Myriad Genetics Inc (MYGN) 2004 Q2 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. I would like to turn the presentation over to your moderator today Mr. Peter Meldrum.

Thank you and good morning. Welcome to the Myriad Genetics earnings conference call for the second quarter of our 2004 fiscal year, which ended December 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. Jerry Lanchbury, Senior Vice President of Research; Mr. Jay Moyes, our Chief Financial Officer.

I will begin the discussion this morning with a brief review of the past quarter and will be followed by Mr. Moyes, who will review our financial results for the second quarter of fiscal 2004. Dr. Critchfield will then discuss the Company's predictive medicine business. Dr. Adrian Hobden is traveling in New Zealand and not able to join us this morning, so I have asked Dr. Lanchbury to review the Company's new cancer candidate MPC-6827. At the end of the presentation, 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 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 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 an exceptionally strong quarter for the Company. We saw record product revenues, record gross profit margins, and significant progress on the drug development front.

Let me start first with the predictive medicine revenues. Based on strong consumer demand for our predictive medicine tests during September and October, we anticipated a record-setting quarter, and we were not disappointed. As Mr. Moyes and Dr. Critchfield will discuss in more detail, test requests continued to grow in November and December, resulting in a record 10.4 million in predictive medicine revenues for the second quarter of fiscal 2004. This is 2.3 million higher than the previous quarter ended September 30th, 2003 and over 1 million greater than the Company's previous all-time best quarter. I am pleased to report that we are continuing to see good patient sample flow and are looking forward to another good quarter for predictive medicine revenues.

Myriad is continually improving its current product line and performing research focus on the development of new predictive medicine products. We are also investigating new market opportunities for our existing products. As Greg will discuss later on in the conference call, new research in the pancreatic cancer area may enable the Company to expand its BRACA product line into new markets to guide physicians in selecting the most appropriate chemotherapeutic regimes for patients with pancreatic cancer.

During the past quarter, Myriad continued to advance its new drug candidates toward human clinical trials. We are making good progress on the reformulation of MPC-49839, our anti-HIV drug candidate. MPC-49839 has demonstrated strong anti-HIV activity, including good activity against drug resistance strains of HIV. Additionally we have announced in a press release two weeks ago and as Dr. Lanchbury will discuss in more detail late on in the conference call Myriad's latest cancer drug candidate MPC-6827.

This drug candidate has demonstrated exciting results in a number of animal models for human cancer. In Xenograft mouse models of human pancreatic cancer, breast cancer, ovarian cancer and melanoma, MPC-6827 has exhibited strong anticancer activity, even causing complete tumor remission in the breast cancer studies. As compared with gemcitabine, the big current standard of care in the treatment of pancreatic cancer, MPC-6827 was twice as effective in inhibiting tumor growth and achieved this efficacy at approximately 1/10 the dosage of gemcitabine. Additional data on this exciting research will be presented next month at the AACR meeting in Orlando, Florida.

MPC-6827 also performed well in the melanoma xenograft mouse model. Melanoma is a very aggressive cancer that does not respond well to treatment. Mice treated with MPC-6827 showed significant improvement in survival compared to both controls and paclitaxel treated mice, the current treatment option for melanoma. Twice as many or 60 percent of the MPC-6827 treated mice survived versus only 30 percent of the paclitaxel treated mice and only 10 percent of the controlled. These data were statistically significant at a P value of .0002.

Myriad also announced results of its cancer drug MPI-176716 in net an ovarian cancer xenograft mouse model. MPI-176716 was evaluated in comparison with carboplatin, the current standard of care in the treatment of ovarian cancer. Ovarian cancer is a very aggressive cancer, and because of the rapid tumor growth, all of the controlled animals had to be sacrificed by day 20. The carboplatin treated mice showed a reduction in the rate of tumor growth of approximately 20 percent, but could not stop the growth of the ovarian cancer tumors. Remarkably when MPI-176716 was given in combination with carboplatin, the tumors were sent into complete remission. And at the end of the 55 days study, we could not detect any cancer in the MPI-176716 treated mice.

Both MPI-176716 and MPC-6827 are exciting new cancer drug candidates that exemplify Myriad's therapeutic philosophy of understanding the important cause of diseases such as cancer at the molecular level and then developing new drugs that actually treat that cause.

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

Thank you, Pete. It certainly is a pleasure to be able to present Myriad's financial results for our second fiscal quarter ending December 31, 2003. I am pleased to report that predictive medicines revenue this quarter are the strongest we have seen since our product introduction. Predictive medicine revenues for the quarter ended December 31, 2003 were $10.4 million, which represents a 28 percent increase over the same quarter in the prior year and a 30 percent increase over the prior quarter. The record $10.4 million in predictive medicine revenue were approximately $900,000 greater than the consensus predictive medicine revenue forecast for this quarter. Predictive medicine revenues for the six months ended December 31, 2003 are up 16 percent over the same six months of the prior year, even though our first fiscal quarter was unusually weak. We have seen good sample flows for the month of January and expect predictive medicine revenues to perform well again in the third fiscal quarter.

Once again, gross profit margins have continued their consistent growth rate. Our gross profit margins on predictive medicine revenues grew to 67 percent for the quarter ended December 31, 2003, which is up from 63 percent in the same quarter of the prior year and 66 percent in the prior quarter ended December 30, 2003. As Greg will discuss, this achievement was realized through higher lab throughput, technology improvement and lower reagent costs.

While predictive medicine sales have increased significantly, the Company has paid particular attention to its Accounts Receivables. Insurance companies and HMOs reimbursed the majority of our sales and have been aggressive in prolonging payment. Recognizing this, the Company has initiated several programs to accelerate collections, including contract modifications that provide for quicker and more efficient billing.

I would like to take a moment to discuss the quality of our predictive medicine receivables since this is important to a number of analysts and investors. I believe it will be helpful to provide a contractual basis to analyze the improvement in Accounts Receivable collections. When measured as the number of days of predictive medicine sales outstanding, our Accounts Receivable have declined substantially over the last quarter. In our first fiscal quarter ending September 30, 2003, the number of days sales outstanding based on average daily sales for the quarter was 144 days. The number of days sales outstanding for the most recent quarter declined to 114 days. This 30 day improvement is significant and speaks to the excellent quality of our receivables.

As we have noted over the past few conference calls, research revenues were expected to decline. Total research revenues for the second fiscal quarter ended December 31, 2003 were 3.7 million compared to $8.7 million for the same quarter in the prior year. This decline reflects the successful completion of our collaborations with Hitachi and DuPont, as well as the overall decrease and the emphasis placed on external collaboration in favor of internal drug development programs. We expect research revenues to decline modestly in the future.

Research and development expenses for the quarter ending December 31, 2003 were $11.6 million, a decline of 5 percent from the same quarter in the prior year was mainly due to the completion of the gene sequencing collaboration with DuPont. The decline in these sequencing costs more than compensated for the increased costs associated with our three ongoing human clinical trials in prostate cancer and Alzheimer's disease, as well as the preclinical development of our cancer and HIV drug candidates.

Selling, general and administrative expenses for the quarter ending December 31, 2003 were $9.5 million compared to $9.3 million in the same quarter of the prior year and $8.1 million for the prior quarter ending September 30, 2003. The increase in selling, general and administrative expenses from the previous quarter primarily reflects increased legal costs associated with protecting our intellectual property estate. Selling, general and administrative expenses consist primarily of salaries, commissions and related personal costs for sales and marketing, executive, legal, finance, accounting, human resources and business development personnel, allocated facility expenses and other corporate expenses. We expect our selling, general and administrative expenses will continue to fluctuate depending on a variety of factors, including the number and scope of new product launches in our drug discovery and drug development efforts.

Net loss for the quarter was $9.9 million or 36 cents per share compared with $6.9 million or 27 cents per share for the quarter ending December 31, 2003. For the benefit of investors, the first call estimate was a loss of 37 cents per share, resulting in a net loss this quarter that was 1 cent better than the consensus. The increased loss is a direct result of our increased legal accruals and expenditures in and commitments to the area of drug development. We expect our loss to continue to increase modestly in the future but remain confident that our burn rate will remain among the lowest in the drug focused biotech industry.

Cash, cash equivalents and marketable investment securities were $103.3 million as of December 31, 2003, a decrease of $7.8 million or 7 percent from the $111.1 million at September 30, 2003. This decrease in cash, cash equivalents and marketable investment securities is primarily attributable to the net loss from the ongoing operations of the Company. We again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at December 31, 2003 is a very modest 27.1 million shares.

I appreciate your attention. I will now turn the time over to Greg Critchfield.

Thank you, Jay. Good morning everyone. It is a pleasure to speak to you about the growth of our predictive medicine business. As we discussed during our last conference call, predictive medicine sample was growing strongly toward the end of first fiscal quarter. We saw sample flow continue to grow during the entire second fiscal quarter which resulted in total predictive medicine revenues of $10.4 million -- a record quarter for Myriad by any measure.

At the same time revenues grew, our gross margins improved to 67 percent. Several factors contributed to this gross margin improvement. First, we are extensively applying new robotics in the operation of our sequencing laboratory. Now at Myriad all clinical specimens that come into the laboratory are extracted by a highly automated and efficient robotic platform. Further robotic enhancements are underway to take advantage of the newer capacity robots.

Second, in the area of chemistry development, we have optimized methods developed by Myriad researchers that allow us to more efficiently run our operations. This includes significant decreasing the reaction volumes for the sequencing biochemistry and implementing enhanced methods for loading capillaries. This results in better data quality and lower rework rates.

Third, we are able to spread our costs of operation over a greater number of tests as our volumes continue to grow. These items all work to improve our gross margins. The increased clinical utility of our products in managing a patient's care is a key driver of this increased consumer demand. The New York Cancer Study paper published in Science last fall showed that mutations in BRCA genes were associated with a higher risk of breast and ovarian cancer. A very important additional finding in this population study was that of the individuals found to have mutations, 50 percent had no family history of cancer. Data like these are resulting in a liberalization of testing guidelines by professional societies, by insurers and by physicians with the realization that more people can benefit from BRACAnalysis. We believe that these changes are causing an increase in the demand for our products, which we are continuing to see as we enter the current fiscal quarter.

Perhaps even more interesting is the possibility that we are entering into a New Age of clinical discovery where the analysis of BRCA genes is being used to predict risks for new diseases and for response to different treatment regimens. In terms of reducing the risk of disease, the BRACAnalysis test is designed to help a young symptomatic woman with mutations to assist her and her family to take steps to prevent disease. For a woman newly diagnosed with breast or ovarian cancer, knowledge of the BRCA status is useful in strategies to prevent second cancers and to reduce the risk of disease in other family members.

For individuals considering chemotherapy, BRCA gene function may be useful in selecting drugs that are most efficacious for the patient's particular type of cancer. Specifically at the conference call, we spoke about the fact that BRCA-1 information may be useful in helping to select chemotherapeutic drugs for patients with breast cancer. In other disease conditions, such as cancer of the pancreas, the BRCA-2 gene is important not only in the risk of disease, but also may be increasingly important in predicting treatment response.

Work at Johns Hopkins University showed that the BRCA-2 mutations were found in 17 percent of patients entered into a study of genetic causes of cancer of the pancreas. This same study showed that BRCA-2 mutations are the most common inherited genetic alteration yet identified in familial pancreatic cancer.

BRCA-2's function is to repair damaged DNA. Individuals lacking normal BRCA-2 may benefit from drugs that damage DNA. There are more than 30,000 people diagnosed with cancer of the pancreas each year in the United States, a disease that has a very high mortality rate. Predicting which medications work best in these cases could be very beneficial for individuals who have this disease. We look forward to continuing the growth of our business during the current fiscal quarter as more patients and families take advantage of lifesaving benefits of our predictive products.

I will turn the microphone over to Dr. Lanchbury.

Thank you, Greg, and good morning. A couple of weeks ago we announced in vitro results from studies with MPC-6827, a nodal anticancer drug. This morning I want to give you some more details about this very exciting compound. When we first identified this compound, we were surprised by its potency, both against a broad range of cancer cells in vitro and in vivo in mouse xenograft models. In fact, its properties were so attractive, and in our experience unprecedented, that we sought out the opinion of Dr. Dan Von Hoff. Dr. Von Hoff is the Executive Vice President of the Translational Genetics Research Institute and Director of the Cancer Therapeutics Program at the Arizona Health Sciences Center. Furthermore, he is recognized throughout the United States as a preeminent cancer researcher and has been involved in the development of more than 20 cancer drugs. Dan was very enthusiastic on the properties of MPC-6827 and commented that MPC-6827 is certainly the best preclinical candidate that I have seen in several years.

Based on the remarkable efficacy data in cell-based and zenograft models, I feel confident that this molecule will be active in humans. We intend to initiate Phase I clinical trials for this compound in Dr. Von Hoff's clinic.

I will now share with you some of the data that we have generated on MPC-6827. Firstly, let me clarify that MPC-6827 is a small molecule drug. We have filed a composition of (inaudible) on the compound and related structures. The compound is easy to synthesize, requiring only two steps -- a soluble and saline and has a long half-life in rodents. Thus, we believe the compounds will be easy to manufacture, formulate and deliver to patients as an intravenous drug. You will be aware that intravenous is the preferred route of administration for cancer drugs.

What really attracted our attention was the potency of the compound across a broad range of human cancer cells. MPC-6827 kills cancer cells by inducing them to undergo apoptosis or programmed cell death. (inaudible) is about two nano-milliliter (ph). Typically cancer drugs of IC-50 is of a 100 nano-milliliter to as high as 10 micro-milliliter (ph). We have examined MPC-6827 against a range of cancer cell lines direct from individuals suffering from some of the most common and intractable cancers.

Pancreatic cancer is such a disease. It is now the fourth-leading cause of cancer deaths in the U.S. and is usually fatal within six months of diagnosis. MiaPaca, a human pancreatic cancer cell line, was highly sensitive to MPC-6827 in vitro. This cell line, like pancreatic cancer itself, is highly resistant to most cancer drugs. We have balanced the ability of MPC-6827 to inhibit the growth of this pancreatic tumor in a mouse xenograft model and compared its efficacy to gemcitabine, the current drug of choice for treating this deadly disease.

Gemcitabine was given twice a week at 80 milligrams per kilo, whereas MPC-6827 was given only one a week at 5 milligrams per kilo. Tumor growth was inhibited by 38 percent with MPC-6827 compared to only 17 percent with gemcitabine. We have additional studies underway that will examine the effects of a combination of the two drugs and the effects of giving on drug on a more frequent basis. Results of these pancreatic cancer studies will be presented at the American Association of Cancer Research meeting in Orlando in March of this year.

The incidence of melanoma is rising rapidly in the U.S.. Once the disease spreads beyond the site of the initial lesion, there is an extremely poor prognosis. B16, a melanoma cell line, is highly sensitive to MPC-6827. We examined the effects of our drugs against the B16 melanoma xenograft model. Again, we looked at a single 5 milligrams per kilo weekly dose of MPC-6827 versus given 25 milligrams per kilo of paclitaxel twice a week. Paclitaxel is widely used to treat this deadly disease.

At the conclusion of the study, 60 percent of the MPC-6827 treated animals had survived versus 30 percent with paclitaxel and only 10 percent of untreated animals. This results was highly significant at the P= (inaudible) 2 level. Again, we were interested to learn whether we could combine the two drugs and get the still greater effect.

We have also examined the effects of MPC-6827 against three different breast cancers in animal models. Weekly dosing with Myriad's drug caused complete regression in two of the tumor models and completely inhibited further growth in the third tumor model. While the untreated animal experienced a 1000 percent increase in the tumor size. The drug also caused tumor regression in a prostate cancer model and inhibited growth in the colon cancer model by over 50 percent.

In summary, MPC-6827 has shown impressive activity against cancer cells derived from pancreatic, prostate, breast, colon and melanoma cancers. However, it is evident that this compound will work against a number of other cancers. We are continuing to explore the full range of human tumors that are sensitive to this drug and to examine its potential of combination therapy with other chemotherapy drugs. The true test of the compound will come in clinical testing, so we are moving rapidly to submit an INV on MPC-6827. Currently we're completing GLP manufacture of the drug in preparation for sterile formulation and GLP toxicology studies. We will submit an INV as soon as the work is complete.

Thank you for your attention. I would now like to turn the call back to Peter.

Thank you, Jerry. I would like the operator to put us into the question-and-answer portion of the conference call.

(OPERATOR INSTRUCTIONS). Derek DeBruin, UBS.

Good morning. Just a couple of questions. Looking at the SG&A, can we use that as a run-rate the 9.5 million going forward, or do you expect it to fluctuate at bit?

Thanks, Derek. As I noted in my part of the call, the SG&A costs are going to fluctuate from quarter to quarter I think within a reasonable range, say, within historically in the 8 on the bottom and maybe up as high as 10. Depending upon what is going on in the quarter, depending upon which marketing initiatives we are involved in, the sales commissions that are due at any one particular point in time, there are a variety of factors that can affect that. But by and large, it is going to bounce around a bit.

Can you give some idea on the breakdown between the number of tests that are being sold by the Myriad salesforce versus those that are being sold by the LabCorp salesforce?

We do not have an exact breakdown, but by far and away the majority of the tests are sold by the Myriad salesforce. We are very pleased with the relationship with LabCorp. I think they are doing an excellent job in promoting MyriadTests, but we are very early on still in that relationship. So the vast majority are sold by the Myriad salesforce.

Okay and what is the status of the reformulation of the HIV compound?

As I mentioned, we are proceeding well in terms of the reformulation of the HIV compound. It is a very exciting compound not only because of its broad antiviral activity, but also because of our belief that based on its mechanism of action it is going to be more challenging for HIV to develop drug resistance. And it has a very high priority in the company and is proceeding well.

Okay. Just going back to the sales question on the predictive medicine, I believe the last count was you were having somewhere around 100 sales reps or so selling the tests. I am just wondering it does not seem to mean the number of tests that are being sold versus the number of reps that are there that you are not getting as many as you would think based upon the number of reps you have out there. Can you talk about what you are expecting and what are your terms of how efficient your salesforce can be?

We have 106 full-time dedicated Myriad salespeople selling our predictive medicine tests, and we are still in the growth period. We have not achieved full capacity. We are ramping up our revenues with those sales reps.

Right now an average rep throughout the company will generate about 400,000 in revenues, and we believe that as the tests grow each sales rep should generate approximately $1 million in revenues. So I think you can see the Company's revenues more than double before we will need to add any additional sales reps to our staff.

Mark Augustine, Credit Suisse First Boston.

Good morning and congratulations on your operating results. I wanted to ask a question about the HIV drug candidates. Pete mentioned upfront that you had activity against drug resistance HIV strains. I wanted to better flesh that out and specifically direct it to what connectivity do you see, for example, against proteases, the most common and persistent proteases inhibitor resistant strains of HIV and whose labs actually perform that work?

I have to apologize, Mark, in that Dr. Hobden is unfortunately not with us, and I don't have that information at my fingertips. But I will give you a call after the conference call when we check with our scientists, and we will tell you specifically the drug resistant strains we tested it against.

And the follow-up if I could, on 6827 I think the comments were made that the IC-50 is too (inaudible), and I think I wanted to have you characterize the mechanism of action of that drug better for us?

The mechanism action is a novel one that we have not yet published on. As Jerry mentioned, the drug does not does induce apoptosis, and we are very excited about its novel mechanism action in the apoptotic pathway.

Given that he brought up the issue of potency, can you address the issue of selective cytotoxicity for us?

The drug is a very safe well-tolerated drug for a cancer chemotherapeutic agent, and we are very excited about its safety profile.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). David Webber, First Albany.

I have a couple of questions. First, Jay, you mentioned legal expenses this quarter. Could you breakout for us how much that was in the SG&A line? And also, is this going to be an ongoing expense?

Thanks for the question, David, but you know I cannot tell you exactly what the amount is that is embedded in our G&A. The increase in legal costs that we saw this quarter do relate primarily to the arbitration proceeding the Company is currently involved in. And I refer you to the Company's 10-Q for a further description of that arbitration proceeding. I don't at this point have any reason to believe that the legal costs will be increasing beyond what we have already accrued at this point.

Okay. The second question I had had to do with LabCorp. Does LabCorp have any kind of contractual minimum that it has to meet in terms of revenues contributed? If so, what kind of impact could that have during this fiscal year?

Thank you, David. LabCorp does have a contractual minimum they have to achieve over the three-year life of the initial collaboration. If LabCorp fails to achieve certain minimum revenue volumes generated by their salesforce, then the relationship with LabCorp, which is right now an exclusive one, would be reduced to a non-exclusive relationship, and we would be free to seek other marketing partners.

Okay. Sorry. Can you remind me when that three-year period would expire?

I think it is within the next year.

Okay. Thanks very much.

At this time, we have no further questions. So I would like to turn it back over to you, Mr. Meldrum, for any closing comments you have.

Thank you and I would like to thank everyone for participating in the Myriad Genetics earnings conference call. We are very excited about the progress we have made this quarter and very excited about the prospects for the Company in the future.

At this time, this does conclude the earnings conference call. Again, thank you.

Thank you. This concludes today's call. All sites may disconnect your lines at this time.