UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ____________ Commission file number: 0-26642 ------- MYRIAD GENETICS, INC. (Exact name of registrant as specified in its charter) Delaware 87-0494517 -------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 320 Wakara Way, Salt Lake City, UT 84108 - ---------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 584-3600 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of May 11, 2001 the registrant had 23,265,453 shares of $0.01 par value common stock outstanding.
MYRIAD GENETICS, INC. INDEX TO FORM 10-Q Page ---- PART I - Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and June 30, 2000 3 Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2001 and 2000 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2001 and 2000 (unaudited) 5 Notes to Condensed Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II - Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURE(S) 17 2
MYRIAD GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> (Unaudited) March 31, 2001 June 30, 2000 -------------------- -------------------- Assets ------ <S> <C> <C> Current assets: Cash and cash equivalents $ 96,201,023 $ 56,214,736 Marketable investment securities 31,851,402 24,286,955 Trade accounts receivables, less allowance for doubtful accounts of $245,000 at March 31, 2001 and $145,000 at June 30, 2000 3,505,557 2,352,154 Prepaid expenses 1,635,360 2,678,984 Other receivables 277,655 398,947 --------------------- --------------------- Total current assets 133,470,997 85,931,776 --------------------- --------------------- Equipment and leasehold improvements: Equipment 20,636,181 16,965,545 Leasehold improvements 3,485,680 4,005,729 --------------------- --------------------- 24,121,861 20,971,274 Less accumulated depreciation and amortization 11,606,467 9,719,556 --------------------- --------------------- Net equipment and leasehold improvements 12,515,394 11,251,718 Long-term marketable investment securities 12,778,982 8,154,153 Other assets 3,479,846 1,037,658 --------------------- --------------------- $162,245,219 $106,375,305 ===================== ===================== <CAPTION> Liabilities and Stockholders' Equity ------------------------------------ <S> <C> <C> Current liabilities: Accounts payable $ 5,421,861 $ 4,262,359 Accrued liabilities 2,937,437 4,905,857 Deferred revenue 14,654,552 19,500,442 --------------------- --------------------- Total current liabilities 23,013,850 28,668,658 Stockholders' equity: Common stock, $0.01 par value, 60,000,000 shares authorized; issued and outstanding 23,260,811 at March 31, 2001 and 21,866,482 at June 30, 2000 232,608 218,666 Additional paid-in capital 196,385,286 130,235,403 Accumulated other comprehensive income (loss) 263,409 (85,440) Accumulated deficit (57,649,934) (52,661,982) --------------------- --------------------- Total stockholders' equity 139,231,369 77,706,647 --------------------- --------------------- $162,245,219 $106,375,305 ===================== ===================== </TABLE> See accompanying notes to condensed consolidated financial statements. 3
MYRIAD GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> (Unaudited) (Unaudited) Three Months Ended March 31, Nine months Ended March 31, ----------------------------------------------- ----------------------------------------- 2001 2000 2001 2000 ------------------- ------------------- ------------------ -------------------- <S> <C> <C> <C> <C> Revenues: Research revenue $ 6,652,289 $ 7,287,880 $ 22,409,558 $ 18,791,397 Predictive medicine revenue 4,914,950 2,426,886 11,930,856 6,065,043 ------------------- ------------------- ------------------ -------------------- Total revenues 11,567,239 9,714,766 34,340,414 24,856,440 Costs and expenses: Predictive medicine cost of revenue 2,149,029 1,068,511 5,181,389 2,860,598 Research and development expense 8,428,402 8,333,149 26,570,236 20,325,418 Selling, general and administrative expense 4,247,554 3,337,482 12,271,188 9,713,413 ------------------- ------------------- ------------------ -------------------- Total expenses 14,824,985 12,739,142 44,022,813 32,899,429 ------------------- ------------------- ------------------ -------------------- Operating loss (3,257,746) (3,024,376) (9,682,399) (8,042,989) Other income (expense): Interest income 2,057,167 949,162 5,477,560 2,259,615 Other (27,465) (14,670) (283,113) (374,752) ------------------- ------------------- ------------------ -------------------- Net loss before taxes (1,228,044) (2,089,884) (4,487,952) (6,158,126) Income taxes 500,000 -- 500,000 -- ------------------- ------------------- ------------------ -------------------- Net loss ($1,728,044)) ($2,089,884) ($4,987,952) ($6,158,126) =================== =================== ================== ==================== Basic and diluted loss per share ($0.07) ($0.10) ($0.22) ($0.31) =================== =================== ================== ==================== Basic and diluted weighted average shares outstanding 23,219,841 20,682,538 22,646,020 19,929,208 </TABLE> See accompanying notes to condensed consolidated financial statements. 4
MYRIAD GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Nine months Ended ------------------------------------------------ (Unaudited) (Unaudited) March 31, 2001 March 31, 2000 -------------------- --------------------- Cash flows from operating activities: <S> <C> <C> Net loss ($4,987,952) ($6,158,126) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,735,937 2,380,404 Loss on disposition of assets 283,113 374,752 Bad debt expense 100,000 33,007 Increase in trade receivables (1,253,403) (747,443) Decrease in other receivables 121,292 1,646,246 (Increase) decrease in prepaid expenses 1,043,624 (2,210,263) Increase in other assets -- (578,555) Increase (decrease) in accounts payable and accrued expenses (808,918) 2,136,043 Increase (decrease) in deferred revenue (4,845,890) 15,146,403 -------------------- --------------------- Net cash provided by (used in) operating activities (7,612,197) 12,022,468 -------------------- --------------------- Cash flows from investing activities: Capital expenditures (4,024,914) (3,453,707) Investment in pharmaceutical company (2,700,000) -- Net purchases/sales of marketable investment securities (12,189,276) 1,810,637 -------------------- --------------------- Net cash used in investing activities (18,565,341) (1,643,070) -------------------- --------------------- Cash flows from financing activities: Net proceeds from issuance of common stock 66,163,825 12,995,422 -------------------- --------------------- Net cash provided by financing activities 66,163,825 12,995,422 -------------------- --------------------- Net increase in cash and cash equivalents 39,986,287 23,374,820 Cash and cash equivalents at beginning of period 56,214,736 5,404,944 -------------------- --------------------- Cash and cash equivalents at end of period $ 96,201,023 $ 28,779,764 ===================== ==================== </TABLE> See accompanying notes to condensed consolidated financial statements. 5
MYRIAD GENETICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation --------------------- The accompanying condensed consolidated financial statements have been prepared by Myriad Genetics, Inc. (the "Company") in accordance with generally accepted accounting principles for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly all financial statements. The financial statements herein should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2000, included in the Company's Annual Report on Form 10-K and Amendment No. 1 to Form 10-K on Form 10-K/A for the year ended June 30, 2000. Operating results for the three and nine month periods ended March 31, 2001 may not necessarily be indicative of the results to be expected for any other interim period or for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) Comprehensive Loss (Unaudited) ------------------------------ The components of the Company's comprehensive loss are as follows: <TABLE> <CAPTION> Three Months Ended March 31, Nine months Ended March 31, -------------------------------------------- ------------------------------------------ 2001 2000 2001 2000 ------------------- ------------------- ------------------- ------------------- <S> <C> <C> <C> <C> Net loss ($1,728,044) ($2,089,884) ($4,987,952) ($6,158,126) Unrealized gain (loss) on available-for-sale securities 198,779 13,406 348,849 (3,463) ------------------- ------------------- ------------------- ------------------- Comprehensive loss ($1,529,265) ($2,076,478) ($4,639,103) ($6,161,589) =================== =================== =================== =================== </TABLE> (3) Net Loss Per Common Share ------------------------- Loss per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive potential common shares outstanding during the period. Stock options and warrants are considered to be potential common shares. Basic loss per common share is the amount of loss for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of loss for the period available to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the period. 6
In calculating loss per common share the net loss and the weighted average common shares outstanding were the same for both the basic and diluted calculation. As of March 31, 2001 and 2000, there were antidilutive potential common shares of 3,942,576 and 3,085,786, respectively. Accordingly, these potential common shares were not included in the computation of diluted loss per share for the periods presented, but may be dilutive to future basic and diluted earnings per share. (4) Segment and Related Information ------------------------------- The Company's business units have been aggregated into two reportable segments: (i) research and (ii) predictive medicine. The research segment is focused on the discovery and sequencing of genes related to major common diseases, marketing of subscriptions to proprietary database information, and the development of therapeutic products for the treatment and prevention of major diseases. The predictive medicine segment provides testing to determine predisposition to common diseases. The accounting policies of the segments are the same as those described in the basis of presentation (note 1). The Company evaluates segment performance based on results from operations before interest income and expense and other income and expense. The Company's assets are not identifiable by segment. <TABLE> <CAPTION> Predictive Research medicine Total --------------------- ------------------- ---------------- <S> <C> <C> <C> Three months ended Mar. 31, 2001: Revenues $ 6,652,289 $ 4,914,950 $11,567,239 Depreciation and amortization 662,306 296,722 959,028 Segment operating loss 2,106,415 1,151,331 3,257,746 Three months ended Mar. 31, 2000: Revenues 7,287,880 2,426,886 9,714,766 Depreciation and amortization 600,269 195,722 795,991 Segment operating loss 1,642,460 1,331,916 3,024,376 Nine months ended Mar. 31, 2001: Revenues 22,409,558 11,930,856 34,340,414 Depreciation and amortization 1,919,186 816,751 2,735,937 Segment operating loss 4,989,752 4,692,647 9,682,399 Nine months ended Mar. 31, 2000: Revenues 18,791,397 6,065,043 24,856,440 Depreciation and amortization 1,809,643 570,761 2,380,404 Segment operating loss 3,921,021 4,121,968 8,042,989 </TABLE> 7
<TABLE> <CAPTION> Three Months Ended Nine months Ended (Unaudited) (Unaudited) (Unaudited) (Unaudited) Mar. 31, 2001 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2000 ------------------ ----------------- ----------------- ------------------ <S> <C> <C> <C> <C> Total operating loss for reportable segments ($3,257,746) ($3,024,376) ($9,682,399) ($8,042,989) Interest income 2,057,167 949,162 5,477,560 2,259,615 Other (27,465) (14,670) (283,113) (374,752) Taxes (500,000) - (500,000) - ------------------- ------------------ ------------------ ------------------- Net loss ($1,728,044) ($2,089,884) ($4,987,952) ($6,158,126) =================== ================== ================== =================== </TABLE> (5) Subsequent Events ----------------- In April 2001 the Company announced the formation of a new alliance with Hitachi, Ltd., Friedli Corporate Finance A.G., and Oracle Corp. to map the human proteome. The newly-formed entity, Myriad Proteomics, Inc., will market its proprietary database and a set of proteomic materials to pharmaceutical and biotechnology companies for therapeutic and diagnostic product development. The Company will contribute technology valued at $82 million to the alliance and receive a 50 percent ownership interest in Myriad Proteomics, Inc. Hitachi, Oracle, and Friedli will contribute a combined $85 million in cash in exchange for the remaining 50 percent interest in Myriad Proteomics, Inc. (6) Recent Accounting Pronouncements -------------------------------- In December 2000, the Securities and Exchange Commission staff released Staff Accounting Bulletin No. 101, Revenue Recognition, (SAB 101) to provide guidance on the recognition, presentation and disclosure of revenue in financial statements; however, SAB 101 does not change existing literature on revenue recognition. SAB 101 explains the staff's general framework for revenue recognition, stating that four criteria need to be met in order to recognize revenue. The four criteria, all of which must be met, are the following: . There must be persuasive evidence of an arrangement; . Delivery must have occurred or services must have been rendered; . The selling price must be fixed or determinable; and . Collectibility must be reasonably assured. The Company will adopt SAB 101 during the quarter ended June 30, 2001. The Company has evaluated its current revenue recognition policy and believes it is in compliance with this guidance. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a leader in the emerging field of proteomics and gene-based medicine focusing on the development of therapeutic and predictive medicine products. We have developed, and will continue to expand upon, a number of proprietary proteomic technologies which permit us, through the use of our bioinformatics and robotics systems, to identify genes and related proteins that may play a role in the onset or progression of major human diseases. We formed two wholly owned subsidiaries, Myriad Pharmaceuticals, Inc. and Myriad Genetic Laboratories, Inc., to commercialize our therapeutic discoveries and predictive medicine discoveries, respectively. Myriad Pharmaceuticals, Inc. focuses on the discovery and development of therapeutic products. Myriad Genetic Laboratories, Inc. focuses on the development of predictive medicine products that assess a person's risk of developing a specific disease and permits physicians and their patients to take appropriate health care measures to reduce the risk. In April 2001 we announced the formation of a new alliance with Hitachi, Ltd., Friedli Corporate Finance A.G., and Oracle Corp. to map the human proteome. The collaboration will take place within Myriad Proteomics, Inc., a newly formed Delaware corporation of which we own 50 percent. Myriad Proteomics will market its proprietary database and a set of proteomic materials to pharmaceutical and biotechnology companies for therapeutic and diagnostic product development. We have devoted substantially all of our resources to maintaining our research and development programs, supporting collaborative research agreements, operating a predictive medicine business and undertaking drug discovery and development. Our revenues have consisted primarily of research payments received pursuant to collaborative agreements, upfront fees, milestone payments, and sales of predictive medicine products. We have yet to attain profitability and, for the three months ended March 31, 2001, we had a net loss of $1,728,044 and as of March 31, 2001 had an accumulated deficit of $57,649,934. In September 1995, we commenced a five-year collaborative research and development arrangement with Bayer Corporation. The total equity investment, research funding and potential milestone payments under this collaboration may provide us with up to $71,000,000. In November 1997, December 1998, and December 2000, we announced expansions of our collaborative research and development arrangement with Bayer. The expanded collaboration and extensions may provide us with additional research funding and potential milestone payments of up to $137,000,000. We granted Bayer an exclusive worldwide license to human therapeutic products developed from this collaboration. We are entitled to receive royalties from sales of therapeutic products commercialized by Bayer for a term of ten years following the first commercial sale or 20 years following discovery of a disease gene, whichever is longer. We have received approximately $37,000,000 in non-refundable research payments to date under this agreement. In October 1996, we announced the introduction of BRACAnalysis(R), a comprehensive predictive medicine test for breast and ovarian cancer. In January 1998, we announced the introduction of CardiaRisk(R), which may assist physicians both in identifying which hypertensive patients are at a significantly increased risk of developing cardiovascular disease and identifying which patients are likely to respond to low salt diet therapy and antihypertensive drug therapy. In September 2000, we announced the launch of COLARIS(TM), a predictive medicine test for colon cancer and uterine cancer. We, through our wholly owned subsidiary Myriad Genetic Laboratories, Inc., recognized predictive medicine revenues of $4,914,950 for the three months ended March 31, 2001. In October 1998, we entered into a five-year collaboration with Schering AG, to utilize ProNet(R) for drug discovery and development. Under the agreement, we will have an option to co-promote all new therapeutic products in North America and receive 50 percent of the profits from North American sales of 9
all new drugs discovered using ProNet(R). Outside of North America, we granted Schering AG an exclusive license to therapeutic products developed from this collaboration. The total research funding, license fees, subscription fees, option payments and potential milestone payments under this collaboration may provide us with up to $51,000,000. If we choose to co-promote a drug developed by Schering AG as a 50 percent partner, we are required to pay funds to Schering AG to establish equal ownership. If we do not choose to co-promote a drug developed under this collaboration, Schering AG will receive a worldwide exclusive license to therapeutic products developed from this collaboration from which we may receive future royalty payments. Royalty terms are tied to either the life of any patents that may result from this research or ten years following the first commercial sale of a therapeutic product, whichever is longer. In October 1999, we received $5,000,000 in the form of an equity investment and announced the expansion of our collaboration with Schering AG to include research in the field of cardiovascular disease. In November 1998, we entered into a 15 month collaboration with Pharmacia Corporation to utilize ProNet(R) for drug discovery and development. We granted Pharmacia non-exclusive access to proteins contained in the pathways analyzed under the collaboration and an option to obtain an exclusive, worldwide license to therapeutic products developed from this collaboration. In December 1999, Pharmacia exercised its option to extend the research term for an additional 12 months and exercised its option to expand the research funding. The total research funding, option payments, license fees and potential milestone payments under this collaboration may provide us with up to $28,000,000. In addition, we are entitled to receive royalties from sales of therapeutic products commercialized by Pharmacia for a term of the later of 15 years from the first commercial sale or the life of any resulting patent. We received approximately $1,000,000 in non-refundable research payments under this agreement, of which the research portion was successfully concluded during the current quarter. In July 1999, we entered into a two-year collaboration and license agreement with Syngenta. The genomic collaboration focuses on the discovery of the genetic structure of cereal crops. We will have joint ownership with Syngenta to all data developed under this agreement and a right to receive 50 percent of all proceeds derived from the sale of the data. Myriad and Syngenta each have a royalty-free worldwide co-exclusive right for commercial use of any resulting data. Myriad and Syngenta each intend to jointly offer commercial access to the genomic databases and share equally in any resulting proceeds. In January 2001 we announced completion of DNA sequencing of the entire rice genome ahead of schedule. Remaining collaboration funding will be used to expand the scope of the existing agreement to include the use of our ProNet(R) technology. We have received approximately $33,500,000 in non-refundable research payments to date under this agreement. In December 1999, we entered into an 18 month collaboration with Hoffmann- LaRoche Inc. to utilize ProNet(R) for drug discovery and development in the area of cardiovascular disease. The total research funding, license fees and potential milestone payments under this collaboration may provide us with up to $13,000,000. We granted Roche exclusive access to proteins contained in the pathways analyzed under this collaboration and an option to obtain an exclusive, worldwide license to the therapeutic and diagnostic products developed from this collaboration. In addition, we are entitled to receive royalties from sales of therapeutic products commercialized by Roche for a term of ten years from the first commercial sale. We have received approximately $500,000 in non- refundable research payments to date under this agreement. In May 2000, we entered into a three-year strategic alliance with Hitachi Ltd. Under the terms of the agreement, we will work with Hitachi to commercialize the ProNet(R) technology together in Japan and Hitachi will establish a designated ProNet(R) facility to expedite the discovery of novel protein-protein interactions for Japanese customers. We granted Hitachi an exclusive, royalty- bearing license in Japan to the ProNet(R) database and technology. Total payments under this collaboration are expected to provide us with $26,000,000. In addition, we are entitled to receive royalties from sales of the database in Japan 10
and from sales of therapeutic products commercialized by Hitachi. We are entitled to receive royalties for a period of ten years. We have received approximately $7,500,000 in non-refundable research payments to date under this agreement. In December 2000, we acquired from Encore Pharmaceuticals, Inc. worldwide, exclusive rights to develop, manufacture, and market a drug aimed at the prevention and treatment of prostate, colon, and other cancers. The compound, which will be known as MPC-7869, has completed Phase IIa human clinical trials, demonstrating a promising safety profile in both healthy individuals and prostate cancer patients. We made an equity investment in Encore of $2.7 million, paid $300,000 in non-equity funding, and agreed to pay Encore future development milestones and a royalty on any future sales of the drug. We expect to incur losses for at least the next several years, primarily due to expansion of our research and development programs, expansion of our drug discovery and development efforts, increased staffing costs and expansion of our facilities. We expect to incur substantial sales, marketing and other expenses in connection with building our predictive medicine business. Additionally, we intend to enter into further collaborative relationships to identify disease genes and discover protein networks associated with other common diseases as well as to continue to fund internal research projects. We may be unable to enter into additional collaborative relationships on terms acceptable to us. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. Results of Operations for the Three Months Ended March 31, 2001 and 2000 Research revenues for the quarter ended March 31, 2001 were $6,652,289 as compared to $7,287,880 for the same quarter of 2000. The decrease in research revenue of 9% is primarily attributable to greater emphasis on our internal research and drug development programs and reduced research collaboration expenses. Research revenue from the research collaboration agreements is recognized as related costs are incurred. Consequently, as these programs progress and costs increase or decrease, revenues increase or decrease proportionately. Predictive medicine revenues of $4,914,950 were recognized in the quarter ended March 31, 2001, an increase of 103% or $2,488,064 over the same quarter of the prior year. Our sales and marketing efforts, together with the increased demand as a result of wider acceptance of the test by the medical community, have resulted in increased testing volume and increased revenues for the quarter ended March 31, 2001. There can be no assurance, however, that predictive medicine revenues will continue to increase at the historical rate, if at all. Research and development expenses for the quarter ended March 31, 2001 were $8,428,402 as compared to $8,333,149 for the same quarter in 2000. This increase was primarily due to an increase in research activities as a result of the ongoing internal drug discovery efforts of Myriad Pharmaceuticals, our wholly-owned subsidiary. Selling, general and administrative expenses for the quarter ended March 31, 2001 were $4,247,554 as compared to $3,337,482 for the same quarter in 2000. The increase of 27% was primarily attributable to costs associated with the ongoing sales and promotion of our predictive medicine products. We expect our selling, general and administrative expenses will continue to fluctuate as needed in support of our research and drug development efforts and our predictive medicine business. Cash, cash equivalents, and marketable investment securities increased $80,344,228 or 133% from $60,487,179 at March 31, 2000 to $140,831,407 at March 31, 2001. This increase in cash, cash equivalents, and marketable investment securities is primarily attributable to the private sale of an aggregate of approximately $87 million worth of our Common Stock, as well as the receipt of advance payments from our collaborators. These cash receipts were offset by expenditures incurred in the 11
ordinary course of business. As a result of our increased position in interest- bearing investments, interest income for the quarter ended March 31, 2001 was $2,057,167 compared to $949,162 for the same quarter in 2000. The loss on disposition of assets of $27,465 in the quarter ended March 31, 2001 is the result of retiring unproductive assets. Income taxes of $500,000 represent withholdings by the Japanese government on collaboration payments from Hitachi. Results of Operations for the Nine months Ended March 31, 2001 and 2000 Research revenues for the nine months ended March 31, 2001 were $22,409,558 as compared to $18,791,397 for the same period in 2000. The increase in research revenue of 19% is primarily attributable to revenue recognized from our new collaborations, including Hitachi and a fully established Syngenta project. These increases were partially offset by a greater emphasis on our internal research and drug development programs. Research revenue from the research collaboration agreements is recognized as related costs are incurred. Consequently, as these programs progress and costs increase or decrease, revenues increase or decrease proportionately. Predictive medicine revenues of $11,930,856 were recognized in the nine months ended March 31, 2001, an increase of 97% or $5,865,813 over the same period in the prior year. Our sales and marketing efforts, together with the increased demand as a result of wider acceptance of the test by the medical community, have resulted in increased testing volume and increased revenues for the nine months ended March 31, 2001. There can be no assurance, however, that predictive medicine revenues will continue to increase at the historical rate, if at all. Research and development expenses for the nine months ended March 31, 2001 were $26,570,236 as compared to $20,325,418 for the same period in 2000. This increase of 31% was primarily due to an increase in research activities as a result of the ongoing internal drug discovery efforts of Myriad Pharmaceuticals, our wholly-owned subsidiary. Selling, general and administrative expenses for the nine months ended March 31, 2001 were $12,271,188 as compared to $9,713,413 for the same period in 2000. The increase of 26% was primarily attributable to costs associated with the sales and ongoing promotion of our predictive medicine products, including COLARIS(TM), a predictive medicine test for colon and uterine cancer launched in September 2000. We expect our selling, general and administrative expenses will continue to fluctuate as needed in support of our research and drug development efforts and our predictive medicine business. Cash, cash equivalents, and marketable investment securities increased $80,344,228 or 133% from $60,487,179 at March 31, 2000 to $140,831,407 at March 31, 2001. This increase in cash, cash equivalents, and marketable investment securities is primarily attributable to the private sale of an aggregate of approximately $87 million worth of our Common Stock, as well as the receipt of advance payments from our collaborators. These cash receipts were offset by expenditures incurred in the ordinary course of business. As a result of our increased position in interest-bearing investments, interest income for the nine months ended March 31, 2001 was $5,477,560 compared to $2,259,615 for the same period in 2000. The loss on disposition of assets of $283,113 in the nine months ended March 31, 2001 is the result of retiring unproductive assets. Income taxes of $500,000 represent withholdings by the Japanese government on collaboration payments from Hitachi. Liquidity and Capital Resources Net cash used in operating activities was $7,612,197 during the nine months ended March 31, 2001 compared to $12,022,468 provided by operating activities during the same period of the prior fiscal year. Trade receivables for the nine months ended March 31, 2001 increased $1,253,403. This increase is 12
primarily attributable to increased predictive medicine revenue for the nine month period ended March 31, 2001. Prepaid expenses decreased by $1,043,624 during the nine months ended March 31, 2001 due to the use of lab supplies previously purchased. Accounts payable and accrued expenses decreased by $808,918, primarily as a result of payments for equipment and lab supplies that were accrued in the prior year. Deferred revenue, representing the difference in collaborative payments received and research revenue recognized, decreased by $4,845,890 during the nine months ended March 31, 2001. Our investing activities used cash of $18,565,341 and $1,643,070 in the nine months ended March 31, 2001 and 2000, respectively. Investing activities were comprised primarily of changes to marketable investment securities, plus capital expenditures for research equipment and an equity investment in Encore Pharmaceuticals, Inc. During the nine months ended March 31, 2001, we shifted a portion of our investments from cash and cash equivalents to marketable investment securities in order to take advantage of favorable interest rates. Financing activities provided $66,163,825 during the nine months ended March 31, 2001. In August 2000 we sold 350,000 shares of our Common Stock in a private placement for an aggregate purchase price of $22 million. In October 2000 we sold an additional 400,000 shares of our Common Stock in a private placement for an aggregate purchase price of $41 million. We subsequently registered these 750,000 shares with the Securities and Exchange Commission, as required under the respective registration rights agreements. Additional cash was provided from the exercise of stock options during the nine months ended March 31, 2001. We anticipate that our existing capital resources will be adequate to maintain our current and planned operations for at least the next two years, although no assurance can be given that changes will not occur that would consume available capital resources before such time. Our future capital requirements will be substantial and will depend on many factors, including progress of our research and development programs and drug discovery and drug development programs; the cost of human clinical trials and regulatory approval of our drug candidates; the cost of developing and launching additional predictive medicine products; the costs of filing, prosecuting and enforcing patent claims; competing technological and market developments; payments received under collaborative agreements and changes in collaborative research relationships; the costs associated with potential commercialization of our gene discoveries, if any, including the development of manufacturing, marketing and sales capabilities; the cost and availability of third-party financing for capital expenditures and administrative and legal expenses. Because of our significant long-term capital requirements, we intend to raise funds when conditions are favorable, even if we do not have an immediate need for additional capital at such time. Quantitative and Qualitative Disclosures About Market Risk We maintain an investment portfolio in accordance with our Investment Policy. The primary objectives of our Investment Policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our Investment Policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. Our investments consist of securities of various types and maturities of three years or less, with a maximum average maturity of 12 months. These securities are classified either as available-for-sale or held-to-maturity. Available-for- sale securities are recorded on the balance sheet at fair market value with unrealized gains or losses reported as part of accumulated other comprehensive income (loss). Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Gains and losses on investment security transactions are reported on the specific- identification method. Dividend and interest income are recognized when earned. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary results in a charge to earnings and establishes a new cost basis for the security. Premiums and 13
discounts are amortized or accreted over the life of the related held-to- maturity security as an adjustment to yield using the effective-interest method. The securities held in our investment portfolio are subject to interest rate risk. Changes in interest rates affect the fair market value of the available- for-sale securities. After a review of our marketable securities as of March 31, 2001, we have determined that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair market value of our marketable investment securities would be insignificant to our financial statements as a whole. Certain Factors That May Affect Future Results of Operations Some of the matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terminology such as "may", "will", "should", "potential", "continue", "expects", "anticipates", "intends", "plans", "believes", "estimates", and similar expressions. We have based these forward-looking statements on our current expectations and projections about future events. We caution investors that actual results may vary significantly and are subject to a number of factors and uncertainties, including, but not limited to, the following: intense competition related to the discovery and development of therapeutic products and the discovery and development of predictive medicine products; uncertainties as to whether we and our collaborators will be successful in developing and obtaining regulatory approval for, and commercial acceptance of, therapeutics based on the discovery of disease-related genes and proteins; uncertainties as to our ability to develop therapeutic lead compounds; and the risk that markets will not exist for therapeutic lead compounds that we develop or if such markets exist, that we will not be able to sell compounds which we develop at acceptable prices; difficulties inherent in developing predictive medicine products; our limited experience in operating a predictive medicine business; our limited marketing and sales experience and the risk that predictive medicine products which we have or may develop may not be marketed at acceptable prices or receive commercial acceptance in the markets that we are targeting or expect to target; uncertainty as to whether there will exist adequate reimbursement for our products from government, private healthcare insurers and third-party payors; and uncertainties as to the extent of future government regulation of our business. These forward-looking statements are made as of the date of this report and actual results may differ. In light of these assumptions, risks, and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q might not occur. We undertake no duty to update any of these forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. 14
PART II - Other Information Item 1. Legal Proceedings. Neither the Company nor any of its subsidiaries is a party to any material legal proceedings. Item 2. Changes in Securities. (c) Sales of Unregistered Securities -------------------------------- During the three months ended March 31, 2001, the Company issued a total of 82,874 shares of Common Stock, $0.01 par value per share, to a director of the Company and a consultant pursuant to the exercise of stock options at a weighted average price of $1.51 per share. The securities issued in the foregoing transactions were either (i) offered and sold in reliance upon exemptions from the Securities Act of 1933 ("Securities Act") registration requirements set for in Sections 3(b) and 4(2) of the Securities Act, and any regulations promulgated thereunder, relating to sales by an issuer not involving any public offering, or (ii) in the case of certain options to purchase shares of commons stock and shares of common stock issued upon the exercise of options, such offers and sales were made in reliance upon an exemption from registration under Rule 701 promulgated under Section 3(b) of the Securities Act. No underwriters were involved in the foregoing sales of securities. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits -------- (10.1) Lease Agreement, dated March 31, 2001, between Boyer Research Park Associates VI, by its general partner, The Boyer Company, L.C. and the Company. (10.2) Agreement, dated March 31, 2001, between Boyer Research Park Associates VI, by its general partner, The Boyer Company, L.C. and the Company. (10.3) License Agreement, dated December 7, 2000, between Encore Pharmaceuticals, Inc. and the Company. The Company has omitted from this Exhibit 10.3 portions of the License Agreement 15
for which the Company has requested confidential treatment from the Securities and Exchange Commission. The portions of the License Agreement for which confidential treatment has been requested are marked "[ ]" and such confidential portions have been filed separately with the Securities and Exchange Commission. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter ended March 31, 2001. 16
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MYRIAD GENETICS, INC. Date: May 15, 2001 By: /s/ Peter D. Meldrum ------------ ----------------------------------------------- Peter D. Meldrum President and Chief Executive Officer Date: May 15, 2001 By: /s/ Jay M. Moyes ------------ ------------------------------------------------ Jay M. Moyes Vice President of Finance Principal financial and chief accounting officer