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 ------- 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 <TABLE> <CAPTION> Sept. 30, 1999 (Unaudited) June 30, 1999 --------------- --------------- <S> <C> <C> 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 =============== =============== </TABLE> See accompanying notes to condensed consolidated financial statements. 3
MYRIAD GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> Three Months Ended -------------------------------- Sept. 30, 1999 Sept. 30, 1998 (Unaudited) (Unaudited) -------------- -------------- <S> <C> <C> 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 </TABLE> See accompanying notes to condensed consolidated financial statements. 4
MYRIAD GENETICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended -------------------------------- Sept. 30, 1999 Sept. 30, 1998 (Unaudited) (Unaudited) -------------- -------------- <S> <C> <C> 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 ============== ============== </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 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. <TABLE> <CAPTION> Molecular ---------- Research diagnostics Total ---------- ----------- ----- <S> <C> <C> <C> 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 <CAPTION> 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) =========== =========== </TABLE> (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: <TABLE> <CAPTION> Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 (unaudited) (unaudited) ------------------ ------------------ <S> <C> <C> 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) ================= ================== </TABLE> 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