Myriad Genetics Inc (MYGN) 2004 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Myriad Genetics fourth quarter earnings conference call. (OPERATOR INSTRUCTIONS). Mr. Peter Meldrum, you may begin your conference.

Good morning to the Myriad Genetics earnings conference call for the fourth fiscal quarter which ended June 30, 2004. My name is Peter Meldrum and I'm the President and Chief Executive Officer. I'm joined today by Dan Christensen, Clinical Professor of Neurology at the University of Utah, Gregory Critchfield, President of Myriad Genetic Laboratories, Adrian Hobden, President of Myriad Pharmaceuticals, Jerry Lanchbury, Senior Vice President of Research, Jay Moyes, Chief Financial Officer.

I will begin the discussion this morning with a brief overview of the Company. I will be followed by Mr. Moyes who will discuss our financial results for the fourth quarter of our fiscal year ended June 30, 2004. Dr. Hobden will discuss the status of our clinical trial programs and our pre-clinical drug development candidates. And Dr. Christensen will comment on the results of our recent Phase I clinical trial for Alzheimer's disease. Finally the Company's predictive medicine business will be reviewed by Dr. Crutchfield. At the end of his presentation I will return the conference call back to the operator for the question-and-answer period.

Please note that some of the information presented here today may contain projections or other forward-looking statements regarding the 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-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

I'm pleased to report that Myriad enjoyed another year of success in scientific achievement. Our strategy combined with strong therapeutic development focus was a profitable operating business in predictive medicine. These complementary life science opportunities enable us to take maximum advantage of our scientific breakthroughs, while reducing the risk to the Company and maintaining a very modest cash burn.

Historically the pharmaceutical industry has been successful in developing medicines to treat the symptoms of disease, however, as the current generations of drugs nears the end of its patent protection, the industry has begun to seek new approaches to disease treatment. We believe that the future of medicine lies in the creation of new classes of drugs that treat the cause, not just the symptoms of disease. By understanding the molecular basis of human disease we believe that a new generation of predictive therapies will emerge, and that medicine will become more proactive in the prevention of disease. In addition, we believe that advances in the emerging field of predictive medicine will improve our ability to determine which patients are subject to greater risk of developing major diseases, and therefore candidates to receive these new predictive therapies.

At Myriad we are elucidating the molecular mechanisms involved in major common human disease. For example, our Alzheimer's drug candidate, Flurizan, lowers the level of the toxic amyloid peptide that is believed to be the primary culprit in the initiation and progression of Alzheimer's disease. We're not aware of any other compound that is as effective as Flurizan in reducing the toxic levels of this peptide in the brain, and that has the favorable safety profile necessary for chronic administration to the elderly population. Flurizan is on track to complete the Phase II clinical study in patients with mild to moderate Alzheimer's disease within the next 7 months.

In the field of cancer Myriad's strategy is to move away from sidal (ph) toxic drugs that poisoned all of the cells in the body. Instead we intend to strike at the heart of cancer's ability to avoid the normal process of cell aging and death. By driving immortal cancer cells into programmed cell death, or apoptosis, our drug candidates offer the potential to treat the cause of cancer without the toxic side effects associated with traditional chemotherapy.

Later this year we expect that 2 of our cancer drug candidates will move into human clinical testing. In addition, we believe that neither of these cancer therapies will trigger multiple drug resistance in cancer patients, which is a significant problem with most cancer drugs.

We are continuing to develop, and if successful, we will market new therapies in the area of viral diseases focusing particularly on AIDS and Hepatitis C. Our AIDS drug, which is in late stages of formulation, is proceeding well and has shown efficacy against HIV, and more importantly many of the drug resistant strains of HIV, including both protease and reverse transcriptase resistant strains. We plan to enter human clinical testing with our AIDS drug following the initiation of a Phase I study in our cancer drug candidates.

We believe that the emerging field of predictive medicine will revolutionize the practice of medicine by identifying an individual's risk of developing common disease later in life. This knowledge will guide patient's health care by reducing their risk of developing disease or possibly even preventing the disease altogether. Furthermore, as drugs are developed and approved for use, knowledge about side effects and efficacy in specific individuals merges. Using this pharmacokinetics knowledge, personal genetic profiles can be developed to predict responses of individuals to drugs. This personalized medicine opportunity will guide the healthcare management of individuals ensuring that the patient is given the most appropriate therapy and at the correct dosage.

We're committed to the development and marketing of novel products in the emerging market opportunities of predictive and personalized medicine, and our strategy has proven to be successful. Last year we saw record product revenues, a record gross profit margins and increased market penetration across all 4 of our product lines. As a result of our increased sales and marketing efforts, and the recent publications concerning the clinical utility of our products, we experienced strong customer demand for our predictive medicine tests, which achieved record sales of 13.1 million in the fourth quarter and 43.3 million for the year ended June 30, 2004.

I'm also pleased to announce that we have seen continued exceptionally strong growth in our predictive medicine sample flow during the summer. This is exciting because our first fiscal quarter is historically our weakest quarter due to the summer vacation period.

We also enjoyed excellent growth in our gross profit margins which achieved 68 percent for the 2004 fiscal year as compared to 64 percent for last year. We believe that this is exceptional gross profit margin improvement and it will continue as we see 70 percent plus gross profit margins next year.

In order to treat complex diseases effectively, it is imperative to understand how the body uses genetic information, how the disruption of important biological pathways can lead to disease, and how drugs can be developed to prevent, halt or reverse disease progression. The scientists at Myriad are continually advancing our technologies toward the efficient discovery and validation of novel molecular drug targets.

Our technologies allow us to go beyond a single gene protein or drug target and explore a large number of proteins and potential drug targets involved in the disease process. We use a large array of molecular risk phenotypes to simultaneously screen hundreds of genes against dozens of important human diseases. We believe these technologies will provide us with a significant competitive advantage and numerous product opportunities in the future.

It is my pleasure now to turn the call over to our Chief Financial Officer, Jay Moyes.

It is a pleasure to discuss Myriad's financial results for our fourth fiscal quarter and year ending June 30, 2004. I'm particularly pleased to report that Myriad's predictive medicine revenues have reached an all-time high of $13.1 million for the quarter ended June 30, 2004. This represents a strong 40 percent increase over the same quarter in the prior year.

Predictive medicine revenues for the fiscal year ending June 30, 2004 were a record $43.3 million which is a 25 percent increase over the prior year, and exceeded analysts' consensus revenues by over $1.6 million. This result for the year is very satisfying considering the weak revenues experienced in our first fiscal quarter of 2004. I would also point out that so far we have not noticed a sequential decline in sample flow like we experienced last year.

Our gross margin percentage in the fourth fiscal quarter grew to 71 percent resulting in a gross margin of 68 percent for the entire year. This represents a 4 percent margin improvement over the prior year ended June 30, 2003. This achievement was realized through technology improvements, purchasing efficiencies, and gains from increasing the throughput in our predictive medicine laboratories. This gross margin range is firmly pharmaceutical product territory and provided Myriad with a substantial offset to the expenditures in our therapeutic development programs. I continue to believe that our gross profit margins will grow to the mid 70 percent range by the end of the fiscal year.

Our net trade accounts receivable declined 6 percent over the prior quarter to $14 million. This was accomplished despite the fact the Company's record predictive medicine revenues for the quarter. The number of days sales outstanding, based on average daily sales for the quarter, is 96 days. This compares to 114 days for the prior 2 quarters and 135 days for the year ending June 30, 2003. The quality of our accounts receivable continue to improve and we're closing in on our days sales outstanding goal of 90 days.

Total revenues for the fiscal year ending June 30, 2004 were $56.6 million, which also exceeded the analysts' consensus for revenue forecast. Total research revenues for the year ended June 30, 2004 came in as expected at $13.4 million. The 55 percent decline in research revenues over the prior year was anticipated and reflects successful completion of 2 of our research collaborations with corporate partners, as well as the overall decrease in the emphasis placed on external collaborations in favor of internal drug development programs.

Research and development expenses for the year ending June 30, 2004 were $50.7 million compared to $47.6 million for the year ending June 30, 2003. This increase of 7 percent was primarily due to increased costs associated with our 3 human clinical trials, one in prostate cancer and 2 in Alzheimer's disease, as well as a late stage pre-clinical development of our cancer, AIDS and emesis drug candidates. We expect our research and development expenses to grow modestly during the upcoming fiscal year as we fund new clinical opportunities.

Selling, general and administrative expenses for the year ended June 30, 2004 were $34.8 million compared to $31.5 million in the prior year. The increase in selling, general and administrative expenses of 11 percent from the previous year reflects increased legal costs associated with protecting our intellectual property to date, as well as increased facility costs associated with the expansion of our Pharmaceutical Development Group. Selling, general and administrative expenses include salaries, commissions and related personnel cost for sales, marketing, executive, legal, finance, accounting, human resources, and business development personnel, allocated facilities 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 and our drug discovery and drug development efforts.

Our net loss for the year was $40.1 million or $1.49 per share. We were pleased that this result was better than the research analysts' consensus loss for the year. The loss is primarily the results of our increased expenditures and commitment to the areas of drug discovery and drug development. We expect our loss to continue to be among the lowest of the product-focused biotech companies, in part to our profitable predictive medicine business.

Cash, cash equivalents and marketable investment securities increased $15.5 million or 12 percent from $126.3 million at June 30, 2003 to $141.8 million at June 30, 2004. This increase in cash, cash equivalents and marketable investment securities is primarily attributable to the public offering of our common stock this past June. We again point out that Myriad has no debt and no convertible securities, and that the total number of shares outstanding at June 30, 2004 is a modest 30.6 million shares.

Thank you for your attention. I will now turn the call over to Dr. Hobden.

Good morning. Myriad continues to make excellent progress in its drug discovery and development activities. In the last quarter we completed our U.S. Phase I trial of Flurizan in healthy older volunteers. The volunteers' ages ranged from 55 to 80, similar ages to Alzheimer's patients. Dan Christensen will discuss the findings from the study in detail. However, in summary we were pleased to see that the drug was well tolerated by these volunteers. It has a half-life consistent with twice a day demonstration, and it penetrated the central nervous system.

There were no serious adverse events in this study. And no one left the study due to an adverse event. We reported preliminary findings from the study at the recent international Alzheimer's conference in Philadelphia, and we expect to submit our report to the FDA later this year. Completion of this study should now allow Myriad to initiate U.S. studies of Flurizan in Alzheimer's patients.

As you may remember, Flurizan was already under Phase -- in a study, a Phase II trial in the UK and Canada for patients with mild to moderate Alzheimer's disease. The study is due to be completed in March 2005 when the final patient completes 12 months on drug or placebo.

The study remains blinded so we do not have any information concerning the activity of Flurizan. However, we continue to monitor adverse events in the trial. And indeed we have an independent data monitoring committee which reviews unblinded safety data. That committee recently met to review the data and concluded that the trial should continue without modification.

Additionally, Myriad is proceeding with its Phase II/III trial of Flurizan in prostate cancer. Many patients have been taking the highest dose of the drug on a daily basis for almost 2.5 years. And thus far the independent data monitoring committee have not identified any safety issues. Myriad will continue to monitor the safety protocol of Flurizan in the ongoing prostate trial, and we look forward to the completion of the study in the middle of 2006.

Moving on to other drug development programs, I am pleased to announce that Myriad has scheduled pre-IND meetings with the FDA later this month to discuss our clinical development programs for MPC-6827 and MPI-176716. Both compounds are intended for use against cancer and are inducers of apoptosis. However, they act at different molecular sites within the apoptosis pathway. MPI-176716 induces apoptosis via a step late in the cascade. In pre-clinical studies we have found that the compound is especially effective against ovarian cancer cells and that it shows synergy with carboplaten and Taxotere. Both these compounds are currently used in treatment of ovarian cancer.

Recently we established that MPI-176716 is not a substrate for MDR, the multidrug resistance pump which is the Achilles heel of most anticancer drugs. Many otherwise highly effective cancer drugs ultimately fail because the cancer cells induced over expression of MDR, which pumps the drug from the cells. Paxitaxel for example is a good substrate for MDR. And lots of sensitivity to this drug invariably arises via this mechanism.

More disturbingly induction of MDR, as the name suggests, also results in loss of sensitivity to a large number of other drugs. Thus at a stroke patients no longer responds to any available drug. We regard the lack of sensitivity to MDR to be highly significant to MCI-176716's chances for success in the clinic.

This is also true for MPC-6827, which is equally resistant to MDR. MPC-6827 has equal potency regardless of the MDR status of the cancer cell. In contrast, drugs with the substrates for MDR are 100 to 1,000 times less potent against cancer cells expressing the pumps.

MPC-6827 acts in a earlier stage in the apoptosis pathways than MPI-176716 and has excellent activity across a broad range of tumor types. In fact, across a number of mass (ph) xenograph models including breast, colon (ph), prostate and pancreatic cancers it had better activity than the drugs which are currently standard of care for that disease.

For example, it was more active than Adryamicin against breast cancer, Gemcitabine against pancreatic cancer, and Pampasar (ph) against colon cancer. Both cancer compounds will be administered as intravenous infusions in line with standard practice for cancer drugs. Subject to our discussions with the FDA later this month we anticipate submitting IND's for these 2 compounds before the end of this calendar year, and initiating Phase I studies in the first half of 2005.

Myriad continues to pursue other drug discovery and development programs. We intend to submit IND's for at least 2 more compounds next year, with MPI-49839 and MPC-4505 being our lead programs.

You'll recall that MPI-49839 is being developed for the treatment of HIV infection. And it is the first in a novel class of viral body inhibitors. We have continued to make progress on this compound and have established that it has good activity against a range of viral strains resistant to reverse transcriptase and protease inhibitors.

It is important to note that MPI-49839 appears to be synergistic with protease and reverse transcriptase inhibitors. Furthermore, we predicted that it would be very difficult, if not impossible, for the virus to become resistant to this class of drug. Indeed, we have not yet been able to generate a strain of the virus which is resistant to this compound.

MPI-49839 effectively reformulated with different sorts. This work is proceeding well and we anticipate completing the additional toxicology and pharmacokinetics studies on the new formulation and moving forward with an IND submission next year.

MPC-4505, an NK-1 (ph) receptor antagonist for the treatment of chemotherapy induced nausea and vomiting, continues to progress and is on schedule for an IND submission next year. The compound has many attractive characteristics including oral bioavailability and good salability. This potentially could lead to development of an intravenous infusion for administration immediately prior to chemotherapy and a tablet for extended coverage outside the clinic. We have observed that MPC-4505 has a long half-life in the CNS in our animal studies. If this also turns out to be true in humans, we may be able to achieve extended coverage by the intravenous route alone.

Finally, I promised last quarter to say something about our earlier stage programs and provide you with some idea about the depth and diversity of activities in Myriad. Amongst our many programs we have promising leads against a novel HIV target, another novel cancer target aimed at lung cancer, a novel target which should be effective for the prevention of metastases, an anti-inflammatory target, a candidate drug for post operative ileus and a follow-on for Alzheimer's disease.

Thank you for your attention. I would now like to introduce Professor Dan Christensen who will provide more detail on the Flurizan Phase I study.

It is my pleasure to report on Flurizan's recently completed Phase I clinical trial. a Phase I trial is the first phase of human drug testing, and is done a small number of volunteers to identify safety issues and side effects. The Myriad trial was carried out at the University of California, San Diego. This was under the direction of Drs. Edward Koo and Doug Galasko.

The result of this study was that Flurizan was safe and well-tolerated. 48 healthy volunteers between the ages of 55 and 80 participated. This age group was chosen because it is representative of those most likely to take Flurizan, should it eventually come to market. Each took daily doses of Flurizan or placebo for 3 weeks. Though on active drugs were divided into 3 groups, each taking different Flurizan doses, 400, 800 or 1,600 milligrams a day. And each group was comparable in the areas of age, weight, gender, education and ethnicity.

Laboratory data was obtained at 3 points over the study and included safety and drug level measurements from both blood and cerebral spinal fluid. The cerebral spinal fluid levels of course give a rough estimate of the degree to which drug leeches to the brain. The results of the study demonstrated everything that is hoped for in a Phase I trial; no serious adverse events, no significant differences in the number or nature of the adverse events reported across all groups, meaning that the medical or side effects complaints of the patients taking Flurizan did not differ from those patients taking placebo. There were no significant differences in reports of gastrointestinal complaints. And this was of particular importance, demonstrating that Flurizan is distinct from ansaid (ph) class of drugs.

Finally, no subjects discontinued this study because of adverse events. And there were no significant differences among groups in the laboratory safety measurements. Drug level measurements as expected showed increasing concentrations of Flurizan in both blood and cerebral spinal fluid as the daily dose increased.

In summary, this Phase I study demonstrated that Flurizan, up to 1,600 milligrams a day, was safe and well-tolerated in healthy older subjects over the 21 days of this trial. The Phase II trial is currently underway with results due in 2005 and Myriad now confidently proceeds with this Flurizan development program.

I will end with a brief summary of the currently marketed drugs for Alzheimer's disease and other potential Alzheimer's drugs in development. The current generation of drugs, whether colon esterase inhibitors such as Donepezil or MNDA antagonists such as Mamantine (ph) only treat the symptoms of the disease, they don't modify the underlying progression of the disease.

Drugs that modify disease progression are really urgently needed to treat this terrible disease. There are many experimental compounds on the preclinical wish list that someone or other hopes will prove effective in modifying the disease. Among these are several beta beta-secretase inhibitors, the reformulated Elan vaccine, as well as passive immunization with monoclonal antibodies. But only 2 drugs besides Flurizan have reached the stage of human clinical trials. The first is a gamma-secretase inhibitor. It has been administered to about 40 Alzheimer's patients for 6 weeks. Serum Abeta42 concentrations were reduced, but there was no detectable cognitive benefit. And there are also considerable concerns about the safety of this class of drug.

The second is a compound whose purported mechanism of action is by inhibiting the aggregation of Abeta42 into fibrils. 58 Alzheimer's patients have received the drug in a three-month blinded study. In an open label follow-on study the patients showed some ongoing cognitive decline over a year's use. So to many of us working in the field, Flurizan with this novel motive action, good safety profile and demonstrated activity in a transgenic mouse model of Alzheimer's really is the brightest star on the Horizon.

Thank you.

Good morning. It is a pleasure to speak to you about the growth of our predictive medicine business. Through the end of fiscal year 2004 we saw strong growth in sample flow. The total annual revenue for our predictive medicine business was $43.3 million, an increase of 25 percent over the previous fiscal year's revenue. I would like to point out that our fourth fiscal quarter's revenue of $13.1 million was 11 percent higher than our previous record sales quarter.

We are continuing to improve the operation of our laboratory -- of achieving high efficiency as we accommodate these larger specimen volumes. Our gross profit margins improved to 68 percent in our 2004 fiscal year, a 4 percent increase over the previous year's margin. The improvement in gross margin is attributable to the level of automation we have deployed in the laboratory, to improvement in our biochemistries and instrumentation, and to price increases in our product.

On the automation front, we have installed a completely automated method for extracting DNA from samples. This saves money and time and decreases -- and increases quality. We're also in the process of installing higher capacity robots that will contribute further to improving the profit margin. Our current robots prepare 8 samples at a time while the new robots will handle 96 samples, resulting in order of magnitude increased efficiency.

Improvements in our chemistries and instrumentation have allowed us to gain benefit from lower reaction volumes and thus lower cost, while improving overall quality. Sequencing reaction volumes have been reduced 2 to 3-fold from our previous 4 to 6 microliter levels with a 50 percent reduction in reagent costs. With regard to pricing, as insurance contracts have different anniversary dates, we're beginning to see the effects of price increases that we announced last spring.

As for the future, in March of 2005 the royalties we currently pay to Hoffman LaRoche for the PCR amplification technology will disappear as the PCR patent expires. This decreased royalty burden should contribute to further improvements in the gross margins. We believe that all of these factors will contribute to further gains in fiscal 2005 in gross profit margins for our predictive medicine business.

We are continuing to see greater physician and patient acceptance of our predictive medicine products. The publication of a number of papers contributes to the knowledge in several aspects of our business. For example, the value of interventions in BRCA carriers, an increased prevalence of mutations reported in hereditary colorectal cancer patients, the clinical utility of MELARIS testing for skin cancer risks, the enhanced role of physicians in long-term follow-up of patients testing positive for mutations, efficient methods that could be used to present information to patients interested in testing, the high risk of cancer in individuals carrying mutations, and using the BRCA mutations status as a possible predictor of chemotherapeutic response.

These papers demonstrate that our understanding of the role of these predisposition genes and how to apply that understanding in clinical medicine is maturing. The publication of papers like these also provides a basis for simplifying guidelines and expanding the use of testing in appropriate subgroups of individuals. These simplification and expansion of guidelines for testing can help doctors and patients better identify individuals who are at risk for these cancers and give them strategies to identify these risks.

We're recently prepared new tools for healthcare workers that make it easier to identify patients at risk for hereditary cancers. We're targeting smaller physician practices with these simplified tools and are seeing growth in our new customer base as a result of these efforts. As more supporting scientific data there are published, and as we continue to educate our healthcare workers, we believe that more physicians and patients will decide to use predictive medicine as a key element in assessing and decreasing the risk of cancer.

We continue to work with insurers to streamline the reimbursement process for our services and to make it easier for individuals to have testing performed. These efforts are paying off. Improvements in insurance coverage guidelines continue to expand the number of individuals who are now considered candidates for testing. We believe that expanded insurance coverage to more individuals will lead to increased numbers of patients benefiting from the knowledge gained from predictive medicine.

This year colorectal cancer is expected to occur in more than 145,000 individuals in the United States. As one of the leading causes of cancer deaths, it is important to understand that colon cancer is largely preventable. Myriad's COLARIS products give the physician and patient a way to know who is at particularly high risk for colon cancer, and permit them to take steps to prevent or reduce the risk of this cancer.

Last spring we announced the acquisition of an exclusive license for the right to detect mutations in the MYH gene in the United States. One of the major hereditary cancers syndromes is characterized by the formation of many polyps, some of which can become cancerous.

The MYH gene is believed to play a significant role in polyp formation. This gene corrects errors that occur when the DNA is damaged. If MYH is not working properly, the DNA damage is not repaired and the errors can lead to damage of other important genes in cancer pathways. Polyps and colon cancer can then result as a consequence of these changes. A recent paper published at the Mayo Clinic by Dr. Stephen Tibido (ph) and colleagues showed that the MYH mutations were found with higher likelihood in individuals with 20 or more polyps, or who had cancer diagnosed below the age 50. And they write that their data suggests that the screening of MYH should be considered not only in patients with multiple polyps, but also in patients with early onset colorectal cancer.

As of August 1, 2004 all patients receiving the COLARIS AP test are automatically tested for MYH at Myriad. We believe that the addition of MYH to Myriad's colorectal cancer product line is evidence of Myriad's leadership in this area, as we're bringing new discoveries into the market where they can benefit patients and their families. We look forward to continue to grow our business during the current fiscal quarter as individuals taken advantage of the lifesaving benefits of these predictive products.

I'll turn the conference call back to Pete.

And now I will turn it back to the operator for the question-and-answer portion of the conference call.

(OPERATOR INSTRUCTIONS). Charles Duncan with JMP Securities.

First of all my congratulations on a fantastic year and quarter. And then secondly I had a couple of quick questions. The first one is related to the predictive medicine business. I would like to have Greg speak a little bit about -- give us a little additional color on the impact of pricing and how that is rolling out? And as well as some specific growth initiatives, I had heard that there is a lawsuit that was recently completed. And I would like you to speak about that a little bit.

I'm sorry. I didn't catch the last part. You heard recently that what?

There's a lawsuit recently completed that had one patient who was not tested went on to get cancer. And I would like to talk to you a little bit about that.

You bet. First of all, let me talk briefly about the initiatives in pricing. As you may know, we have many insurance contracts with managed care companies. And these contracts specify methods for us to increase prices. And we have price increases that usually happen on a yearly basis. The anniversary dates are different for each insurer. And as we increase prices we don't see the effect of it until some time has passed. But it is clear that that is beginning to contribute to some of the improvement that we see in our gross margins.

With respect to the lawsuit, one of the things that we have been watching for, and many people have been watching for, is the appearance of a case where a patient has had a failure to be diagnosed to have a predisposition. We understand that there is a case that has been decided in California. We're looking into further details of this now.

The bottom line is that an individual was diagnosed with breast cancer at a young age. They had consulted with their doctor about getting a test. Apparently the doctor suggested that the patient didn't need to have a test. And later on the patient ended up getting ovarian cancer. This is a tragic thing that possibly could have been prevented. And so we think that this kind of development is a very, very significant one as we look at the value of predisposition testing. There's no doubt that knowing what your mutation risk is gives you the ability to avoid disease that you could otherwise get. And we expect that this will have an important impact on our business.

My second area of question is on Flurizan. Either, Dr. Christensen or Adrian, you have mentioned 3 week dosing in the Phase I. I wondered if you could speak to the predictive value of the observations that you made given that relatively short 3 week dosing? And secondarily, if you had followed Abeta42 levels in those patients?

Let me take that question. The 3 week dosing is a part of a fairly standard Phase I clinical trial design where you move from single dosing in healthy volunteers to repeat dosing. And that would typically be for 2 to 3 weeks on a daily basis. So we were following a standard Phase I guidelines in doing the repeat dosing for 3 weeks.

It is true to say that you don't necessarily pick up toxicity from chronic dosing in that respect, but you certainly see a lot more potential for toxicity in looking for 3 weeks than in a single dose as would be obvious. So certainly we were very, very pleased to see the safety profile of this compound in the Phase I study. In fact, if you look at the data which we presented at the Alzheimer's conference, it actually looked like the placebo group had the worst -- the most number of adverse events in the trial, which was gratifying from our point of view.

And certainly from a GI toxicity point of view, that 3 weeks of daily dosing, especially at 1,600 milligrams per day, would be expected to show a problem if one existed. And as we said, we didn't see that it existed. If you couple that with the fact that our patients in the current Alzheimer's trial have been on drug now for, in many cases, well over 6 months, and that in our prostate cancer trial patients have been on the study -- in the drug -- for close to 2.5 years. And I have to say that, of course, this is blinded to us, but we're not seeing any accumulation of G.I. adverse events in the patient population beyond those that you would expect for a normal aging population of individuals. So overall we feel that constitutes -- gives us a great deal of confidence that the compound is safe.

Now to move onto the second question about Abeta42, that indeed is a -- or was a part of the design. Actually Abeta40, 42 and 38 were part of the design for the Phase I study. And we're still collecting that information. The assays for those amyloids are not routine, especially not for 38. And we don't have all of that data collected yet. And so we don't have it compiled into a story that we can actually tell in a competent way. However, we are hoping to have that data collected over the next month. And it is our intention to publish that information, including the amyloid data, just as soon as we have it.

Adrian, would expect that an effect of the drug in normal volunteers, or presumably normal volunteers, with regard to this biochemistries?

I'm sorry, can you say that question again? Would you expect what?

An effect of the drug in normal volunteers who presumably have normal levels of those biochemistries?

I don't know what a normal level is. We see -- we and others have seen quite a large divergence in the concentration of these amyloids in individuals across the general population -- a general population, which apparently does not have Alzheimer's disease. I think the problem here is that there isn't a very clear diagnosis of what is Alzheimer's disease except on postmortem. And studies have shown that elderly people dying without having been diagnosed with Alzheimer's disease often have a significant plaque burden which might lead them -- might lead to the thought that they probably had some memory impairment but had not been diagnosed with Alzheimer's disease.

But the reason I mention that is because we know that there is a sort of an equilibrium between soluble amyloid and plaque deposits. And so as you would lower the soluble amyloid by, for example, Flurizan, you might expect to see initially a replacement from the plaque which is slowly being dissolved out of the brain. So we actually don't really know what to expect. But I don't think that this population, aged 55 to 80, will be free of plaque. I think there is likely to be plaque in some of these individuals. And so I think is going to be very complex picture that we say.

There was a recent report from -- on the gamma-secretase inhibitor, which as you know, lowers both Abeta40 and 42. And they looked in healthy older volunteers and were surprised by what they saw. Because they saw a small reduction in amyloid initially and then a huge rebound in the serum. And nobody could come up with an explanation of what -- of why that was -- why that happened other than this sort of general belief that there is a complex equilibrium going on and so it must be explained by that. But exactly how nobody knows.

Third and final question, and I appreciate your patience, is directed to Jay. Jay, at your current burn we project that you have 3 plus years of cash, which is different than a lot of companies out there. But I'm wondering if you're willing to offer any guidance in terms of increasing R&D expenditures over the next year or two. It seems that you have a lot of things going on and that number should be going up.

As I mentioned earlier, the one fortunate thing that Myriad does have that very few other, if any, biotech companies have is our predictive medicine business. And that is becoming more and more profitable as time goes on, which provides a wonderful offset to the increased R&D expenditures we're experiencing in Adrian's group.

So while I think, as I mentioned earlier, the R&D expenses are going to increase modestly as we get more products in the clinic, I think you're not going to see a huge step up in our R&D expenses because of the offset that Greg's group is providing.

Anabell Saliny (ph) with UBS.

Great quarter. I want to talk to you a little bit about the growth in volume for the predictive medicine business. Could you tell us a little bit what you are seeing in terms of number of tests per week? And how that growth has been going relative to the pricing and what kind of impact the pricing has had versus the volume?

I will speak qualitatively about it. What we see -- we track our monthly and weekly specimen volume. In contrast to last summer we're not seeing decreases in the summer months. In fact, we're seeing increased revenue from our products. And so I think that the overall assessment is that we're seeing growth in the predictive medicine business.

The pricing will also contribute, as I mentioned, to our profitability. But having increased specimen volumes, having increased efficiencies, having increases in pricing, all of these things are what you're seeing that is contributing to the changes in the gross profit margin.

And then also on SG&A to what extent was the SG&A increased because of the increased sales effort or from the other factors that you had mentioned? And what can we expect going forward in terms of the litigation expense and the various sales and marketing plans that you have?

There was never -- we didn't have any specific -- specifically identifiable sales programs in place during the last quarter. So while there was some increase over the prior year, it was not a huge increase over the prior year. There are clearly some costs that are associated with defending our intellectual property rights. And you know I see those -- kind of an ongoing effort. You can't really predict when some of these issues arise, but we defend them aggressively. And while we don't know of any specific issues that would cause the SG&A to increase on the legal side, it is becoming a higher proportion of the costs than has it has been in the past.

One last question. I know this is more related to the Alzheimer's disease program. In the news we have seen increasing -- you know, just in the paper have seen this increased debate regarding the amyloid plaque, whether they are the real culprit in Alzheimer's disease or whether it is more of a protection factor. Could you talk a little bit about that because I think the debate is getting more publicity, and I'm just curious to see how you are progressing given that debate?

You would expect us to be firm believers in the amyloid hypotheses.

Clearly, right.

And obviously that goes without saying. And I think I should say that as our Company is founded on the study of human genetics with the belief that human genes which predispose to disease demonstrate the ideology of the disease, then I think the evidence is overwhelming that mutations in genes associated with amyloid handling lead to early onset Alzheimer's disease and point very clearly to that as the culprit, if you will.

You're right in saying that has been some controversy related to whether plaque is protective or damaging and whether it is plaque or towl (ph), which is the result in the dementia. There was a very, to me very, very compelling paper that was published about too weeks ago in Neuron looking at a fairly sophisticated transgenic mouse model of Alzheimer's disease in which the animals developed both plaque and towlopysis (ph) and do have learning deficits associated with those -- with that that supervision (ph). And they were able to demonstrate by using antibodies to amyloids and directly injecting that antibodies into the hippocampus of the animals that they could firstly clear plaque from the hippocampus. And then subsequently the towl also cleared from the hippocampus.

So that leads to the general belief I think that amyloid leads to towlopothies (ph) rather than towlopothies arrive independently or are completely independent -- or completely unassociated with Amyloids. Because the other part of that equation was that they injected towl antibodies and saw no effect on either towl or on plaque.

So we would firmly be of that view. I think that there are a number of other studies which support that hypothesis. For example, although the Elan vaccine was stopped because of encephalitis, they have continued to study the patients over a period of time. The patients that didn't have those problems. And discovered that the Patience who had the largest antibody response to the vaccine also had some medical benefits and cognitive benefit as a result of the treatment. And in the postmortems on the individuals who unfortunately died through the course of the trial or subsequently, they had seen significant plaque clearance in those individuals. So we firmly believe that the amyloid hypothesis is the correct one.

Ted Tenthoff with Piper Jaffray.

A quick follow-up question with respect to the Alzheimer's disease. You had mentioned I think that you have some meetings with the FDA in the fall to discuss the results of the Phase I data. As I understand it the goal of that would be to pave the way for what would eventually be a Phase III trial. It is that correct or how do you see things progressing beyond the Phase II?

Actually we didn't say that we have a meeting with the FDA, but we do have -- we will be sending to them the results of the Phase I and following that up, we hope, with a meeting with the FDA to discuss the next steps in the U.S. As I think we've said, the reason that we started the Phase II trial outside of the U.S. was because the FDA wanted us to do this extended Phase I dosing study before they were willing to allow us to go into Alzheimer's patients in the U.S., at least on an extent basis.

We have now completed that Phase I study. We think the results demonstrate the compound to be as safe as we believed it was initially. And so obviously the next step is for us to discuss further studies in the U.S. under the IND for this compound in Alzheimer's patients. We have yet to determine what size those trials will be, but nonetheless that would be our hope and intention.

Keith Markey with ValueLine.

I have a couple of questions. First, on the predictive medicine business, could you give us a sense as to what your expectations are for fiscal 2005? Should we be looking at the really strong finish for 2004 to continue or should we build a little bit more conservatism into our models?

The Company does not historically give revenue projections. But if you look at the growth in the predictive medicine business over the past 5 years, we have grown an annual compound growth rate of about 25 percent each year. And we see no reason that that wouldn't continue.

Do you have any new tests coming out this year or in the near future?

The Company is currently working on a number of new product opportunities. We haven't made any predictions in terms of when those products could be launched. But we are looking at additional cancer tests, tests associated with our discovery of HOB1 and its role in diabetes. And we certainly are moving forward in terms of future launch of additional predictive and possible personal medicine tests.

I was wondering should we think that -- is it possible that a Phase III trial in Flurizan in Alzheimer's patients might start before the end of this fiscal year overseas, or is that a little bit too aggressive?

Again, we haven't set out any guidelines in terms of when the next study would start. The next study however will be in the United States, not overseas. And we will be meeting with the FDA this fall to discuss the Phase I results, and then based on that meeting move forward with the next study in the United States.

I was also wondering whether you would undertake a Phase III trial, especially if you were going to go overseas alone or if you would try to partner with somebody on that?

At the Company has no intention of partnering with pharmaceutical companies at this stage. The clinical trials for Alzheimer's disease are very straightforward with well-defined clinical endpoints, well within the financial capability of Myriad. So we would intend to go forward on our own independent of any partnership with a pharmaceutical company into the next stage of clinical development. Again the next major trial for Flurizan will be in the United States, and we will proceed with that after our discussions with the FDA.

Steve Soma (ph) with Kilkenny Capital.

On the Phase II study of Flurizan, I assume -- when did you complete enrollment of that study?

We completed enrollment at the end of March of this year, 2004.

So the last patient will go through 12 months in March?

The last patient will be finished on drugs -- 12 months on drug at the end of March 2005. That's correct.

And the endpoints of that study is the ADAS-cog?

The two primary endpoints, ADAS-cog and CDR symbiosis, and there are a number of secondary endpoints such as civic plus (ph) and activities of daily living and intimacy.

And are all patients -- are patience getting any amyloid data levels tested in the CSF or the blood?

No we're not looking at those biomarkers in that study.

And I guess my other question is actually related to the predictive medicine business. If you take your SG&A, how much of that is G&A and how much of that is sales and marketing related to the predictive medicine business?

The component of -- the primary G&A element of SG&A are roughly $15 million. And the sales and marketing and educational components of our SG&A are about $20 million.

Per year?

Per year. That is the actual for this recently completed fiscal year.

Okay, that the actual for this last year. Okay. Thanks a lot.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. Mr. Meldrum, are there any closing remarks?

I would like to thank everyone for attending the Myriad conference call for reporting our earnings for the end of the fiscal year June 30, 2004. And this does conclude the conference call. Thank you.

Thank you for participating in today's Myriad Genetics conference call. You may now disconnect.