Myriad Genetics Inc (MYGN) 2005 Q2 法說會逐字稿

Good day and welcome to the Myriad Genetics quarterly conference call. And at this time, I'd like to turn it over to your speaker, Mr. Paul Meldrum. Go ahead, please.

Good morning and welcome to the Myriad Genetics earnings conference call for our second fiscal quarter, which ended December 31st, 2004. My name is Peter Meldrum and I'm the President and CEO.

As we discussed during our last call, we're using a different format for our earnings conference calls this year, an effort to provide investors with a greater depth of understanding of our various pharmaceutical and molecular diagnostic opportunities. Instead of trying to review every aspect of the company's operations each quarter, we are focusing in greater detail on one specific segment of our operations each quarter. This conference call will focus on our drug development activities.

I'm joined today by Jay Moyes, CFO; Adrian Hobden, President of Myriad Pharmaceuticals; and four of his senior executive officers. 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 second fiscal quarter of 2005. Dr. Hobden and his team will then discuss the company's drug development programs, with particular emphasis on our cancer drug candidates that are in the clinic. At the end of his presentation, I'll turn the conference call over 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-Q. 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.

The company ended the calendar year with an exceptionally strong quarter that included another significant increase in predictive medicine revenues. For the second fiscal quarter, ended December 31st, 2004, predictive medicine revenues increased to a record $17.5 million as compared to $10.4 million for the same quarter of the prior year, a dramatic $7.1 million, or 68 percent, growth in revenues. This increase reflects, in part, Myriad's sales strategy of targeting high-prescribing physicians with a direct, straightforward sales message that is supported by persuasive, peer-reviewed journal articles demonstrating the clinical significance of our products.

The $17.5 million in predictive medicine revenues represents a 22 percent increase over the previous quarter, which itself was a record revenue quarter. COLARIS, in particular, enjoyed an exceptional quarter, with revenues more than doubling the revenues for the same quarter of the prior year. This performance allowed COLARIS to retain the title of our fastest-growing product. I was also very pleased with MELARIS' quarter-to-quarter revenue growth.

This revenue growth achievement was only possible through the hard work and dedicated efforts of our 100-person oncology sales force. Myriad is, indeed, fortunate to have such a talented, well-trained and enthusiastic group of individuals selling our predictive medicine products.

It is also important to point out that Myriad's medical reimbursement team has done a tremendous job of not only securing broad insurance coverage of our predictive medicine products but in helping to simplify the criteria for patient reimbursement. Our products are now reimbursed by insurers who have over 200 million lives under coverage. Of the $17.5 million in predictive medicine revenues this past quarter, over 90 percent will be reimbursed by insurance. The remaining amount, which is paid by patients, however most of that is simply the patient insurance copayment.

I am pleased to report that our Phase II clinical trial in Alzheimer's disease with Flurizan, our selective Abeta42 lowering agent, is on schedule to be completed at the end of March. At the conclusion of the study period, we will collect and analyze the data and anticipate reporting the top line results of the Phase II in May of 2005. A complete analysis of our Alzheimer's study will be presented at the Alzheimer's Association International Conference on Prevention of Dementia, which will be held in Washington, D.C., between June 18th and June 21st.

The most recent report from the data and safety monitoring board confirmed that they have identified no safety concerns with Flurizan and have recommended that the trial continue. It is encouraging that we have had now had a number of patients on drug for over 12 months and the independent DSMB has not identified any safety issues.

I'm also pleased to report that the enrollment of the Alzheimer's disease patients in our Phase III clinical trial is proceeding on schedule and we anticipate completing enrollment in this study before the end of this calendar year. The 12-month study is expected to enroll 750 patients with mild to moderate Alzheimer's disease and has a similar design, with similar end points, as our Phase II study. The Alzheimer's Phase III study is powered at a 90 percent confidence level to detect a 45 percent slowing of cognitive function.

Finally, our Phase II/III clinical trial is prostate cancer is proceeding on schedule. Patients have been on drug in that trial for more than 2-1/2 years and, again, the independent DSMB has identified no safety issues or concerns.

All of us at Myriad are very excited about the future with first-in-class compounds in the clinic that address large, unmet patient needs, a strong preclinical pipeline that is rapidly moving toward human clinical testing, and a profitable and growing predictive medicine business.

I would now like to introduce our CFO, Jay Moyes, who will provide a more detailed financial analysis.

Thanks, Pete. It certainly is a pleasure to present a more detailed look at Myriad's financial results for our second fiscal quarter, ending December 31, 2004.

As Pete mentioned, we are very pleased to report that predictive medicine revenues this quarter are the strongest we have ever seen. Predictive medicine revenues for the quarter ended December 31, 2004, were $17.5 million. This result represents a 68 percent increase over the same quarter in the prior year and a 22 percent increase over the prior quarter.

The record $17.5 million in predictive medicine revenues this quarter was $3 million greater than the analysts' consensus predictive medicine revenue forecast of $14.5 million. Further, the predictive medicine revenues for the 6 months ended December 31, 2004, are up 73 percent over the same 6-month period of the prior year. We have continued to see good sample flows during the month of January and expect predictive medicine revenues to increase again in our third fiscal quarter.

Our gross profit margin on predictive medicine sales this quarter was 71 percent, which is a 4 percent improvement over the 67 percent margin in the same quarter, ending December 31, 2003.

Our gross margins are firmly in pharmaceutical product territory and provide Myriad with a substantial offset to the expenditures in our pharmaceutical development programs. Our gross profit margins should grow to the mid-70 percent range during our fourth fiscal quarter when the PCR patents we use, along with the associated royalty obligations, expire at the end of March 2005.

We noted about a year ago that we were initiating a number of new programs to accelerate collections of our trade accounts receivable. This quarter we continued to see the results of these programs reflected in the days sales outstanding of our trade receivables.

The number of days outstanding, based on average daily sales for the quarter, is 85 days. This compares to 96 days for the quarter ending June 30, 2004, and 114 days for the quarter ending December 31, 2003. The quality of our accounts receivable continued to improve.

Research and development expenses for the quarter ending December 31, 2004, were $14.5 million. This represents a 9 percent increase over the same quarter in the prior year and an increase of 11 percent over the prior quarter. This increase was primarily due to costs associated with our human clinical trials in prostate cancer and Alzheimer's disease, as well as the filing of two new INDs for Myriad's cancer drug candidates, MPC-2130 and MPC-6827. We have also made significant expenditures in the late-stage preclinical development of our AIDS and emesis drug candidates. Since we have five human clinical trials underway, we expect our research and development expenses to grow modestly over the next several quarters.

Selling, general and administrative expenses for the quarter ended December 31, 2004, were $10.6 million compared to $7.8 million in the same quarter of the prior year. This 37 percent increase over the prior year was largely attributable to increased sales and marketing commissions and expenses incurred to support the 68 percent growth in our predictive medicine revenues.

Selling, general and administrative expenses consist of salaries, commissions and related personnel costs for sales, marketing, executive, legal, finance, accounting, human resources and business development personnel, allocated facilities, expenses and other corporate expenses. We expect our selling, general and administrative expenses will continue to increase, depending on a variety of factors including the number and scope of new product launches, our drug discovery and drug development efforts and our growth in predictive medicine revenues.

Our net loss for the quarter was $10 million or 33 cents per share, compared with $9.9 million or 36 cents per share for the quarter ending December 31, 2003, and $10 million or 33 cents per share for the quarter ending September 30, 2004. We were pleased that this result was better than the research analysts' consensus loss of $10.7 million or 34 cents per share.

This modest net loss is the direct result of the significant earnings contribution made by our predictive medicine business, which was $4.5 million before taxes, depreciation and amortization for the quarter ended December 31, 2004. Additionally, our operating margin for the quarter was 21-- was 23 percent and is a significant improvement over the 14 percent operating margin generated last quarter.

We believe that our revenue growth will enable the company to maintain a relatively stable net loss through the end of the fiscal year, even though costs associated with our clinical development programs will be increasing.

Cash, cash equivalents and marketable investable securities was $124.7 million at December 31, 2004. This compares to $129.6 million for the period ending September 30, 2004, a decrease of cash of only $5 million for the entire quarter. We again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at December 31, 2004, is a very modest 30.7 million shares.

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

Adrian Hobden, PhD: Well, thank you, Jay, and good morning. As Pete Meldrum indicated earlier, we thought this quarterly conference call would be an opportunity to provide more information on the organization and capabilities of Myriad Pharmaceuticals and the progress that the company has made in its drug development programs.

I have, therefore, asked four senior executives in Myriad Pharmaceuticals to talk about their responsibilities in the company. In the order of speaking, they are Bob Carlson, VP of Discovery Biology; Mark Anderson, VP of Chemistry; Gary Mather, Director of ADME/Tox; and Mark Laughlin, VP of Clinical Research and Chief Medical Officer.

Myriad Pharmaceuticals, over a period of six years, has grown from nothing to an organization capable of identifying novel drug targets, finding lead molecules, developing drug candidates and finally, to designing and executing clinical programs. We have now initiated the final phase of our development by hiring Wayne Laslie as Chief Operating Officer. In that role, Wayne is plotting our path towards commercial exploitation of the drugs currently in the clinic. As we did in the discovery part of the company, the growth of our commercial activities will be both measured and carefully timed.

From our speakers today you will hear something of the expertise that we have recruited into Myriad, but also about the depth and variety of our drug pipeline. From the very beginning, Myriad Pharmaceuticals has stuck to a strategy that we believe is a model for success in the biotechnology industry. Namely, focus on disease areas for which there is a large, unmet medical need. Remain focused and do not take on too many disease areas. Identify your own novel targets. Only develop compounds if they are against a novel target or if they have unique properties that will give them a commercial edge. Be opportunistic and responsive to new medical knowledge and, finally, and in some senses, most importantly, do not compete head-to-head with big pharma on projects that simply require manpower and not mind power.

As you all know, the last quarter was an extremely busy and productive period for Myriad Pharmaceuticals. As promised previously, we submitted INDs to the FDA on MPC-6827 and MPC-2130. The INDs were submitted within three weeks of each other, which was a tremendous amount of work for a company of Myriad's size. Most importantly, however, the INDs were approved on schedule by the FDA following the standard 30-day review period. I believe this is a testament both to the quality of the compounds, but also to the skills, dedication and attention to detail of the Myriad employees involved in these programs.

These compounds will be discussed in much greater detail by Mark Laughlin, but as an illustration of the theme of this talk, we recently realized that the benign toxicity profile of MPC-2130 allows us to be opportunistic and explore other uses for this compound outside its use in cancer. More of that later.

Thank you for your attention. I would now like to introduce Bob Carlson, who will talk about earlier stage compound discovery in Myriad.

Bob Carlson, PhD: Thank you, Adrian. Good morning. My name is Bob Carlson and I am the VP of Discovery Biology at Myriad Pharmaceuticals.

I joined the company last summer on July 1st, 2004. Before joining Myriad, I spent over 11 years in both large and small pharmaceutical companies, including Herz-Rousel (ph), Bayer and, most recently, a Swedish biotech called Karo Bio, working in preclinical drug discovery for Alzheimer's, arthritis, cancer and depression.

My educational background is in biochemistry with a focus on intracellular signaling. I received a PhD from Brandeis University and studied as a postdoctoral fellow at the University of Michigan and Georgetown University.

I am pleased to have the opportunity to be the first of four speakers who will describe in some detail the burgeoning drug discovery capabilities at Myriad Pharmaceutical. I will kick this off by telling you about the exciting preclinical drug discovery that is going on at Myriad Pharmaceuticals from the point of view of biology.

We remain focused on drug discovery for Alzheimer's, cancer and antivirals, with comprehensive biological research capabilities in all three areas. My discovery biology department is currently staffed with 66 molecular biologists, biochemists, cell biologists and pharmacologists in five divisions that include pharmacology, high-throughput screening, screen development, target discovery and biotechnology.

The expertise and responsibilities of these divisions collectively represent for biology a self-sufficient preclinical drug discovery operation. Coupled with Myriad's expanding chemistry department and our ADME group, we have the organization and resources to do all that is required for preclinical drug discovery in order to produce IND candidates.

Let me describe some highlights that illustrate our self-sufficiency and also, I believe, provide our advantages.

Number one, we conduct our own target discovery and validation. This is certainly unusual for a company of Myriad's-- Myriad Pharmaceuticals' size, but also provides us with a strong competitive advantage. We are highly dependent upon Myriad's propriety ProNet technology.

What is ProNet? Well, briefly it utilizes a highly automated and industrialized yeast two-hybrid system which identifies proteins that bind to each other. We use proteins or parts of proteins that are known or suspected to be involved in the disease process for Alzheimer's, cancer and viral infection to identify other cellular proteins that interact with them. This can provide two things -- identification of novel proteins, either in terms of association with known proteins and/or association with disease; identification of novel protein interactions that, when mapped against our extensive and proprietary protein/protein interaction database, allows us to identify new biological pathways that may be important for Alzheimer's, cancer and viral infection. Once targets are identified from ProNet, we validate the disease association in house using a mix of molecular, biological and pharmacological techniques.

Number two, we conduct our own high-throughput screens, or HTS, with proprietary chemical libraries. When candidate targets meet certain validation criteria, the actual drug discovery begins with creation of biochemical assays for HTS. Our screen development program is equipped to clone and express proteins using bacterial, yeast, mammalian or baculoviral expression systems. Our screen development is also expert in protein purification and HTS assay formatting for a wide variety of enzymes and protein/protein interactions.

In turn, our fully robot-driven HTS program specializes in screening our extensive drug-like, small molecule and peptide mimetic chemical libraries. In all, we have over 300,000 compounds in our screening library.

Number three, we have a comprehensive pharmacology division. When hits are identified from HTS, pharmacology enters the picture, concomitant with the introduction of in-house chemistry to identify and ultimately optimize lead compounds. We have a large pharmacology division, divided into biochemical, cellular and in vivo pharmacology sections. Those elements allow us to move novel druggable targets through hit identification, lead identification and lead optimization with the capability of producing several IND candidates per year.

Another important element of our drug discovery approach is that we are realists. Drug discovery involves attrition. For each major step in the process, beginning with target identification and ending in IND candidate nomination, we know the typical rates of success throughout the industry and from our own internal experience. Therefore, our pipeline management involves ensuring that each major step is adequately populated to account for such typical attrition.

This approach to pipeline management provides three major advantages. It allows us to more easily terminate efforts that aren't progressing fast enough. It provides an excellent way of determining resource needs for each major step in our drug discovery process. It provides a rational basis for numerical objectives for all our divisions.

However, it can't and doesn't end with those key elements. As a pharmaceutical company that arose from a gene discovery company, we have retained the culture of innovation that derives from such an origin. Our scientists remain tapped into the cutting edges of drug discovery. This means we are constantly challenging how we can work smarter, more efficiently and more productively through evaluation and selective integration of new technologies.

A specific initiative I'd like to highlight is our recent entry into chemical biology, which we define as the identification of molecular targets for drugs of unknown or poorly defined biochemical mechanism of action. We believe chemical biology can be a rich source of new drug discovery targets, as well as have the potential for bootstrapping optimization of known agents such that they can become realistic candidates for drug development.

We also believe that this is an opportune time to undertake chemical biology, because new enabling technologies are emerging, such as protein arrays and other improved methods to investigate proteomes. These and other technologies have matured such that we are now in a better position to use technologies that will really work for us.

Finally, having experienced preclinical drug discovery in both big and small pharmaceutical companies, I want to emphasize the advantage that a smaller company has in flexibility. Part of this is due to history, mentality, part of it to size, but in the end, we are simply better able to shift course in response to challenges or opportunities and this simply gives us a better chance of being on the right course.

So now I'd like to introduce Mark Anderson, VP of Chemistry.

Mark Anderson, PhD: Thank you, Bob, for the introduction. My name is Mark Anderson and I am the VP of Chemistry at Myriad Pharmaceuticals. It is a pleasure for me to be here this morning.

I bring to Myriad over 15 years of experience that began in drug discovery research and lead optimization and which, over time, has systematically led to managing the chemistry and drug discovery process. It is my pleasure to highlight for you today not only my background, but our efforts here at Myriad in chemistry and our advances in drug discovery.

My educational background includes degree work at the University of Minnesota, Purdue University and Harvard University. Highlights of my background include undergraduate study at the University of Minnesota of heterocycles for natural product biosynthesis and biosynthetic pathways to better understand how plants general the biointermediates necessary to create natural products. Graduate studies at Purdue University gave me the opportunity to understand and develop new organic method-- chemical methodologies and novel synthetic roots for natural product syntheses. And finally, I completed a mentorship with Professor Yosuda Kisha (ph) at Harvard University on understanding and planning synthetic and retrosynthetic approaches of complex marine and terrestrial natural products to create new methodologies in medicinal chemistry.

My industrial career began in early 1992 with Glycomed, Inc., in Alameda, California as a medicinal chemist in basic research in the area of cancer and inflammation. This gave me the opportunity to develop a new research area in cell adhesion, dubbed glycomimetics. Glycomimetics are small, hybrid molecules designed to interrupt carbohydrate protein interactions in the initial stages of cell adhesion. The goal was to understand the physiologic process of normal cell adhesions in the body and to discover novel drugs for the treatment of aberrant processes.

In 1997 I was recruited to Agouron Pfizer Pharmaceuticals in La Jolla, California, as a group leader and subsequently to Associate Director in Medicinal Chemistry. In that role, I had line management responsibility for more than 20 medicinal chemists and matrix management, as a project leader, for more than 30 personnel. My focus was on drug discovery processes to produce IND candidates in the area of gonadotropic releasing hormone modulation for the treatment of prostate and breast cancer and kinase inhibitors. During that time, we utilized target parallel syntheses and lead optimization, microwave-accelerated synthetic chemistry and structure-based drug design.

I joined Myriad in December of 2003 to develop all aspects of chemistry, which includes integrated hit-to-lead, parallel synthesis, analytical, molecular modeling, medicinal chemistry and preclinical drug discovery. My focus here for the last 14 months has been to build a chemistry group and to introduce a process for science management in order to maximize the number of IND candidates.

The process of compound hit-to-lead and especially lead optimization requires complex interactions between chemist, biologist, intellectual property staff, pharmacokineticist, toxicologist and drug formulation experts. Part of my responsibilities in Myriad has been to ensure that these interactions are efficient and seamless.

Chemistry has grown to over 25 people, with more people coming shortly. Discovery biology has been very efficient in identifying targets and initial lead compounds and, therefore, we expect to continue expanding in chemistry.

Finally, I want to discuss the tangible outputs from all of this work. As you know, Myriad completed two IND submissions within a three week period in December of 2004. We will be talking more in detail about these compounds later in this-- later this morning.

In addition, Myriad has been successful in identifying compounds which are currently being progressed for IND submission. Two such examples are MPI-49839 for the treatment of HIV infections and MPC-4505 for the treatment of chemotherapy-induced nausea and vomiting.

As we have discussed previously, MPI-49839 works against a human target rather than a viral protein and thus far we have not been able to detect resistance to this drug. We hope that this compound will become a unique and valuable addition to the range of drugs available for the treatment of HIV infection.

MPC-4505 has an extended half life in the brain, which leads us to believe that it would-- that it could be used for the treatment of both immediate and delayed emesis. We are also exploring other possible uses for this compound.

We also have a very impressive pipeline of earlier-stage compounds currently being evaluated. For example, as additions to our cancer portfolio, we are working on a compound dubbed MPI-441774 for chemotherapy-induced alopecia and a small molecule compound series aimed at a novel target for metastatic cancer. Our ProNet program has identified several novel targets for anti-viral drugs and we currently have promising candidate compounds against these targets. In our Alzheimer's program, we have promising small molecule candidates which we hope will lead to a second generation disease modifying drug in this terrible disease. Finally, outside of these disease areas, we are examining some compounds that may have utility in inflammatory and autoimmune diseases.

In all our programs, chemistry is involved in the understanding of the key chemical structural features responsible for CNS penetration and optimized ADMET profiles in order to design compounds with optimal pharmacokinetic characteristics. For example, CNS penetration, if that is important to the biological activity of the drug. Overall, it is the ability of the chemist in working with all departments to efficiently transform complex biological, ADMET, safety and pharmacological information into new chemical entities for the Myriad development pipeline.

As you can hear, Myriad has been very busy in its drug discovery groups. We expect that these programs and others at still earlier stages of discovery will result in several other INDs being submitted.

Next, I would like to introduce Gary Mather, director of ADME and toxicology.

Gary Mather, PhD: Thank you, Mark. My name is Gary Mather and I am the Director of ADME and Toxicology at Myriad Pharmaceuticals, a position I have held for 3-1/2 years.

My educational background is in veterinary medicine and in pharmacology and toxicology. I earned degrees from the Universities of Nebraska and Missouri before completing my PhD at Washington State University with a special emphasis in immunotoxicology. In addition, I am a diplomate of the American Board of Toxicology, certified in general tox for a period of 15 years.

Prior to joining Myriad I spent 11 years in both industry and academia, working to explain, predict and prevent toxic interactions between drugs. Some of my early work and that of my colleagues was critical in the formulation of FDA guidance documents for in vitro and in vivo drug interactions.

More recently, as the Director of Drug Metabolism and Pharmacokinetics at CEDRA Corporation, I directed contract research services for major pharmaceutical companies worldwide.

ADME is an acronym for absorption, distribution, metabolism and excretion, those characteristics that often distinguish a successful drug candidate from one that fails to achieve regulatory approval. In recent years, there has been industry-wide recognition that these important characteristics have been responsible for a considerable number of drug development failures. In addition, the recall of numerous drugs such as Seldane and Cissipride has focused substantial attention on toxicity by the FDA and consumers alike.

By providing continuous feedback to discovery biology, medicinal chemistry and to clinical drug development, the ADME/Tox group here at Myriad strives to provide a smooth transition between the discovery process and clinical development that allows us to move new drug candidates into human studies with no surprises. Every successful drug program must carefully balance potency and activity with the need for specific drug-like properties.

The involvement of the ADME/Tox group increases gradually as a project progresses through lead candidate selection, lead optimization and into preclinical drug development. The group is dedicated to reducing late-stage attrition and to ensuring the success of every clinical drug candidate, first by addressing ADME and toxicology issues early in the discovery process and then continuing to carefully monitor these properties throughout development.

The four areas at the heart of this effort are timing, technology, people and management. At Myriad, ADME characteristics and toxicity are assessed as early as feasible in the drug discovery process. A decade ago, these characteristics were addressed only as the drug candidate was scheduled to enter preclinical IND studies. Here at Myriad we have moved beyond this traditional role and now incorporate evaluation of these data very early in the drug discovery process. Our involvement in drug discovery at Myriad begins as early as target identification where, for example, our expertise allows us to cast a critical eye toward the ability of any potential drug to reach their intended target.

Our group supports early drug discovery activities in the area of solubility, oral and CNS permeability, metabolic stability, protein-binding, pharmacokinetics and numerous other assays. In addition, we are currently developing the capacity to evaluate compound series for potential binding to the hERG channel, which may constitute a liability for cardiac safety by affecting the QTc interval.

With early evaluation, compound liabilities or deficiencies can be addressed at the chemist's bench, prior to selection of lead drug candidates. We also support all investigators in the design and conduct of proof of principle studies for lead drug candidates. By closely monitoring the progress of individual projects, we're able to time the placement of contract toxicology studies that will ultimately support regulatory filings.

Our second area of focus is technology. At Myriad we have adopted the latest and most specific technologies in chromatography and mass spectrometry. These allow us the specificity required to quickly identify drug metabolites, to measure drug concentrations in multiple matrices, to determine pharmacokinetic parameters and to predict drug interactions. In addition, we are constantly moving towards higher throughput assays and including instrumentation to efficiently address the continuing growth of discovery biology and medicinal chemistry programs.

A third focus has been on recruiting a talented and multi-disciplinary team. We have recruited an expanding group of technical experts in discovery ADME/Toxicology, pharmacokinetics and biolanalytical sciences. The lead person monitoring Myriad's discovery projects has combined experience using higher-throughput assays without outcomes analyzed by mass spectrometry, absorbance or radiometric technologies. He also has experience with in silica modeling to predict ADME characteristics and in the selection and optimization of lead compounds.

We recruited a second individual from Johns Hopkins University to supervise our mass spectrometry laboratory and we continually train personnel in the latest techniques and procedures for sample analysis and data processing. Most recently, we have recruited two additional employees, one individual with 11 years experience in the analysis of biological samples for regulatory submissions and a second person with expertise in electrophysiology to strengthen our toxicology efforts.

Finally, we have implemented management strategies to achieve these goals. The first of these is a strong integration with medicinal chemistry, discovery biology and with clinical drug development. In many larger companies, lead compounds are selected in a vacuum and their optimization involves only those persons in discovery biology and medicinal chemistry. The groups in preclinical development become involved only at the end of these processes. The integration of these efforts here at Myriad encourages the efficient management of drug discovery and development activities. The biologists and chemists on the team are empowered to synthesize compounds with a therapeutic use in mind.

For instance, for a therapeutic area where chronic dosing is required, it is important to evaluate the new chemical entity's absorption and pharmacokinetics and to establish the half life will support once a day or twice per day dosing. If the target population is the elderly, the drug interaction potential may be extremely important to avoid toxicities and to establish market share.

Integration of these efforts has also benefited preclinical and clinical groups. Knowing the status of drug discovery projects, which specific compounds are likely to become development projects and their specific mechanisms of action allows the preclinical and clinical groups to adequately prepare development programs that are appropriate for each therapeutic area and for each compound. It is specifically this type of multi-disciplinary integration that has enabled us to file two investigation new drug or IND applications for our cancer compounds in December of last year.

I will now hand over to Mark Laughlin, VP of Clinical Research and Chief Medical Officer.

Mark Laughlin, MD: Thank you, Gary. My name is Mark Laughlin and I am VP of Clinical Research and Chief Medical Officer for Myriad Pharmaceuticals. I've been with Myriad for a little over six months now.

I earned my undergraduate degree from Harvard University and my MD degree from Rush Medical College in Chicago. Prior to joining Myriad I was at Schering-Plough as Director of Early Clinical Research and Experimental Medicine. I worked on a number of clinical candidates during that period, including the first CCR5 receptor antagonist for the treatment of HIV, a new azole antifungal, whose NDA was filed last year and is currently under review by the FDA, a new protease inhibitor for hepatitis C, as well as pegylated interferon for hepatitis C. I also worked on pegylated interferon for the treatment of chronic myelogenous leukemia.

Prior to my 8 years at Schering-Plough, I was on the faculty of Thomas Jefferson University School of Medicine where my research interests centered around HIV infection and how the host regulated viral gene expression. This was in addition to general clinical consultation in infectious diseases.

In my very exciting first six months here at Myriad we have submitted and received approval on two INDs for two new chemical entities in the oncology arena, in addition to maintaining an ongoing Phase II trial in Alzheimer's disease and initiating a large Phase III trial in Alzheimer's disease. I am particularly excited about the two new oncology drugs, which have moved into the clinic recently.

The first compound I want to discuss in MPC-6827. We submitted an IND application for this drug at the beginning of December. As Adrian mentioned, we received FDA approval within the 30 days coming in early January.

The compound has several exciting characteristics for a new experimental cancer drug. Firstly, the compound rapidly and selectively induces programmed cell death or apoptosis in tumor cells and the compound is very potent across a broad range of solid tumors.

For example, it has low nanomolar activity against tumors derived from breast, colon cancer, lung, prostate, melanoma and pancreatic cancer. We found that in mouse xenograft models in which human tumors are engrafted into the mice, MPC-6827, when given weekly for three weeks, has significantly greater anti-cancer activity than the standard of care drug for that particular cancer type.

We're also particularly excited that MPC-6827 is not a substrate for a range of multi-drug resistance pumps. As you probably know, multi-drug resistance, or MDR, is a major and continuing problem in cancer treatment. Most cancer drugs have substrates of these pumps and cancer cells rapidly become resistant to chemotherapy by upregulating the expression of these pumps. Unfortunately for the patient, their tumor is now resistant not only to the current chemotherapy regiment but to multiple other alternative drugs.

We believe that MPC-6827 will be effective in treating such patients and since it will not induce upregulation of MDR pumps, it may eventually become the drug of choice for first-line treatment.

We have attracted the interest of three premier academic centers to conduct Phase I studies on MPC-6827, those M.D. Anderson in Houston, Memorial Sloan-Kettering in New York and our neighbors here in Salt Lake City, the Huntsman Cancer Institute.

We submitted an IND application for our second cancer compound, MPC-2130 at the end of December. MPC-2130 in preclinical studies appeared to be particularly active against tumors of lymphoid origin, although there was also significant activity against solid tumors such as prostate and ovarian cancer.

Just like MPC-6827, 2130 works by promoting programmed cell death in tumor cells, however it works at a later point in the apoptotic pathway. This leads us to believe that MPC-2130 may have additive or synergistic activity with other cancer compounds which work at earlier stages of the pathway. Indeed, we have preliminary evidence for synergy of MPC-2130 with other cancer drugs such as carboplatin.

MPC-2130 is also not a substrate for the MDR pump. Myriad believes this MDR insensitivity to be one of the most important characteristics in selecting a new cancer compound for development.

We will be looking both at safety and for evidence of activity in Phase I trials with MPC-2130 and on-- including both patients with intractable solid tumors as well as leukemias and lymphomas. We will be conducting the Phase I trial with MPC-2130 at the University of Arizona in Tucson under the supervision of Dr. Dan Van Hoff.

In preclinical toxicology studies, MPC-2130 was very well tolerated at doses where there is significant anti-tumor effect in the xenograft model. This encourages us, not only for the potential utility of MPC-2130 in cancer but for possible use of this compound in other disease areas, given the particular activity against cells of lymphoid origin. Myriad has embarked upon a series of preclinical experiments to assess the potential of MPC-2130 in the treatment of autoimmune diseases such as multiple sclerosis, rheumatoid arthritis and Crohn's disease.

We are very excited to move into the next phase of development for these two new molecules and have great hope we can contribute two new drugs into a clinical setting which is still very much in need of additional and more effective agents.

Thank you and I'll hand things back to Pete Meldrum.

Thank you and I'll turn it over to the operator for the question-and-answer portion of the call.

[OPERATOR INSTRUCTIONS] Charles Duncan, JMP Securities.

Charles Duncan, PhD: Good morning, guys, and congratulations on a good quarter. Thank you for all that detail.

I wanted to ask a couple of questions related to other parts of the business so I'll keep them quick because I like the format of your call. First is, with regard to predictive medicine were there any positive impacts of the price increase in the quarter?

Thank you, Charles. Yes, we're seeing the impact of the price increase which occurred about a year ago throughout the entire first half of fiscal 2005. So we've seen that and we'll continue to see it this quarter and into next quarter as well.

Charles Duncan, PhD: But would you characterize the primary driver to the outperfomance versus expectations as unit growth or pricing?

It's clearly unit growth. While price has contributed, there's no question that the vast majority is unit growth.

Charles Duncan, PhD: Then secondarily, with regard to the Flurizan program, yesterday a competitor, Axonyx's Phenserine, failed to meet their primary end point because of a slower decline in cognitive function in the placebo group. I'm wondering if you've been able to control for that in your Phase III. If you could comment on that?

Adrian Hobden, PhD: Well, I think that some unique -- this is Adrian, by the way -- some unique circumstances behind Phenserine and Axonyx's study. As you will know, Phenserine is a cholinesterase inhibitor and therefore a completely different class of compound from Flurizan.

And they have a unique problem because there are four-- well, three and sort of one other drug, that are on the market as cholinesterase inhibitors and that is standard of care for Alzheimer's patients. And so in order to conduct this trial, they've had to go to places where cholinesterase inhibitors are not routinely used such as Croatia. And in order to conduct a trial for Alzheimer's disease in a country such as Croatia, then you have to use a translation of the standard outcome measures like ADAS-Cog.

Charles Duncan, PhD: Sure.

Adrian Hobden, PhD: It's not clear to me how well those are translated. And so I think that that might be part and parcel of the problem here in their study.

We do know, interestingly, that in all of the cholinesterase trials that were conducted there was a great deal of variation in the ADAS-Cog and so you might have predicted this issue. We in an analysis of the trial studied with compounds as potential Abeta42 lowering agents have not seen that variation in the placebo group for ADAS-Cog. So I think it's a different group of patients.

Charles Duncan, PhD: OK. Also, in your Phase IIIs are you allowing for the current standard of care in the placebo arm?

Adrian Hobden, PhD: We absolutely are. There are both cholinesterase inhibitors and memantine.

Charles Duncan, PhD: OK, cool. And then final question is related to presentation to day. With regard to INDs that could be filed in the '05 timeframe -- first of all, a great job on the other two that were done. Do you expect to file any more in this calendar year? And could one of them include the HIV compound?

Absolutely. The company definitely will file at least one additional IND in this calendar year and 49839 our drug candidate for the treatment of AIDS is clearly at the top of our list in terms of priority.

Annabel Samimy, UBS.

Just a couple of quick questions. First, on the Flurizan trial, you expect enrollment to take, I guess, until the end of the year. So how long do you expect the treatment phase to be? And what kind of dropout rate have you factored in, given that when patients become or start deteriorating they-- compliance becomes an issue?

Thank you, Annabel. The Phase III study, like the Phase II is a 12-month study. So the Alzheimer's patients will be on drug for 12 months. And the study will be concluded 12 months after the last patient has been on drug.

In the Phase II and the Phase III study we powered the study for a fairly conservative dropout rate. We're assuming about 30 percent, 25 to 30 percent dropout rate and I'm pleased to report that in the Phase II study we saw substantially less than that in terms of the actual dropout rate. Nonetheless, for the Phase III study we are sticking to that more aggressive dropout rate.

OK. And another quick question. Can you give us an idea of what the free cash flow is for the predictive medicine business at this point?

It's right around $4.5 million as of this last quarter. The predictive medicine business is generating over $1 million of free cash flow per month and so it is a significant contributor to not only keeping our loss at a fairly modest level, having five clinical trials underway at the present time, but also in terms of maintaining a fairly modest cash burn.

You'll note that during the past quarter we really only reduced our cash balance by about $5 million from $29 million to about $25 million. So it's been a strong contributor to Myriad and we're very excited about the growth and profitability we've seen in Myriad Genetic Laboratories.

OK. And one last question, if you can indulge me. On 2130 I might have just missed it, but did you mention other indications that you can move into?

Adrian Hobden, PhD: Annabel, yes, we did. I mean, we're still investigating that, but one of the things that we've been very struck with in the preclinical development of 2130 is how small was the tox burden in-- not patients, in animals, in testing. And because we know this compound has very good effects on tumors of lymphoid origin and given the similarities between certain autoimmune disease in terms of T-cell activation, we think that there's a good potential for this compound in the treatment of certain autoimmune diseases and we're examining that in preclinical models at the moment.

David Webber, First Albany.

Congratulations on an excellent quarter. A couple of questions that haven't been asked yet. First, can you give us any sense of how revenues from predisposition testing broke out between the tests?

Thank you, David. The company doesn't break down revenues for each of its individual products, but as I mentioned in the conference call we saw particularly strong growth with COLARIS this quarter, revenues doubling that of the quarter a year ago. BRACAnalysis, which is our major product, continues to do extremely well and I was, in particular, really pleased with MELARIS.

So all of the products are growing rapidly. The increases we're seeing, as I mentioned earlier, with Charles' question is based upon sample flow and unit volume, predominantly, not price increases that occurred last spring and we're just very excited about the entire product line. But unfortunately, we don't break those out individually.

My recollection is that BRACAnalysis had a long period in which growth was fairly slow and then at a certain point began to grow much more rapidly. Is it something like that that we're seeing with COLARIS now?

All of the diagnostic products have a slower ramp-up curve than you see in the therapeutic area. It takes a lot of education and training to allow physicians to understand the clinical utility and understand how they would manage the health care of patients differently based on the results from these tests. So all of the tests will see a ramp up that is slower and more diagnostic-like.

However, COLARIS and MELARIS have both benefited from the work we've done with BRACAnalysis in terms of educating physicians on the genetics and the molecular aspects of hereditary cancers. So the growth rates in both of those are accelerated and doing better than what we saw with BRACAnalysis. But it's still a relatively long period of education and training that we have to undertake in the molecular diagnostics arena.

Sure. Can you-- can you remind us, Pete, when the last price increases took place and historically what the frequency of price increases has been?

Yes. The last price increase took place in the spring of last year and we tend to increase prices about every 15 months to 18 months. We don't do it kind of on an annual basis, but a little longer than that. And the last price increase was approximately 7.75 percent.

William Ho, Piper Jaffray.

Hi, congratulations on a good quarter. A couple of questions. First, just on the trial design -- and I know I've brought this up before -- I'm still a little confused about the design in a period in which people are examining patients. I mean, Alzamed is 18 months, Phenserine was 6 months. You guys are 12 months. Can you clarify on that? And is there a standard?

Adrian Hobden, PhD: There's certainly not a standard. I think we are breaking new ground in this area.

The cholinesterase inhibitors, of which Phenserine is one, have traditionally run 6-month trials and, indeed, have-- the drugs have been approved on the basis of 6-month trials. But you're looking at a very different effect there where you're looking at a treatment and a cognitive enhancement in patients which you would expect to see extremely rapidly and then an underlying continuing decline of the patients with the progression of their disease.

When you're looking at drugs that are disease-- potentially disease modifying such as a Flurizan, you're looking really to see a change in the rate of decline of the disease over a period of time and you need to look at that for a reasonable period of time in order to get both an idea of the rate and also to get statistical significance. So we think that 12 months is a reasonable period of time to do that, based upon analysis of a large number of trials, now, that have looked at 12 months and what we expect the decline to be in the placebo group when that group, placebo group, is on cholinesterase inhibitors.

I don't know what the motivation behind Alzamed going for an 18-month trial is. I have to assume that they thought the effect would be small and therefore they needed to look over a long period of time, but that's just an assumption on my part.

So then what's the risk from the Phenserine trial that'll come out next-- I believe the data's coming out in March? Because there's two mechanisms of action. One is the cholinesterase inhibitors and then the other is it's supposed to block beta APP and Abeta production. And they're only looking at 6 months.

Adrian Hobden, PhD: Well, they were only looking for a symptomatic treatment effect, because you wouldn't see an effect of any other mechanism in 6 months and I guess that's what we saw. I don't know that there was any in vivo data to support their claim for a second action for that compound, but maybe I've not seen that data.

OK. And I guess the other question is, on predictive medicine, where do you see revenues this year? Where can they go up to?

The research analysts that cover the company have predicted predictive medicine revenues to be about $62 million. Given the strong second quarter, that's probably going to go up. The company itself, however, does not actually give guidance in terms of the revenue numbers.

But I can tell you, as Jay mentioned, that we continue through the month of January to see strong sample flow and we're looking forward to another very good quarter this year.

[OPERATOR INSTRUCTIONS] Craig Layton (ph), JP Morgan.

Just a couple of quick questions. First of all, has there been any change to the predictive medicine sales force? Secondly, I'm just wondering if you could, now that we're quite away from your direct-to-consumer campaign give us a post mortem here and really if that's something that would be reasonable doing again now that predictive medicine is-- well, has reached a bit of an inflection point again? And then thirdly, when do you expect the initial tranches of sites in the Phase III trial to get their IRB approval process? Thanks.

Hi, Craig (ph). I'll take the first two questions and let Adrian talk about the third. As you're alluding to, we did a pilot direct-to-consumer marketing campaign in the test market cities of Denver and Atlanta and in that campaign we saw a dramatic increase in awareness for our predictive medicine tests and a dramatic increase in demand for the test. In fact, one of the insurance companies that we work with in the Denver area, Kaiser Permanente went from about five request for reimbursement per week to over 100 requests for reimbursement per week. That was a 20-fold increase.

However, the revenues that we saw essentially doubled in the test market cities and so we wanted to explain the difference between the increased awareness of 20 fold and the actual revenue increase of a tenth that or only doubling. And basically it was a backlog at the genetic counseling end. With the DTC campaign and with the increased demand for the test, the backlog in the Denver area was about nine months to get in to see a genetic counselor.

So we recognized that, over a year ago, as an important concern for the company and have been working with the AMA, the Oncology Nursing Society, ONS, and ASCO to train nurse oncologists to handle the counseling for patients that have hereditary risk for breast cancer. Nurse oncologists are particularly well adapted to perform this function since they do work very closely with patients and they have a great depth of knowledge about oncology.

And so we initiated with ONS's approval a training program that began at the beginning of this fiscal year and to date have trained over 100 nurse oncologists to provide counseling to patients with hereditary cancer risk and by June 30 we'll have trained over 300. There are only about 3000 genetic counselors, but of those only about 300 are trained for oncology as opposed to prenatal genetic counseling. So, essentially, by June 30th, we will have doubled the number of genetic counselors that handle these types of cases.

Once we feel that the counselors are adequate to handle the increased demand, we definitely will look at a regional or even possibly larger direct-to-consumer marketing campaign.

And, Craig (ph), your first question again?

The first question was just a really quick one about the size of the sales force. You've been at 100 for a while. I think there's been a little bit of churn there, but the overall number has been about the same. I'm just wondering if there's been any change over the last three months?

There hasn't been. We've kept the sales force at pretty much exactly 100. I'm pleased to report that the turnover rate is very low with our sales group. We're very excited, very pleased with the quality of our sales group and, in particular, Mark Capone (ph) and his team in terms of managing that sales group.

We believe that a sales rep for Myriad should generate over $1 million of revenue per sales rep. And so when our revenues get up over $100 million you'll see us increase the sales force size, but not until then.

Thank you. And, Adrian?

Adrian Hobden, PhD: Yes, Craig (ph), the-- Your question was, do we have a tranch of sites with IRB approval? I think that's what your question was.

Or the timing of the IRB approval.

Adrian Hobden, PhD: The timing of that. Yes, actually we have-- I'm not actually sure of the number, but it's in the mid-teens of sites that already have IRB approval and have initiated the screening process for patients. We're heading for 100 sites, approximately, finally, but we have all those sites identified.

It appears we have no more questions. I'd like to turn the program back over to your speaker, Peter Meldrum. Go ahead, please.

OK. Well, thank you. We appreciate everyone's attendance on the Myriad Genetics earnings conference call and we will conclude the conference call at this time. Thank you.