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 December 31, 2000
-----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission file number: 0-26642
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 February 12, 2001 the registrant had 23,235,636 shares of $0.01 par value
common stock outstanding.
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
Page
-----
PART I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of December 31, 2000
(unaudited) and June 30, 2000 3
Condensed Consolidated Statements of Operations for the three and six months
ended December 31, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE(S) 17
2
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Dec. 31, 2000 June 30, 2000
------------- -------------
Assets
------
Current assets:
Cash and cash equivalents $ 92,427,846 $ 56,214,736
Marketable investment securities 24,740,999 24,286,955
Trade accounts receivables, less allowance for
doubtful accounts of $215,000 at Dec. 31, 2000
and $145,000 at June 30, 2000 3,336,612 2,352,154
Prepaid expenses 1,907,350 2,678,984
Other receivables 428,955 398,947
---------------- ----------------
Total current assets 122,841,762 85,931,776
---------------- ----------------
Equipment and leasehold improvements:
Equipment 19,412,752 16,965,545
Leasehold improvements 4,154,881 4,005,729
---------------- ----------------
23,567,633 20,971,274
Less accumulated depreciation and amortization 11,473,327 9,719,556
---------------- ----------------
Net equipment and leasehold improvements 12,094,306 11,251,718
Long-term marketable investment securities 23,065,777 8,154,153
Other assets 3,479,845 1,037,658
---------------- ----------------
$161,481,690 $106,375,305
================ ================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 4,594,749 $ 4,262,359
Accrued liabilities 4,348,310 4,905,857
Deferred revenue 12,760,244 19,500,442
---------------- ----------------
Total current liabilities 21,703,303 28,668,658
Stockholders' equity:
Common stock, $0.01 par value, 60,000,000 shares
authorized; issued and outstanding 23,053,480 at
Dec. 31, 2000 and 21,866,482 at June 30, 2000 230,535 218,666
Additional paid-in capital 195,405,111 130,235,403
Accumulated other comprehensive income (loss) 64,630 (85,440)
Accumulated deficit (55,921,889) (52,661,982)
---------------- -----------------
Total stockholders' equity 139,778,387 77,706,647
---------------- ----------------
$161,481,690 $106,375,305
================ ================
See accompanying notes to condensed consolidated financial statements.
3
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
2000 1999 2000 1999
------------ --------------- ------------ --------------
Revenues:
Research revenue $7,988,017 $6,255,872 $15,757,268 $11,503,517
Predictive medicine revenue 3,965,898 2,023,871 7,015,906 3,638,157
----------- ------------- ------------- --------------
Total revenues 11,953,915 8,279,743 22,773,174 15,141,674
Costs and expenses:
Predictive medicine cost of
revenue 1,726,998 989,156 3,032,360 1,792,087
Research and development 9,351,036 6,205,468 18,141,833 11,992,270
expense
Selling, general and
administrative 4,080,244 3,353,944 8,023,633 6,375,930
----------- ------------- ------------- --------------
Total expenses 15,158,278 10,548,568 29,197,826 20,160,287
----------- ------------- ------------- --------------
Operating loss (3,204,363) (2,268,825) (6,424,652) (5,018,613)
Other income (expense):
Interest income 2,022,100 736,664 3,420,393 1,310,453
Other (7,183) (344,989) (255,648) (360,082)
----------- ------------- ------------- --------------
2,014,917 391,675 3,164,745 950,371
----------- ------------- ------------- --------------
Net loss ($1,189,446) ($1,877,150) ($3,259,907) ($4,068,242)
=========== ============= ============= ==============
Basic and diluted loss per share ($0.05) ($0.09) ($0.15) ($0.21)
=========== ============= ============= ==============
Basic and diluted weighted
average shares outstanding 22,698,098 20,247,804 22,365,347 19,556,638
See accompanying notes to condensed consolidated financial statements.
4
MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
----------------
(Unaudited) (Unaudited)
Dec. 31, 2000 Dec. 31, 1999
-------------- -------------
Cash flows from operating activities:
Net loss ($3,259,907) ($4,068,242)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,776,909 1,565,663
Loss on disposition of assets 255,648 360,082
Bad debt expense 70,000 35,410
Increase in trade receivables (1,054,458) (510,936)
(Increase) decrease in other receivables (30,008) 1,742,247
(Increase) decrease in prepaid expenses 771,634 (289,080)
Increase in other assets - (332,774)
Increase (decrease) in accounts payable and
accrued expenses (225,157) 1,071,169
Increase (decrease) in deferred revenue (6,740,198) 11,966,662
------------ ------------
Net cash provided by (used in) operating
activities (8,435,537) 11,540,201
------------ ------------
Cash flows from investing activities:
Capital expenditures (2,617,332) (1,582,927)
Investment in pharmaceutical company (2,700,000) -
Net change in marketable investment securities (15,215,598) 1,095,091
------------ ------------
Net cash used in investing activities (20,532,930) (487,836)
------------ ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 65,181,577 11,222,686
------------ ------------
Net cash provided by financing activities 65,181,577 11,222,686
------------ ------------
Net increase in cash and cash equivalents 36,213,110 22,275,051
Cash and cash equivalents at beginning of period 56,214,736 5,404,944
------------ ------------
Cash and cash equivalents at end of period $ 92,427,846 $ 27,679,995
============ ============
See accompanying notes to condensed consolidated financial statements.
5
MYRIAD GENETICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements have been
prepared by Myriad Genetics, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial
information and pursuant to the applicable rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. In the opinion of management, the
accompanying financial statements contain all adjustments (consisting of
normal and recurring accruals) necessary to present fairly all financial
statements. The financial statements herein should be read in
conjunction with the Company's audited consolidated financial statements
and notes thereto for the fiscal year ended June 30, 2000, included in
the Company's Annual Report on Form 10-K and Amendment No. 1 to Form 10-
K on Form 10-K/A for the year ended June 30, 2000. Operating results for
the three and six month periods ended December 31, 2000 may not
necessarily be indicative of the results to be expected for any other
interim period or for the full year.
(2) Comprehensive Loss (Unaudited)
-----------------------------
The components of the Company's comprehensive loss are as follows:
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------ ------------
Net loss ($1,189,446) ($1,877,150) ($3,259,907) ($4,068,242)
Unrealized gain (loss)
on available-for-sale securities 127,117 (16,842) 150,070 (16,869)
-------------- --------------- --------------- ---------------
Comprehensive loss ($1,062,329) ($1,893,992) ($3,109,837) ($4,085,111)
============== =============== =============== ===============
(3) Net Loss Per Common Share
-------------------------
Loss per common share is computed based on the weighted-average number
of common shares and, as appropriate, dilutive potential common shares
outstanding during the period. Stock options and warrants are considered
to be potential common shares.
Basic loss per common share is the amount of loss for the period
available to each share of common stock outstanding during the reporting
period. Diluted earnings per share is the amount of loss for the period
available to each share of common stock outstanding during the reporting
period and to each share that would have been outstanding assuming the
issuance of common shares for all dilutive potential common shares
outstanding during the period.
In calculating loss per common share the net loss and the weighted
average common shares outstanding were the same for both the basic and
diluted calculation.
As of December 31, 2000 and 1999, there were antidilutive potential
common shares of 3,751,298 and 3,506,968, respectively. Accordingly,
these potential common shares were not
6
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.
4) Segment and Related Information
-------------------------------
The Company's business units have been aggregated into two reportable
segments: (i) research and (ii) predictive medicine. The research
segment is focused on the discovery and sequencing of genes related to
major common diseases, marketing of subscriptions to proprietary
database information, and the development of therapeutic products for
the treatment and prevention of major diseases. The predictive medicine
segment provides testing to determine predisposition to common diseases.
The accounting policies of the segments are the same as those described
in the basis of presentation (note 1). The Company evaluates segment
performance based on results from operations before interest income and
expense and other income and expense. The Company's assets are not
identifiable by segment.
Predictive
Research medicine Total
-------- -------- -----
Three months ended Dec. 31, 2000:
Revenues $7,988,017 $3,965,898 $11,953,915
Depreciation and amortization 620,903 277,864 898,767
Segment operating loss 1,525,603 1,678,760 3,204,363
Three months ended Dec. 31, 1999:
Revenues 6,255,872 2,023,871 8,279,743
Depreciation and amortization 582,021 189,915 771,936
Segment operating loss 641,612 1,627,213 2,268,825
Six months ended Dec. 31, 2000:
Revenues 15,757,268 7,015,906 22,773,174
Depreciation and amortization 1,256,880 520,029 1,776,909
Segment operating loss 2,883,336 3,541,316 6,424,652
Six months ended Dec. 31, 1999:
Revenues 11,503,517 3,638,157 15,141,674
Depreciation and amortization 1,190,624 375,039 1,565,663
Segment operating loss 2,228,560 2,790,053 5,018,613
Three Months Ended Six Months Ended
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 1999
------------- ------------- ------------- -------------
Total operating loss for
reportable segments ($3,204,363) ($2,268,825) ($6,424,652) ($5,018,613)
Interest income 2,022,100 736,664 3,420,393 1,310,453
Other (7,183) (344,989) (255,648) (360,082)
------------- ------------- ------------ -------------
Net loss ($1,189,446) ($1,877,150) ($3,259,907) ($4,068,242)
============= ============= ============ =============
7
(5) Investment in Pharmaceutical Company
------------------------------------
In December 2000, we acquired from Encore Pharmaceuticals, Inc.
worldwide, exclusive rights to develop, manufacture, and market a drug
aimed at the prevention and treatment of prostate, colon, and other
cancers. As part of the agreement the Company made an equity investment
in Encore of $2.7 million, paid $300,000 in non-equity funding, and
agreed to pay Encore future development milestones and a royalty on any
future sales of the drug.
(6) Subsequent Events
-----------------
In July 1999, we entered into a two-year collaboration and license
agreement with Syngenta (formerly the Novartis Agricultural Discovery
Institute, Inc.). During January 2001, the Company announced that it had
completed DNA sequencing of the entire rice genome ahead of schedule,
triggering a $3 million cash bonus payment. Remaining collaboration
funding will be used to expand the scope of the existing agreement to
include the use of the Company's ProNet(R) technology. Remaining
funding, including the cash bonus payment, will be recognized on a
percent-complete basis over the life of the expanded agreement.
(7) Recent Accounting Pronouncements
--------------------------------
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition, (SAB 101) to
provide guidance on the recognition, presentation and disclosure of
revenue in financial statements; however, SAB 101 does not change
existing literature on revenue recognition. SAB 101 explains the staff's
general framework for revenue recognition, stating that four criteria
need to be met in order to recognize revenue. The four criteria, all of
which must be met, are the following:
. There must be persuasive evidence of an arrangement;
. Delivery must have occurred or services must have been
rendered;
. The selling price must be fixed or determinable; and
. Collectibility must be reasonably assured.
The Company will adopt SAB 101 during the quarter ended June 30, 2001.
The Company has evaluated its current revenue recognition policy and
believes it is in compliance with this guidance.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leader in the emerging field of proteomics and gene-based medicine
focusing on the development of therapeutic and predictive medicine products. We
have developed, and will continue to expand upon, a number of proprietary
proteomic technologies which permit us, through the use of our bioinformatics
and robotics systems, to identify genes and related proteins that may play a
role in the onset or progression of major human diseases. We formed two wholly
owned subsidiaries, Myriad Pharmaceuticals, Inc. and Myriad Genetic
Laboratories, Inc., to commercialize our therapeutic discoveries and predictive
medicine discoveries, respectively. Myriad Pharmaceuticals, Inc., independently
and in conjunction with collaborative partners, focuses on the discovery and
development of therapeutic products. Myriad Genetic Laboratories, Inc. focuses
on the development of predictive medicine products that assess a person's risk
of developing a specific disease and permits physicians and their patients to
take appropriate health care measures to reduce the risk.
We have devoted substantially all of our resources to maintaining our research
and development programs, supporting collaborative research agreements,
operating a predictive medicine laboratory, establishing high-throughput drug
screening, and undertaking drug discovery and development. Our revenues have
consisted primarily of research payments received pursuant to collaborative
agreements, upfront fees, milestone payments, and sales of predictive medicine
products. We have yet to attain profitability and, for the three months ended
December 31, 2000, we had a net loss of $1,189,446 and as of December 31, 2000
had an accumulated deficit of $55,921,889.
In September 1995, we commenced a five-year collaborative research and
development arrangement with Bayer Corporation. The total equity investment,
research funding and potential milestone payments under this collaboration may
provide us with up to $71,000,000. In November 1997, December 1998, and December
2000, we announced expansions of our collaborative research and development
arrangement with Bayer. The expanded collaboration and extensions may provide us
with additional research funding and potential milestone payments of up to
$137,000,000. We granted Bayer an exclusive worldwide license to human
therapeutic products developed from this collaboration. We are entitled to
receive royalties from sales of therapeutic products commercialized by Bayer for
a term of ten years following the first commercial sale or 20 years following
discovery of a disease gene, whichever is longer. We have received approximately
$35,000,000 in non-refundable research payments to date under this agreement.
In October 1996, we announced the introduction of BRACAnalysis(R), a
comprehensive BRCA1 and BRCA2 gene sequence analysis for susceptibility to
breast and ovarian cancer. In January 1998, we announced the introduction of
CardiaRisk(R), which may assist physicians both in identifying which
hypertensive patients are at a significantly increased risk of developing
cardiovascular disease and identifying which patients are likely to respond to
low salt diet therapy and antihypertensive drug therapy. In September 2000, we
announced the launch of COLARIS(TM), a predictive medicine test for hereditary
colon cancer and uterine cancer. We, through our wholly owned subsidiary Myriad
Genetic Laboratories, Inc., recognized predictive medicine revenues, primarily
from BRACAnalysis(R), of $3,965,898 for the three months ended December 31,
2000.
In October 1998, we entered into a five-year collaboration with Schering AG, to
utilize ProNet(R) for drug discovery and development. Under the agreement, we
will have an option to co-promote all new therapeutic products in North America
and receive 50 percent of the profits from North American sales of all new drugs
discovered with ProNet(R). Outside of North America, we granted Schering AG an
exclusive license to therapeutic products developed from this collaboration. We
may receive future royalty payments from the sale of these products. The total
research funding, license fees, subscription fees, option payments and potential
milestone payments under this collaboration may provide us with up to
9
$51,000,000. If we choose to co-promote a drug developed by Schering AG as a 50
percent partner, we are required to pay funds to Schering AG to establish equal
ownership. If we do not choose to co-promote a drug developed under this
collaboration, Schering AG will receive a worldwide exclusive license to
therapeutic products developed from this collaboration from which we may receive
future royalty payments. Royalty terms are tied to either the life of any
patents that may result from this research or ten years following the first
commercial sale of a therapeutic product, whichever is longer. In October 1999,
we announced the expansion of our collaboration with Schering AG to include
research in the field of cardiovascular disease.
In November 1998, we entered into a 15 month collaboration with Pharmacia
Corporation to utilize ProNet(R) for drug discovery and development. We granted
Pharmacia non-exclusive access to proteins contained in the pathways analyzed
under the collaboration and an option to obtain an exclusive, worldwide license
to therapeutic products developed from this collaboration. In December 1999,
Pharmacia exercised its option to extend the research term for an additional 12
months and exercised its option to expand the research funding. The total
research funding, option payments, license fees and potential milestone payments
under this collaboration may provide us with up to $28,000,000. In addition, we
are entitled to receive royalties from sales of therapeutic products
commercialized by Pharmacia for a term of the later of 15 years from the first
commercial sale or the life of any resulting patent. We have received
approximately $1,000,000 in non-refundable research payments to date under this
agreement.
In July 1999, we entered into a two-year collaboration and license agreement
with Syngenta. The genomic collaboration focuses on the discovery of the genetic
structure of cereal crops. We will have joint ownership with Syngenta to all
data developed under this agreement and a right to receive 50 percent of all
proceeds derived from the sale of the data. Myriad and Syngenta have a
royalty-free worldwide co-exclusive right for commercial use of any resulting
data. The total funding under this collaboration is expected to provide us with
up to $33,500,000. Upon completion, we and Syngenta intend to jointly offer
commercial access to the genomic databases and share equally in any resulting
proceeds. We have received approximately $29,000,000 in non-refundable research
payments to date under this agreement.
In December 1999, we entered into a 12 month collaboration with Hoffmann-LaRoche
Inc. to utilize ProNet(R) for drug discovery and development in the area of
cardiovascular disease. The total research funding, license fees and potential
milestone payments under this collaboration may provide us with up to
$13,000,000. We granted Roche exclusive access to proteins contained in the
pathways analyzed under this collaboration and an option to obtain an exclusive,
worldwide license to the therapeutic and diagnostic products developed from this
collaboration. In addition, we are entitled to receive royalties from sales of
therapeutic products commercialized by Roche for a term of ten years from the
first commercial sale. We have received approximately $500,000 in non-refundable
research payments to date under this agreement.
In May 2000, we entered into a three-year strategic alliance with Hitachi Ltd.
Under the terms of the agreement, we will work with Hitachi to exploit the
ProNet(R) technology together in Japan and Hitachi will establish a designated
ProNet(R) facility to expedite the discovery of novel protein-protein
interactions for Japanese customers. We granted Hitachi an exclusive,
royalty-bearing license in Japan to the ProNet(R) database and technology. Total
payments under this collaboration are expected to provide us with $26,000,000.
In addition, we are entitled to receive royalties from sales of the database in
Japan and from sales of therapeutic products commercialized by Hitachi. We are
entitled to receive royalties for a period of ten years. We have received
approximately $7,500,000 in non-refundable research payments to date under this
agreement.
In December 2000, we acquired from Encore Pharmaceuticals, Inc. worldwide,
exclusive rights to develop, manufacture, and market a drug aimed at the
prevention and treatment of prostate, colon, and
10
other cancers. The compound, which will be known as MPC-7869, has completed
Phase IIa human clinical trials, demonstrating a promising safety profile in
both healthy individuals and prostate cancer patients. We made an equity
investment in Encore of $2.7 million and agreed to pay Encore future development
milestones and a royalty on any future sales of the drug.
We intend to enter into additional collaborative relationships to locate and
sequence genes and discover protein networks associated with other common
diseases as well as to continue to fund internal research projects. We may be
unable to enter into additional collaborative relationships on terms acceptable
to us. We expect to incur losses for at least the next several years, primarily
due to expansion of our research and development programs, expansion of our drug
discovery and development efforts, increased staffing costs and expansion of our
facilities. Additionally, we expect to incur substantial sales, marketing and
other expenses in connection with building our predictive medicine business. We
expect that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial.
Results of Operations for the Three Months Ended December 31, 2000 and 1999
Research revenues for the quarter ended December 31, 2000 were $7,988,017 as
compared to $6,255,872 for the same quarter of 1999. The increase in research
revenue of 28% is primarily attributable to revenue recognized from our new
collaborations including Hoffman-LaRoche, Hitachi, and a fully established
Syngenta project. Research revenue from the research collaboration agreements is
recognized as related costs are incurred. Consequently, as these programs
progress and costs increase or decrease, revenues increase or decrease
proportionately.
Predictive medicine revenues of $3,965,898 were recognized in the quarter ended
December 31, 2000, an increase of 96% or $1,942,027 over the same quarter of the
prior year. The Company's sales and marketing efforts, together with the
increased demand as a result of wider acceptance of the test by the medical
community, have resulted in increased testing volume and increased revenues for
the quarter ended December 31, 2000. There can be no assurance, however, that
predictive medicine revenues will continue to increase at the historical rate,
if at all.
Research and development expenses for the quarter ended December 31, 2000 were
$9,351,036 as compared to $6,205,468 for the same quarter in 1999. This increase
of 51% was in part due to an increase in research activities as a result of the
ongoing drug discovery efforts of Myriad Pharmaceuticals, a wholly-owned
subsidiary, and the Company's research collaborations.
Selling, general and administrative expenses for the quarter ended December 31,
2000 were $4,080,244 as compared to $3,353,944 for the same quarter in 1999. The
increase of 22% was primarily attributable to costs associated with supporting
our research and drug development efforts and ongoing promotion of the
predictive medicine business. The Company expects its selling, general and
administrative expenses will continue to fluctuate as needed in support of its
research and drug development efforts and its predictive medicine business.
Cash, cash equivalents, and marketable investment securities increased
$80,192,115 or 134% from $60,042,507 at December 31, 1999 to $140,234,622 at
December 31, 2000. This increase in cash, cash equivalents, and marketable
investment securities is primarily attributable to the private sale of
approximately $87 million worth of the Company's Common Stock, as well as the
receipt of advance payments from the Company's collaborators. These cash
receipts were offset by expenditures incurred in the ordinary course of
business. As a result of the Company's increased cash position, interest income
for the quarter ended December 31, 2000 was $2,022,100 compared to $736,664 for
the same quarter in 1999. The loss on disposition of assets of $7,183 in the
quarter ended December 31, 2000 is the result of the Company retiring
unproductive assets.
11
Results of Operations for the Six Months Ended December 31, 2000 and 1999
Research revenues for the six months ended December 31, 2000 were $15,757,268 as
compared to $11,503,517 for the same period in 1999. The increase in research
revenue of 37% is primarily attributable to revenue recognized from our new
collaborations, including Hoffman-LaRoche, Hitachi, and a fully established
Syngenta project. Research revenue from the research collaboration agreements is
recognized as related costs are incurred. Consequently, as these programs
progress and costs increase or decrease, revenues increase or decrease
proportionately.
Predictive medicine revenues of $7,015,906 were recognized in the six months
ended December 31, 2000, an increase of 93% or $3,377,749 over the same period
in the prior year. The Company's sales and marketing efforts, together with the
increased demand as a result of wider acceptance of the test by the medical
community, have resulted in increased testing volume and increased revenues for
the six months ended December 31, 2000. There can be no assurance, however, that
predictive medicine revenues will continue to increase at the historical rate,
if at all.
Research and development expenses for the six months ended December 31, 2000
were $18,141,833 as compared to $11,992,270 for the same period in 1999. This
increase of 51% was in part due to an increase in research activities as a
result of the ongoing drug discovery efforts of Myriad Pharmaceuticals, a
wholly-owned subsidiary, and the Company's research collaborations.
Selling, general and administrative expenses for the six months ended December
31, 2000 were $8,023,633 as compared to $6,375,930 for the same period in 1999.
The increase of 26% was primarily attributable to costs associated with
supporting our research and drug development efforts and ongoing promotion of
the predictive medicine business, including COLARIS(TM), a predictive medicine
test for hereditary colon and uterine cancer launched in September 2000. The
Company expects its selling, general and administrative expenses will continue
to fluctuate as needed in support of its research and drug development efforts
and its predictive medicine business.
Cash, cash equivalents, and marketable investment securities increased
$80,192,115 or 134% from $60,042,507 at December 31, 1999 to $140,234,622 at
December 31, 2000. This increase in cash, cash equivalents, and marketable
investment securities is primarily attributable to the private sale of
approximately $87 million worth of the Company's Common Stock, as well as the
receipt of advance payments from the Company's collaborators. These cash
receipts were offset by expenditures incurred in the ordinary course of
business. As a result of the Company's increased cash position, interest income
for the six months ended December 31, 2000 was $3,420,393 compared to $1,310,453
for the same period in 1999. The loss on disposition of assets of $255,648 in
the six months ended December 31, 2000 is the result of the Company retiring
unproductive assets.
Liquidity and Capital Resources
Net cash used in operating activities was $8,435,537 during the six months ended
December 31, 2000 compared to $11,540,201 provided by operating activities
during the same period of the prior fiscal year. Trade receivables for the six
months ended December 31, 2000 increased $1,054,458. This increase is primarily
attributable to increased predictive medicine revenue for the six month period
ended December 31, 2000. Prepaid expenses decreased by $771,634 during the six
months ended December 31, 2000 due to the use of lab supplies previously
purchased. Accounts payable and accrued expenses decreased by $225,157,
primarily as a result of payments for equipment and lab supplies that were
accrued into the prior quarter. Deferred revenue, representing the difference in
collaborative payments received and research revenue recognized, decreased by
$6,740,198 during the six months ended December 31, 2000.
12
The Company's investing activities used cash of $20,532,930 and $487,836 in the
six months ended December 31, 2000 and 1999, respectively. Investing activities
were comprised primarily of changes to marketable investment securities, plus
capital expenditures for research equipment and an equity investment in Encore
Pharmaceuticals, Inc. During the six months ended December 31, 2000, the Company
shifted a portion of its investment from cash and cash equivalents to marketable
investment securities in order to take advantage of favorable interest rates.
Financing activities provided $65,181,577 during the six months ended December
31, 2000. In August 2000 we sold 350,000 shares of the Company's common stock in
a private placement for an aggregate purchase price of $22 million. In October
2000 we sold an additional 400,000 shares of the Company's common stock in a
private placement for an aggregate purchase price of $41 million. We
subsequently registered these 750,000 shares with the Securities and Exchange
Commission, as required under the stock purchase agreements. Additional cash was
provided from the exercise of stock options during the six months ended December
31, 2000.
The Company anticipates that its existing capital resources will be adequate to
maintain its current and planned operations for at least the next two years,
although no assurance can be given that changes will not occur that would
consume available capital resources before such time. The Company's future
capital requirements will be substantial and will depend on many factors,
including progress of the Company's research and development programs and drug
discovery and drug development programs; the cost of human clinical trials and
regulatory approval of its drug candidates; the cost of developing and launching
additional predictive medicine tests; the costs of filing, prosecuting and
enforcing patent claims; competing technological and market developments;
payments received under collaborative agreements and changes in collaborative
research relationships; the costs associated with potential commercialization of
its gene discoveries, if any, including the development of manufacturing,
marketing and sales capabilities; the cost and availability of third-party
financing for capital expenditures and administrative and legal expenses.
Because of the Company's significant long-term capital requirements, the Company
intends to raise funds when conditions are favorable, even if it does not have
an immediate need for additional capital at such time.
Quantitative and Qualitative Disclosures About Market Risk
The Company maintains an investment portfolio in accordance with its Investment
Policy. The primary objectives of the Company's Investment Policy are to
preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The Company's Investment Policy specifies credit quality
standards for the Company's investments and limits the amount of credit exposure
to any single issue, issuer or type of investment.
The Company's investments consist of securities of various types and maturities
of three years or less, with a maximum average maturity of 12 months. These
securities are classified either as available-for-sale or held-to-maturity.
Available-for-sale securities are recorded on the balance sheet at fair market
value with unrealized gains or losses reported as part of accumulated other
comprehensive loss. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Gains and
losses on investment security transactions are reported on the
specific-identification method. Dividend and interest income are recognized when
earned. A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary results
in a charge to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective-interest
method.
The securities held in the Company's investment portfolio are subject to
interest rate risk. Changes in interest rates affect the fair market value of
the available-for-sale securities. After a review of the
13
Company's marketable securities as of December 31, 2000, the Company has
determined that in the event of a hypothetical ten percent increase in interest
rates, the resulting decrease in fair market value of the Company's marketable
investment securities would be insignificant to the financial statements as a
whole.
Certain Factors That May Affect Future Results of Operations
Some of the matters discussed in this Quarterly Report on Form 10-Q include
"forward-looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. In some cases you can identify forward-looking
statements by terminology such as "may", "will", "should", "potential",
"continue", "expects", "anticipates", "intends", "plans", "believes",
"estimates", and similar expressions. We have based these forward-looking
statements on our current expectations and projections about future events. We
caution investors that actual results may vary significantly and are subject to
a number of factors and uncertainties, including, but not limited to, the
following: intense competition related to the discovery of disease-related genes
and the possibility that others may discover, and we may not be able to gain
rights with respect to, genes important to the establishment of a successful
genetic testing business; difficulties inherent in developing genetic tests once
genes have been discovered; our limited experience in operating a genetic
testing laboratory; our limited marketing and sales experience and the risk that
tests which we have or may develop may not be marketed at acceptable prices or
receive commercial acceptance in the markets that we are targeting or expect to
target; uncertainty as to whether there will exist adequate reimbursement for
our services from government, private healthcare insurers and third-party
payors; uncertainties as to the extent of future government regulation of our
business; uncertainties as to whether we and our collaborators will be
successful in developing and obtaining regulatory approval for, and commercial
acceptance of, therapeutics based on the discovery of disease-related genes and
proteins; uncertainties as to our ability to develop therapeutic lead compounds,
which is a new business area for us; and the risk that markets will not exist
for therapeutic lead compounds that we develop or if such markets exist, that we
will not be able to sell compounds which we develop at acceptable prices.
These forward-looking statements are made as of the date of this report and
actual results may differ. In light of these assumptions, risks, and
uncertainties, the results and events discussed in the forward-looking
statements contained in this Quarterly Report on Form 10-Q might not occur.
14
PART II - Other Information
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is a party to any material legal
proceedings.
Item 2. Changes in Securities.
(c) Sales of Unregistered Securities
--------------------------------
During the three months ended December 31, 2000, the Company issued a
total of 88,456 shares of Common Stock, $0.01 par value per share, to a
director of the Company pursuant to the exercise of stock options at a
weighted average price of $0.01 per share.
Effective October 27, 2000, the Company sold 400,000 shares of its
Common Stock, $.01 par value per share, to Acqua Wellington North
American Equities Fund, Ltd., for an aggregate purchase price of $41
million.
No person acted as an underwriter with respect to the transactions set
for above. These transactions were exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) and
Regulation S thereunder, or Rule 701, as no public offerings were
involved.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On November 17, 2000, the Company held its Annual Meeting of Shareholders (the
"Annual Meeting"). A quorum of 16,339,852 shares of Common Stock of the Company
(of a total 22,323,219 outstanding shares, or 73.2%) was represented at the
Annual Meeting in person or by proxy, which was held to vote on the following
proposal:
1. To elect three members to the Board of Directors to serve for a term
ending in 2003. Nominees for Directors were Michael J. Berendt, PhD.,
Alan J. Main, PhD., and Dale A. Stringfellow, PhD.
2. To consider and act upon a proposal to ratify the appointment of KPMG
LLP as the Company's independent public accountants for the fiscal
year ended June 30, 2001.
Each of the proposals was adopted, with the vote totals as follows:
Proposal 1:
FOR WITHHELD
--- --------
Michael J. Berendt, PhD. 16,015,438 324,414
Alan J. Main, PhD. 16,287,284 52,568
Dale A. Stringfellow, PhD. 16,296,514 43,338
15
Immediately following the Annual Meeting, Peter D. Meldrum, Mark H.
Skolnick, PhD., and Linda S. Wilson, PhD. continued to serve as
Directors for terms expiring in 2001, and Walter Gilbert, PhD., Arthur
Hayes Jr., MD, and John J. Horan continued to serve as Directors for
terms expiring in 2002 and until their successors are duly elected and
qualified. Effective December 2000 Michael J. Berendt, PhD. resigned as
a member of the Board of Directors.
Proposal 2:
For 16,329,682
Against 4,448
Abstain 5,722
Broker Non-vote -
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
(10.1) Purchase Agreement dated as of October 27, 2000 between the Registrant
and Acqua Wellington North America Equities, Ltd. (previously filed as
Exhibit 4.4 to the Company's Registration Statement on From S-3, File
No. 333-50504, effective December 1, 2000, and incorporated herein by
reference).
(10.2) Registration Rights Agreement dated as of October 27, 2000 between the
Registrant and Acqua Wellington North America Equities, Ltd. (previously
filed as Exhibit 4.5 to the Company's Registration Statement on From S-
3, File No. 333-50504, effective December 1, 2000, and incorporated
herein by reference).
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December 31, 2000.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MYRIAD GENETICS, INC.
Date: February 14, 2001 By: /s/ Peter D. Meldrum
----------------- ------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: February 14, 2001 By: /s/ Jay M. Moyes
----------------- -----------------------
Jay M. Moyes
Vice President of Finance
Principal financial and chief accounting officer