Myriad Genetics Inc (MYGN) 2006 Q2 法說會逐字稿

Good morning. My name is Alanda and I will be your conference operator today. At this time I would like to welcome everyone to the Myriad Genetics second-quarter fiscal 2006 results conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce Mr. Peter Meldrum, President and Chief Executive Officer of Myriad. Sir, you may begin your conference.

Thank you. Good morning and welcome to the Myriad Genetics earnings conference call for our second fiscal quarter which ended December 31st, 2005. My name is Peter Meldrum, and I am the President and Chief Executive Officer. I am joined today by Jay Moyes, our Chief Financial Officer, Gregory Critchfield, President of Myriad Genetic Laboratories, and Adrian Hobden, President of Myriad Pharmaceuticals. I will begin the discussion this morning with a brief review of the past quarter and will be followed by Mr. Moyes who will discuss the financial results for our second fiscal quarter. Dr. Critchfield will review the company's predictive medicine B.C. and Dr. Hobden will discuss the status of our clinical trials program. At the end of the presentation, I will 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 actual events or results may differ materially and adversely from these expectations for a variety of reasons. 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.

Our strategy is to minimize risk and maximize value by combining an exciting therapeutic focus on first-in-class drugs with a profitable, high margin, rapidly growing, predictive medicine business. These two business opportunities complement each other well, and leverage our strong research capabilities. On the predictive medicine front, our current products are enjoying market success. Our pipeline of future products is strong. And we are making good progress towards their future introduction into the marketplace.

Our predictive medicine products help patients determine their risks for hereditary cancers, including breast cancer, ovarian cancer, colon cancer, uterine cancer, and skin cancer. These products provide valuable information to patients and physicians, so they can make more informed decisions about their healthcare management. As a result of this greater product acceptance, our increased sales and marketing efforts, and our oncology nurse training programs, we achieved increased market penetration across all four of our product lines. Product revenues totaled $23.4 million for the quarter and $44.9 million for the first six months of this fiscal year. Both are the highest in our company's history. Our net operating profits for our predictive medicine business were $7.2 million in the second quarter, as compared to approximately $4 million in the same quarter of the prior year, an 80% improvement in net operating profits.

This strong performance by our predictive medicine group is further reflected in our reduced net loss and cash burn for the quarter. The net loss for the three months ended December 31st, 2005 was only $8 million as compared to $10 million for the same three months in 2004, a decrease of 20%. On the therapeutic side, we are developing three very exciting, first-in-class drugs for major disease indications, each with significant unmet medical needs.

First, there are no drugs on the market that can slow the progression of Alzheimer's disease. The underlying pathology and the inevitable loss of memory remain unaltered despite treatment with current, existing drugs. Currently available treatments provide only temporary, symptomatic improvement while this terrible disease continues unabated. In our Phase II clinical study, Flurizan demonstrated that it can slow the progression of Alzheimer's disease in mild patients. Not only did we observe a 34% to 45% improvement as compared to placebo over the first 12 months, but the Phase II follow-on study, which has now been ongoing for approximately 18 months, has shown considerable improvement in these Alzheimer's patients. To my knowledge, no other drug has shown the sustained level of activity against Alzheimer's disease. Flurizan is currently in a Phase III study here in the United States.

Second, there are no FDA-approved drugs for the treatment of metastatic brain tumors. Current chemo-therapeutic drugs simply do not cross the blood brain barrier, at least not to any significant extent. Brain metastases are the greatest challenge facing oncologists today. As we have become better at treating the primary, tumor patients are living longer. Unfortunately the cancer will spread, and frequently it spreads to the brain. Brain metastases will occur in 20% of all cancer patients. That means there will be approximately 170,000 new diagnoses of metastatic brain tumors this year. That's more new diagnoses than that of lung cancer or colon cancer and almost as many as the newly diagnosed cases of breast cancer. In preclinical studies, Myriad's brain metastasis drug, MPC-6827, not only crosses the blood brain barrier but appears to be actively transported to the brain. The drug concentration in the brain is 15 times higher than that in the blood stream. And it is shown impressive tumor inhibition in animal studies. Importantly, it is readily cleared from the brain within 24 hours. MPC-6827 has the potential of being the first drug approved for metastatic brain cancer and is currently in two Phase I studies. at MD Anderson Cancer Center, Memorial Sloan Kettering Cancer Center, and Huntsman Cancer Center.

Third, while there are effective therapies for the treatment of AIDS, the primary concern today is drug resistance. According to a study published by scientists at UCSF, 42% of all HIV-infected patients will become resistant to at least one of the current drugs on the market this year. Several years ago, scientists at Myriad Genetics discovered the viral budding and maturation pathway in HIV and published those findings in the scientific journal Cell. This research led to the development of MPI-49839. Our AIDS drug will be taken orally once a day and has shown strong activity against HIV at the five-nanomolar level. More importantly, MPI-49839 has demonstrated strong activity against every drug-resistant strain of HIV that we've tested it against. and to date we have not been able to develop in-vitro drug resistance against this promising new drug. MPI-49839 will enter human clinical trials in AIDS patients this year.

In summary, we are aggressively advancing three very exciting, first-in-class, drug candidates, each with multibillion-dollar sales potential, while we continue to grow our high-margin, predictive-medicine business. It is now my pleasure to turn the call over to our CFO, Jay Moyes.

Thank you, 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, 2005. 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, 2005 were $23.4 million. This result represents a 9% increase over the prior quarter ended September 30, 2005. The record $23.4 million in predictive-medicine revenues also exceeded the analyst average predictive-medicine revenue forecast for the quarter. Further, the predictive-medicine revenues for the six months ended December 31, 2005 are up 41% over the same six-month period of the prior year to approximately $45 million. Total revenues for the quarter, which included both predictive medicine and research revenues were $27.3 million and also exceeded the Thomson First Call consensus estimate of $26.7 million.

Our sample flows during the month of January have averaged over 1,000 per week, and we believe our predictive-medicine revenues will, once again. show growth in our third fiscal quarter. Our gross profit margin on predictive-medicine sales this quarter was 73%, an increase of 2% over the 71% margin in the same quarter ending December 31, 2004. As I noted last quarter, Myriad has made and continues to make investments that will improve the long-term performance of our predictive-medicine business. During the quarter ended December 31, 2005, we implemented new software that improved the efficiency with which we are able to analyze patient data. This investment will enable each data reviewer to process more information per unit time with the same accuracy our customers have come to depend upon.

Accounts receivable collections, as measured by the number of Days Sales Outstanding, was 73 days for the quarter ending December 31, 2005 compared to 89 days for the same quarter in the prior year. This substantial improvement is a direct result of information-technology enhancements combined with the dedication and expertise 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 December 31, 2005 were $19 million. This represents a 31% increase over the same quarter in the prior year and an increase of 3% over the prior quarter. This increase included the costs associated with our six clinical studies currently underway at Myriad. We have also made significant expenditures in the late stage preclinical development of our other drug candidates including our novel HIV compound. Since we expect to be moving an additional two drug candidates into the clinic this year, we believe our research and development expenses will continue to grow over the next several quarters. Selling, general and administrative expenses for the quarter ending December 31, 2005 were $11.6 million compared to $10.6 million in the same quarter of the prior year. The 9% increase over the prior year was largely attributable to increased sales and marketing commissions and expenses incurred to support the growth in our predictive-medicine revenues.

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 ending December 31, 2005 was $8 million or $0.22 per share. This compares with $10 million or $0.33 per share for the same quarter of the prior year. We are pleased that this result was better than the First Call consensus loss for the quarter of $9.8 million or $0.32 per share. This reduction in our net loss is a direct result of the significant earnings contribution made by our predictive-medicine business this quarter, which was $7.7 million before taxes, depreciation and amortization. Additionally, the operating margin of our predictive-medicine business for the quarter was 31%, which represents a significant improvement over the 23% operating margin generated in the same quarter of the prior year.

Even though we have increased the size of our Phase III Alzheimer's trial from 750 patients to 1600 patients and noted in previous calls that our stock option expense is expected to increase, we are pleased to announce that our loss for the remaining two quarters of the year should approximate the research analyst current consensus loss. Cash, cash equivalents, and marketable investment securities were $235.1 million at December 31, 2005. This compares to $124.7 million for the same period in the prior year. This increase was due to the successful completion of our follow-on offering this past November. We again point out that Myriad has no debt and no convertible securities and that the total number of shares outstanding at December 31, 2005 was a modest 39.1 million shares. Thank you for your attention. I will now turn the conference call over to Dr. Critchfield.

Thank you, Jay. It is a great pleasure to speak to you about our predictive-medicine business. For the quarter just ended, we achieved record revenue. Over $23 million, a 9% increase compared to last quarter, which itself was a record. Revenues for the first six months of fiscal 2006 were approximately $45 million. Cumulative predictive-medicine revenues since the founding of this business now exceeds $250 million. Gross profit margins for the recent quarter were 73%, a pharmaceutical-like gross profit margin. By a number of key measures, this is a very good business.

As we see our testing volumes grow, we are also continuing to upgrade our internal capabilities in order to continue achieving world-class quality and -- and to also increase our capacity. These changes include the installation of advanced robotic platforms and development of state-of-the-art higher-density sequencing workflow. While we improve our laboratory hardware, we are also working on enhancements to the software that we use to perform the analysis of DNA. Some of these enhancements will take place during this quarter and some later this fiscal year. These kinds of changes are necessary as -- as we continue to see significant growth in our business, allowing us to accommodate greater testing volumes in the future. We see all of these efforts as ways to improve quality and throughput in our testing processes.

Our predictive-medicine business is succeeding because, armed with the information we provide, individuals identified at high risk for cancers can do something about it. Preventive measures may allow individuals to escape what would otherwise be a tragic destiny. The volumes of literature supporting the clinical utility of our predictive-medicine products continue to grow as new studies publicize research that supports our predictive-medicine paradigm. For example, recent studies have shown that in addition to lifetime risks of breast cancer exceeding 80% for individuals who have BRCA1 or BRCA2 mutations, the risks of ovarian cancer are as high as 54%. It is important to identify women who have mutations, because there are good preventive measures to reduce both breast and ovarian cancer in these women.

Dr. Paul and colleagues at the H. Lee Moffett Cancer Center recently reported that 15.3% of women with invasive cancer of the ovary tested positive for BRCA1 or BRCA2 mutations. This number is considerably higher than previously thought. Their study was population-based, looking at all eligible women in the geographical referral area, not testing women because of family history, but testing all individuals who had ovarian cancer. The authors concluded that one, previous studies underestimated the frequency of BRCA1 and BRCA2 mutation carriers in ovarian cancers. Two, offering testing to all women with invasive types of ovarian cancer is an appropriate strategy and, three, that family history is not sufficiently accurate to predict mutation status.

These results are consistent with Dr. Mary-Claire King's work in published in Science about two years ago, reporting that in 50% of the mutation carriers found in a large New York City study, family history was not helpful. The implications of these kinds of papers are clear. It makes sense to offer testing to entire larger groups of patients without regard to family history, for example, to all women diagnosed with invasive ovarian cancer. This is a way to find a large number of individuals with mutations. They and their families can be given medical and surgical strategies that make a difference to them. Of course, we continuously incorporate this kind of data and all the latest pertinent research in the field into our discussions with physicians and other healthcare providers. Such strategies increase the demand for predictive-medicine testing as more individuals become candidates for our services.

I'd like to talk about what we are doing for the sales and marketing of our predictive-medicine test. We've launched two initiatives that are currently underway, and are laying the foundation for a third. The first is our education initiative where we are educating healthcare professionals on how to identify and test patients for hereditary cancer. The second is our strategy for expanding our customer base by developing new customers in primary-care practices where we are working with OB-GYN doctors to identify patients in their practices that should be tested. The third initiative is currently estimated for launch during the next fiscal year, which revisits direct-to-consumer marketing in selected markets.

During our DTC test market campaign several years ag,o we identified a need for more genetic counseling within the medical system to identify and counsel patients for predictive testing. We launched an initiative to educate healthcare professionals, both advanced practice nurses in oncology and gastroenterology and physicians with a goal of increasing new patients' access to good genetic counseling services. To date, through programs sponsored by Myriad and through professional nursing organizations like ONS, OES, SGNO, SGNA and others, more than 1,900 advanced practice nurses have been educated. This initiative is working well, and I am pleased to report increased numbers of customers is occurring, defined as a doctor ordering two or more tests in the quarter in 2004 and 2005 with respective increases of 55% and 101% respectively. We are continuing those activities currently, adding new customers daily to grow our business.

We are also expanding our presence in women's primary care -- care practices, primarily OB-GYN physicians. As we are effectively addressing the oncology market through our oncology sales force, we see the OB-GYN market as an excellent opportunity for expanded growth. For women previously diagnosed with cancer, who receive ongoing care from their primary care doctors, and for women belonging to high-risk families who have not yet been tested, this represents a sizeable market opportunity. Predictive medicine makes a difference for individuals and families at high risk for cancer. We look forward to opportunities to grow this business and to helping more individuals as this business grows. I would like now to pass the microphone to Adrian Hobden. Adrian?

Thank you, Greg and good morning. This morning I will provide an update on the progress of our clinical trials with MPC-6827, our drug in Phase I trials for the treatment of advanced cancers, and especially those with metastatic spread to the brain. In addition, I want to talk about some of the data that is being generated in the follow-on phase of Phase II Alzheimer's trial, and an amendment to the Phase III protocol.

We are studying MPC-6827 for its ability to treat patients with solid tumors and especially people with metastases in the brain. MPC-6827 had strong anticancer activity against a variety of tumor lines in-vitro and in mouse xenograph models. Of equal importance, MPC-6827 is not a substrate for multiple drug resistance pumps, meaning that tumors that become resistant to the current generation of cancer drugs should remain sensitive to MPC-6827. However, the finding that distinguishes MPC-6827 from all current cancer drugs is its remarkable ability to enter the brain.

The concentration of MPC-6827 in the brain of mice was an extraordinary 1400% of plasma levels, compared with 30% for the best drug currently available. We are very excited about the potential of MPC-6827 to be the first to be a first-in-class drug for the treatment of cancers that have spread to the brain, together with its potential for primary brain tumors, such as glioblastomas and astrocytomas. There are currently no FDA-approved drugs for the treatment of brain metastases, a condition that affects 170,000 Americans per year. In addition, it is expected that there will be about 20,000 new cases of malignant brain cancers diagnosed this year, of which, 50% will be glioblastomas. Fewer than 10% of glioblastoma patients survive two years from diagnosis. Faced with these statistics, it is not surprising that MPC-6827 is viewed with such enthusiasm by the investigators at our study sites.

The objectives of the current Phase I trials are to assess the safety of MPC-6827, and identify a maximum tolerated dose. We currently have two Phase I trials underway, a traditional Phase I cancer trial in patients with advanced tumors of any type, and a second trial in patients whose primary tumor has metastasized to the brain. In the first trial, patients receive a single dose of drug repeatedly, until their disease progresses. If the drug is well tolerated in the first cohort at a low dose, the dose is escalated for the next cohort of patients, and this is repeated until a maximum tolerated dose or MTD is achieved. Thus far, we have completed six cohorts of dose escalation and have begun the seventh cohort. Remarkably, we have yet to reach the MTD despite achieving exposures of drug in line with those used in animal models.

The second trial in patients with confirmed brain tumors involves dose escalation within a single patient. We started this trial at a higher dose based on safety [time] findings from the first study. And, again, MPC-6827 has proven to be well tolerated to date. As you will appreciate, both trials are open label, and we cannot yet draw any conclusions about potential beneficial clinical effects of MPC-6827. We are currently working on the design of Phase II trials with the expectation that they will start in the second half of this calendar year. Our current design concept is that each Phase II trial will involve a single primary tumor type with brain involvement. For example, one trial may enroll patients who have breast cancer with brain metastases and another only lung cancer patients with brain metastases.

I now want to move on to discuss Flurizan. We continue to get exciting data from the follow-on phase of our Phase II trial in Alzheimer patients. As you are aware, Alzheimer patients in Canada were allowed to enroll in a follow-on study to our Phase II trial. Over 80% of eligible patients chose to enroll. In the follow-on phase, all patients are on drug. Patients who are on the highest dose through 12 months remained on that dose. Patients on the lower dose remained on that dose, and former placebo patients were randomized to high dose or low dose. Neither the patient nor the doctor knows the current or previous drug status of the patient. Essentially, the trial remains blinded and controlled because patients on low-dose Flurizan serve as a control for patients on high-dose Flurizan. I would also remind you that patients with mild Alzheimer's disease on high-dose Flurizan in the 12 months Phase II trial showed a statistically benefit by slopes analysis when compared to placebo in two of the primary end points. The behavioral scale activities of daily living or ADL and the global rating scale CDR [inaudible].

On November 15th of last year, Dr. Sandra Black, the principal investigator for the Phase II trials in Canada, presented the 18-month data from the follow-on trial at the Society for Neuroscience meeting in Washington, D.C. in the follow-on, there are 23 mild Alzheimer patients who have taken high-dose Flurizan for 18 months and 18 who have been taking low-dose Flurizan for 18 months. Only one patient has dropped out of the follow-on study in these groups. In addition, there are about 20 patients who were changed from placebo to drug at 12 months. Remarkably, patients on the highest dose for 18 months maintained their improvement in cognitive score from 12 months to 18 months. In contrast, patients on the lower dose had a continuing decline. However, the decline was slower than the extrapolated placebo decline. The difference between the two treated groups argues strongly against a placebo or the placebo effect or investigator or patient bias. The plot of this data is available on Myriad's website.

Furthermore, similar continuing benefits were seen on the ADL and CDR sum of boxes scales. Over 18 months for Flurizan appears to slow the cognitive decline by approximately 70% in these patients. And to remind you, all patients continued to take [spans of care] Alzheimer's medication. In other words, the cognitive declines seen in the placebo patients over 12 months in the Phase II trial was despite daily access to the best, currently available drugs. Myriad is encouraged by the data from the Phase II trial and the continuing supporting data from its follow-on study at [inaudible]. We recently shared this data with the EMEA, the European regulatory equivalent of the FDA. And they acknowledged that demonstration of such activity over 18 months in a Phase III trial may be considered evidence of disease modification. Furthermore, they likewise acknowledge that our Phase III trial -- our U.S. Phase III trial could be used to support a registration filing in the European Union.

Obviously, it is of enormous commercial value for Myriad to obtain a disease-modification label for Alzheimer's disease, since currently approved drugs are all for the symptomatic treatment of Alzheimer's disease. Since we intend to use our U.S. Phase III trial in support of a European filing of Flurizan, we have recently submitted a protocol amendment to the FDA for the current Phase III trial. In the amendment, we have proposed to allow patients to stay on drug for up to 18 months. However, we will do an interim analysis of all patients when the last patient enrolled completes 12 months in the study. All other aspects of the study remain the same, including the number of patients to be enrolled. In this way, we will be able to look at a large number of patients who will have completed 18 months of treatment in addition to all of the patients after 12 months of treatment.

We anticipate this amendment and interim analysis will give us more statistical power than the original design, allow us to collect 18-month data in support of our European filing, give us the potential for a disease-modification label in both the U.S. and Europe, and, very importantly, not affect our original timelines for NDA submission. Thank you for your attention. I will now turn the call back to Pete.

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

[OPERATOR INSTRUCTIONS] Your first question comes from Matthew Murray with Rodman.

Hi. Thank you for -- thanks for taking my -- my call. I just wanted to ask, actually, about the -- the trial that's ongoing in the brain cancer. There are some drugs that are used in that space, as you point out, nothing -- nothing clearly approved, labeled for that indication. I was wondering, though, if you could discuss some of the other drugs that are development and anything, that you might have learned from some of the troubles that we've seen in clinical trials in this area, and I'm specifically thinking of Pharmacyclics. In other words, what I'm looking for is what you might face when you get on the market, and if your development path has been influenced by some of the troubles that Pharmacyclics has had.

Adrian, do you want to take that question?

I don't think that we would say our trial design is influenced by any particular -- any particular other companies' experiences. We are looking very carefully at the experience of a number of companies over a number of areas and recognize that one of the complexities of current clinical trial -- not clinical trial design, but requirements -- requirement of FDA -- is to look at a number -- if we're looking at metastasis, to look at the effect on a number of metastasis, and obviously if our effect is primarily in the brain, which, though we don't actually think that will be, we think it will be spread throughout the body, then reducing the number of metastasis in the brain once you get an increase in the number in the periphery might be a problem to us, and that's something we need to discuss with the FDA. But we think that there's a very clear path initially to -- especially with the concentrations of drugs that we are now achieving in patients, to have an effect both on peripheral tumors and brain metastasis and then get by that -- that issue. But as I said, Matt, we are concentrating on a single tumor types in the Phase II trials. In other words, for example, brain -- primary breast cancers with secondary metastasis to the brain. I don't know if that answers your question.

Well, you know, if I could just follow up. I've spent a lot of time now on Pharmacyclics, and it does seem to be a pattern at least that that company is seeing. They start out with a first large well-controlled Phase III clinical trial with brain metastases which were secondary to primary tumors, and in their first large-Phase III trial they thought they got a better result in the subset of metastases that came from primary tumors in the lung. And then in the second very large well-controlled clinical trial with just taking a look at patients that had brain metastases as a result of lung cancer, then they saw a great result in the U.S. cohort but not so great a result in the European cohort. And I guess my question is, is this experience that investors are getting with the portion of their portfolios invested in Pharmacyclics being reflected now in Myriad's efforts to go into the same field? I mean have you looked at that, maybe talked with Richard Miller or -- you know, is that -- is that a pattern that you've looked at and at least tried to figure out whether or not that's some information that you can take into account as you progress in your clinical development.

Well the answer is we have not looked at that yet, that's something we certainly can do to -- something we want to learn from other people's experiences inasmuch as they're able to talk with us. But it's not something we're anticipating at the moment. We're not aware of any other company who has a compound with such CNS penetration as our own. Mostly they're in the -- the less than plasma concentration to the drug, not 15 or 14 to 15 times higher.

I'll get back into the queue for my second question.

Thank you, Matt.

Your next question comes from Charles Duncan with JMP Securities.

Yes. Good morning, gentlemen. Congratulations on a great quarter. I have a question for Myriad Genetics Labs and one for Myriad Pharmaceuticals. Start with the Myriad Pharmaceuticals one. Adrian, you spoke about a protocol amendment allowing patients to stay on up to 18 months and yet doing an interim analysis at 12 months. Could you update us now on the statistical kind of power you spoke to that and what kind of -- perhaps a penalty that you'll take for that interim analysis?

Yes, thank you, Charles. The one thing that we're doing in this analysis -- and we did in the Phase II as well, is do a slopes analysis, looking at that interphase, the divergence of slopes between the treated arm of the study and the placebo arm of the study and that's actually a very powerful analysis and is necessary to -- to demonstrate these modifications. That's what you would predict a disease-modifying drug would do, would be to diverge the rate of decline on the two arms of the study. At -- in the original design at 12 months the power of the study was -- you had a 30% -- we could detect a 30% divergence of slopes with a P value of .05 and a 40% divergence of slopes with a P value of .01. What we'll do in the 18-month study is allow, as I said, patients to go out to 18 months and then analyze it when the last patient gets to 12 months. And analyze all the data from all the patients. So a good number of patients will have 18-months' data, some patients will have 15 months' data and a few patients will have just 12 months' data. And that actually increases the power of the study hugely. Surprisingly large increase just going out from 12 months to 18 months. And so, in fact, our power to detect the change at 12 months now with all that data goes down into the low 20s or, putting it another way, if we saw a 40% effect, our P value would be much less than .01. And so we can do that interim analysis and really not give up much power in the event that we don't stop the trial at -- at 12 months. Now, to remind you, the only reason that we wouldn't stop the trial at 12 months when the last patient completes 12 months is if the study fails to show statistical significance at 12 months, which means that in the original design, if you would, that the study would have failed, but with this protocol amendment if that happens we can go out to 18 months and we -- and retain a huge amount of power even giving up a little bit of alpha for an interim analysis.

Isn't that design something that was actually proposed by Paul Lieber a couple years ago.

Well, Paul Lieber has mostly talked about randomized start and randomized withdrawal and this is really just a slope divergence over 18 months. The Phase II follow-on study is a randomized start design, and will certainly yield this sort of information I think you're alluding to in terms of potential for disease modification.

Okay. And then my follow-up on Myriad Genetics Labs, Greg, with regard to some of your marketing initiatives, you mentioned a number of -- or an increase in the number of docs that are offering repeat orders as well as some of your nurse practitioner efforts. Could you provide a little bit more color on the actual numbers involved and how many nurse practitioners you're really getting ahold of now?

Sure. As I mentioned over the last two years we've trained over 1,900 advanced practice nurses. These are nurses that have specialty certificates in oncology or gastroenterology. They are nurses that are accustomed to talking to patients, assessing their risks. And they're an ideal group to give the tools to -- to be able to identify appropriate candidates for testing. As I mentioned also, we've had increases -- increased numbers of doctors that have incorporated this testing into their practice. In addition to the new doctors doing it, we also have programs to convert doctors into platinum customers, meaning that we're looking at increasing the number of tests that they do each quarter from being a new customer with only -- with two tests per quarter to over 10 tests per quarter. So the initiatives are really focused on making sure the schools are present in the practice, that the doctors and nurses are identifying patients, and that they're extending these benefits to all their patients who are candidates.

Thank you. I will step back in the queue.

Your next question comes from Shiv Kapoor, Montgomery & Company.

Hi. Thanks for taking my question. I've got one on Flurizan and one on MPC-6827. Let me start with Flurizan. Can you give us an update on the enrollment progress on the Alzheimer's Phase III trial? When do you expect to complete enrollment on that?

Thank you, Shiv. Yes, enrollment is proceeding well. It's on schedule. And we've indicated that we think we will be fully enrolled by the end of Jan of this year.

Great. On MPC-6827, encouraging to hear that you're going to be starting the Phase II studies in the second half of the year. When you look at both time-to-progression and overall survival on these Phase II studies and because this is a high unmet need, could some of these Phase II studies be used as registration studies?

Absolutely. The company right now is in the process of designing the Phase II studies. As Adrian indicated because of some of the complexities with brain metastasis we are going to confine the study to brain mets from a single primary tumor. We are looking at both tumor response and survivalist potential end points and as you are aware, we can apply for accelerated review, given the fact that there are no drugs for the treatment of metastatic brain tumors, and it certainly is a life-threatening disease. In fact, these patients have a life expectancy of about three to six months. And as has been done on a number of occasions in the past, it is possible for the FDA to approve the drug, given the life-threatening nature of the indication off of a single well--powered Phase II study.

Thanks.

Thank you.

Your next question comes from David Webber, First Albany.

Oh. Thanks. Congratulations on a nice quarter. My question is, Adrian, could you update us on the ongoing prostate cancer trial with Flurizan and when we should expect data and what that might look like?

Yes. Thank you, David. The -- well, the trial is sort of continuing in the background. Obviously, it's been fully enrolled for some time and patients are on their -- have been on drugs for actually in some cases almost four years now. And the study is scheduled to finish around the end of the fiscal year, the middle of the calendar year. Now, in terms -- the complexity from an analysis point of view of that study is that all patients finish at the same time so it's not a rolling completion. And that means that we won't be able to analyze data from the study until every patient finishes the study and that means a large amount of data. So we don't -- it's -- anticipate having the results of this -- of the prostate study until somewhere around the middle to later end of the calendar year, sometime in that timeline is when we will report our data from the prostate cancer trial.

Okay. Thanks. And then if I could just ask one question of Greg. Greg, you mentioned considering -- doing a direct-to-consumer program again. If you were to do it this time around, would you be thinking about a national program or would it be more localized as previously?

What we're going to do is -- is look at selected regions where it makes sense for us to roll it out. Some of these may be very large regions and as we -- as we look at our data, we assess the readiness of the market, we make sure that there's adequate infrastructure present. There are a lot of factors that will go into the selection of these groups. And the plan would be to -- to -- in selected markets to move forward based on what we know of the benefits and the challenges to be in the DDC campaign.

Thank you.

Your next question comes from William Ho, Piper Jaffray.

Hi there. I have a quick question in regards to MPC-6827. What kind of adverse events have you seen thus far and is there any correlation with increased blood brain barrier permeability and increased toxicity?

Adrian?

You know, actually, we -- we really haven't seen any pattern of adverse events across the patients. Obviously as each group of three patients gets a higher dose, and so you might expect to see it within a single cohort. But the fact is that we are not yet seeing any of the GI toxicities on neutrophilia -- neutropenia, excuse me, that you might expect to see with cancer chemotherapy agents. And so from that -- in that context we really haven't seen any or at least no pattern that we can discern. Obviously these are very sick patients and so they have lots of problems associated with their underlying disease. In terms of CNS, we look at a couple of cognitive measures to assess toxicity, cognitive brain toxicity. One is a sort of peg-board test which is a measure of coordination, and the other one is a verbal learning and recall test. And thus far we have seen no affect of the drug on either of those two measures, so we're not seeing any toxicity, any adverse event that could be attributable to a CNS affect.

Okay. And just to clarify one thing in regards to Flurizan in the Alzheimer's disease. At the end of 12 months, do the patients have the option to continue to 18 months, or do they just automatically continue?

Well, they automatically continue. Obviously, patients can drop out of the study at any time but the protocol would call for them to continue automatically for a further six months.

Okay. Thank you.

Your next question comes from Matthew Murray with Rodman.

Great. Thanks for taking a second question. There was an article that was out recently in Cancer. We put out a note on it. And it cited that the incidence of mutations in BRCA1 and BRCA 2 was higher, about 15% than previously reported studies, which I believe are about 10%. Can you just give us some -- some history on what you think the current consensus is about how prevalent these genes are in ovarian -- in ovarian cancer?

You bet. When the first studies were done, they were done in -- they were not population studies. That is, no one was looking at -- across all patients with ovarian cancer to establish what the prevalence of the mutations were. The most recent paper by -- by Paul and colleagues at the Moffett Cancer Center showed that 15.3% of individuals with invasive ovarian cancer, they were taking all comers. These are all people in the geographic catchment area who were referred into the hospital and they -- they comprehensively did -- did testing on all of them to see if there were -- if there were mutations. They came up with a much higher number than people had had. If you look at their paper, the earlier estimates ranged anywhere from 7% to 12%. And this was much, much higher than what has been seen. The reason is that they -- that this is a very, very comprehensive study that looked at well over 200 patients and ascertained the -- the degree of mutations in those -- in those individuals. So this is the kind of study that really changes the way we think about ordering tests. Instead of -- of having complicated criteria where you look at family history, personal history, and all kinds of things to decide who you should test and who you shouldn't, the recommendation is if somebody has invasive ovarian cancer, they should all be tested. And this -- this prevalence of mutation is high enough that that makes it worthwhile to do.

And just as a follow-up, just going back many years now back I remember at your IPO, the criticism that you all would receive is, okay, maybe there is a correlation between the mutation and getting the disease but so what. In other words, if you get a positive result, what can you do about it? Can you just review the actionable items that a physician can do if -- you know, if the test comes back before the cancer presents, which says yes, you have the mutation of the gene. If -- if you're in negotiations with a third-party payer, and they asked the difficult question of how does the system benefit from this knowledge? How does it guide the physician? Can you just review what physicians can do based upon that knowledge?

You bet. There are three major activities that can be done. Knowing that an individual is at very high risk of developing cancer -- and, remember, we're not talking about developing one cancer. Some of these patients can develop two, three, and even four cancers, and these are de novo cancers each time. Knowing that information, the physician can engage in several activities. Number one, there are surveillance options. You would want to monitor them more closely, so that if they develop cancer, you would detect it at a much earlier stage. Number two, there are medications that can be given to these individuals that will dramatically lower their risks of getting cancer. And that's true both in the case of ovarian cancer and in the case of breast cancer. Medications have been shown to reduce the risk by about 50%. There are surgical options that are available for some patients that make a huge difference. For example, removing the ovaries in an individual who has decided that she does not want to have any more children will virtually eliminate the occurrence of ovarian cancer in that individual. Some of them will actually have occult cancers that will be detected at time of surgery. That is life-saving for these individuals. And so, these are the kinds of options that are available to people, and patients and doctors are choosing these options every day. This is why insurers covered the test, because they know the test makes a difference.

Thank you.

Your next question comes from Charles Duncan from JMP Securities.

Okay. Hi. Just a couple of follow-up questions for, probably, Jay. First of all, was there any impact of pricing increases on top-line?

None.

Okay. And so growth is totally driven by unit volume?

Absolutely.

And --

Charles. As you're aware, Myriad is looking at a potential price increase within the next several months, that we haven't initiated that. So this was entirely driven by sample flow.

And what was the average weekly volume last quarter? You mentioned it's over a thousand in the first early days of this year.

It was right around 900.

Okay. With regard to DSOs, you said that they've dropped pretty nicely, 89 days to 73. Where do you think those can end up or are you comfortable with 73 days number.

I think we have an opportunity to bring it down into the probably 70 to 80 range. The problem is that the process that we have to go through to get reimbursement sometimes just physically takes that long because there's multiple insurances involved, and that's just kind of the way it is. . You know, we would like to do it more quickly. We've implemented a number of technologies that help improve it such as electronic billing, which gets the payments back to us a little quicker, but because of the process that we have to go through, we're pretty much limited to right around 70 days.

And then final question is on R&D expenditures, you mentioned they will go up yet this year with a couple of new compounds in the clinic. You've historically been pretty conservative. What do you think that number can get to by the end of calendar year '06?

That's really hard to -- hard to measure, Charles. I -- maybe Pete has a little more visibility on that.

Charles, as you're aware, we don't provide guidance as a company. Although as we obviously move more drugs into the clinic, we are going to see the R&D expense to go up. But as you noted, Myriad maintains a very conservative philosophy and benefits, of course, from the predictive-medicine cash flow which now we're generating well over $2 million of positive cash flow each month from the predictive-medicine business. So you're not going to see a dramatic rise but as Jay mentioned you will see the R&D expense, as it has done historically, grow slightly from quarter to quarter.

Do you anticipate taking off another Phase III for Flurizan in Alzheimer's in Europe by the end of the year?

Yes, Charles, we do. As Adrian mentioned, at the end of January we had our meeting with the EMEA to discuss the trial design for a Phase III study in Europe that would be used to approve Flurizan in Europe. And we do anticipate launching that second Phase III study before the end of this fiscal year June 30th.

Okay. Thanks for taking my follow-up.

Thank you, Charles.

Your next question comes from William Ho, Piper Jaffray.

Just one quick question in regards to gross margins. Jay, do you see any potential small impact caused [inaudible].

I didn't catch the last part, William? Hello?

Sir, if you would press star one again. Your line is open.

Sorry, Jay. Just in regards to gross margins, with the process improvements in the predictive-medicine business, do you see any potential impacts in the gross margins by the expansion?

Yeah, I think ultimately you'll see an impact in the gross margin based on improvements in the process. I know Greg and his team are working feverishly to improve the technologies, and we have more -- we've improved -- we have implemented some of those, and we will continue to implement those over the next few months. And so I think that will have a positive impact on the margins. Also, as Pete mentioned, we will have a price increase at some point in the future and that obviously will have a positive impact on margins as well. I think the other thing we should look at, too, is the continued improvement in our operating margins, which have come up nicely. So that actually may be a more relevant measure I think going forward.

Thank you.

At this time, there are no further questions.

I'd like to thank everyone for participating and attending the Myriad conference call for our second fiscal quarter ending December 31st, 2005. And this now concludes the conference call. Thank you again.

Thank you. For joining today's conference call. You may now disconnect .