Myriad Genetics Inc (MYGN) 2003 Q3 法說會逐字稿

Good day, all sites are now online. At this time, I would like to turn the call over to Peter Meldrum, President and CEO of Myriad Genetics. Go ahead please.

Thank you. Good morning and welcome to the Myriad Genetics earnings Conference Call for the Third Fiscal Quarter ended March 31st 2003. My name is Peter Meldrum and I am the president and chief executive officer. I am joined today by Dr. Gregory Critchfield, President of Myriad Genetic Laboratories, Dr. Adrian Hobden, President of Myriad Pharmaceuticals, and Mr. Jay Moyes, our Chief Financial Officer. I will begin the discussion this morning with a brief review of the company's accomplishments during the past quarter. I'll be followed by Mr. Moyes, who will discuss our financial results for the third quarter ended March 31st 2003. Dr. Hobden will then review the status of our clinical program and Alzheimer's disease, and finally Dr. Critchfield will conclude with the discussion portion of this program with a review of the preliminary results and early trends from the company's direct to consumer marketing campaign. At the end of the presentation, I will turn it 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 actual events or results may differ materially from management's expectations. We refer you to the documents that 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 actual results to differ materially from those contained in our projections or forward-looking statements.

The company made significant progress during the past quarter for its goal of developing new therapeutic and predictive medicine products. We continue to make great strides in the discovery of important disease genes and the understanding of biological pathways that lead to the onset of common human diseases. On February 4th 2003, Myriad announced the discovery of an important new gene, named DEP-1 that plays an important role in cause of major depression. Our protein interaction technologies have revealed that the DEP-1 gene acts in a novel pathway that was not previously known to be involved in the cause of depression. Since this discovery is outside our primary therapeutic focus in the areas of cancer and viral diseases, we licensed the therapeutic rights to Abbott Laboratories.

In collaboration with the scientists at Myriad, Abbott is aggressively pursuing the DEP-1 target along with a number of other promising targets in the DEP-1 pathway. The DEP-1 gene has shown to be a cause of major depression by studying over 400 Utah families with strong family histories of depression. Due to the strength of this new drug target, our drug development program with Abbott is moving rapidly towards the identification of small molecules and modulators of the DEP-1 gene. The DEP-1 pathway is not involved in Serotonin reuptake or metabolism. Therefore, it is our hope that this drug development effort may lead to a novel class of anti depressive therapeutics. Additionally, we are pursuing a predictive medicine product based on the DEP-1 gene, which could identify individuals at risk for major depression. During the past quarter, we completed the first direct to consumer (DTC) marketing campaign for a predictive medicine product. Myriad initiated the marketing campaign in the test market cities of Denver and Atlanta to increase consumer awareness of the hereditary risks of breast cancer. During the six-month campaign, nearly 1,200 television commercials were aired, over 30 magazines and newspaper ads were run, and over 370 radio spots were heard by women in these test market cities. The company spent between $3m and $4m on this marketing campaign and has been pleased with the initial consumer response. Given the 4 to 5 month purchase cycle of the predictive medicine product, we anticipate that the most meaningful data from the DTC campaign will occur in fourth fiscal quarter of this year and first fiscal quarter of next year. Dr. Critchfield will review the early trends and preliminary data later on in the conference call.

Finally, Myriad continues to advance its in-house Drug Development Programs, and we remain particularly excited about our Alzheimer's disease drug R-flurbiprofen (ph). A recent publication by scientists at UCLA echoed our enthusiasm when it concluded and I quote "Preliminary data suggest that R-flurbiprofen (ph) can limit all three pro amyligogenic (ph) proteins, A-Beta 42 (ph), ACT, and ApoE (ph)in human cells at physiologically achievable and non-toxic doses. Because of its triple efficacy and low side-effect profile R-flurbiprofen (ph) shows potential for clinical trials aimed at Alzheimer's prevention and treatment". Myriad has made progress this past quarter towards the preparation of a CTX application in the United Kingdom and a CTA application in Canada for a 200 patient phase II clinical study. This one-year study will look at the efficacy of our drugs and the treatment of patients with mild to mid-stage Alzheimer's disease. Dr. Hobden will provide additional comments during the conference call. It is now my pleasure to turn the conference call over to Mr. Moyes. Jay.

Thank you Pete. It's a pleasure to be able to discuss Myriad's financial results for our third fiscal quarter ending March 31, 2003. I am particularly pleased to point -- to report that Myriad's predictive medicine business has achieved 26 consecutive quarters of revenue growth. Predictive medicine revenues for the three months ended March 31, 2003 were $9.3m. This represents a strong $1.2m or 14% increase over the prior quarter ended December 31, 2002 and an increase of over $2m compared to the same 3 months in the prior year. Perhaps more importantly, our gross margin percentage this quarter grew to 64% compared to 61% for the same three-month period in 2002. This improvement in gross margin percent resulted from technology improvements such as the full implementation of capillary sequencing last quarter and gains in efficiencies from increasing the throughput through our predicted medicine laboratory. Total research revenues for the three months ended March 31, 2003 was $6.8m compared to $5.8m for the same three-month period in the prior year, an increase of 17%. This increase was primarily attributable to substantial progress made with our strategic alliance partners.

Research and development expenses for the quarter were $11.1m compared to $8.7m for the same three months in 2002. This increase of 26% was primarily due to increased costs associated with our ongoing clinical trials in prostate cancer and Alzheimer's disease. Other drug discovery and drug development programs and increased research efforts associated with our DuPont and Abbott collaborations. Selling, general and administrative expenses for the three months ended March 31, 2003 dropped to $7.8m as compared to $9.3m in the prior quarter ended December 31, 2002. This 16% decrease in selling, general and administrative expenses from the prior quarter reflects the completion of direct to consumer marketing campaign in February. Selling, general and administrative expenses consists primarily of salaries and commissions and related personnel costs for sales, marketing, executive, legal, finance, accounting, human resources, and business development personnel allocated facilities, expenses, and other corporate expense. We expect our selling, general and administrative expenses will continue to fluctuate depending upon the number and scope of new product launches and our drug discovery and drug development efforts.

Our net loss for the quarter was $5.5m or 20 cents per share compared with $3.5m or 15 cents per share for the same quarter of 2002. This increased loss is a direct result of our increased expenditures in and commitment to the area of drug development. While we expect our loss to continue to increase modestly in the future, we remain confident that we will achieve the analysts' consensus net loss per share for our fiscal year ending June 30, 2003. Cash, cash equivalents, and marketable investment securities increased $4.9m or 4% from $125.7m on March 31, 2002 to $130.6m at March 31, 2003. This increase in cash, cash equivalents, and marketable investment securities is primarily attributable to the public offering of our common stock in November 2002. We again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at March 31, 2003 is a very modest 27 million. Thank you for your attention. I will now turn the conference call over to Adrian.

Thank you, Jay and good morning, everybody. As Peter has already indicated, we have been extremely busy this last quarter designing a phase II Alzheimer protocol in anticipation of submitting a CTX in UK and a CTA in Canada for MPC-7869, which is also known as R-Flurbiprofen (ph). These submissions are the equivalents of FDA filings in the United States. As you are aware, Myriad initiated a phase I study in United States. But because we believe the drug to be extremely safe, we decided to proceed with a phase II study outside of the United States and thereby accelerate the time to drug approval. Our hope is to move directly into a phase III study in United States, if our data from the phase II study in UK and Canada is compelling. We have been successful in attracting a number of key investigators in both the UK and Canada to participate, and we share that data on the compounds with the investigators. They became extremely enthusiastic about the drugs potential to treat their patients. Professor Gordon Wilcox, who is in Bristol, in the UK and has extensive experience with Alzheimer studies, has agreed to be the principle investigator in our study.

I will go with some of that data with you in a minute but firstly, I should mention our timelines and some aspects of the study design. The study would enroll mild-to-moderate Alzheimer's patients both in UK and Canada and follow them on drug or placebo for one year. In line with previous Alzheimer's studies, cholinesterase inhibitors, patients will be enrolled based upon their score in the Mini-Mental State examination. This is also known as the MMFE. The study will be double-blinded and controlled with two drug arms and a placebo arm. Patients in both the control and treated groups will continue to take from current cholinesterase inhibitors such as Aricept since this is the standard of chem. However, patients must already be on a stable dose of those drugs. The patients will then be followed over the course of the year with regular assessments of their disease progression using internationally recognized instruments such as A-Corp, Civic+ and CDR sum-up boxes. Current FDA end point requirements for approval are that an Alzheimer drug show efficacy in both recognition such as A-Corp and a behavior test such as Civic+. As you can see from the study design, we expect MPC-7869 to increase the efficacy and acceptability of cholinesterase inhibitors and for the very first time provide patients with a drug that may slow or even prevent the disease from progressing. Indeed in combination with the cholinesterase inhibitors dispositions may be able to prevent disease progression and improve cognitive ability.

At the last conference call, I went into some of the data that makes us optimistic about MPC-7869's potential. I want to go over that data again and add some additional information from our ongoing studies. A couple of years ago, a European group published this study, the so called Rotterdam [ph] study a long term NSAID use and concluded that chronic use of NSAIDs reduce the risk of developing Alzheimer's disease by 80%. Patients have been prescribed a lot variety of NSAIDs. The assumption in the study was that all NSAIDs are the same. However, last year Dr. Todd Goldy [ph] in Mayer of Jacksonville and Dr. Eddy Coove [ph] in UCST showed that this was not true. Some NSAIDs in addition to being cyclotate inhibitors also reduce the production of toxic peptide A-Beta 42, which is strongly implicated in the development of Alzheimer's disease. Using this data the Rotterdam (ph) study was reanalyzed and it was concluded that all the benefits of NSAIDs were associated with only the A-Beta 42 line molecules. Myriad in collaboration with Doctors Goldy and Coove [ph] have discovered that MPC-7869 is capable of reducing A-Beta-42 by about 60% at physiologically relevant and safe drug concentrations. And it reduces A-Beta-42 by far more than other compound we or they have seen. A number of studies have been reported, in which specific NSAIDs were evaluated and blinded controlled studies for their effect on Alzheimer's disease progression. Celebrex, Viox, and Naproxen failed to show any benefit and in our studies and those of Doctors Goldy and Coove these compounds have no effect on the A-Beta-42 levels. In contrast, Indomethacin (ph) and Diclopanack (ph), which are weak A-Beta-42 lowering agents, were both able to reduce the rate of disease progression over a six-month period. However, in order to achieve this effect, compounds have to be taken at very high doses and have significant toxicity associated with their use. 20% to 25% of the patients on the drug withdrew from the study because of severe GI toxicity.

Finally, I should remind you that MPC-7869 has a long and safe history of administration to patients. We now have additional safety data that demonstrates the patient's are able to take relatively high pharmacologic doses of MPC-7869 for over a year without drug related serious adverse events. At these doses, patient should receive a maximum A-Beta-42 lowering effect. Myriad believes that MPC-7869 has great potential for Alzheimer's disease and has therefore for a lot of resource into progressing it to clinical trials. It is not however, the only drug discovery and development program we have. I want to take a few more minutes to discuss just two of our programs: One in cancer and one for HIV. At the same time, we have a number of other anti-cancer and anti-viral programs and also drug discovery programs related to Myriad's discovery of CHD1, a gene that predisposes the heart diseases and HOG1, a gene that predisposes to obesity and possibly diabetes. I hope to be able to elaborate on these programs in the future. Myriad is on track to file at least one IND by the end of the year for small molecules discovered using various internal proprietary drug target identification and drug screening technology. Our anti-cancer drug has a novel mechanism of action related to the induction of apoptosis and cancer cells. The Champenois (ph) in animal's models of ovarian cancer, and we continue to explore its utility in other cancers. In line that most cancer therapeutic regimes, we expect the compound will be delivered at an IV infusion possibly in combination with established drugs. Our anti-HIV drugs, exploits the pronate (ph) pathway, which Myriad disclosed in a publication in the scientific journal Cell, just over a year ago. The discovery you may recall related to the mechanism HIV virus uses to escape from human cells. If that mechanism is blocked, the viral particles cannot escape from the cell and the cycles of infection released and the re-infection is broken. Myriad has been successful in identifying the large and complex pathway of interacting proteins involved in this process. We believe that no one has a better understanding of this biological process of the best points of pharmaceutical intervention than Myriad. Our experiment with small molecule drug inhibits a human protein but the result is complete inhibition of virus release without evident toxicity and the compound is expected to be already available and it appears to have a promising safety profile. Potentially the compound will compliment or even displace the current generation of anti HIV drugs as the virus becomes resistant to them because of course the human target gene cannot intake at the same rate as bio-genes and resistance should be much less of a problem. Myriad is actively progressing this compound through the range of studies required for IND filing and at the same time it is trying to determine the potential of this drug for other viral diseases. The possibility exists based upon the mechanism of action of the compound but the drug will inhibit replication of other viruses. Thank you for your attention and I would now like to introduce Greg Critchfield.

Thank you Adrian. It's a pleasure to given an update on Myriad's BRAC analysis direct to consumer campaign. We began the test marketing campaign and the test market cities in Denver and Atlanta last fall and completed it in February this year. The goal of the campaign was to increase consumer awareness concerning the genetics of breast and ovarian cancer and to inform women with a family history of breast or ovarian cancer that through BRAC analysis they can both determine their risks and take steps to reduce the risk of getting cancer later in life. Remember that there is a long cycle time, four to five months from the moment a women is moved to action based on our ads till the time she has completed counseling and receives her results. I am pleased to present our preliminary initial data of the DTC campaign. There are three measures I will comment on today. First, consumer awareness measured by requests by women for information as a result of the campaign. Second physician awareness measured by requests by doctors for educational material surrounding BRAC analysis and third, increases in the number of BRAC analysis test as a result of the campaign.

On consumer awareness, we saw a significant increase in the number of phone calls to our toll free telephone number during -- requesting information from Denver and Atlanta versus the controlled cities of St. Louis, Kansas City and Detroit. During the campaign when commercials were running, calls ran 38 to 1 in Denver and Atlanta versus St. Louis, Kansas City and Detroit. With the campaign now ended, we are still seeing a seven-fold increase in interest by consumers in the test cities versus the controlled cities. Requests for genetic counseling services on Myriad's website show similar results. A nine-fold increase in the test markets versus the controlled cities during the media campaign and a sustained three-fold increase after the campaign.

The second measure of physician awareness. Physicians must be educated concerning identification of hereditary cancer patients in order to select the appropriate woman for testing. Myriad has worked for a number of years with the American Medical Association to produce materials to educate physicians and genetic counselors about hereditary breast and ovarian cancer. Educational monograph on the hereditary breast and ovarian cancer were available and co-promoted with AMA in the test markets as part of the campaign. A nearly five-fold increase in requests, 4,781 versus 1,177 for the AMA monograph occurred in Denver and Atlanta during the physician awareness and consumer launch phases of the campaign. A nine-month period of time compared to the entire year of 2001 in the same test market cities. An educated physician is able to process a large number of patients to our appropriate candidates for testing which enabled more patients to receive the medial care they need if they test positive and have a heightened risk for breast cancer.

Third BRAC analysis test volume. During the third fiscal quarter ended March 31st, 2003, test volumes for BRAC analysis increased as a result of the DTC campaign. While we saw a good growth in both the test and controlled markets, there was a 23% increase growth in BRAC analysis in the test markets as compared to the control market. It is important to note that this statistic is an early one encompassing a time period where patients were working their way through the medical testing system and when increases in testing volume may not be expected to have occurred. From this early preliminary data, we conclude that the ad campaign successfully increased consumer and physician awareness and the increased numbers of individuals are being tested as a result of the campaign. We must emphasize that the full results of the campaign will not be known until early fall. The most meaningful quarters for revenue growth and a measure for a return on investment are the fourth quarter of this fiscal year and the first quarter of next fiscal year. Therefore, we do not yet know if we will see a sufficient return on investments to justify expanding the DTC campaign in the future.

In addition, we will be analyzing several important elements of the campaign. Capacity of the healthcare system to process individuals at risk for hereditary cancer, the demographics of individuals presenting to doctors for analysis, the number of newly identified patients as a result of the campaign, the fraction of those individuals who decide to be tested, the utility of the campaign from the viewpoint of healthcare providers seeing patients and the effectiveness of various media modalities. Because the cost of the campaign are known, we will be in a position to identify promising points of intervention in future campaigns as we continue to make our life saving testing available to individuals and families at risk of hereditary breast and ovarian cancer. The knowledge provided by our testing is power that enables people to live longer and healthier lives. Thank you, I will now turn the sign back to Pete.

Thank you Greg and I would like to turn it back to the operator for the question and answer portion of the conference call.

Very good. At this time if you would like to ask a question please press the "" and "1" on your touchtone phone. You can withdraw your question at any time by pressing the "#" key. Once again at this time if you would like to ask a question, please press the "" and "1" on your touchtone phone. Please wait a moment while queue up our first question. We will take our first question from the side of Meirav Chovav from UBS Warburg . Go ahead, please.

Actually it is Jeff Meacham [ph] calling. Congratulation on the quarter, guys. Just sort of quick question for you on predictive medicine. It looks like the growth was 14% sequentially, I'm wondering if you can just give us some color as to how much of that could be Lab Corp how much of that could be, just in a general sense, could be due to the direct to consumer campaign and how much just from typical organic growth?

Thank you. The DTC campaign was in the test market cities of Denver and Atlanta, which represent about 3% of the US population. So even a fairly significant improvement there would have a minimal impact on our revenues. So it was all from Lab Corp and internal organic growth.

And then in terms of the pipeline for predictive medicine products, could you just give us and update on that?

The company is working on three interesting predictive medicine products that we anticipate launching some time down the road in the near future. The first is a predictive medicine test that assesses an individual's risk for prostate cancer. This is based on the company's discovery of the HPC2 gene. Additionally the company has obtained worldwide exclusive licenses for two other genes that increase a man's risk for the development of prostate cancer, the Androgen receptor and 5-alpha reductase ph). The company is also working on a type II diabetes predictive medicine test based on the company's discovery of HDI-1. This is a very exciting test since type II diabetes is a significant disease in the population as we get older and if an individual could identify that they are at risk early on in life for type II diabetes, they could take preventive action to modify their diet and lifestyle to potentially delay the onset or possibly even avoid getting a type II diabetes. The third test in the pipeline is based on the DEP1 gene that I mentioned this morning for major depression. It looks like a very exciting target and would have the potential of assessing an individual's risk for major depression but as additional drugs other than SSRIs are developed may also be used to ensure that the patient receives the correct medication.

Okay and then just a real quick follow up, on the therapeutic side just want to clarify that you guys are on track to file an IND is it by the end of the calendar or the fiscal year?

The company is on track to file at least one IND by the end of the calendar year, December 31st, 2003.

Great. Okay. Thanks.

We'll take our next question from the side of David Witzke with Morgan Stanley, go ahead please.

Yes, thank you for taking my question. Either for Greg or Peter on the DTC side. You mentioned Q4 and Q1 being the most meaningful as far as data collection on number of tests, can you describe under the profile, throughout the last quarter, did we see March being much higher than February and January?

We really don't break it down on a month-by-month basis. We just report results on a quarterly basis and I don't think it would be that meaningful anyway because we didn't expect to see in this past quarter ending March 31st much significant impact due to the product purchase cycle of four to five months. It takes significant time for an individual to see a number of ads that causes them to move the action, make an appointment with the physician, schedule genetic counseling, have a blood draw, ship the sample to Myriad, have us perform the test and we only book the revenue once the test has been performed and the results are returned to the patient. So, I think we're seeing clearly a sign of consumer awareness clearly a very positive physician awareness. We are seeing modest increases but again really quarters are lined ahead of this but we will determine whether or not we get a good return on investment and it makes sense to go forward with the campaign.

I am still estimating about 90% of the product sales of BRACA, and did BRACA sales grow in line with the 28% growth in predicted medicine testing. And the follow up on that, did the control cities of Detroit, St Louis and Kansas City grow in line with BRACA sales?

We do not break out our predicted medicine revenues between Melaris, Colaris, cardio risk, and BRAC Analysis. However, the 23% increase growth that Greg reported was only BRAC Analysis. It did not look at any other predicted medicine products because none of the others were featured non-directed in consumer marketing campaign. And yes the test market cities did grow at approximately the same overall growth rate as the rest of the country and Denver and Atlanta were ahead of that by 23%.

One final question, Denver has many more genetic counselors than Atlanta. How did these two cities compare and does the concentration of genetic counselors impact this result?

Yes, It is true Denver does have more genetic counselors. However, we're still assessing the impact in both cities. Denver did slightly better than Atlanta as what we will know as we gather more data overtime what the overall impact was in both cities.

Thank you.

We'll take our next question from the side of James Rosen with Brean, Murray & Co. Go ahead please.

Thanks very much, good morning. Jay, why did the receivables jump so much?

The receivables were primarily affected by amounts due from our collaboration and it's kind of a formula driven methodology in which we used to collect the payments from the collaborators themselves. We will collect it overtime but there is a bump this quarter, I mean, actually I can say that it has been collected subsequently a large portion.

Okay, can you tell us in which program in was or I mean it is more than a little bit of a bump?

It would be in two major programs with Abbott Labs on depression and Dupont.

Okay, thank you Pete. Let’s see, Pete I think you just cleared up this question but I just want to make sure I am doing an apples to apples comparison, when you said that 23% increase in the DTC test markets that means that basically for every unit you sold in the control market you sold 1.23 units in the test markets, right?

Let me think about that. The overall company growth from the previous year approached 30% and the control cities grew a similar approximately 30% and Denver and Atlanta test market cities grew 23% over that. So, we compare the growth rate not the absolute dollar volume because obviously each of these cities has a different population base.

Right.

But, the growth was 23% over the normal approximately 30% growth that the control cities and the rest of the United States achieve.

Okay, thank you for clearing that.

I hope I did.

And that's it for me. Thank you.

Okay, our next question from the side of Mark Augustine with CSFB. Go ahead please.

Thanks, nice quarter and good morning gentlemen. I wanted to ask. Pete mentioned in his comments I think in response to go and no go kind on a national and broader DCC role out. Question. You mentioned return on investment help us better understand and how do you think of return on investment on this context.

As Greg mentioned, we are looking at a variety of parameters based upon the DTC campaign and the increased testing volume of what we anticipate from the DTC campaign and if basically a pretty straightforward calculation if we look at the increased volume, the gross margins, the added margin improvement to the company, and compare that with the cost of the DTC campaign but what makes it a little more complicated is the fact that we want to make sure that this is a sustained effect. If DTC campaign has a volume in revenues but then quickly goes back to the normal growth rate. Then it's not likely that campaign will receive an acceptable return on investment. However, if we can see sustained effect from the DTC campaign then it is pretty much a straightforward growth profit versus dollar investment in the campaign ROI calculation.

Okay, then one follow-up with respect to the HIV drug candidate, what lies between now and an IND finding in terms of technical hurdle data.

Technical hurdles I mean it is basically the usual requirement for any drug to go into the clinic that you have to do the whole amount of GOP toxicology studies and those are scheduled. So, yeah that is pretty much it. I mean that will take the time in these things.

There is no technical hurdle in terms of optimizing compound or trying to achieve, you know, any challenging or specific goal. It is pretty much just toxicology and pharmacogenetics (ph) works that addresses any drug line into the clinic.

Okay. Thank you.

It appears that at this time we have no further questions. I would like to turn the call back over to management for any concluding comment.

Thank you very much we appreciate your attendance on the Myriad Genetics earnings conference call and we'll conclude it at this time. Thank you again.

This concludes today's teleconference. Thank you for your participation. You may now disconnect.