Myriad Genetics Inc (MYGN) 2005 Q1 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Myriad Genetics' first quarter financial results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. [Caller Instructions] Thank you, Mr. Meldrum, you may begin.

Thank you, and good morning. Welcome to the Myriad Genetics earnings conference call for our first fiscal quarter, which ended September 30, 2004. My name is Peter Meldrum, and I'm the President and Chief Executive Officer. We will be using a new format for earnings conference calls this fiscal year. In an effort to provide investors with greater depth of understanding of our various pharmaceutical and molecular diagnostic opportunities. Instead of briefly reviewing every aspect of the Company's operations each quarter, as we have done in the past, this year we will focus in greater detail on a specific segment of our operations each quarter. This conference call will focus on our predictive medicine business. Our next earnings conference call for the quarter ending December 31, 2004, we plan on focusing on our cancer drug candidates, MPC-6827 and MPI-176716. For the earnings conference call for our third fiscal quarter ending March 31, 2005, we will anticipate focusing on Flurizan as a potential treatment for Alzheimer's disease.

I am joined today by Jay Moyes, our Chief Financial Officer; Gregory Critchfield, President of Myriad Genetic Laboratories; and several of his executive officers: Brian Ward, Senior Vice President of Operations; Mark Capone, Vice President of Sales; and Walter Noel, Vice President of Medical Services. I will begin the discussion this morning with a brief review of the past quarter, and I will be followed by Mr. Moyes who will discuss the financial results for our first fiscal quarter ending 2005. Dr. Critchfield and his team will then discuss the Company's predictive medicine business. At the end of his presentation, I will turn the 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 future events or future financial performance of the Company. These statements are based on management's current expectations and actual events or results may differ materially from these 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 would cause the actual results to differ materially from those contained in our projections or forward-looking statements.

The Company made significant progress during the past quarter towards its goal of becoming a leading biopharmaceutical company. After our pre-IND discussions with the oncology division of the FDA, I am pleased to report that we are on track for the submission of two new INDs before the end of this calendar year. All of us at Myriad are excited about the Company's strategy in cancer, which focuses on biological pathways that are a key component to the disease process, such as apoptosis and angiogenesis. Both of our cancer drug candidates operate as broad-acting inducers of apoptosis, by driving cancer cells into programmed cell death. MPC-6827 has demonstrated a remarkable ability to inhibit tumor cell growth in animal studies. In head-to-head comparisons with the current standard of care therapies, MPC-6827 dramatically outperformed the standard of care. It was twice as effective as adreamyacin in inhibiting breast cancer tumors, 2.5 times more effective than Gemcitabine in pancreatic cancer, 35% more effective than Camptasar in colon cancer. And MPC-6827 achieved an 80% tumor inhibition in prostate cancer where there is currently no standard of care.

MPI-176716 works at an earlier stage in the apoptotic pathway, and is especially effective against ovarian cancer cells. This drug candidate is also synergistic with other chemotherapy drugs such as Taxotere and Carboplatin, both of which are used in treating patients with ovarian cancer. In ovarian cancer animal studies, MPI-176716 achieved complete tumor remission over a 55-day treatment period. Importantly, neither of our two cancer drug candidates induce multiple drug resistance in tumors. I am also pleased to report that our Phase II clinical trial in Alzheimer's disease is on schedule to be completed in the first calendar quarter of 2005. At the conclusion of the trial, we will collect and analyze the data and anticipate reporting the results of the Phase II study in the second calendar quarter of 2005. The most recent report from the data monitoring committee confirmed that they have identified no safety concerns with Flurizan and have recommended that the trial continue. It is encouraging that we have now had a number of Alzheimer's patients on our drug for 12 months and the independent DMC has not identified any safety issues.

In addition, our Phase II/III clinical trial in Flurizan with prostate cancer is proceeding on schedule. Patients have been on the drug in that trial for more than 2.5 years and, again, the independent DMC has identified no safety issues. The Company's other preclinical drug candidates, including MPI-49839 for the potential of AIDS, are advancing on schedule towards human clinical testing. Our predictive medicine business also enjoyed a strong quarter with product revenues of 14.4 million, an increase of 10% over the previous quarter. This represents the fourth straight quarter with double-digit revenue growth. I'm also pleased to report that our gross profit margins improved to 71% as compared to the 66% gross profit margin for the first fiscal quarter last year. Our net loss for the quarter ended September 30, 2004 was $9,992,000, a 4.5% decrease from the $10,460,000 net loss of the previous quarter.

Finally, Myriad has the financial resources to advance its therapeutic and the molecular diagnostic products with a strong $130 million cash balance. All of us at Myriad are very excited about our future with first in class compounds in the clinic that address large unmet patient needs, a strong preclinical pipeline that is rapidly moving towards human clinical testing, and a profitable and growing predictive medicine business. I'd now like to introduce our Chief Financial Officer, Jay Moyes, who will provide a more detailed financial analysis.

Thank you, Pete. It's a pleasure to discuss Myriad's financial results for our first fiscal quarter ended September 30, 2004. As Pete just mentioned our predictive medicine revenues have hit an all-time high of $14.4 million for the quarter ending September 30, 2004. This result compares to $8.1 million for the same quarter in the prior year and represents a 79% increase. When compared to last quarter, our predictive medicine revenues were up $1.3 million, or 10%. Although this is historically been our weakest quarter, we experienced unprecedented sample flows, particularly in the second half of the quarter. We believe this achievement was due in part to sales and marketing initiatives coupled with recent publications that broaden the importance of the BRACAnalysis product. This trend has continued into the current quarter, and, from an operational standpoint, we believe we are favorably positioned to successfully meet this strong demand.

The success of Myriad's predictive medicine business has had a real and significant financial impact on the Company. In just the last 12 months, predictive medicine has contributed over $8 million of profit before taxes, interest and depreciation. The cash flow from predictive medicine has enabled the Company to operate at a reduced burn rate while capitalizing on opportunities in therapeutics. Our gross margin percentage on predictive medicine revenues for the quarter was 71%, an increase of 5% over the margin of 66% in the same quarter of the prior year. As we mentioned in the conference call last quarter, the PCR patent that we licensed from Roche will expire in March of next year. Since our royalties are now a larger component of our cost of sales and its labor, these savings will assist the company in realizing gross margins in the mid-70% range by the end of our fiscal year in June, 2005. Total revenues for the quarter ended September 30, 2004 were $16.7 million, which represents a 22% increase over the same quarter in the prior year and an increase of 11% over the quarter ended June 30, 2004. This strong revenue performance also exceeded the research analyst consensus estimate of $15 million.

Research & development expenses for the quarter were $13.1 million compared to $12 million for the prior quarter ending June 30, 2004. This increase of 9% included costs associated with our ongoing clinical trials in prostate cancer and Alzheimer's disease, the preclinical development of our HIV and cancer drugs, as well as other drug discovery and drug development programs. Additionally, this sequential increase included costs related to the preparation of two IND filing packages which we plan to submit to the FDA before the end of this calendar year. Selling, general & administrative expenses for the quarter ended September 30, 2004 were $10 million, compared to $8.1 million in the same quarter of the prior year. This 23% increase in costs is largely attributable to sales commissions which grew in tandem with our predictive medicine sales increase of 79%. I believe it is worth noting that overall selling, general & administrative expenses actually declined by 2% from the prior quarter. SG&A expenses include 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 expect our selling, general & administrative expenses will continue to fluctuate depending on a variety of factors.

Our net loss for the quarter was $9,992,000, or 33 cents per share. We were pleased that this result was better than the research analyst consensus loss for the quarter of 36 cents per share. The loss, which has been tempered by the excellent performance of our predictive medicine products, is primarily the result of our increased expenditures in and commitment to drug development. Because of our increasingly profitable predictive medicine business, we expect our loss to continue to be among the lowest for the product-focused biotech companies. Cash, cash equivalents and marketable investment securities increased $18.5 million, to $129.6 million at September 30, 2004, when compared to September 30, 2003. The 17% increase in cash, cash equivalents and marketable investment securities is primarily attributable to our stock offering in June, 2004. We again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at September 30, 2004 is a very modest 30.7 million shares. Thank you for your attention, I will now turn the conference call over to Dr. Greg Critchfield, President of Myriad Genetic Laboratories.

Thank you, Jay. Good morning everyone. It is a pleasure to speak to you today about the growth of our predictive medicine business. During the first quarter of fiscal year 2005, we saw strong growth in sample flow. The total revenue for our predictive medicine business was $14.4 million, an increase of 79% compared to that of the same quarter during the previous fiscal year. Additionally, predictive medicine revenues increased 10%, over the previous quarter, which was itself a record revenue quarter. I'm also pleased to note that this represents our fourth straight quarter with double-digit quarter-to-quarter revenue growth. We are continuing to improve the operation of our laboratories, achieving high efficiency as we accommodate these larger specimen volumes. Gross profit margins for predictive medicine improved to 71% compared to 66% for the first quarter of last fiscal year. We continue seeing improvement in the gross margin as a result of greater automation in our laboratory, improvements in our biochemistries and instrumentation, and price increases for our products.

Dr. Brian Ward, Senior Vice President of operations, will discuss in greater detail the recent quality and process improvements in our laboratory. As we've mentioned in previous conference calls, in March, 2005 we anticipate that the royalty requirement for PCR will disappear as this technology goes off patent. We expect that this decreased royalty burden should contribute to further improvement in the gross profit margin. We believe that all of these factors: automation, laboratory improvements, price increases, and reduced royalty obligations will contribute to further gains in gross profit margins for our predictive medicine business in the future. Myriad's sales force today largely calls on oncologists, geneticists and surgeons. These physicians provide care to patients diagnosed with cancer. When a patient presents with a hallmark of a hereditary cancer syndrome, for example, breast cancer diagnosed in a woman below age 50, the patient is analyzed for a hereditary condition.

This involves talking to the patient about his or her risk, explaining what can be done with the information from a predictive medicine test, explaining how insurance covers the test and drawing blood to be sent in to Myriad. We are working with professional societies to increase the number of health care workers that educate patients about predictive testing, and to help these individuals to access Myriad's testing services. We anticipate that these efforts will result in greater professional and patient awareness of our services and will continue to build testing volumes. Our oncology sales force is unique and skilled. Unique since they are the only dedicated predictive cancer genetic sales force in the world. Skilled as they successfully present complex genetic information that changes how doctors and patients think about disease. As a result of important initiatives, Myriad's sales force is well trained in executing enthusiastically in selling our predictive medicine products. Mark Capone, Vice President of sales, will share with you a number of things that we are doing in our sales organization as we make our services available to patients-- to physicians and patients.

We are continuing to see greater physician and patient acceptance of our predictive medicine products. A publication in the journal of the American Medical Association on September 15, 2004 showed that MRI is better than mammography in detecting cancer in BRCA mutation carriers. An accompanying editorial in the same journal states that these findings and others, "strongly suggest that women with BRCA mutations should be offered such screening". Dr. Walter Noel, Vice President of Medical Services, will discuss the implications of this paper. A number of other important publications further support the use of Myriad's predictive testing and have recently appeared. You may remember that we announced last spring the exclusive licensing of a new discovery regarding MYH, a gene that is involved in a hereditary form of colon cancer where patients form colon polyps. New publications and data presented by Myriad at the American Society of Human Genetics meeting this month, showed that MYH mutations are more common than previously thought.

Myriad's launch of MYH analysis in the COLARIS AP test is an important addition to our arsenal in identifying and fighting this form of colon cancer. As scientific evidence continues to accumulate, showing the important role of predictive genes that we test in breast, ovarian, colon, uterine, pancreas and skin cancers; we anticipate that the demand for our testing services will grow. Our insurance strategy has been to secure broad coverage, so that a large number of individuals have testing paid for by their insurance companies. We are also working with insurers to simplify the administrative processes for securing insurance coverage for Myriad's tests. With a goal of reducing needless barriers for the healthcare worker and the individual being tested. Our efforts to work with insurers to streamline reimbursement for our services and to make it easier for individuals to have testing performed appear to be paying off. Changes in the insurance coverage guidelines continue to expand the number of individuals who are now considered candidates for testing. Coverage for our test is now available through all major insurers in the United States.

As a company, our primary focus is on quality. Providing the best information possible so that people can use it to reduce their risks of cancer. To support our business growth, we emphasize operational excellence. We focus on sales training and execution and we develop clinical utility for our products. We are proud of the health benefits our services provide to individuals seeking to decrease their risks for cancer. We look forward to -- to continuing to grow Myriad's predictive medicine business during this fiscal year, as individuals take advantage of the life-saving benefits of our predictive medicine products. I would like now to introduce Dr. Brian Ward, Senior Vice President of Operations. Brian.

Thank you, Greg. I am pleased to have been the Vice President of Operations in Myriad for the past eight and a half years. My Ph.D. is in genetics and I am board certified in molecular genetics and cytogenetics. Before joining Myriad, I was with Genzyme Genetics for nine years. It's a pleasure to discuss some of the activities and accomplishments of Myriad's technical development department, the informatics division and the quality assurance unit. The continuing challenge of our group is to provide the highest quality for dispositional testing, to accommodate the rapidly growing testing volumes, and to continue to increase our profit margins. I believe we have been successful in this. Our laboratory is the most advanced clinical DNA testing laboratory in the world, currently capable of sequencing several millions of base pairs of DNA sequence per day; with the highest quality possible. You have previously heard about our strong revenue growth and our progress towards very very favorable gross margins. It has truly been a team effort to achieve this growth while maintaining unparalleled quality and rapid turnaround times for the healthcare providers who send us patient samples.

Our development team has created a fully automated, highly-roboticized clinical laboratory. This laboratory is entirely scalable, which means that we can expand to meet production demands without a loss of quality or adding to turnaround times. In a parallel effort, all departments are continuously improving our laboratory processes as we build even more efficient operations. To give you a feel for this growth challenge, the first year we launched BRACAnalysis genetic testing, we were generating 1.4 million base pairs of data per year. Today, we generate twice that amount, or 2.8 million base pairs of data every day. We have been on an exciting journey for the past several years to introduce the highest levels of automation to our laboratory. During the last year, we took the last steps in achieving full automation for genetic predisposition testing in our lab. Now specimens arrive in the laboratory, and all processing and testing is performed by robotic movements without human intervention.

The very first step in the process, the development staff and the IT department, have developed, tested and implemented an entirely automatic DNA extraction protocol, which utilizes a new robotic platform within the lab. This automatic process extracts greater amounts of DNA more efficiently than the older semi-automated process, improving throughput and quality. Following this process, we have recently completed a conversion to high throughput robots which can handle 96 specimens simultaneously, rather than the current robots which are limited to eight specimens at a time. This involved a complete remapping of all the robotic movements involved. The quality assurance group was responsible for creating the validation plans for these major changes, and ensuring that the insulation -- installation of these new processes did not interfere with the accuracy, quality, or turnaround time for clinical specimens. We are constantly creating new quality control metrics to monitor the processes and to prevent any significant interruption of services.

Another important change was the creation of a new testing process laboratory as a means to introduce new test enhancements in a cost effective manner. For example, we have added to the COLARIS AP test, the technology for detecting mutations in the MYH gene; an important gene in cancers that arise in individuals that form polyps in the colon. With MYH and other capabilities, we believe that Myriad is now the leader in offering the best test testing possible for the detection of hereditary colorectal cancer. The creation of the smaller, highly specialized laboratory has enabled us to launch enhancements in a very cost effective manner. The number of other important processes that we have installed in the laboratory include: two new robotic platforms, a higher capacity capillary DNA sequencing platform, enhancements to detect large genetic deletions or duplications in BRACAnalysis and COLARIS tests, and a more automated way to analyze specimens and report results. We anticipate continuing to build on this automation platform and to introduce new capabilities in our testing.

We are proud to report that even during this time of significant change, the quality of our results continues to improve; with the highest sensitivity, highest specificity, and best turnaround time for the tests we perform. I would like to thank my colleagues in operations, development, informatics and quality assurance for their significant contributions, which allows us to provide exceptional results for individuals who benefit from testing we perform. I'd now like to introduce Mark Capone, Vice President of Sales.

Thank you, Brian. I am the Vice President of Sales at Myriad, a position I've held for two and a half years. Before joining Myriad I spent 17 years at Eli Lilly, starting in research & development positions and leading to sales and marketing. On behalf of the hundred people on our Myriad sales team, I am very pleased to highlight our efforts to accelerate the market adoption of our predictive medicine tests. In Bossidy and Charan's book, Execution: The Discipline of Getting Things Done, three critical processes are highlighted: people, strategy, and operations. And these are the areas we've addressed in our sales organization.

First, we have honed our people processes to a fine art; attracting, retaining, and training the best specialty sales force in this industry. These processes have involved everything from hiring practices, compensation, career development, and training programs. As a result, we have reduced undesirable turnover this year to less than 10%. Over 60% of our sales team now have more than two years' experience at Myriad. In addition, our new employees are showing dramatic results early in their careers.

Second, we have developed an entirely new strategy for sales territory management. This strategy relies on simple messages targeted by specialty at the highest potential physicians. We have focused on physicians that are seeing the affected patients where testing is usually initiated; oncologists, surgeons and geneticists. And we utilize sufficient call frequency to gain access and quickly teach them how to incorporate predictive medicine testing into their practices. And we have allocated our spending on interventions that have proven returns. These strategies have resulted in a 500% increase in calls to the high-potential physicians and they are generating a substantial return on our investment.

Lastly, we have dramatically simplified our approach to developing new customers. Historically, most of our tests have come from physicians in major research-based cancer centers. Our efforts are increasingly aimed at the 12,000 oncologists and specialty surgeons who are interested in offering these tests from their offices and clinics. These physicians require a very different approach than academic physicians, and we have implemented simplified tools, processes, and training to address their needs. Since implementing these changes last year, we have seen a 50% increase in our customer base, and we are able to generate substantial revenue from these customers in as little as six weeks. While we are delighted with our success, we are far from satisfied because we believe additional strategic initiatives can continue to accelerate market development.

First, we are implementing a national account strategy to further develop relationships with large provider organizations. Second, we are collaborating with the educational branch of the Oncology Nursing Society to make accredited training available to over 9,000 advanced practice nurses; working alongside medical oncologists to help identify, education, and counsel patients who need to have our testing services. Third, recently launched COLARIS enhancement such as MYH have propelled Myriad into the market leadership position in colorectal cancer predictive medicine, and we are working on enhancements to further solidify that position. Fourth, we are currently developing marketing strategies and a sales approach to address the OB-GYN marketplace. Lastly, we have implemented changes in our customer service organization to simplify and accelerate the insurance reimbursement process that ultimately results in [inaudible-background noise].

I have the privilege of coaching the most talented, passionate and committed sales team I have ever been associated with in over 20 years in this industry. With the efforts of the entire commercialization team, we believe these past and current initiatives will continue to accelerate the development of this market. Thank you for your time and I will now introduce Dr. Walter Noel, Vice President of Medical Services.

Thank you, Mark. Good morning, ladies and gentlemen. I'm a pathologist and geneticist and have been a medical director at Myriad for approximately a year and a half. Before joining Myriad I was professor of pathology and director of the Clinical Chemistry and Molecular Genetics Diagnostic Laboratories at the Dartmouth-Hitchcock Medical Centre in New Hampshire. I have been involved professionally in the business of providing medical information to doctors and patients for more than 30 years. I'd like to comment on four areas of activity that are continuing to add medical value to Myriad's predictive medicine tests. These are areas of activity are: our collaboration with thought leaders in the leading academic medical centers in the United States, our ongoing effort to identify and incorporate the most up-to-date medical and scientific information into our diagnostic services and educational programs, our progress in improving access to genetic education for healthcare providers and, finally, the recent additions to our test offerings for hereditary colon cancer.

The first activity is our collaboration with investigators in the leading academic medical centers in the country. Collaborative studies with these thought leaders are focused on defining simple selection criteria that will identify men and women who are at increased risk for developing cancer because of inherited susceptibility. These simple selection criteria will help physicians and other healthcare providers identify patients and family members who would benefit from genetic testing for cancer susceptibility. Keep in mind, that when new technologies are introduced, the criteria that are used to select patients for whom testing is considered appropriate are often complex and present barriers to genetic testing. When these barriers are overcome, and genetic testing is made more available, more people at genetic risk will be identified and will benefit from increased cancer surveillance and preventive medical management.

The second area I'd like to comment on is our ongoing effort to identify and incorporate the most up-to-date medical and scientific information into our diagnostic services and educational materials and programs. One recent example relates to cancer surveillance in women with BRCA mutations. These mutations, which are found by BRACAnalysis, are more common in young women who have breast cancer. A chance of a second cancer in these women is very high. A 65% lifetime risk of developing a second breast cancer and a 10-fold increased risk of developing ovarian cancer. After treatment for their breast cancer, these women are typically screened for a second breast cancer with annual mammography. The problem is, that the breast tissue of young women is dense and it's difficult with mammography to detect early cancers. In fact, as many as half of the second cancers that occur in these women are not detected by mammography. To address this problem, Ellen Warner and colleagues at the University of Toronto studied the effectiveness of MRI in detecting early breast cancers in women with BRCA mutations. MRI is more expensive than mammography but it's better suited to finding early cancers in the breasts of young women. In fact, Dr. Warner found that MRI detected twice as many cancers as did mammography. Whereas MRI may not be suitable as a screening test for breast cancer in all women, it appears to be particularly appropriate and cost effective in BRCA mutation carriers.

The third area of activity I'd like to mention is our progress in improving access to genetic education for healthcare providers. This has been accomplished by working closely with professional, medical and nursing societies to provide educational materials and practical tools that will identify and inform patients at increased risk for hereditary cancer. We are making significant progress in moving awareness of heritable cancer risk into the mainstream of medical practice. Keeping in mind the fact that fewer than 2% of the Americans who are at hereditary risk of developing common cancers have been identified, this suggests strongly that genetic testing will be made available soon to an increasingly large number of people.

Finally, I'd like to provide an early report on the success of the recent additions to our COLARIS and COLARIS AP test offerings for hereditary colon cancer. Tests for large genomic rearrangements in the mlh-1 and msh-2 genes have been added to COLARIS testing. A test for large genomic rearrangement in the APC gene have been added to COLARIS AP tests. In addition, testing for mutations in the recently described MYH gene, an important gene in colon cancer caused by polyp formation, has also been added to COLARIS AP tests. Our experience in the past three months suggests that these enhancements have increased the sensitivity of the COLARIS test and the sensitivity of the COLARIS AP test substantially. We believe that this puts Myriad clearly at the forefront in testing for hereditary colon cancer.

Today we are moving rapidly into the era of personalized medicine. Recent advances in genetics have aided immensely in our understanding of the molecular biology of cancer. These advances have permitted the development of anticancer drugs that are targeted specifically at the molecular abnormalities in cancer cells that drive their abnormal growth. There is every indication that this progress will accelerate in the immediate future. Personalized medicine for cancer patients will require that these molecular abnormalities, whether inherited or acquired, be identified in each individual so that the best treatment can be selected. Myriad is committed to pursuing this avenue of development vigorously in two main areas: firstly, in the application of our current predictive tests for inherited cancer susceptibility as predictors of drug response. And secondly, in the testing of tumor tissue for acquired DNA mutations or changes in gene expression that will predict response to targeted chemotherapy. The recent successes of (inaudible) treatment for chronic myelogenous leukemia, of urisa for carcinoma of the lung and of Herceptin for treatment of breast cancer argue strongly that tests that accurately predict an individual's personal response to various chemotherapeutic regimens will be of tremendous value for patient care. I would now like to turn the call back to Mr. Meldrum.

Thank you, Walter. And I'll turn the call back to the operator for the question-and-answer portion of the conference call.

[Caller Instructions] Annabel Samimy, UBS.

I know you don't provide guidance, but if I adjust my predictive medicine revenues and, you know, take down the run rate from last year a bit, I still get to growth rates that are well above the 25% that you talked about in the past, um, and, uh, I was just -- I guess what I'm asking is that 25% growth rate for predictive medicine going forward still a little bit too conservative?

Let me start and then I'll ask Jay to chime in with me. We've been very pleased with the growth in predictive medicine, particularly this quarter. As Greg mentioned, the first quarter because of the summer vacation period is traditionally our weakest quarter. So we were surprised by the very strong sample flow we saw this quarter and as Jay pointed out, uh, we see that sample flow continuing. So I think right now we are very comfortable with meeting or exceeding the analyst projections and meeting or exceeding the 25% annual compound growth rate that we've historically achieved.

How much of, um, the growth -- how much did -- renewed contract contribute to that growth rate?

Uh, renewed contracts with regard to, uh, what?

Well, I guess the pricing increase that you had taken earlier in the year, um --

Oh, that -- that contributed significantly. Uh, as you may recall, in April of last spring, we did increase the prices of a number of our predictive medicine tests. And with the major insurers that we work with, uh, those price increases take effect at the annual renewal of those insurance contracts. So we didn't see a significant impact right at the time of the price increase in April, but expected to see that throughout the course of the year. And clearly in this first quarter ending September 30th, uh, a good portion of the increase was due to the price increases that had taken effect.

And, um, another question on SG&A, um, obviously -- clearly your SG&A effort increased significantly and that helped your sales, but that doesn't translate into the actual expense that showed up. What is it that has caused the SG&A to go down and is there a -- some one-time item in there that -- that's not going to be there going forward? What can we expect going forward?

Well, as I pointed out, the SG&A expenses will continue to fluctuate. Um, if you'll recall, though, in the past couple of quarters we have had some legal expenses that -- that were necessary to predict our intellectual property position and, you know, those are going to kind of ebb and flow and, you know, we were fortunate that we didn't have a whole lot of that this -- this past quarter.

David Zuno (ph), First Albany Capital.

I hope you could answer some questions on how the predictive medicine growth, uh, if that was attributed to increases in BRACAnalysis or if there was maybe an acceleration of the COLARIS, that contributed to the strong growth?

Thank you. The -- the growth is pretty much across the board with our products. Um, as Walter mentioned, uh, with the recent publication on MRI benefiting women who have BRCA1 and BRCA2 mutations, we have definitely seen an increase in the BRACAnalysis testing, and that was exceptionally strong this quarter. However, the COLARIS test, uh, is doing extremely well also. And as we mentioned in the conference call, um, from a number of the folks here at Greg's group, the addition of MYH, the mute Y homologue gene, which we think plays a very important role in colon cancer; and the introduction of larger arrangement testing in both COLARIS and COLARIS AP, caused for substantial in increases and without question the strongest quarter we've seen for the COLARIS product lines. So it really pretty much was across the board. It wasn't any single product that was driving the exceptional sales growth this quarter. But fortunately, um, across the line, and different reasons for each of the -- the various product lines increasing. So I think that bodes well for the future.

And just one other question on R & D spending. It was a little bit higher. And is this something that we should be looking for as a base going forward with potential for new INDs and the ongoing Flurizan trials, potential for also starting the, uh, Phase III in Flurizan?

Yes. As you noted, the R & D expense is higher and that is due to our initiation and preparation of IND packages for our two cancer drug candidates, MPC-6827 and MPI-176716. When those INDs are submitted to the FDA, the Company, as we've mentioned previously, is aggressively pursuing two additional drug candidates for potential clinical testing; 4505 for cancer-induced --chemotherapy-induced emesis and, uh, our HIV drug that we discussed briefly today. And so I think this does represent, um, our current spending rate for R & D expense. And I think you'll actually see that increase slightly as we move additional drugs into human clinical testing.

[Caller Instructions] Annabel Samimy, UBS.

Hi. I figure I'll just take another chance. Can you talk about the -- the Flurizan trials for Alzheimer's, are you going for disease modification and, um, I guess can you talk a little bit about the Flurizan -- Flurizan trial, um, a little bit? The Phase II's design, isn't pivotal but, you know, if you're going after disease modification, do you have to compare it to, you know, current standard therapies out there? Or can you just talk a little bit about that?

Sure, Annabel. The Phase II clinical study, um, we designed as a pivotal study. And in discussions we've had with the FDA, we believe the FDA, uh, will accept the Phase II study as one of the two studies required for submission of an NDA. The Phase II study was designed to compare Flurizan with the current standard of care, which is acetal colon esterase inhibitors. So the control group are individuals on colon esterase inhibitors. The treated group has the combination therapy of Flurizan plus the colon esterase inhibitor which currently is a standard of care. We have had discussions with the FDA concerning disease modification. It's a fairly complex and, I think difficult, um, question in terms of actually determining what represents disease modification in Alzheimer's disease because we know such a little amount about the cause and the process of disease progression. But certainly our goal would be to continue those discussions with the FDA and our hope would be that we could get a disease modifying label for Flurizan.

There are no further questions at this time, Mr. Meldrum.

Okay. Well, I'd like to thank everyone for attending the Myriad earnings conference call for our first fiscal quarter ended September 30, 2004. And at this point in time we'll end the call. Thank you.

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