Myriad Genetics Inc (MYGN) 2003 Q2 法說會逐字稿

Good day and welcome to the Myriad Genetics earnings announcement. My name is Jeremy (ph) , and I will be your conference coordinator. If you should require assistance at any time during today's teleconference, please press the star and zero.

I would now like to turn the program over to your host, Peter Meldrum. Please go ahead, sir.

Good morning and welcome to the Myriad Genetics earnings conference call. My name is Peter Meldrum, and I'm the President and Chief Executive Officer at Myriad.

I'm joined today by Dr. Mark Skolnick, our Chief Scientific Officer; Dr. Adrian Hobden, President of Myriad Pharmaceuticals; Dr. Gregory Critchfield, President of Myriad Genetic Laboratories; and Mr. Jay Moyes, our Chief Financial Officer.

I will begin the discussion this morning with a brief review of our financial results for the second quarter ended December 31, 2002. I will be followed by Dr. Skolnick, who will discuss our recently announced discovery of a major cause of hereditary depression and a corresponding $1 million milestone payment from Abbot. Dr. Critchfield will then discuss the status of our direct to consumer marketing campaign and our strategic alliance with LabCorp. Greg will also review the laboratory's successful transition to a capillary sequencing platform that happened this past quarter. Dr. Hobden will review the status of our prostate cancer and Alzheimer's clinical programs. Adrian will also provide an uptake on the other drug discovery activities at Myriad Genetics. At the end of his discussion I will turn the call back to the operator for the question and answer portion of the conference call.

Please note that some of the information presented here today may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are only predictions and the actual events or results may differ materially from management's expectations. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual reports on Form 10-K and its quarterly reports on Form 10-Q. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

For the second fiscal quarter ended December 31st, 2002, total revenues increased to a record $17 million, as compared to the 13.5 million in the same quarter of the prior year. Research revenues grew 25 percent over the second fiscal quarter in 2001 to 8.9 million from 7.1 million. A portion of this increase resulted from the Company receiving a $1 million milestone payment from Abbot Laboratories for the discovery of a major gene involved in depression. Under our agreement with Abbot, they will receive worldwide therapeutic rights to any therapeutic products resulting from this discovery and Myriad would receive substantial future milestone payments and royalties. Myriad retains the worldwide predictive medicine rights associated with the depression gene.

For the second fiscal quarter ended December 31st, 2002, predictive medicine product revenues grew 28 percent over the same quarter of the prior year to 8.2 million from 6.4 million. During the second fiscal quarter of 2002, the Company improved its molecular diagnostic technology by transitioning from a slab gel sequencing platform to a capillary sequencing platform. This record sales level is particularly impressive since it was accomplished despite the downtime that occurred during this technology transition. Gross profit margins for our predictive medicine business also increased to a record 63.3 percent, as compared to 59.7 percent for the second fiscal quarter in 2001. This improvement in gross profit margin resulted primarily from price increases in our product line, economies to scale as the result of the increasing testing volume, and gains in efficiencies in the operation of our predictive medicine business. Because of the economies and efficiencies of capillary sequencing, we expect to see continued improvement in our gross profit margins in the future.

Research and development expenses for the three months ended December 31st, 2002, were 12.2 million, compared to 8.6 million for the same three months in 2001.This increase of 42 percent was primarily attributable to increased expenses associated with our research collaboration, increased research efforts for the development of our therapeutic product type line, and development costs associated with our ongoing clinical trials in prostate cancer and Alzheimer's Disease.

Part of this increase in our R&D expenses reflects the Company's preparation for filing a phase two clinical study in Europe for Alzheimer's Disease. Adrian will discuss this clinical trial later in the presentation.

Selling, general and administrative expenses for the three months ended December 31st, 2002 were 9.3 million compared to 6.1 million for the same three months in 2001. This increase of 52 percent was primarily attributable to the marketing costs associated with our direct to consumer marketing campaign in Denver and Atlanta.

As Greg will discuss later, the DTC (ph) campaign is going well and we're optimistic that DTC (ph) advertising may enable us to increase consumer awareness of our predictive medicine business.

The net loss reported by the Company for the three month period ended December 31st, 2002 was 6.9 million or 27 cents per share. This increase in net loss over the prior quarter was primarily due to the cost of the DTC (ph) campaign, increased drug development costs and a more conservative revenue recognition this quarter in accordance with newly issued SEC guidance.

At this point, I would like to have Jay Moyes, our Chief Financial Officer, discuss the SEC guidelines in more detail. Jay.

Thanks, Pete. As most of you are aware, Myriad is a fiscally conservative company. When presented with alternative accounting treatments, we have historically chosen the method that would result in the most conservative financial outcome.

For example, since our inception in 1991, Myriad has adopted the revenue recognition provisions that SAB 101 (ph) has only recently required of all companies. We are very proud of this track record.

In accordance with SAB 101 (ph) , Myriad uses percentage of completion accounting for all our research collaborations. We believe this method most accurately matches research revenues with research expenses.

Recently, however, the SEC has provided a new interpretation regarding the specific usage of percentage completion accounting for certain service collaborations. Myriad has pro-actively elected to implement this new guidance for one of our research collaborations.

As a result of this implementation, research revenues are approximately 1.6 million less than they would have been had we continued to use our traditional percentage completion accounting. Additionally, this resulted in our loss per share increasing from 22 cents to 27 cents. The $1.6 million in revenue not recognized this quarter will be recognized over the next three quarters.

Thank you, Jay. As mentioned, since the revenue will be recognized in future quarters, I am pleased to reiterate our comfort with the consensus projection by research analysts of a net loss for fiscal 2002 of $22 million or 89 cents. I'm sorry, that was fiscal 2003.

Myriad ended the second fiscal quarter in a strong financial position with over $149 million in cash, cash equivalents and short and long-term marketable securities. This represents an 11 percent increase over the $134 million cash balance at December 31st, 2001.

This increase in cash is primarily attributable to the public offering of $57.3 million of our common stock on November 26th, 2002. This underwritten offering through Morgan Stanley increased the number of shares of common stock outstanding from 24 million shares to 27 million shares. Even with this new stock issuance, Myriad maintains a comparatively small number of issued and outstanding shares. Additionally, the company has no debt and no convertible debentures, rounding out a very strong and conservative balance sheet.

It is now my pleasure to turn the conference call over to Dr. Mark Skolnick. Mark?

Good morning, ladies and gentlemen. It's a pleasure for me to announce a major gene discovery for the second quarter in a row. As you may remember, last quarter we announced the discovery of the HOB1 obesity gene, the first common human obesity gene ever isolated. That gene is proving to be an important drug target, as you'll hear this morning from Adrian Hobden.

Today, Myriad is pleased to announce the discovery of DEP1, the first human depression gene that has ever isolated. Both of these discoveries are extremely significant firsts in their field. Myriad has licensed the worldwide therapeutic rights to DEP1 to Abbott Laboratories and has received a $1 million gene discovery fee from Abbott. DEP1, the first gene known to cause depression, involved the genetic predisposition to one of society's most debilitating diseases. Approximately 12 percent of the population of the United States and Europe are afflicted with major depression at some point in their lifetime.

One class of depression drugs, the Selective Serotonin Re-Uptake Inhibitors or SSRIs, has revolutionized the treatment of depression. But even though SSRIs command an $8 billion market, they carry common side effects, including sexual dysfunction. And the cause remission in less than half of the patients taking them. So for the patients with no remission and the depressing side effect of sexual dysfunction, the therapy is clearly unsatisfactory.

One of the most exciting things about this discovery is that DEP1 involves a completely different pathway than SSRIs and may represent a new first-line therapy for those patients who don't respond to SSRI therapy. It may also be useful as a target for drugs which complement the SSRI. Combination therapies are often desirable for the possibility of greater efficacy and/or lower side effects.

The DEP1 gene was discovered by analysis of over 400 Utah families with strong histories of major depression. The families we studied were selected for multiple cases of major depression, which is serious, chronic and often a debilitating form of the disease, as well as for early age at diagnosis of the disease. We have the luxury of selecting, at Myriad, special families, which means that we can start with a collection of 400 families, as we had with depression, and select those with a close degree of relatedness and a large number of effective individuals. In this way, we can focus our efforts on the best, most informative pedigrees, saving time and resources.

In fact, three of the largest families contributing to the discovery of this gene, had over 50 individuals with depression in each family, who actually participated in the study. We have initiated depression pathway discovery with our high throughput industrial scale protein interaction technology - ProNet - and are developing a pathway that involves the network of human proteins involved in depression.

Finally, I would like to emphasize that we continue to be successful in isolating genes for such complex traits. It is currently popular to believe that case control association studies and snip (ph) profiling will allow researchers to find genes for complex diseases. So far this has not been true. Researchers are resorting to this approach because they believe that there are no major genes for complex disorders and that these diseases are solely caused by the additive effect of a large number of modifier genes. Our discoveries of susceptibility genes for heart disease, diabetes, obesity, and now depression prove that, given large pedigrees with many affected individuals such as the extended families we study here and Myriad's state-of-the-art analytical tools, that major genes can be found.

Not only are we successful in discovering major common disease genes, but we have the capability of following up the disease gene discoveries with an industrial protein interaction platform capable of rapidly and efficiently understanding the protein's biochemical pathway. We are able to enhance our knowledge of the protein by discovering upstream or downstream drug targets and then take these targets into drug discovery on our own or with pharmaceutical partners.

In the case of depression, we are fortunate to be collaborating with an exceptional group of scientists at Abbott who are working diligently identifying small molecule modulators as DEP1 to reduce scientific discovery to commercial product.

Thank you very much. For more information on Myriad's own drug discovery efforts, I now turn over the phone to Adrian Hobden.

Well, thanks very much, Mark, and good morning, everybody. I'm pleased to give you an update this morning on the progress that Myriad Pharmaceuticals has made in some of our programs.

As you may remember, late last year we announced that we had submitted an IND to the FDA for the use of MPC7869 (ph) in the treatment and prevention of Alzheimer's disease. This same molecule is currently in clinical testing for prostate cancer and shows enormous potential for the treatment of a variety of different cancers. I'll come back to the cancer trial later.

Myriad has an issued U.S. patent on the use of MPC7869 (ph) for Alzheimer's disease, and we have always been aware that the drug has potential in that indication. However, in collaboration with leading Alzheimer researchers in the Mayo Clinic in Jacksonville, Florida and University of California at San Diego, we discovered that MPC7869 (ph) has unique properties as an anti-Alzheimer's drug. We believe MPC7869 (ph) is the only compound currently either in clinical development or on the market anywhere in the world that potentially has the required efficacy, bioavailability, and safety to allow its use in the treatment and prevention of Alzheimer's disease.

We and our collaborators have found that MPC7869 (ph) has the unusual ability to selectively lower production of a toxic amyloid protein in both cell culture and animal experiments. This toxic amyloid molecule is widely believed to be both the cause of Alzheimer's disease and the reason for the progressive nature of the disease. Our drug appears to have the ability to halt the progression of the disease and possibly to prevent the disease in patients at risk for Alzheimer's.

What might that mean for the patients? It would mean that for the very first time, patients experiencing the early memory loss associated with newly diagnosed Alzheimer's disease would not face the prospect of a steady and relentless decline in their cognitive abilities to the point where they could no longer look after themselves. Potentially, with the daily use of MPC7869 (ph) , people at risk of the disease will never develop it, people with early disease would not see a decline - perhaps their cognitive abilities might even improve.

As far as we are aware, there are no other drugs on the market or in development that have this potential. The current generation of drugs for Alzheimer's disease improve a person's cognitive abilities for a short period of time, but do nothing to prevent the underlying disease from progressing. We would expect MPC-7869 to complement these drugs in the treatment of Alzheimer's and to dominate the treatment of mild cognitive impairment.

This is also know as MCI and is believed to be a precursor of Alzheimer's disease. For the first time, a physician would be able to offer an Alzheimer's patient hope. They will be able to stabilize the disease and improve their patient's memory. Of course, for MPC-7869 to succeed in this indication, we have to be able to get sufficient blood concentrations of the drug, do that conveniently for the patient, and do it without causing limiting side effects. Myriad has now dosed a large number of patients with MPC-7869 and we can say confidently that the drug is absorbed well, both from tablet and capsule formulations. High blood concentrations can be achieved and the drug appears well-tolerated on acute dosing. We also need, of course, to establish that the drug is safe on chronic dosing and we are continuing to study that question.

This point leads me back to our current prostate cancer studies. We have already completed our Phase II 32-week study and are currently running a Phase II/III study. This latter study is a three-year, placebo controlled, double-blind study, meaning that neither we nor the physicians know which of the patients are receiving drug. Some patients have been on the study now for close to a year. We will not know whether the drug worked to prevent progression of prostate cancer until the study is complete. On the other hand, Myriad, in line with good clinical practice, has established an independent monitoring committee whose job is to alert us to safety issues with the drug. Thus far, we have not been notified of any issues relating to the safety of our drug. Indeed, the committee, which meets quarterly, has encouraged us to continue the study. Both from the results of the first study and from this latest study, it is reasonable to infer that even at the highest doses and for extended periods of use, there are no significant side effects.

Thus Myriad has, in clinical study, a compound with enormous potential for the treatment and prevention of Alzheimer's disease, a disease that today affects four million Americans, possibly with another eight million people exhibiting MCI, the earlier stage of the disease. We feel an obligation to move MPC-7869 through clinical studies as fast as possible, without of course, short-cutting any regulatory requirements. For that reason, we recently decided to accelerate development of MPC-7869 by conducting a Phase II study in Europe that will look for an effect upon Alzheimer's disease progression. We are under discussion with leading commissions in Europe with a view to filing a CTX, the European equivalent of an FDA filing, in the second quarter of this year. We expect the study to involve patients diagnosed with mild to moderate Alzheimer's disease and to follow them on a range of drug doses or placebo for about a year. Patients show a measurable decline in their cognitive abilities within that timeframe, which is easily quantified by a range of cognition instruments such as MM, SE and Adascog (ph) . These instruments are accepted both by the FDA and their European equivalent, the EMEA, as surrogates for disease progression.

In the last few minutes I would like to update you on some of our other programs and hopefully give you a feel of how Myriad is integrating its gene discovery efforts with drug discovery. We believe that this represents a paradigm for our future drug discovery efforts.

Mark Skolnick has already told you about the exciting discovery of the depression gene. We believe that this discovery will rapidly be translated into a drug discovery program by Abbott.

You may recall that within the last year Myriad, without research support from an external partner, discovered CHD2, a major gene involved in the development of heart disease and HOP1, a gene that predisposes people to obesity and, we believe, to diabetes.

Myriad Pharmaceuticals has taken those genes and based on our understanding of their function, derived from ProNet and our other (ph) validation technologies has initiated drug discovery programs.

We've only been working with HOB1 for a few months, but already we've built a high a high-throughput screen with the protein and expect to start screening for small molecule modulators of its activity shortly.

With CHD2, our work has progressed much further. We built and ran a high-throughput screen several months ago and identified a number of lead compounds. We were gratified to find that these compounds have appropriate biological activity in cell culture and are now examining derivatives of these initial leads.

Individuals with CHD2 mutations have greatly elevated LDL and lowered HDL cholesterol, which leads to heart disease at a young age. Our compounds activities are consistent with drugs which may elevate HDL and may also lower LDL.

We believe that the clinical need for LDL cholesterol lowering drugs is largely met by the statum (ph) class of drugs and the more recent cholesterol uptake inhibitors. However, approximately 50 percent of all heart attacks occur in individuals who do not have elevated LDL cholesterol.

The next breakthrough in heart disease will be with drugs that affect the other risk factors such as low HDL cholesterol. Our compound is well placed to meet that need.

Finally, not withstanding the efforts on the programs described above, I would remind you that Myriad Pharmaceuticals has a number of other drug discovery programs -- many further along than those on CHD2 and HOB1.

We are working hard to complete the pre-clinical studies that would allow us to submit I&D's (ph) in the future for our compounds in the areas of cancer and HIV infection. Thank you for your attention and I would now like to hand over to Greg Critchfield.

Thank you, Adrian. It is a pleasure to speak to you today about the growth in our predictive medicine business and give an update on Myriad's direct to consumer campaign.

As Pete mentioned, Myriad achieved predictive medicine revenues of 8.2 million during the quarter ending December 31st, 2002 compared to $6.4 million for the same quarter the year before.

We are proud to point out that this represents a milestone for our company. Twenty five consecutive quarters of revenue growth. This growth is the result of increased adoption of our predictive medicine products in health care both BRACAnalysis and Co-lairs (ph) products are showing strong growth.

Our 100 person sales force continues to focus on the oncology market where these products make an important difference in the health of individuals predisposed for breast, ovarian, colon and uterine cancers.

This sales growth was achieved during the quarter when we made the transition to a new capillary sequencing system. To accomplish this move to capillaries, both our production and bio-informatics (ph) staffs were extensively involved in designing, testing and implementing the new capillary instruments as well as the new software as we put the system online.

This means that significant portions of the laboratory were shutdown during this quarter as we tested and debugged the new capabilities during the switch over.

We are pleased that, as difficult as this kind of transition is, we were able to successfully change the tires while driving down the freeway, providing Myriad's standard of quality and comprehensive sequencing services.

Our direct to consumer test marketing campaign for BRACAnalysis is proceeding according to plan in Denver and Atlanta. The campaign began the second week of September and will end this month with 92 percent of the target audience, women at high risk for breast and ovarian cancer, seeing ads an average of 16-and-a-half times. We are certainly beginning to see the effectiveness of raising consumer awareness as we track calls to the toll free BRACAnal (ph) telephone number, as we record visits to our Web site and as we receive reports from counseling services in the test markets. While we optimistic for a successful test campaign, it is important to understand that a number of months will typically elapse from the time an individual becomes aware of the BRACAnalysis product to the time the test is actually performed.

Let me briefly sketch out what takes place during this process. After seeing the ad, individuals seek more information about BRACAnalysis by calling Myriad's toll free BRACAnal (ph) number by visiting Myriad's Web site to become educated about BRACAnalysis, by contacting patient advocacy groups for more information, by calling or visiting a cancer center in their city or by contacting their primary care physician. Some individuals will wait until their next scheduled appointment to speak to their primary care doctor. To schedule an appointment with a healthcare professional often takes a number of weeks or sometimes even a month or two. Once an individual visits the - with the healthcare professional, follow-up appointments are sometimes necessary to gather additional information.

While insurance reimbursement is essentially universal, the mechanisms for insurance pre-authorization and reimbursement vary among insurance payers and introduce some delay in the process. To facilitate this part of the process, many individuals take advantage of Myriad's excellent insurance reimbursement assistance program. Once an individual has decided with his or her healthcare professional to undergo testing, another appointment is scheduled and informed consent is obtained before the blood specimen is drawn. All of the above ordering activities typically span three to four months time and take place before Myriad receives a specimen for analysis.

By contrast, Myriad's analytical turnaround time, the period from test initiation to the issuance of a report, when we actually book the revenue, is relatively quite short - between two and three weeks. Because the cycle time from awareness to reporting results is long, it will be sometime in the summer before all the data are in regarding the direct to consumer campaign. Again, I should emphasize that the early indicators are showing direct, quantifiable increases in pretest activities from advertising.

Comparing the test and control markets, we are seeing a 40 to one increase in calls to our toll free BRACAnal (ph) telephone number, a 10 to one increase in Web site searches for genetic counseling services. Centers in the test market have reported up to a sevenfold increase in referrals for hereditary cancer assessment. We are excited to analyze the complete data set to determine what the increase in testing, as a result of the campaign, will be.

A brief word on the Myriad-LabCorp relationship. Our outreach to primary care through our marketing and distribution partner, LabCorp, is going well. Following training, LabCorp's sales force began marketing Myriad's products in September of last year. Again, we are - we experienced the same three to four month delays in the order cycling for LabCorp as we do in the DTC campaign. In all regions nationwide, we are effectively educating new physicians and ultimately reaching patients on the value of the lifesaving products that we sell. We are now beginning to see meaningful sales from LabCorp as we are working synergistically to address segments of the market where we each are strong.

We continue to be excited by the growth and the tremendous potential of this important business. Myriad's innovative predictive medicine products are being used to help individuals and their families live longer and healthier lives.

I'll turn the conference back to Pete.

Thank you, Greg. And now, I will turn it back to the operator for the question-and-answer portion of the call.

Thank you. At this time, if you would like to ask a question, you may register by pressing the star and one on your touch-tone phone. You may withdraw yourself from the queue by pressing the pound key.

Once again, if you have a question, please press the star, one on your touch-tone phone, and we'll pause for a brief moment before our first question.

And we'll take our first question from David Witzke (ph) with Morgan Stanley. Please go ahead.

Good morning. First, some questions on the financials - how much downtime was associated with the transition from slab gel (ph) sequencing to capillary sequencing and how did this impact sales for the quarter?

Thank you, Dave. It's hard to quantify the exact amount of downtime. The transition took place during the fourth quarter and the month that was probably most affected was December. Certainly it had an impact on revenues, but I would have to look further to give you any more specific quantification than that.

Does that move some revenues into next quarter? And I guess with 16 million product revenues at mid-year, is the 38 million revenue guidance still achievable?

Yes, we're very comfortable with the revenue guidance from the research analysts, and we did enter the third fiscal quarter starting January 1 with a healthy backlog from the predicted medicine business.

OK. And how much margin improvement should we expect from this transition to capillary [Inaudible] ?

Again, it's difficult to predict until the capillary sequencing is fully operational and we've had several quarters of experience with it. I believe the guidance for the gross margin this year is 64 percent. As I mentioned, we're already at 63.3 percent. So we do expect to exceed that with the addition of the capillary sequencing.

As we've discussed in the past, we believe with the addition now of capillary sequencing that these tests have the potential when we reach full capacity of gross margins in the 75 percent range.

And on the therapeutic side, just an update on the HIV candidate as well as 176716 (ph) , the anticancer compound - are we still looking for one or two of these to file an IND in the first half of calendar '03?

The two compounds that you've identified are the highest priority at Myriad and the candidate drugs that are furthest along at the company. They are going extremely well, and we're working very aggressively to move those into clinical study. And we'll do that just as quickly as we can, but beyond that, I can't give you any specific timelines.

Thanks. And one final question if I may - Ontario, Canada continues to violate your [Inaudible] patents. What is your strategy for protecting your IP?

You're right. Even though we have four issued patents in Canada, the province of Ontario has sort of thumbed its nose at Canadian patent law. They do not think that gene patents should be granted in Canada and are contributing to infringement of our intellectual property in the province of Ontario. We have put the province of Ontario on notice that the Company intends to vigorously defend its intellectual property rights and Myriad will absolutely do so.

Very good. Thank you.

Thanks, Dave.

And we'll take our next question from Meirav Chovav with UBS Warburg. Please go ahead.

Hi, good morning. It's Derik DeBruin (ph) . Just a couple of questions on could you talk about the SG&A expense for the second quarter and what you project the cost of this direct to marketing and how do you see SG&A leveling out for the rest of the year?

Certainly. As you noted, the SG&A expense increased significantly during this quarter, primarily due to the direct to consumer marketing campaign. The cost of the DTC campaign, including the air time for running the ads, is significant. As you're aware, those ads ran on "Friends", "CSI Miami", "Providence", "The Today Show", "Regis and Kelly", "Oprah", many major shows to get the message to an audience of women between the ages of about 25 and 65. We do anticipate that over 90 percent of that target audience will see the ad approximately 16 times and that cost is significant. The entire cost of the DTC campaign, including the artistic portion, we estimate between $3 and $4 million and the majority of that cost now has been recognized by the Company.

Great. Thanks a lot.

We'll take our next question from Sanjay Patell (ph) with Sectel (ph) Management. Please go ahead.

Hi, good morning, guys. Just a quick question on the Alzheimer's drug. Can you give us any clarity on the Phase I results? I know they're supposed to come out towards the end of this year. Anything that we can sort of point to as an indication of what to expect going forward?

Sanjay (ph) , we can't give you any update on those in-line with our strategy of blinding the studies.

OK.

We haven't unblinded them yet. The only thing I can just say is that we haven't been alerted to any safety issues and we, of course, don't expect to. But in terms of the activity, we have nothing to tell you at the moment. We will update people just as soon as we've unblinded the studies ourselves and we can see them.

OK.

We expect to complete the--we expect to complete the Phase I study towards the middle of this year and we're in-line to do that.

OK, that's still on track. And then, just a quick follow-up again on the HIV compound and the cancer one, 176716. Are these--you say they're still moving along? Last we spoke we were looking for, you know, data towards half one calendar '03. Is that being pushed back or is it, you know, unclear when you think you'll have some data?

No, I wouldn't say it's being pushed back. We are in the process of preparing INDs for the HIV compound and our anticancer drug. It is, however, hard to predict, even within a quarter the exact timing of the filing of an I&D (ph) , since so much goes into the preparation of that I&D (ph) from formulation of the drug to toxicology and pharmacokinetics studies.

It is Myriad's goal to file two new I&D's (ph) on compounds developed by the Company each year. And we're working very hard toward achieving that goal. And at the present time, we're very comfortable that during this calendar year we will have two new I&D's (ph) filed.

OK. Thank you.

And we'll go next to the site of Paul Bodeye (ph) with Symmetry Capital (ph) . Please go ahead.

Thanks. It's Paul Bine (ph) . A couple of things. On the depression gene, you mentioned that it's not the same pathway as the SSRI. Can you comment -- is it a serotonurgic (ph) or neurogenurgic (ph) ? Is in either of those biological pathways?

I can't play 20 questions on this. I would probably end up being chastised. We're not allowed to selectively disclose that type of ...

And fortunately, under our contract with Abbott Laboratories we're restricted in what we can say publicly for competitive reasons. So, unfortunately, we can't give further information on the specific pathway it is involved in.

We are working with our ProNet protein interaction technologies to further elucidate and understand the pathway. We can confirm that it's not involved in serotonin re-uptake. And we're very excited about what we have learned about the pathway that it is involved in. And hopefully in the future we'll be able to share more information with Abbott's permission.

Could you at least confirm that it's novel to depression?

Yes, we can.

OK, great. You mentioned that gross margins were boosted by a price increase. Can you talk about which products and what price increase and when?

The Company has increased the price of all of its products pretty much on a yearly basis since the products are introduced. The last price increase was a modest three percent price increase. And the Company is applying that to its complete line of BRACAnalysis and Claris (ph) products.

When was that instituted?

It was instituted about nine months ago. And we're coming up this spring for the time when we would have another price increase. bine: OK, great.

The last price increase was about nine months ago.

And then you mentioned you're getting a lot more hits and phone calls and patients going to counseling. Do you have any sense of the conversion rate of these kinds of patients into test takers?

Certainly with all the activities one would expect that the uptake of testing will increase. We're waiting for the time period to elapse so that we have a full view of that. That's one of the statistics that we're most interested in because based on that we'll know what the effect of the direct consumer campaign is.

So, at this point, we don't have all the data in. It would be premature for me to discuss it right now. But we are starting to see the requisite activities that take place before patients get tested. And stay tuned. We'll have some more information come summer.

Great. Thanks a lot.

We'll take our next question from James Rosen with Brean Murray & Company. Please go ahead.

Thank you. Good morning. Can you please tell us the rationale for the doing the Phase II Alzheimer's study in Europe rather than the U.S.?

Yes. Hi, Jimmy.

Hi.

The company, as you're aware, is in a Phase II-III prostate cancer study with the same molecule. However, in the United States, the different branches of the FDA required different aspects in terms of the safety data. And the CNS branch would not completely accept the safety data we'd assembled upon this compound in the oncology branch. So that necessitated our doing Phase I study in elderly men and women in the United States.

In Europe, however, because there is a tremendous amount of safety data, as Adrian mentioned, on 7869, we are able to move forward into a human efficacy study. And the reason for this is, rather than waiting for a current Phase I study to be completed this summer and then launching into a Phase II study in the United States, this allows us to essentially accelerate by six or nine months our work, in terms of demonstrating efficacy in Alzheimer's patients.

OK. Thank you. And I have one other question with regard to the DTC campaign. Pete, you mentioned that - I think you said the artistic costs were going to be three to four million, but can you quantify for us, all told, when all is said and done, how much the DTC campaign will have cost?

I'm sorry for that confusion. The total cost of the DTC campaign, including purchase of the airtime, is three to four million.

Oh, OK.

The artistic was a fraction of that, probably about a third or maybe a little more than a third. As we look at the results of the DTC campaign and make the decision whether or not to move forward on a national scale, it's important to note that all of the artistic costs are behind us and we would just simply be buying airtime in the future.

OK. That does it for me. Thank you.

And we'll take our next question from Craig Laten (ph) with J. P. Morgan Fleming. Please go ahead.

Hi, guys. Just a couple of quick questions. Firstly, could you remind me, does Abbot have rights to other targets in the pathway? In other words, do they have a ProNet deal with you guys?

Hi, Craig (ph) . No. The relationship right now with Abbott is just on DEP1. And so the only rights Abbott has is to the original gene discovery.

Great. So you ...

Should the company identify other important proteins in the pathway, that could represent other milestone payments and value to Myriad as well.

So do they have any option on the stuff you're doing or are you just totally doing it for your own account?

Yes. They do have an option on the other proteins in the pathway and they are paying for all of the research to investigate other proteins in the pathway. But to exercise that option requires additional license fees and milestone payments.

Great. And then just one other collaboration that I'd love an update on. I am out of date on the Hitachi deal, which I think was set to conclude May '03. And I'm just wondering what the - I may be mistaken on that, but, as far as I know, May '03 and I'm wondering what the progress has been.

We've made significant progress with Hitachi. It was a three-year collaboration. You're correct - it is scheduled to conclude in the next several months. It's been a very excellent collaboration. Hitachi has been great to work for. Hitachi has entered into collaborative agreements now with nine Japanese pharmaceutical companies - the two most significant, Kayda (ph) and Ono (ph) , so it's been a very positive collaboration for Hitachi, as well.

Unfortunately, as you're aware, the economy in Japan is even worse than here in the United States and all of the companies including the parent Hitachi have suffered, and so Hitachi Life Sciences, which is the division within Hitachi that we work with, does not have sufficient funds to enter into a new collaboration, so this collaboration will conclude successfully as scheduled in May of this year.

OK, terrific. And then just one or two more - Greg, not to nitpick, but you said you have something like 100 reps. Are you just rounding down or have you lost some reps?

Our sales force number is 100, and we're not - we're not rounding down.

OK, because - again, I thought you had something like 106, and I'm just wondering if you've seen any sort of uptick in turnover.

No, not really. Our sales force number fluctuates from time to time as we bring new sales people on and as we consolidate territories or lose sales force individuals. So we want to keep it at around 100. The highest it's been is 106. It's currently exactly 100 today. But it doesn't reflect anything other than just normal fluctuations that occur in any sales organization.

OK, and then sorry for the long list of questions, but the last one for Jay, who's been very quiet - if he's on the line, do you have the deferred revenue number?

I do. So, you're asking then for the deferred revenue as of the end of the quarter?

That's right.

That was - it was - it was right around about a million dollars, give or take. I mean that's one of the uses of - [Inaudible] - that's what I thought.

Hang on, Craig (ph) , just a second. It's hard to remember off the top of our head, and we'll try to get you ...

OK. I can follow up if you don't have it immediately.

Yes, and we don't actually have the full set of financial statements in front of us.

I understand.

Just from recollection ...

I'll have Jay give you a call after the call.

Terrific. Thanks, guys. Good quarter.

That is all the questions we have at this time. I would like to turn the program back to the management team for concluding comments.

We'd like to thank everyone for participating and listening on the Myriad Genetics earnings conference call. And this does conclude our conference call for today. Thank you again.

This does conclude today's program. Thank you for participating. Have a good day.