Myriad Genetics Inc (MYGN) 2004 Q1 法說會逐字稿

(OPERATOR INSTRUCTIONS) We will have opportunity for Q&A towards the end of the conference. Now I would like to turn the conference over to Mr. Peter Meldrum. Go-ahead please.

Good morning, and welcome to the Myriad Genetics earnings conference call for the first quarter of 2004 fiscal year, which ended September 30th, 2003. My name is Peter Meldrum, and I'm the President and Chief Executive Officer. I'm joined today by Dr. Mark Skolnick, our Chief Scientific Officer, Dr. Adrian Hobden, President of Myriad Pharmaceuticals, Dr. Gregory Crutchfield, President of Myriad Genetics Laboratories, and Mr. Jay Moyes, our Chief Financial Officer.

I will begin the discussion this morning with a brief review of the quarter. I will be followed by Mr. Moyes who will discuss our financial results for the first quarter ended September 30th, 2003. Dr. Crutchfield will discuss the Company's predictive medicine business. Dr. Hobden will then review the status of our drug development programs. Dr. Skolnick will conclude the discussion with our research programs. And at the end of his presentation, I will turn 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 future financial performance of the Company. These statements are based on management's current expectations, and the actual events or results may differ materially from those expectations.

We refer you to the documents that the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report 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.

This was a challenging quarter for the Company, but also a quarter in which significant progress was made on many fronts. Let me start first with predictive medicine revenues. Our first fiscal quarter is historically our slowest quarter for predictive medicine revenues, and this quarter was no exception. As Mr. Moyes and Dr. Crutchfield will discuss in more detail, test requests were slow during the first half of the quarter, but were exceptionally strong during the second half of the quarter.

We believe this unusual flow of patient samples resulted from delays in submitting test requests to the Company due to summer vacations, particularly during June, July and the first half of August, which are the revenue generating months for the first fiscal quarter. Because test requests were robust during the latter part of the quarter, we are looking forward to strong predictive medicine results in this second fiscal quarter.

In addition, recent publications concerning the breast cancer genes should assist us in growing our predictive medicine business. A large, long-term study of over 1,000 New York women published in the Journal of Science on October 24th, 2003, found that the risk of developing breast and ovarian cancer from BRCA mutations is higher than previously thought. More importantly, in 50 percent of the cases in which mutant BRCA genes were found, the women did not have a known history of breast cancer in their immediate families. These results may encourage physicians to broaden their criteria for breast cancer testing in the future.

As we announced in a press release this morning, the scientific community is becoming increasingly excited about our Alzheimer's disease drug candidate, MPC-7869, or by R-flurbiprofen. Dr. Todd Golde at the Mayo Clinic and Dr. Edward Koo at the University of California San Diego presented promising new research results this week at the Neuroscience 2003 international meetings in New Orleans.

MPC-7869 selectively decreases the production of the toxic peptide called Abeta42 through its direct effect on Gamma-Secretase activity. This is important because Abeta42 is the primary constituent in senile plaques in Alzheimer's disease patients.

The study demonstrated for the first time that MPC-7869's effect on reducing Abeta42 directly lead to a substantial improvement in learning and memory in a mouse model of human Alzheimer's disease. In fact, the performance of MPC-7869 treated mice was superior to that of normal healthy mice. In contrast, ibuprofen failed to significantly improved learning compared to the untreated control mice. Not only was MPC-7869 able to improve learning and memory in these mice, but our drug candidate was also able to significantly reduce the amount of amyloid plaque in the brains of the treated mice.

Additionally, recent publications concerning the importance of Abeta42 in Alzheimer's disease in the proceedings of the National Academy of Sciences and the Journal of Clinical Investigation strengthen our confidence in MPC-7869 as a potential for the treatment of patients with Alzheimer's disease. Dr. Hobden will review these findings in more detail later on in the conference call.

Myriad continues to make excellent progress on its internal research and development programs. Last fall we announced the discovery of the first gene involved in common human obesity called, HOB1. This gene has been shown to cause obesity in humans based on our work with Utah families who have a strong history of obesity.

Following the discovery of the HOB1 gene, Myriad analyzed the biological pathway around HOB1 and discovered that it's pathway directly intersects with a diabetes pathway. This morning Myriad announced the discovery of a promising lead compound MPI-176792 for the treatment of obesity. Our lead candidate exhibits an important -- inhibits an important drug target in the HOB1 pathway.

More importantly, our data demonstrates that MPI-176792 directly affects the uptake of glucose in adipose, or fat cells. This exciting compound has good potency in the low micromolar range of activity. From the time of discovery of the obesity gene to the identification of a lead compound with excellent activity has been only one year, truly excellent progress.

As we have begun structure activity relationship, SAR analysis, on this compound and related compounds, this data will assist Myriad's medicinal chemists in developing the most potent and active compounds based on their molecular structure. We'll continue to work toward the development of new classes of drugs that may help a substantial portion of patients who suffer from obesity.

It is my pleasure now to turn the call over to our CFO, Jay Moyes.

Thank you, Pete. Is a pleasure to be able to discuss Myriad's financial results for our first quarter ending September 30, 2003. As mentioned, this was a challenging quarter for Myriad's predictive medicine business. Predictive medicine revenues for the quarter ended September 30, 2003 were $8.1 million, which represents a 3 percent increase over the same quarter in the prior year.

This quarter has historically been the slowest quarter in each fiscal year. Additionally, this past summer the volume of samples received was much lower in the first half of the quarter than it was in the second half of the quarter. In fact, the total number of samples received for the last half of the quarter was 14 percent greater than the first half of the quarter ended September 30, 2003.

We have analyzed the sample flow in an attempt to better understand the reason for both the modest quarterly growth and the large jump in volumes that occurred during the latter part of the quarter. While it is difficult to accurately identify a specific cause, in general, we believe that patient samples were delayed in the early summer because of vacations. We believe this delay was reduced toward the end of the summer as patients, physicians and genetic counselors returned to work.

More specifically, test requests in the first half of the quarter averaged 354 tests per week. In the last half of the quarter, test requests increased to an average of 404 tests per week. I'm pleased to report that we have received strong sample volumes for each week in October, averaging over affording over 400 samples per week. And in the first week in November we received over 450 test samples. We're clearly achieving excellent growth this quarter and expect to report strong predictive medicine revenues for the quarter ending December 31, 2003.

Even though there will continue to be quarterly variability in the predictive medicine revenues we believe that the Company's predictive medicine revenues for the fiscal year ending June 32, 2004 will be in line with the research analyst consensus.

Despite the modest increase in SAR revenues experienced in our first quarter, our gross margin percent of our predictive medicine revenues grew to 66 percent, which represents 5 percent margin improvement over the same quarter in the prior year. This margin improvement was achieved through technology advancements, including improved capillary sequencing and revised informatics, as well as lower reagent costs. We're constantly fine-tuning our laboratory processes, and we anticipate that margins will continue to improve as new technologies are introduced and patient sample volumes increase.

Research and research development expenses for the quarter were 13 million, compared to 10.9 million for the quarter ending September 30, 2002. Research and development expenses include costs associated with our ongoing research collaborations, such as our projects with DuPont and Abbott, costs from our internally funded research projects, including research in the areas of cancer, infectious disease, dementia and metabolic diseases, as well as the cost of our drug development program.

The 19 percent increase in research and development expenses during the quarter ended September 30, 2003 was primarily attributable to the increased costs associated with our three ongoing clinical trials in prostate cancer and Alzheimer's disease, our preclinical development of HIV and cancer drugs, as well as other drug discovery and drug development programs.

During the most recent quarter we recorded significant drug formulations supply costs in addition to the normal scheduled costs paid to our contract research organizations for managing our clinical trials.

One of our most exciting drug development programs is our new obesity lead compound that was announced earlier this morning. Dr. Adrian Hobden will provide additional background on this program later this morning.

Selling, general administrative expenses for the quarter ended September 30, 2003 were $8.1 million compared to $7.7 million in the same quarter ending September 30, 2002. This 5 percent increase in selling, general and administrative expenses from the same quarter in the prior year reflects an modest increase in the costs associated with our managing our laboratory activities, and marketing our predictive medicine products.

Selling, general and administrative expenses consist primarily of salaries, commissions and related personnel costs for sales, marketing, executive, legal, finance, accounting, human resources, and business development personnel, allocated facilities expenses and other corporate expenses.

We increased our customer service staff from 26 FTEs in September of 2002 to 39 in September of 2003. This increase in staff has allowed us to more effectively assist potential customers with insurance preauthorization, and respond to our customers' needs in a timely manner. Additionally, we have strengthened our medical services department with the hiring of a new Medical Director, Dr. Walter Knoll (ph).

We expect our selling, general and administrative expenses would expenses will continue to fluctuate depending on the number and scope of new product launches in our drug discovery and drug development efforts.

Our net loss for the quarter was $9.6 million, or 35 cents per share, compared with $5.4 million, or 22 cents per share for the quarter ending September 30, 2002. This increased loss is a direct result of our increased expenditures and commitment to the area of drug development.

Cash, cash equivalents and marketable investment securities increased $7.4 million, or 7 percent from the $103.7 million at September 30, 2002 to $111.1 million at September 30, 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're confident that this strong cash position will allow us to advance our goal of creating new classes of drugs that prevent disease by treating their causes rather than their symptoms.

We again point out that Myriad's has no debt and no convertible securities, and that the total number of shares outstanding at September 30, 2003 is a very modest 27.1 million shares.

Thank you for your attention. I will now turn the conference call over to Greg Crutchfield.

Thank you, Jay. It is my pleasure to discuss with you Myriad's predictive medicine business. For the quarter ending September 30th, 2003 predictive medicine revenues increased to $8.1 million from $7.9 million in the same quarter last year. As Jay and Pete explained, the summer quarter is historically our weakest quarter. And we spent considerable time analyzing the dynamics of predictive medicine revenues in this first quarter.

I would like to elaborate somewhat on Jay's discussion. Receiving a predictive medicine test is a complex process. Once a patient is interested in knowing his or her cancer risk, a number of conversations take place with health-care providers before a test is ordered. Often the primary care doctor is the first to speak to the patient. The family history is gathered regarding the number of relatives that have cancer and their ages at diagnosis. Sometimes more information is needed, and the patient is given the assignment to do for their research. Before the doctor decides to order the test, the patient may be referred to a cancer genetic center for genetic counseling and further evaluation. In this case, more appointments take place with one or more additional health-care workers.

Given that physicians, genetic counselors and patients typically take vacations during the summer months, it is often difficult to have all the relevant participants in the test request process simultaneously available during the summer months. In our analysis of the predictive medicine revenues for the first fiscal quarter of this year we saw lowered test requests coming in during the first half of the quarter. Then we saw a marked jump in test requests during the second half where volumes increased by over 14 percent compared to the first half of the quarter.

We surmise that vacations this year in the June, July and early August period pushed revenues that would otherwise be received in the first quarter into the second quarter. As Jay mentioned, test requests were strong in September, and have remained strong throughout the entire month of October. We're looking forward to a strong increase in predictive medicine sales during this current quarter.

Scientific and medical evidence continues to mount strongly supporting the use of BRACAnalysis in the health-care management of individuals with hereditary risks for breast and ovarian cancer. As Pete mentioned, an important paper recently published in the Journal of Science provides evidence that the risk of breast and ovarian cancer is higher in BRCA mutation carriers than previously thought. The risk by age 80 is between 81 and 85 percent for breast cancer, and as high as 54 percent for ovarian cancer in Ashkenazi women with mutations in the BRCA genes.

In this same population, the risk of breast cancer by age 60 was between 55 and 58 percent, and the risk of ovarian cancer was as high as 40 percent. The study found further that even in families were there were few cases of cancer, a mutation carrier has a very high risk a breast cancer, 51 percent by age 60, and approximately 80 percent by age 80. The study also found that exactly one half, 52 of 104 of the individuals with mutations had no history of breast or a ovarian cancer among mothers, sisters, grandmothers or aunts. These families did not show a strong family history, because either the family had a small number of children, had predominately males with few female children, and/or the BRCA mutations were inherited through the fathers.

These findings suggest that the presence of a mutation in the family with only a few cases of breast or ovarian cancer is indicative of a very high risk of cancer in mutation carriers, and that the family history alone is not an adequate predictor of mutation status.

The study also looked at lifestyle changes that could delay the onset of breast cancer. What was found is that both physical exercise and lack of obesity in adolescents were associated with significantly delayed onset of breast cancer in mutation carriers, even though the lifetime risk were similar, over 80 percent.

Finally, it was noted that individuals with BRCA mutations born after 1940 tended to develop cancer significantly earlier than those born before 1940, even though both groups had a lifetime risk that exceed 80 percent.

While the study focused on women of Ashkenazi ancestry, the authors point out that "the results are likely to be generalizable to women with any pathologic BRCA1 and BRCA2 mutations who have similar lifestyles". All of these observations reinforce the importance of finding out the mutation status of women earlier when interventions can be undertaken in order to reduce the very high risk of breast and ovarian cancer that mutations carriers have.

The publication of these data and recent liberalization of testing criteria by the American Society of Clinical Oncologists, ASCO, are significant events that we believe may lead to an increased market for Myriad's predictive medicine tests.

A second important study was reported just last month in the Journal of Cancer Research by investigators at the University of Belfast. The authors investigated the role played by the BRCA1 gene in mediating either resistance or sensitivity to chemotherapy treatment, depending on which chemotherapeutic agents are used in treating breast cancer. The authors found that the normally functioning protein produced by the BRCA1 gene in tumor tissue culture induced up to a thousandfold resistance to drugs like etoposide or beomicine (ph), which caused double stranded breaks in DNA. Remember, that this is the kind of DNA repair function that the BRCA1 gene normally performs.

Perhaps even more interesting is that the authors found that a normally functioning BRCA1 protein induced a greater than one thousandfold increase in sensitivity to drugs like paclitaxel and Vernailden (ph), drugs that damage the cell division process. In fact, the authors found that the functional BRCA1 activity was a requirement in order to produce the chemotherapeutic effect of paclitaxel.

Taken together, these findings suggest an important new approach in treating a patient's tumor, depending on whether BRCA1 activity is present or absent. In patients lacking BRCA1 activity, the increased sensitivity to the cell division drugs may not be present, and the drugs that cause DNA damage in tumors may be preferred. In patients having BRCA1 activity, the inclusion of cell division drugs like paclitaxel may be preferred.

The authors conclude that their data suggest that the BRCA1 gene plays a significant role in the response to an anti-cancer drug, depending on what kind of chemotherapeutic agents is used, and that the knowledge of BRCA1 status may have important implications for both patients and physicians in determining the most appropriate chemotherapy strategy in both inherited and sporadic cancers.

As more data are generated in studies like these, we continue to see the importance of BRACAnalysis testing in guiding the health-care of patients. We look forward to the increased growth of our products as we make a difference for patients, their doctors and their families.

I would like now to turn over the time to Dr. Adrian Hobden.

Thank you, Greg, and good morning. As most of you will be aware, we announced a few months ago the initiation of a Phase 2 clinical trial of MPC-7869 for the treatment of mild to moderate Alzheimer's disease. I will discuss our progress with the trial. I will also talk about recent papers that addressed possible treatments for Alzheimer's disease, and describe some exciting new data that shows MPC-7869 is able to improve learning in mice that have symptoms of Alzheimer's disease.

A few months ago Myriad sought permission from regulatory agencies in the UK and Canada to initiate a Phase 2 study on MPC-7869 for the treatment of mild to moderate Alzheimer's disease. Myriad had discussed the study with a number of neurologists in both countries and received enthusiastic support because of the preclinical efficacy data and the extensive human safety experienced with the compound. Myriad's has already signed up 27 of the 30 sites planned for the study, and is actively enrolling patients in Canada and the UK.

As a reminder, the study is double-blind good with two drug arms and a placebo, and the safe (ph) patients receive drug for one year in addition to their standard medications. The primary endpoints are A-cog (ph), a measure of cognition, and CDR sum of boxes (ph), a measure of behavior.

The highest dose of drug in the study is the same as the highest dose in our ongoing prostate cancer trial. In that study patients have been on that dose for over 18 months. While the study is blinded to Myriad, a data monitoring committee reviews the data on a quarterly basis. They have recommended that the study continue, and they have reported that the drug is well tolerated.

MPC-7869 is a selective Abeta42 lowering agent. Amyloid Abeta42 is a toxic peptide, which is the initiator of insoluble plaque formation in the brain. It also has significant neuro toxicity by itself. There is virtual scientific unanimity that overproduction of Abeta42 is a cause of Alzheimer's disease, and that lowering its production is desirable for both prevention and treatment of Alzheimer's.

In a recent publication in the Journal of Clinical Investigation, Todd Golde from the Mayo Clinic and Eddie Koo from the University of California at San Diego reported on the activity of a number of fugitive Abeta42 lowering agents. They reported on the activity of a number of compounds both in human neuroma cells and in transient mice that have been manipulated to develop symptoms of Alzheimer's disease.

They concluded that MPC-7869, which is also known as R-flurbiprofen, was the best candidate for all the compounds they examined for clinical testing in Alzheimer's disease, because of its combination of potency as an Abeta42 lowering agent and low side effect profile.

Support for the Abeta42 hypothesis also came from an independent group of authors in a paper published recently in the proceedings of the National Academy of Sciences. The authors were searching for another mechanism to lower Abeta42, and they discovered that a kinase inhibitor, currently marketed for the treatment of leukemia, lower both Abeta40 and Abeta42. The authors conclude that the kinase inhibitor does not represent a viable drug for Alzheimer's Disease, since it does not penetrate the brain. And indeed, it has significant and limiting side effects. They believe that the compound is working through inhibition of an unknown kinase, distinct from the leukemia target.

In addition to the support that this will provide for the Abeta42 hypothesis processes, Myriad believes it may already have identified the appropriate target in its ProNet Alzheimer's network. Ahead of the recent publication, Myriad had knocked out expression of these target kinases, which showed an effect on Abeta42 production similar to that presented in the paper. Myriad is aggressively pursuing this approach for the next generation of Alzheimer's drugs.

As I mentioned above, while the approach of Abeta42 lowering is an attractive hypothesis, proof awaits the completion of our phase 2 study. However, this week at the international meeting of Neuroscience 2003 in New York, scientists directed by Drs. Todd Golde and Eddie Koo presented data which strengthens the hypothesis. The authors took their transgenic Alzheimer's mice and allowed them to age, such that they were starting to show the onset of neuroma plaques and learning difficulties. This might be compared to mild Alzheimer's disease in humans.

They then treated the animals on a daily basis for five months with either ibuprofen, which has some small amount of Abeta42 activity, or R-flurbiprofen which has potent Abeta42 lowering activity. At the end of the study, the animals were tested for their ability in spatial learning using the well-established Maurice Water Maze (ph).

In this test, the mice are trained to find a partially submerged platform within a water filled tank. The platform is invisible and its location is identified only by reference to markings around the walls of the tank. After a few days of training, the platform is removed and the animals search for the platform by swimming around the tank. If the animals have no memory of the platform's previous location because of a learning impairment, they will spend the only about 25 percent of their time in the correct quadrant of the tank. That is, their movement around the tank is completely random. If they have some memory, they will spend greater than 25 percent in the correct quadrant.

Animals treated by ibuprofen had a small, but statistically insignificant improvement. However, animals treated with our compound, R-flurbiprofen showed a highly significant improvement. They spent 60 percent of their time in the correct quadrant. Remarkably, this is much better than the performance of a normal healthy mouse, which has not developed neuroma plaques. A normal mouse spends no more than 40 to 45 percent of its time in the correct quadrant. Furthermore, our drug candidate was able to markedly reduce the amount of insoluble analogues in the brains of treated mice. It is data of this type that leads us to be enthusiastic about the potential of MPC-7869 for treating mild to moderate Alzheimer's disease.

As you can see, Myriad is moving forward rapidly with its clinical programs. At the same time, we continue to make progress with our exploratory and preclinical programs. We continue to explore the various novel targets that we identified in bioboden (ph) from human cells.

Our lead compound, MPI-49839 for HIV, has a very interesting antiviral profile. It not only has activity against HIV strains resistant to anti-HIV drugs, but also thus far Myriad has not been able to see any drug resistance to MPI-49839. Furthermore, some activity against viruses other than HIV has been seen.

In the cancer area, Myriad is generating intriguing data on MPI-176716, which in preclinical development for the treatment of ovarian cancer. The compound significantly increases the efficacy of carboplatin (ph), the standard of care treatment for this deadly cancer when tested in mice. Myriad is currently evaluating the best formulation of drugs to use for IV delivery to patients.

Recently we identified a novel compound, MPC-4505, which has nanomal (ph) repotency against this target, and with good oral bioavailability in pharmacokinetics. We believe this compound has good potential for the treatment of nausea and vomiting resulting from cancer chemotherapy. Myriad expects shortly to move this compound into preclinical development.

In addition, Myriad continues to evaluate compounds against our exciting and novel targets in a range of diseases which remain poorly treated. We have chemistry programs for targets in Alzheimer's disease, antivirals, and cancer. Myriad is committed to developing drugs that will represent a true advance for the treatment of disease.

Our work on MPI-49839 and MPI-176716 is proceeding well. However, our philosophy in drug development is to move compounds into the clinic only when the efficacy, safety and formulation data provides us with a high potential for success in human clinical trials. Companies often make the mistake of moving a compound into the clinic prematurely, simply to meet an artificial deadline.

Myriad intends to aggressively pursue new IND submissions for MPI-49839 and MPI-176716 in the near future. However, it is unlikely either will enter the clinic this calendar year. Myriad believes it is making significant progress in its drug development activities, and the future looks bright for our programs.

I thank you for your attention. I would now like to introduce Mark Skolnick.

Thank you, Adrian, and good morning. Last spring I discussed Myriad Genetics' discovery of the first genetically validated gene for human obesity, HOB1. The epidemic of obesity in Western society is perhaps the most serious health risks today, with implications not only for life expectancy, but also for health-care costs in the 21st century. Obesity affects all communities within the United States, regardless of socioeconomic group or racial background. Disturbingly, obesity among children is even becoming common in emerging nations such as China. There over 40 million of these individuals in the U.S., with 3 million of those classified as morbidly obese.

It is a bit is becoming clear that certain minority communities, such as subcontinental Asians, are at enhanced risk of developing obesity with its ensuing complications. Obesity is associated with significant morbidity and mortality due to the accompanying cardiovascular disease. And obese individuals are especially prone to develop adult onset diabetes, an important disease in itself. Eighty percent of Type II diabetes, and 70 percent of cardiovascular disease is related to obesity.

Furthermore, 26 percent of obese people have high blood pressure, which if untreated, can lead to organ failure and heart disease. The annual U.S. health-care cost of Type II diabetes alone stands at $63 billion. Now I won't say that effective therapies are therefore urgently needed.

Myriad's discovery of HOB1 represents the first gene involved in common human obesity to be characterized by human genetic approach. This gene emerged from our our work with Utah families that have strong histories of this disease. To the best our knowledge, this is the only gene that has been shown in humans that predispose individuals to the common form of obesity. The location of HOB1 was determined from a genetic analysis of 37 obese pedigrees.

This analysis, which was published last year, produced unequivocal evidence that an obesity predisposition gene was located on chromosome four. The pedigrees in this study were Caucasian and selected because they contained at least three family members with body mass indices of greater than 40, that is severely obese. On average, each of the pedigrees contained 27 people with an average body mass index of 37.

Following the discovery of the HOB1 obesity gene, Myriad analyzed the biological pathway around HOB1 using its ProNet technology, and discovered that the network directly intersects with the diabetes pathway we had previously developed. As you may know, it has long been known that there is a close association between obesity and the incidence of Type II, that is adult onset diabetes. This biochemical association between a gene that predispose to obesity and a diabetes pathway, may help also explain the phenomenon.

This morning Myriad announced that it has discovered a promising lead compound for the treatment of obesity. Based upon insights into the biochemical function of HOB1, Myriad constructed a high throughput screen in order to identify compounds that modulate its function. In all, Myriad examined the activity of around 200,000 compounds. From this initial screen, a small number of compounds were examined for their ability, not only to affect the primary screen, but also for their ability to modulate insulin-dependent glucose uptake and adificites (ph).

Our candidate inhibits an important drug target in the HOB1 obesity pathway. More importantly, our data demonstrates that the lead candidate compound modulates the uptake of glucose in adificites, or fat cells, without obvious toxicity. This exciting compound demonstrates a dose response curve with potency in the low micromolar range of activity.

As a result of the outstanding technology, teamwork and skills of various groups in Myriad, we have been able to move from discovery of the obesity gene to identification of a lead compound with excellent activity in a period of less than one year. We believe that rate of progress is truly impressive.

We have begun structure activity relationship, called SAR analysis, on this and related compounds. This data will assist Myriad's medicinal chemists in developing the most potent compounds with the various other physical characteristics necessary to yield a successful drug. We will continue to work toward the development of this new class of drugs that may help a substantial portion of patients who suffer from obesity.

To conclude, I can say I believe that research on HOB1 has been particularly fruitful. The significant progress that I have reported reflects the emerging promise of genomics, coupled with the drug development process at Myriad. Development of compounds which affects biochemical process associated with HOB1 offers potential new avenues for the treatment of obesity, and may also perhaps impact on the treatment of diabetes.

Thank you for your attention. I will now hand the call back to Pete.

Thank you, Mark. And I will turn the call back to the operator for the question and answer portion of this conference call.

Charles Duncan from JMP Securities.

A couple of questions here. Let's talk a little bit about predictive medicine sample flow. Can you help us understand the market dynamics? I am wondering if this is a change in the way the sample flow is coming in? If this was a seasonally weak quarter more so this year than in the past? And what do you think that is a result of? Or is it a result of purely a change in the type of people that are buying the tests?

Charles, this is Greg. We believe that what we saw was really the phenomenon that we described with respect to vacations impacting the availability of people that are getting testing. We do not see any material change in the people that are coming forward presenting themselves for the tests. And as we mentioned, we anticipate strong growth through the current quarter.

This is Pete. Just let me elaborate a little bit. This was a onetime anomaly. We can't fully, I think, explain or understand why the samples were so weak in the first half of the quarter, nor why they were so strong in the second half. I think what is important though is to understand that we're not seeing a change in sample flow. As Jay mentioned, through October the samples have been strong. So we do think this is an unusual blip that is hard to explain that affected the first quarter. And our best guess is that it probably was related to the vacation phenomenon.

Pete, is it an unusual blip for the quarter? Is it a seasonal thing that has been happening over the course of the last few years?

It is both. Seasonally, because of the vacation period, we do notice that the first quarter is always our weakest quarter. So there clearly it is a seasonal phenomenon. However, this quarter was unusual, instead of a fairly consistent flow of samples, we had the phenomenon of a very slow first half and a very strong second half. So that was unusual. But no, the seasonality due to vacations is something that occurs ever since we began marketing predictive medicine products.

Does a greater impact of the seasonality reflect possibly a move from more early adopter type purchasers to a greater, call it a patient driven customer base?

That is certainly possible. But again is very difficult for us to assess and understand what happened in the first quarter at this time. What I think is important though is, again, to emphasize we're not seeing that phenomenon continue. We're seeing very consistently strong sample flow through the entire month of October, and as Jay mentioned, the first week in November.

So we are very excited about this quarter. We're very pleased with the sample flow and the predictive medicine revenues that will result from that. Again, it is hard to pinpoint an exact explanation for that slow first part of last quarter, but it appears to be an unusual onetime event.

Second question for Greg, I saw mentioned of a study that you talked about a fair amount with the Ashkenazi Jewish people and BRCA prediction for breast cancer. That was published in the Wall Street Journal. And what was surprising to me was the nonfamily history not being a good predictor. How do you intend to use that? Are there new marketing initiatives that you intend to launch that will, hopefully, further drive adoption of these tests?

Charles, we always include these latest and most credible scientific data in our marketing literature. Our plan is to make sure that people understand that family history alone is not going to be sufficient to identify a large number of carriers. As you remember, half the people in that study who had mutations had zero family history.

And there's no reason to believe that this is not the case in the general population, outside of the Ashkenazi group that was studied in this particular paper. So we will be mentioning this. This is a very important phenomenon. And it actually goes in concert with what has happened. ASCO has actually gone away from a set percentage risk criteria that they used to have. They used to say anybody with a 10 percent risk or higher should be considered a candidate. They have dropped that. They have actually liberalized it, because people are realizing that it is too restrictive. And we think this is a good opportunity for our business.

I would like to make a comment on the historical attitude of a number of elements in the population toward our initial discovery of BRCA1. There was an attempt to criticize those findings as being applicable to a diagnostic test and saying, well you found them in very large Utah families. They were highly penetrant. Do we really know that the average person with the same mutation would really have the same probability of getting cancer, because we don't know everything about the epidemiology and so on.

In other words, there was an attempt to downplay the importance to the type of product that Greg offers by a number of elements in the community. And in fact, one of them was Mary Clare King (ph). I don't know if you're all aware of this, but the major competitor to discover BRCA1 was Mary Clark King, the lead author of that publication.

So this is an extremely important reversal of opinion by a very important public opinion leader saying that, no, our data actually shows that people with a mutation, regardless of their family history, have very high probabilities of getting cancer. And the details, especially the details showing that given the environmental factors of our modern era, just like they are increasing the rates of melanoma, are increasing the incidence of breast cancer and ovarian cancer in women who are predisposed, I think is also very important and very shocking.

It is obvious to a geneticist that an autosomal gene can be passed through the father as well as the mother. You're going to find people without family histories that have these mutations. But this data is actually extremely important in bringing the community around to the concept of general screening for people with a mutation. And especially the people coming into the age groups that we see in the clinic as being an even higher risk, earlier on in their lives than the old curves.

There again was in the early days in a study attempting to discredit the high penetrant functions, that means the probability of being affected from the early studies, specifically on Ashkenazi Jews. Again it was by some of the naysayers. And they did some interesting statistical trickery to try to show that the probability of being affected by age 65 was more like 55 percent than what we claimed. And this study clearly refutes that too.

I think it is extremely empowering in the cancer community, it will have a big impact when this data and this information goes to the Clinical Association at the annual study -- sorry, the annual meeting of the 6,000 physicians that work with cancer patients. So it is really a landmark study.

A quick question for Adrian. On the HIV product development initiative, could you provide a little color on the new data, if there is any, that has caused a change in the schedule of the filing of an IND? And can you give us some idea of what your best thinking is now for the filing of an IND on that product opportunity? Thanks.

As you know, Charles, we're completely dependent on outside organizations for doing all GLP and GMP operations. And we're dependent on results coming back from them at the right time. Analyzing that data, if there's anything that doesn't look right, for example, in formulations or the like, then we have to go back to those organizations to do further things with the built-in delays.

And that is what makes it very difficult for us to predict exactly when this product will go to IND. And why we're not at this stage getting a target date, because we simply don't really have a good handle on that. And we don't want to beholden to another artificial date.

But, as I said in the talk, we think this is a very exciting compound, in a very exciting area of research in the NTHIV (ph) field, bringing with it all the benefits, for example, of activity against resistant strains, difficulty of getting resistance. We can't say that you would never get resistance, we just can say that we haven't yet seen resistance. We would predict, based on the mechanism, that would be extremely hard to get resistance.

And then finally, we predicted based upon our biochemical analysis of the pathway that these compounds should have activity against other viruses. We have had unlimited testing, certainly not in a large range of viruses, and have seen some antiviral activity against at least one other virus. So that all encourages very much this whole program. It is still going on enthusiastically within the Company. But we have had to push the timeline back, as you observed.

Are you still confident in eventually filing an IND? Is this a process or data dependent? Is there a key experiment that has to be done that you need the answer to?

No, it is more just a process making sure that it is being done correctly. The Company is very enthusiastic about its HIV compound. As Adrian mentioned, the compound is very active, not only against HIV, but drug resistant strains of HIV.

We're also very enthusiastic about the cancer drug, 176716. In the experiments we have done using ovarian cancer tumors in nude (ph) mice, we have seen complete reversal regression of the cancer tumor to the point where in these mice can detect scar tissue, but don't detect tumor cells themselves. So both programs have a very high priority at Myriad. Both programs are doing very well. And we anticipate in the near future filing INDs bond on both programs.

Akhtar Samad.

I wanted to follow up on one of the questions just asked. With respect to predictive medicine revenues in the fiscal fourth quarter, the last quarter, the sequential growth was 0.4 percent, which is an historical low at the time. In this particular quarter the sequential growth was down 14 percent. I'm just wondering if you can comment a bit more on if there the reasons were similar for the fiscal fourth quarter outcome and the current quarter?

Thank you, Akhtar. No, the reasons were not the same. We had an exceptionally strong third quarter. It was up substantially. I believe it was about 9.1 million, up over the second quarter of 8.1 million. So the sequential growth between third and fourth quarters was modest.

The Company has seen very strong demand for its products. We see continued enthusiasm by physicians and clinicians toward testing an individual's risk for cancer. And we have seen since we launched these products compound annual growth rates of about 30 percent.

As Jay mentioned today, we're very comfortable with research analyst guidelines in terms of predictive medicine revenues for the year. However, each quarter has its own fluctuations. And as I mentioned, the first quarter historically, because of the vacation period, is our weakest quarter. So you will see quarter to quarter fluctuations. But we're very comfortable with the annual growth in predictive medicine revenues. And as I mentioned, we are all very excited and very pleased with what we're seeing this quarter in terms of predictive medicine revenues.

Can you tell us how many tests were ordered in the fiscal fourth quarter?

The total number of tests for the quarter? Jay, do you have that?

Akhtar, that number is actually not readily available. But if you want to maybe assume a typical product mix and allow for contractor discounts to insurance companies. And those actually aren't linear because it is from renewal of the contract to renewal of the contract, and they are volume dependent. But you could say that an average test price, the product would be approximately 1,700, $1,900. And you could maybe back into it that way and derive the approximate weekly sales volume.

I guess my last question is, just getting back to the IND timeliness. Could you give us just a bit of a better sense as to whether the IND filing for 49839, the HIV compound, is that now going to be a current fiscal year event, or is it going to be a 2004 calendar year event?

That is a great question, Akhtar. The Company has put a very high-priority on developing the HIV compound. In fact, it is our number one goal with Myriad. We're also very excited about the cancer drug. We think that has tremendous promise as well. And we will move it into the clinic as fast as humanly possible.

We are reluctant at this time to try to set up a specific deadline. There are so many factors that go into drug development, in the formulation of the compound, in shelf life and stability studies. We want to make sure that we move a drug into the clinic that it has every opportunity to be successful, and that we haven't been pressured by some artificial deadline to rush the process, or move a drug into the clinic that we are not completely comfortable with.

So at this time, we're very excited about the product potential of the HIV candidate drug. We're very excited about the progress we're making. There are no significant hurdles other than just the process of moving drugs forward into the clinic. But the Company would prefer at this point in time not to set up some additional deadline. We'll do it as fast as we can, and we're very excited about its potential.

But am I correct in assuming that the HIV compound is still ahead of the lead cancer compound, and that the IND filing for the former is more likely still to take place ahead of the latter?

The HIV is our highest priority. And that is our goal.

David Webber, from First Albany.

It seems as if you have had a good, or relative, recovery in terms of test flow compared to what you saw in the first part of the quarter. Can you give us a historical context though in which to understand what something like 400 tests would be (indiscernible)?

I will have Jay elaborate on that. But as Jay mentioned, given our product mix, and we sell four products, including the Ashkenazi test, and a single site mutation test for all of our full sequence products, an average product mix is in the 17 to $1900 per test range. So if you use that number and divide it into the revenues of any particular quarter, you get a good idea of the number of samples, I think, for that quarter. And hopefully that answers your question. But, Jay, do you have any further --?

Just to say that in order to achieve the analysts' consensus. I mean it is obvious that the quarter that we're in now and the second quarters are going to have to be pretty strong quarters. So I would think you could safely assume that the quarter that we're currently in would be a pretty strong significant quarter, and maybe the strongest quarter we will experience.

What is the analyst consensus for predictive medicine revenues for fiscal '04?

Well, I'm sure you guys could derive it. What I going to do is actually give it to you, since I have it right here. And it is right around $43 million.

43 million. And then just one thing again getting back to the anomalous pattern that was -- that you observed in the quarter in terms of test flow, I understand what you're saying about vacations, although it is not immediately clear to me what would be different about vacation patterns this year from previous years. Have you considered the possibility that you're approaching some kind of saturation of the capacity of genetic counselors to see potential test takers?

We certainly are addressing the genetic counseling issue, because that does represent one step in the flow of a patient being tested, and uncertainly could represent a bottleneck. But I would say no to your question, because if we did see a saturation point in the early summer, then it would be hard to explain why the samples have been so strong, not only through the second half of the first quarter, but October, and as Jay mentioned, the first week in November were more samples than the Company had seen. So we don't see any saturation at the present time in that area. But we are very day interested in ensuring down the road that we don't see issues in the process that would create a bottleneck, and that we address early on those issues. So we're certainly working toward ensuring that genetic counseling does not create any delay or -- in addition of samples. But no, given the current sample flow, we're not seeing any saturation yet.

Can I mention another possibility that relates to this summer phenomenon. And that is that as sample numbers increase, you're constantly developing new customers, new sites. And these sites have to develop a team. And that weak link in the team often is figuring out how they are going to get their counseling, getting the doctor's enthusiastic, getting them past their first patients.

And so it could have been a phenomenon that as we continue to grow the market, continued to add new clinical sites, and those sites have to get their act together, so to speak -- get their full team, that there was a six-week or two-month slowdown that just occurred. And I think the pickup -- if we hadn't seen the pickup later in the summer and in the fall of these very strong numbers in the fall, we could start to worry about a phenomenon leveling off. But I think it is just a lumpiness in the process as you spread into new client areas. And as we get into the new area of more women who do not have a family being tested, you might see some either positive spurts or some shoulders, and that is just the nature of the business. You are going to a different subpopulation in different locations, in different clinic areas.

Meirav Chovav, UBS.

It is Meirav and Derik. I mispronounced my name. I will have Derik start.

I just wanted to ask a question on the SG&A. It was certainly little bit higher this quarter than previously. I know you said it is going to fluctuate. Can we use this rate of SG&A expense as a good baseline going forward?

Current quarter I think is a pretty good baseline going forward. And while it is true that the SG&A this quarter increased about $8.1 million sequentially from the $6.7 million in the quarter ending June 30, 2003, the SG&A in this quarter is actually in line with the historical levels of quarters, which weren't affected by DTC. So specifically 7.7 million in the same quarter of the prior year, and 7.9 million in the quarter ending June 30, 2002. So I wouldn't say that the quarter that we're in is unusually high. I would actually argue that the sequential quarters that we've experienced just prior was actually artificially low.

Now looking at the product mix for the current quarter in predictive medicine, was it any specific products that was weak, or was it all across the board that you saw a slowdown in sales?

It was all across the board. All of our products were slow in the first half of the quarter. All of our products were very strong since mid-August. So it is not one specific area of product. And again, that makes it difficult to understand the cause of that phenomenon. But, no, they have all been very strong, equally strong since of the first half.

I guess I just wanted to ask a question on the R&D spend. Relative to a lot of your peers in drug development space, your level of R&D spending is low. I guess the best way to put this is, do you think you're spending enough on R&D in order to move your compounds forward into the clinic?

We do. The Company, as Jay mentioned, has a strong cash balance, over $100 million in cash. And we are aggressively pursuing both in the drug discovery and drug development clinical trial portion. If we see opportunities that move additional compounds forward, we have the cash to increase the R&D spending. But no, we're comfortable with the current level, and we're not delaying any programs in terms of the drug development.

This is Meirav. In terms of the AIDS drug, could you give us a little bit more clarity of what has caused the push backs? Could throwing more money at the issue might have helped accelerate things? Is it a factor of some outside contractor being overwhelmed, or are there formulation issues? Could you give us a little bit more clarity there?

Certainly it is not an issue of throwing more money at it. It is more an issues relating to the fact that you do these things sequentially. You can't predict exactly what the outcome of various things are going to show up; and therefore, you have to wait for the results to come, respond to those, and then you go out again, if necessary, to look at the next aspect of things.

And it is not that we have been unable to get external contractors to do it at the pace we would like. And we are obviously impatient and want to go as fast as we can. But it is a simple fact that if you're doing a two-month tox study, it takes two months to do the study. There is no way of shortening it.

In terms of getting a compound ready for the clinic, there are things that are fairly obvious that you have to have as a package. One, of course, is the efficacy data. The second is the toxicology package, and the third is a compound formulation that you can use to go into the clinic. One of the things that we have noticed with this particular compound is some formulation issues, which we're looking at and trying to get around, or will be getting around I think is the best way to put it.

Formulation issues, as in bioavailability (indiscernible) or those kinds of things?

But in terms of the physical properties of the compound itself, it is one of the things that you just don't really anticipate, but it can happen to you. To give a little bit of insight to this particular molecule, we found that with a particular fault (ph) we were interested in, it had a very high absorption of water. It became deliquescent, which is not a problem in Utah, but it is a problem in the East Coast. And so that is something which we have to get around. That is an example of the things that can happen in drug development and discovery.

Are there any toxicology issues?

I'm sorry?

Are there any toxicology issues with the drugs? What does the tox profile look like?

We haven't completed those studies yet, so I can't really give you a final lead (ph) on those right now. We have looked at the short-term tox and long-term tox, and you never know what is going to be around the quarter.

But so far so good?

So far we're happy with what we see.

Thank you. I would like to now turn the conference back over to Mr. Peter Meldrum.

Thank you very much. I appreciate everybody's attendance and listening to the Myriad Genetics earnings conference call. As we mentioned, we certainly are enthusiastic about our predictive medicine business for this quarter. And I would like to now conclude the earnings conference call. And, again, thank you for your participation.

Thank you. This does conclude today's teleconference. You may disconnect your line at this time.