Company also
granted the purchaser a warrant to purchase an additional 17,750 Shares at an
exercise price of $15.45 per share. These warrants are exercisable at any time
prior to 5:00 p.m. Salt Lake City time on October 4, 2002.
On October 15, 1999, the Company entered into a Securities Purchase Agreement
and a Standstill Agreement pursuant to which the Company sold 303,030 Shares for
an aggregate purchase price of $5,000,000. The sale was made to an accredited
investor in a private placement that was exempt from registration under Rule 506
of Regulation D of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly Report on
Form 10-Q.
Exhibit
Number Description
- ------ -----------
10.1 Collaboration and License Agreement between the Company and
Novartis Agricultural Discovery Institute, Inc. dated July 27,
1999. The Company has excluded from this Exhibit 10.1 portions of
the Collaboration and License Agreement for which the Company has
requested confidential treatment from the Securities and Exchange
Commission. The portions of the Collaboration and License Agreement
for which confidential treatment has been requested are marked
"[ ]" and such confidential portions have been filed separately
with the Securities and Exchange Commission.
10.2 Subscription Agreement between the Company and Peter Friedli
dated September 30, 1999.
10.3 Securities Purchase Agreement and Standstill Agreement between the
Company and Schering Berlin Venture Corporation dated October 15,
1999.
27.1 Financial Data Schedule
14
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MYRIAD GENETICS, INC.
Date: November 15, 1999 By: /s/ Peter D. Meldrum
-----------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: November 15, 1999 /s/ Jay M. Moyes
--------------------------------------
Jay M. Moyes
Vice President of Finance and Chief
Financial Officer
(principal financial and accounting
officer)
16
MYRIAD GENETICS, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Collaboration and License Agreement between the Company and
Novartis Agricultural Discovery Institute, Inc. dated July 27,
1999. The Company has excluded from this Exhibit 10.1 portions of
the Collaboration and License Agreement for which the Company has
requested confidential treatment from the Securities and Exchange
Commission. The portions of the Collaboration and License
Agreement for which confidential treatment has been requested are
marked "[ ]" and such confidential portions have been filed
separately with the Securities and Exchange Commission.
10.2 Subscription Agreement between the Company and Peter Friedli dated
September 30, 1999.
10.3 Securities Purchase Agreement and Standstill Agreement between the
Company and Schering Berlin Venture Corporation dated October 15,
1999.
27.1 Financial Data Schedule
17