Myriad Genetics Inc (MYGN) 2005 Q4 法說會逐字稿

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

Good morning and welcome to the Myriad Genetics earnings conference call for our fourth fiscal quarter which ended on June 30, 2005. My name is Peter Meldrum and I'm the President and Chief Executive Officer. I am joined today by Jay Moyes, Chief Financial Officer; Gregory Critchfield, President of Myriad Genetics Laboratories; and Adrian Hobden, President of Myriad Pharmaceuticals.

I will begin the discussion this morning with a brief review of the past year, and I will be followed by Mr. Moyes, who will discuss our financial results for the fourth quarter of our fiscal year ended June 30, 2005. Dr. Critchfield will then review will the Company's Predictive Medicine business, and Dr. Hobden will discuss the status of our clinical trial programs and our pre-clinic clinical drugs candidates. At the end of the presentation I will turn the call over to the operator for the Q&A period.

Please note that the information presented here today may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on management's current expectations, and 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.

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

Myriad researchers have made important discoveries in the field of cancer, Alzheimer's disease, and infectious diseases such as AIDS. These discoveries pointed to novel disease pathways which have enabled Myriad to develop new classes of drugs. Flurizan, our lead therapeutic candidate for the treatment of Alzheimer's disease, is a first in class drug candidate known as a SALA, or Selective Amyloid-beta Lowering Agents. Myriad recently obtained broad patent protection for Flurizan, and under U.S. patent No. 6000000911466 which extends the live of the Flurizan patent out to 2021.

This protection also extends well beyond Flurizan to a large class of compounds whose mechanism of action is to lower the toxic peptide abeta-42. Last year Flurizan completed a Phase II human clinical trial in patients with mild to moderate Alzheimer's disease. The study found that patients with mild Alzheimer's disease who received the 800 milligram twice daily dose of Flurizan achieved between 35 and 45% slowing in decline on all three primary endpoints, cognitive ability, activities of daily living, and overall function. A 20% slowing in decline is generally regarded as clinically significant.

Flurizan was well-tolerated in the patients in the Phase 2 study, and the adverse events were generally mild and non-specific, and did not differ significantly between placebo and the treated groups. We are currently aggressively enrolling patients in a mild Alzheimer's disease study, which is a two arm 800 patient Phase 3 study.

We also have a number of exciting drug candidates in clinical development in oncology. We have initiated two Phase 1 human clinical trials at Memorial Sloane-Kettering and MD Anderson for our drug candidate MPC-6827, a novel small molecule tubulin inhibitor. These trials use an escalating dose regime to evaluate the safety and pharmacokinetics profiles of MPC-6827 in patients with advanced solid tumors, or metastatic brain tumors.

In animal studies and MPC-6827 readily crossed the blood brain barrier, and was not subject to multiple drug resistance. These valuable and uncommon attributes with MPC-6827 hold promise of addressing two of the most important challenges in oncology today, drug resistance and brain metastasis.

Also on a Phase 1 clinical trial is our drug candidate MPC-2130, a novel apoptosis inducing small molecule. The study is designed to evaluate the safety and pharmacokinetics profile of MPC-2130 in patients with blood cancers, as well as refractory cancer that has progressed despite previous chemotherapy.

In pre-clinical studies MPC-2130 demonstrated cancer killing activity in ovarian cancer and prostate cancer cells, as well as two lymphoma cell lines, Burkitt's lymphoma and T-Cell lymphoma. As published in the scientific journal, Cell, our scientists and their collaborators discovered the viral budding mechanism of HIV and other viruses. This led to the development of MPI-49839, a viral budding or maturation inhibitor, and a new class of drugs for the treatment of AIDS.

MPI-49839 has demonstrated strong anti-HIV activity and has been shown to be effective against many of the drug resistance strains of HIV. MPI-49839 is in late stage pre-clinical development in preparation for human clinical testing later this year.

As a product focused company we are committed to the development and marketing of novel health care products. And this strategy has proven to be successful. Last year our Predictive Medicine products enjoyed record sales, record profit margins, and increased market penetration across all of four of our product lines. Last year MELARIS enjoyed a 79% growth compared to the prior year. COLARIS AP also grew at 79%. COLARIS, our fastest-growing test grew 102% last year as compared to fiscal year 2004. And our lead product, BRACAnalysis, grew over 50%. These novel proprietary products assess a person's risk of developing cancer so that that individual can take positive action to slow and, in some cases, prevent the disease. We market these products through our own 115 person salesforce in the United States. And we have entered into marketing collaborations with other organizations in selected foreign countries.

As a result of our increased sales and marketing efforts, which have helped to develop a strong customer demand, we achieved record sales of 21 million in our fourth fiscal quarter, a 14% increase over the prior quarter, and 71 million for fiscal 2005, a considerable 65% increase in sales over the prior fiscal year. We also enjoyed excellent gross profit margins of 72% for the 2005 fiscal year, as compared to 68% in 2004.

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

It certainly is a pleasure to present a more detailed look at Myriad's financial results for the fourth fiscal quarter of the year ending June 30, 2005. As Pete mentioned, we're very pleased to report that Predictive Medicine revenues this quarter have once again hit a record. Predictive Medicine revenues for the quarter ended June 30, 2005 were $21 million. This represents a 60% increase over the same quarter in the prior year, and a solid 14% increase over the previous quarter. Predictive Medicine revenues for the year ended June 30, 2005 of $71.3 million are up 65% over the prior year. This excellent result exceeded the analysts consensus Predictive Medicine revenue forecast for the year by over $1 million. Based upon sample flows observed to date we're optimistic that the analysts current consensus Predictive Medicine revenue forecast for the next fiscal year will be achievable.

Our gross profit margins on Predictive Medicine sales this quarter grew to 73%, which is a 2% improvement over the 71% margin in the same quarter ending June 30, 2004. The gross profit margin for the entire year was 72%, which represents a strong 4% increase over the prior fiscal year. The increase in gross margin this quarter was primarily attributable to the expiration of the PCR patent, but was partially offset by investments made by the Company in equipment, space and personnel to expand our capacity to accommodate increased sample growth. In fact, last week we commenced construction on a new 70,000 square foot facility that we will lease on our current campus.

I'm also pleased to note that Myriad has decided to expand its DNA analysis capacity in the area of forensics, which has recently started to grow and represents a potential market opportunity of approximately $400 million over the next four years. This business opportunity employs our proprietary DNA handling and analysis technologies to genotype samples from both convicted offenders and unsolved criminal cases.

Accounts receivable collections as measured by the number of days outstanding continue to show improvement. The average day sales outstanding for the quarter was 75 days as compared to 79 days last quarter, and 96 days for the quarter ending June 30, 2004. This substantial improvement is the direct result of information technology enhancements combined with the dedication of our internal billing and collections team. The quality of our accounts receivable continues to be excellent.

Research and development expenses for the quarter ending June 30, 2005 were $16 million. This represents a 33% increase over the same quarter in the prior year and an increase of 3% over the prior quarter. This increase was primarily due to costs associated with Phase 1 trials for Myriad's cancer drug candidates MPC-2130 and MPC-6837 and our late stage human clinical trials in prostate cancer and Alzheimer's disease.

We have also made significant expenditures in the late stage pre-clinical development of our other drug candidates including our novel HIV compounds. 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 June 30, 2005 were $13.2 million compared to $10.2 million in the same quarter of the prior year. The 30% increase over the prior year was largely attributable to increased sales and marketing commissions and expenses incurred to support the 65% growth in our Predictive Medicine revenues. We expect our selling, general and administrative expenses will continue to increase depending upon 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 fiscal year ending June 30, 2005 was $40 million or $1.30 per share. This compares with $40.6 million, or $1.49 per share in the prior year. We are pleased of this result was better than research analysts consensus loss for the year. This modest net loss is a direct result of the significant earnings contribution made by our Predictive Medicine business, which was $17.8 million before taxes, depreciation and amortization for the year.

Additionally, the operating margin of our Predictive Medicine business for fiscal 2005 was 22%, which represents a significant improvement over the operating margin generated in fiscal 2004.

I would like to take this opportunity to remind all of you of the impact of the next quarter's implementation of FASB 123R, Accounting for Stock Options. This accounting pronouncement requires that companies estimate the expense associated with granting stock options to employees by using an approved valuation method such as Black-Shoales. The resulting expense, which could be substantial, will be charged to the departments in which the employee receiving the stock option resides. Since we grant stock options to all our employees, the corresponding expense will flow through all of our cost centers, and will impact our costs of goods sold, research and development expense, and selling, general and administrative expense. The only positive thing I can say about the pronouncement is that it will have no effect on the cash balances of the Company.

Cash, cash equivalents and marketable investment securities was $113.8 million at June 30, 2005. This compares to $141.8 million for the same period in the prior year, and 115.3 million in the prior quarter. We again point out that Myriad has no debt and no convertible securities, and that the total number of shares outstanding at June 30, 2005 was a very modest 30.9 million shares.

Thank you for your attention, I will now turn the conference call over to Dr. Greg Critchfield:

It is a great pleasure to speak with you this morning about our Predictive Medicine business. Fiscal year 2005 ended strongly with both quarterly and year end record revenues for Predictive Medicine. The fourth quarter revenue of $21 million was an increase of 14% over that of the third quarter. Compared to last year's fourth quarter, our quarterly revenue increased by 60%. We ended the fiscal year with revenues of $71.3 million compared to $43.3 million last fiscal year, an increase of 65%, another record.

Cumulative revenues since the founding of our Predictive Medicine business are nearly $210 million, with more than one-third of this amount generated during this fiscal year alone. Myriad Genetics Laboratories generated approximately $17 million of positive cash flow from products with gross profit margins for the year of 72%, up from 68% for the previous year.

As our testing volumes grow, we continue to upgrade our systems to increase quality and capacity. Quality remains the prime directive, as we understand the importance of providing the highest quality testing services to our customers who make life changing decisions based on our work. As we see that the laboratory is approaching full capacity, we will need to upgrade our systems again this year. We are in the process of evaluating new state-of-the-art capillary and robotic systems, and are investing in automation in both our production laboratory and our customer service areas to meet the demand for higher volumes of tests.

Although the testing process itself is highly sophisticated, our Predictive Medicine business can be summed up simply, identify individuals at risk for cancer in the future and take preventive steps to decrease that risk. The establishment of our products as standards in the medical care of patients is becoming evident, as individuals, their families, and doctors understand that the promise of Predictive Medicine is being realized today. Additional scientific evidence of the value of our Predictive Medicine products accumulates everyday, solidifying and expanding the clinical utility of our tests.

Consider the following examples published in just the last three months. Risk reduction surgery decreases the chance of breast and ovarian cancer by as much as 91%, reported in the British Journal of Cancer. Early availability of BRCA status impacts the management of newly diagnosed cases, reported in the European Journal of Surgical Oncology. The risk of cancer in mutation carriers has been confirmed as high, first reported in Science in 2003, recently confirmed in the Journal of Medical Genetics.

Mutations in BRCA gene predicting high risk for cancer continue to be found across different ethnic populations, reported in a leading European journal. And adding MRI as a screening method is more effective than mammography alone in detecting early cancers in BRCA mutation carriers, detailed in Lancet.

Our commercial success during the past year comes as a result of three important initiatives launched broadly in our U.S. markets, growing new customers, increasing insurance coverage, and simplifying the testing process.

First I will address growing new customers. This entails training an individual physician practice on how to identify and test patients at risk for hereditary cancer. To do this we have worked with professional societies such as ONS, SG&O, SG&A to develop educational programs and train advanced practice nurses in genetic education. Working through them and their physicians a number of new practices have come online. We have grown our customer base by 109% compared to two years ago, and by 55% this last year. This increased acceptance from community physicians is driven by recent publications, a simplified marketing message, more effective physician and nurse training, and a desire by health care providers to incorporate new important medical advancements into their practices.

Next, we are increasing insurance coverage. We have been successful with a number of insurance companies to broaden coverage for our tests. This concludes our current testing services as well as new features that are incorporated into our testing. Many insurers are loosening guidelines by which patients should be tested. As a result, we see increases in coverage for our Predictive Medicine testing services.

For example, recently a number of state Medicaid programs have initiated coverage for Myriad testing services, making them available to an even broader population of patients. By the way, the reimbursement rates from these public insurance programs are similar to those of private insurers.

Finally, we are simplifying the testing process. We have made it possible for patients to more quickly begin the testing process in parallel with securing insurance reimbursement. One element of this initiative has been the elimination of cumbersome pre-authorization by some insurers. We believe that this accelerated process has resulted in increased numbers of patients been tested. And this improvement is expected to help our growth in the future.

To further support the growth of our business we're continuing to aggressively defend our intellectual property. For example, in Europe we are pleased that Myriad's BRCA1 and BRCA2 patents have been upheld in the last three opposition hearings. At the same time we are in discussion with a number of international commercial partners to expand our Predictive Medicine products into foreign markets.

In summary, our Predictive Medicine business is in a strong growth phase, with increasingly greater clinical utility, greater physician and patient awareness, and widespread insurance reimbursement. The promise of Predictive Medicine in identifying individuals at risk for cancer and then taking steps to decrease that risk is being realized as we continue to grow this business. The benefits of this service are best summed up in the words of a patient. I have been undergoing preventative measures for the past few months. I feel I'm saving my life by doing this, and am grateful for the opportunity your Company has given me to obtain this knowledge. Thank you.

I would like now to pass the microphone to Dr. Adrian Hobden.

Good morning. I'm pleased to announce that enrollment into our U.S. Phase 3 Flurizan trial is proceeding well. Neither the FDA nor the various IRBs have raised any objections to the modified protocol. We have identified approximately 130 U.S. sites for the trial, and most of those sites are now activated and actively enrolling patients.

As you are aware, we reported results from our Phase 2 trials in Washington D.C. in June. And because of the exciting data, Flurizan received national television coverage on all of the major stations, including ABC, CBS, NBC and Fox. This publicity has resulted in a large interest from patients and their care givers in enrolling in the Phase 3 trial. Indeed, we even received interest from patients at as far away as Japan. Our sites are currently processing this backlog of interested patients, and we're very optimistic that we will achieve our enrollment schedule.

We have continued to analyze data from the Phase 2 trials so that we can fully understand how patients are responding to Flurizan. As we have reported previously, patients with milder disease at enrollment showed the greatest response.

We define a patient's disease severity by their MMSE score. That is Mini Mental State Exam. However, whilst this test is easy to administer, we know that it is not the most accurate measure. A patient's score can vary by two or more points between tests, even when given a week apart. We therefore decided it would be interesting to see how mild patients responded when ADAS-cog was used as the base line score instead of MMSE. ADAS-cog is a more reliable measure of disease progression then MMSE, but it takes significantly longer to administer to patients. We decided to use an ADAS-cog score at 40 as the cut off. To remind you the total score for this test was 80 points, with higher scores representing more severe disease.

35 out of the 66 patients on the 800 milligrams dose had a small score of 40 or less, which represents 83% of all patients in this arm of the study. This compares with 73% of mild patients as judged by MMSE. Using this measure we found a 46% reduction in the rate of decline of cognitive performance compared to a 34% reduction in the rate of decline for the smaller group of patients. We believe this confirms our initial analysis that milder patients, when accurately diagnosed, respond to Flurizan with a reduction in the rate of decline of their disease.

We have also looked to see the extent of response in the very mildest patients. That is, those who have a MMSE score of 26 at enrollment. In these patients Flurizan slowed the decline of the disease by greater than 90%, and on the CDR sum of boxes outcome measure, the patients actually improved relative to their baseline score.

These data increased our confidence in the value of this drug for the treatment both mild Alzheimer's disease and possibly mild cognitive impairment. Furthermore, it suggests that Flurizan may have the potential to improve the way Alzheimer's disease is treated. In the future physicians will want to diagnose and treat the disease early, and the current stigma associated with a diagnosis of Alzheimer's disease may finally disappear.

Of course, Flurizan is not the only drug that Myriad has under development. We have two cancer drugs, MPC-6827 and MPC-2130 in Phase 1 trials. We are studying MPC-6827 for its ability to treat patients with solid tumors, and especially people with metastases in the brain. MPC-2130 is being steadied primarily in blood cancers, but also in those patients who have brain involvement of their disease. Both drugs, whilst acting by different molecular mechanisms, have strong anticancer activity in animal models, and they are also not substrates for multiple drug resistance pumps.

Furthermore, both drugs are more able to cross the blood brain barrier and enter the brain more efficiently than any approved cancer drugs. In the case of MPC-6827 the concentration of drug in the brains of mice was an extraordinary 1500% of plasma levels. At present both drugs are in dose escalation studies. We hope to be able to report some results for these compounds later this fiscal year.

We have also been busy in pre-clinical development and discovery biology. We have a number of compounds that have the potential to enter the clinic in the near future, including our HIV maturation inhibitor, MPI-49839. We believe we have solved the earlier problems with this compound, and it is now on track for a IND this year. MPI-49839 is an orally available, small molecule with a potency of less than 10 nanomole against a variety of HIV strains. The half-life in animals suggests that once or twice a day oral dosing in man would be appropriate.

In future conference calls I hope to be able to share information with you on other compounds that will expand our cancer antiviral and Alzheimer's franchises.

In conclusion, over the past few months Myriad has been extremely busy and productive in extending our portfolio of experimental drugs. Taken together with Flurizan, which has the potential to revolutionize the treatment of Alzheimer's disease, and our cancer drugs which may change the way cancers of the brain are traded, the future is bright.

Thank you for your attention, and I'll now turn the call back to Pete Meldrum.

I will turn the conference call back over to the operator for the question-and-answer period.

(OPERATOR INSTRUCTIONS). Jonathan Aschoff with Brean Murray.

I was wondering when does the FDA tell you whether or not you need to, or do not need to, run a second U.S. Alzheimer's trial, Phase 3?

Adrian, would you like to address that?

Yes. The FDA just never gives you that kind of direction. But you can go to the -- at least not verbally -- but you can go (technical difficulty). And the guidelines that we're working on, the assumptions that minimally we will need one Phase 3 trial. But depending on the results of that, we may need a second Phase 3 trial. And so we have already initiated steps to do a Phase 3 trial -- and Phase 3 trial. This one, however, we will do in Europe. And we will do it under ICH guidelines so that the data is perfectly permissible for U.S. trials as well as for -- or U.S. registration as well as European registration. The rationale for doing it in Europe is that that will facilitate approval in Europe under the auspices of the MEA. We don't intend to initiate a second U.S. Phase 3 trial.

If I can add just a little to that. I think a lot depends on the results of the trial, and how strong of a performance the drug has in terms of slowing the decline of patients with Alzheimer's disease. So at the conclusion of the Phase 3 study we will have been ended of Phase 3 meeting with the FDA. And based upon the performance of the drug we will get an indication of that meeting as to whether or not they would welcome a NDA based on a single Phase 3 study or require two.

It sounds like you will await the results first before going forward with any potentially new Phase 3 trials.

In the United States, that is correct. But as Adrian mentioned, we are in discussions with the EMA about a Phase 3 in Europe to facilitate approval of the drug in Europe. And that Phase 3 certainly could be used to support the drug in the United States.

What does one expect going forward in '06, at least for that R&D revenue line? Does that anticipate to come back down the way it did a couple of years back when you had a $5 million line there?

The Company is really focused right now on developing its own drugs for its own account, and has not been focused on doing strategic alliance collaborations with large pharmaceutical companies. So we have given guidance in the past that the research revenue line is going to remain modest and flat at roughly the current levels. We don't see that increasing dramatically. That is not our focus. We want to develop drugs for own account. However, we do do research from time to time, and we don't see that dropping substantially either.

So the current level, meaning around 2 million rather than this last quarter's 5 million?

Yes, that's correct.

When you had said that you no longer had to pay a PCR royalty on the Predictive Medicine you said that your COGS would drop to about 25%. And I was wondering these (ph) were at 27%, which is certainly your best COGS. I was just wondering if that is expected to drop 2 points further near term?

We haven't really given guidance in terms of the size of the royalty that we used to pay to Roche based on the PCR patent. But as you pointed out those patents expired and our obligation to pay the Roche royalty ceased this spring. And that has been reflected partially in the fourth quarter, but I would say the bulk of that advantage has taken place in the fourth quarter.

Annabel Samimy with UBS.

Just really quickly I want to focus a little bit on the Predictive Medicine business. To what extent have you been able to penetrate the primary in the OBYGN market as opposed to just the oncology market? Have your efforts there formed fruit or are you still working on that?

We're working on all of our markets. But we have seen good increase in sales demand from OBYGN from the primary care. As you pointed out, we're really addressing three types of patients that would benefit from the tests that we offer. The first is a pre-symptomatic individual who has a family history of disease, a family history of cancer, but does not actually have cancer yet, so that they can take preventive action and reduce their risk of developing the disease later in life.

And that would be the primary care physician. And in the case of breast cancer, it is usually the Ob/Gyn. And we made excellent progress this past year in addressing that market. We have seen revenues increased dramatically from that particular segment of our business. And that is an area we're putting a great emphasis on this year and into the future.

In terms of the capacity expansion that you are investing in to support the sample flow, I know you just said that you don't really -- you haven't really given gross margin guidance, but at some point do you think that it would be absorbed -- the new capacity would be absorbed into the gross margin?

I just wanted to know how might that affect the gross margin? Are you going to see some kind of flattening out temporarily? And also what kind of impact would that have on operating margins? Is the forensic business something that you can just fold into your current infrastructure? Is there going to be some kind of operating margins affect?

As you correctly pointed out, the expansion will have some impact on our cost of goods sold. So our margins may tend to flatten out over the next few quarters. Hopefully, though once we get certain bits of new infrastructure in, as Greg had mentioned some of the new robotics, some of the new (indiscernible) in technology this will again make us -- provide -- allow us to increase our gross margin. Relative to the operating margin, this is -- it has grown pretty strongly over the last four quarters, and I think that we still have some opportunities to see improvements in that particular area.

Despite any kind of impact on gross margins?

Despite what? I didn't --?

Yes, that's correct. Our gross margins are continuing to improve. But as Jay pointed out, anytime you change a system or a part of the production line in the lab that does have affect on your cost. So we wouldn't see the gross profit margins decrease, but as Jay pointed out over the next several quarters they could flatten or grow a little less than they have historically. But that -- given our growth in the revenue line, which still resulted in an increase in operating margin.

Also in terms of the reinvestment rate, what rate -- at what rate is it reimbursed at this point? Has it increased or is it pretty much in the -- still in the 90% range?

It is pretty much the same, and that is because just about all of the tests we do are reimbursed by insurance. At last count it was something in the 95% was paid by insurance, and the remaining 5% is really more the co-pay. There are a few individuals who will pay for it themselves. But by and large, it is pretty much fully reimbursed across all four our product lines.

As Greg mentioned, there is, we hope, a beginning of a trend that would eliminate a lot of the pre-authorization issues. And that should make the flow, the speed at which reimbursement happens -- the speed at which samples can be tested that should hopefully improve over the next several quarters.

Edward Tenthoff of Piper Jaffray.

Congratulations on, again, a really, really nice quarter on the Predictive Medicine cut. I have two quick questions. As we look into next year clearly with stock compensation expense, can you give us some idea of what the magnitude of that expense is going to be? And will you be breaking it out so that we will be looking at a pro forma versus GAAP number? Just give us a little bit more color there. And then I have a quick question for Adrian too on the Phase 3.

Let's put it this way. For the fiscal year ending 2005 -- so our most recently completed fiscal year -- the stock option expense would have approximated $50 million. The year before that it was in the high $20 million range. The challenge is that there are so many factors that actually impact the calculation of the number, volatility, interest rate, number of shares granted and when. It is really hard to come up with a specific number for guidance over the next year. Because of the factors that influence them, we don't have any control over them. We don't know what those will be. I can tell you historically what they were. But in the future I find it to be a rather challenging task.

As far as breaking them out, it is not acceptable under GAAP to put out two separate statements in the financial statements or in the 10-Ks or Qs. And at this point we don't know whether or not we will be able to break those out, for example, in a press release. We are kind of on the forefront of the implementation of this. Most companies that have a (multiple speakers) don't have to deal with for a while. And so there hasn't been really any body of knowledge to build up around it. We are kind of on the front here along with a couple of other companies.

Fair enough. One quick follow-up there. Have you done some acceleration of options, or will you be shifting maybe to restricted stock, or is your plan to continue to compensate with options in the same way you have in the past?

We think that stock options are a very important tool in terms of attracting and retaining the most talented individuals in this field. And so we have always had a strong bent toward issuing options, pretty much throughout the Company. And despite the fact that we now are required to expenses those stock options, we're going to continue that philosophy. So you won't see a change in terms of our granting stock options to employees, and we will continue to use plain vanilla stock options. We won't go to any sort of restrictive stock.

Okay. And then real quick for Adrian, just remind me, is there any preliminary look at the Phase 3 Flurizan data? And when you think this Phase 3 might be completed with data available?

We don't have an interim analysis in the Phase 3, since we want to save all the power we can for the final analysis. If anything we do have obviously is an independent data monitoring commission that looks at safety in the trial. So in that sense, they will be looking at earlier data from the trail, but not in terms of efficacy. The other question was when do we expect to see --?

When do you think the Phase 3 -- this initial Phase 3 may be completed, and when do you think data would be available?

We're expecting to complete enrollment in the second quarter of '06 -- calendar '06. And it is a twelve-month trial, so six months, twelve months from the last patient to enroll in the trial. And then we certainly expect to be able to get a preliminary analysis for the data within the first -- within three months of that time. So around about the second half, early second half of '07 would be the time.

Great, that is helpful.

Charles Duncan with JMP Securities.

Let me offer my congratulations on what has turned out to be a pretty exceptional year. I had a couple of questions with regard to Predictive Medicine revenue. Jay, you mentioned that you were comfortable with where current analyst estimates are. Were you talking about total revenue or were you talked about Predictive Medicine revenue? In a sense that is not broken out on FirstCall, can you give me -- or give us your idea of what that analyst expectation is?

I was referring to total revenue, because as you correctly pointed out, that is the only number that is available on FirstCall. To be precise I said it was optimistic that the consensus would be achieved. So I think that with the growth in the tests that we have experienced over the past in the sample flows that we are seen so far this quarter, again, I am optimistic that the total revenues are going to be achievable.

And I think the FirstCall total revenue is about 95 million.

In terms of Predictive Medicine revenue, do you know, it is around 85 or so?

I think it is around 88 million, if you break it down.

You also had mentioned a pretty sizable market opportunity for forensic testing. I know you have had alluded to that in the past. But it seems like you're raising the profile of that. Can you provide us a little bit more color on the size that you mentioned, 400 million, and when that would be accessible, and what you would need to do to your current capacity to access that and/or marketing initiatives?

That is a good question. The forensics market is estimated to be $400 million -- at least $400 million over the next four years. That is what has been directly funded by the federal and state governments. And what we have -- since it is a great opportunity for us, and as you mentioned, the great opportunity here is that we don't have to have a 106 person sales force to attack the market, we can do this with two or three sales reps. And the opportunity it provides is that it allows us to leverage technologies that we have already developed for our sequencing business that we use in breast, ovarian, colon and melanoma testing to apply to the very specific criteria that the federal government requires when processing a sample. Sample tracking is everything to them because it is -- in fact, actually there was a --.

I imagine.

Yes, it is crucial. Anyway, I think it is an opportunity for us to leverage our technology without having to drastically expand our capacity to handle it, because it is pretty simple testing actually. It is not anywhere near as complex as a breast cancer test, for example.

As Jay mentioned, we do think it is a good opportunity for the Company to explore new markets and leverage our current technology. Historically the forensic testing we have done has been small, always under 10% of total revenues. And we don't see that growing to anything like 10% this current year. But hopefully, as Jay mentioned, with the finding that has been provided in the future that can be a more important business opportunity for Myriad. But historically, and at least for this fiscal '06, it is going to be still a pretty small part of our total revenues.

So this is not the primary growth initiative for the Company?

No, it is certainly not. (multiple speakers). The growth has historically been in Predictive Medicine, and that is where the Company's growth will be at least in the foreseeable future. But this is a very attractive opportunity, as Jay mentioned, for us to leverage our current technology.

Are you folks aware of any large clinical studies that are ongoing that might bear fruit in terms of data releases that could assist in driving demand for Predictive Medicine revenue or testing?

Yes. There are a number of studies that are ongoing. And in fact, there was one that was just recently reported two days ago in the Breast Cancer Research Journal where they looked at women and addressed the problem of weight loss and diet with regard to specifically mutation carriers for BRCA1 and BRCA2.

It has been known through a number of clinical studies that in post menopausal women there is a correlation between weight gain and fat in the diet and risk of breast cancer generally. But in premenopausal women they have not seen that same correlation. This study that was just recently reported, which was quite an impressive study from the standpoint of over 2,000 women participated in this study, saw a definite statistically significant increase risk in premenopausal women and weight gain if they were a BRCA1, BRCA2 carrier. And the most critical age seemed to be between age 18 and age 30. And women who carried mutations who gained 10 pounds or more during that 18 to age 30 period saw about a 45% higher risk of developing breast cancer and it occurred at an earlier age. And so this not only supports Myriad's BRACAnalysis test, but actually argues that the sooner you have the test the better off you are in terms of being able to take some additional preventive action to reduce your risk of getting cancer later in life. We will, I think, continue to see studies like this over the forthcoming year.

That makes sense. Could you give us some -- just sense of what percentage of patients that actually go in and have the test that are age 18 to 30? Isn't it very much the minority?

It is. Right now usually women have the test in their late 20s or early 30s. And then of course early diagnosed patients with breast cancer are usually in their late 40s or early '50s have the test as well. So this would represent pushing down the age of testing and expanding the market for BRACAnalysis.

Finally, on PM with regards to the SG&A spend, is that -- there was a jump quarter on quarter that resulted in some clinical meetings. What should we anticipate with regard to the vector on that line?

The G&A expense is increasing slightly but remaining relatively modest. The big jump last quarter was primarily the sales commissions that were paid on the increased revenues. So as revenues go up and our selling expense based on commissions will go up accordingly. You will see the SG&A increase, but that is primarily the S portion. Our G&A rates actually are increasing slightly, but remaining quite modest.

And even though we pay the commissions out quarterly, there is still a hold over for the entire year, which is paid in the fourth quarter. So that is why that kind of bumped up.

Yes, that is a good point. We do pay commissions quarterly, and we accrue that expense quarterly, but at the end of the year, based on the total year results, there's kind of like a fifth commission. So the fourth quarter does get hit a little harder than normal.

I see. So there wasn't necessarily a bump in the percentage that you are paying out, or some call it content or --?

No, not all.

If we could just move quickly to the Alzheimer's trial, the Phase 3, it would seem to me that the data you presented in Phase 2 were fairly compelling with regard to those in the know as to the potential utility of the drug. It would also seem to me that the market opportunity suggests that a large selling effort would make sense. Do you have any further thoughts on whether or not you would partner the drug, and at which stage?

We definitely would want to form a marketing alliance with a large pharmaceutical company for Flurizan. But the Company does not want -- we think it is an important enough drug that we don't want to give up control. So the Company plans on building its own neurology sales force. Neurologists and psychiatrists write about 30% of the scripts for Alzheimer's disease. And that is a market that we can address with our own sales force, as we have shown we can build an oncology sales force.

But the remaining 70% of the scripts are written by primary care, and it is not feasible for Myriad at our current size to try to build a primary care sales force. So we will need to form a marketing collaboration with a large pharmaceutical company and have that pharmaceutical company sell our products into the primary care market.

The ideal time I think for the Company would be post Phase 3 results, because it the longer the Company moves its drug forward and holds off on doing a collaboration, the less risk there is to our collaborator and the greater value the Company can achieve in a marketing alliance with Flurizan. However, as you pointed out, the results that we presented in June in Washington has attracted the attention of a large number of pharmaceutical companies. And you never know when you will actually do a deal, but our plan is to hold off and do it later stage to create more value for the Company.

Surely it is the case that if you get good results, you will have created some sizable value, but one also has to consider the risks. I think what you're saying suggests that you're very comfortable shouldering the entire cost of the trial?

Yes, absolutely. We have no difficulty in terms of doing the Phase 3 clinical trial or the costs associated with that study. So there is not a real strong driver to try to do a deal prematurely with a pharmaceutical company.

And in that trial you're not doing some costly imaging or anything, are you?

No. The FDA now does not allow PET scans or MRIs or other imaging techniques for drug approval, and so there's really no sense, no reason for the Company to do those sorts of measurements. We are going off of what the FDA does require for drug approval, which is a cognitive function. And we're using ADAS-cog and behavior function, and we have the co-primary endpoints in that area of ADL and CDR sum of boxes.

Your final question comes from the line of David Mono (ph) with Merrill Lynch.

Just a couple of questions on Predictive Medicine. Can you talk about any price increases that we might expect in the upcoming couple of months? I think the last one we got was April '04. And then also are there any new tests in development for diseases other than cancer?

Yes. The Company historically has had price increases about every 18 months or so, so they haven't been annual. Our last price increase was maybe fifteen months ago. So we are right now looking at the price of the products, and we will make a decision with regards to that either late fall, or maybe after the first of the year.

The Company has a nice pipeline in terms of Predictive Medicine products that we are working on. We are focused on pancreatic cancer and the role that BRCA2 plays in pancreatic cancer. We, with the discovery of HOB 1 are looking at Type II diabetes, and are very excited about the potential of a Type II diabetes genetic predisposition test. Diabetes is a significant indication, and that would probably represent the largest commercial opportunity of any of our tests, including BRACAnalysis.

We also are looking at prostate cancer. The Company discovered a gene called ELAC2, and then end licensed rights to 5-alpha reductase and the androgen receptor. And we're in the process right now of assessing the clinical utility of a prostate cancer predisposition test. So I think we have a nice pipeline coming down to support our existing four products lines.

What are the time lines for those additional tests? And for the diabetes one in particular, I think your sales force right now is focused primarily right on oncology, so what additions would you need to make to the sales force in order to market to the appropriate doctors for a diabetes test?

That would represent more of a challenge to us, because that would be more into the primary care area. And they're looking right now at the various strategies in terms of trying to address that market. But I think it would require a marketing alliance with another company that had a primary care sales force.

And the time line on the test?

It is hard to same on the exact time line. Generally these tests take around two years to do some clinical studies so that we can demonstrate clinical utility to the physicians and arm our sales force with appropriate marketing literature. So I'm reluctant to give a specific time line, but several, including diabetes and prostate cancer, we have been working on for some time now. So they are moving down the pipeline and getting closer to potential commercial launch.

Just one final question. Can you breakout the percentage of the Predictive Medicine revenues that were related to the BRACAnalysis -- that's the largest one -- is that still remaining about an 85% of the revenue?

We don't really breakout the revenues of each of the individual product lines separately, other than to say that the majority of the revenues, over 50%, are BRACAnalysis. As I mentioned, that is our largest selling product. But as we discussed on the conference call today, all of the other products are doing well. In fact, they're growing faster than BRACAnalysis, and they all contribute a substantial portion to our revenues.

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

No, other than to thank those who attended the conference call for their continued interest and support of Myriad. And this will conclude our conference call this morning. Thank you again.

This concludes today's Myriad Genetics' fourth quarter results conference call. You may now disconnect.