Myriad Genetics Inc (MYGN) 2006 Q4 法說會逐字稿

Good morning. My name is Tamika, and I will be your conference operator today. At this time I would like to welcome everyone to the Myriad Genetics fiscal 2006 financial results conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS] Thank you.

Mr. Meldrum, you may begin your conference.

Thank you. Good morning and welcome to the Myriad Genetics earnings conference call for our fiscal 2006 year ended June 30, 2006.

My name is Peter Meldrum and I'm the President and Chief Executive Officer. I'm 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 this discussion this morning with a brief review of the pat year and will be followed by Mr. Moyes who will discuss our financial results. Dr. Critchfield will review the Company's predictive medicine business and Dr. Hobden will discuss our drug development activities, including the 24-month Phase II follow-on study of Flurizan. At the end of presentation I will turn the conference call over to the operator for the question-and-answer 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 the actual events or results may differ materially and adversely from those expectations for a variety of reasons.

We refer you to the documents the Company files from time to time with the Securities & Exchange Commission, specifically the Company's Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K including the 8-K report filed on October 28, 2005. 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.

By any measure our 2006 fiscal year was exceptional. During the year we made substantial progress in both of our key business areas, molecular diagnostics and therapeutic product development.

In addition to the visible success of revenue growth and clinical trial progress, the Company has also made great strides in advancing its product pipeline in both of these areas.

For the year ended June 30, 2006 our predictive medicine revenues topped $100 million. This major milestone was achieved through the dedicated efforts of our talented salesforce that grew our revenues by 41% over the prior fiscal year.

While the product revenue growth was stellar, our net operating profits were even more impressive. Net operating profits were $35 million for the 2006 fiscal year resulting in a 35% net operating profit margin. Much of this was fueled by our outstanding production team that achieved gross profit margins of approximately 73% for the year while maintaining Myriad's uncompromising commitment to quality.

Demand for our products has continued to grow over the summer, and we are looking forward to another good year in fiscal 2007. The cash generated from the profits of our four commercial products was used to fund a significant portion of our drug development programs. We believe that this use of cash is appropriate and will generate an attractive return for our shareholders.

The Company ended the year with $228 million in cash and marketable securities. At our current burn Myriad has over four years of cash remaining so we do not anticipate the need to raise additional funds in the foreseeable future.

This year we saw the completion of our two-year Phase II follow-on study of Flurizan for the treatment of Alzheimer's disease. The data which were presented at the 2006 International Conference on Alzheimer's Disease demonstrate that Flurizan not only significantly lowers the progression of this debilitating disease, but it also substantially reduces the onset of psychiatric events such as agitation, aggression, confusion and depression.

This is very important because frequently it is these types of personality changes that force a caregiver to move an Alzheimer's patient into a nursing home. If approved, Flurizan could make an important contribution to not only extending the productive life of Alzheimer's patients but also in reducing the $100 billion a year spent in the United States on the treatment and care of these patients.

We have initiated two Phase III clinical trials of Flurizan for the treatment of Alzheimer's disease, the first of which is expected to report out data in the fall of next year.

During the past year we also advanced our thrombin inhibitor into the clinic. With this new Phase I study Myriad now has seven human clinical studies underway. In fiscal 2007 we anticipate moving Azixa into Phase II studies for metastatic brain tumors.

Two Phase I studies are nearing completion and since they were in cancer patients we have generated some interesting data to guide our Phase II studies. It should be noted that each of our primary drug candidates represents novel, first in class therapies for major common diseases with market potentials exceeding $1 billion per year.

This year we were successful in expanding our drug discovery capabilities beyond our own in-house research efforts. Under our strategic alliance with Abbott Laboratories, Abbott, at its cost, will develop drug target assays and screen them against proprietary small molecule libraries.

Abbott will perform the medicinal chemistry and lead optimization on these promising hits, and most importantly, Myriad will receive 40% of all of the drug candidates developed by Abbott including 80% of all of the antiviral lead compounds, 60% of all the cancer lead compounds, and 50% of all the neurodegenerative lead compounds.

Myriad will receive an irrevocable, exclusive worldwide license to these drug candidates and is free to further develop them independently or partner them without any Abbott involvement. Abbott has already developed assays against about a dozen drug targets identified by Myriad for screening against their proprietary compound library.

It is important to reiterate that these new drug candidates are in addition to our own in-house discovery efforts. I believe that the success of this past fiscal year will add support to our strategy becoming a leading life science company by leveraging our profitable predictive medicine business while pursuing an exciting therapeutic opportunity of first-in-class drugs.

Now it is 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 fourth fiscal quarter and year ended June 30, 2006.

As Pete mentioned, we are very pleased to report that predictive medicine revenues have hit a new milestone this year. For the first time, our predictive medicine revenues have topped the $100 million mark.

We finished the year with $100.6 million in predictive medicine revenue which represents a 41% increase over the prior year and exceeded the financial analyst consensus predictive medicine revenue forecast. The predictive medicine revenues for the fourth fiscal quarter of $28.8 million were $2 million ahead of the previous quarter ended March 31, 2006 continuing our strong quarter-to-quarter growth.

Total revenues for the quarter ended, or for the year ended June 30, 2006 which also include both predictive medicine and research revenues, were $114.3 million and also exceeded the Thomson First Call consensus revenue estimate. Our gross profit margin on predictive medicine sales for the fiscal year was 73%.

As required under FASB Statement 123R, our fiscal year 2006 cost of sales includes non-cash compensation expense from stock options. Of course, these expenses were not recorded in the prior year's cost of sales, however, even with the detrimental impact of the 123R expense, our fiscal 2006 gross profit margins still increased 1% over the gross profit margin for the fiscal year ended June 30, 2005.

As I have noted in the past, Myriad has made investments in new technologies that will improve the performance of our predictive medicine business next year. These investments, along with the April price increase across our product line, should improve our gross profit margins in a meaningful way for the fiscal year ended June 30, 2007.

Accounts receivable balances as measured by the number of day sales outstanding was 66 days for the quarter ended June 30, 2006 compared to 75 days for the same quarter in the prior year and 69 days for the previous quarter ended March 31, 2006.

This substantial improvement was a direct result of the dedication and expertise of our internal billing and collections team. We are pleased that the quality of our accounts receivable continues to be excellent.

Research and development expenses for the year ended June 30, 2006 were $83.8 million, an increase of 41% over the prior year. Research and development expenses for the quarter ended June 30, 2006 were $24.3 million.

This represents a 52% increase over the same quarter in the prior year and an increase of 11% over the prior quarter. This increase is primarily comprised of the costs associated with seven clinical studies underway at Myriad.

Much of these costs are associated with our two Alzheimer's disease clinical trials including our 1600 patient U.S. Alzheimer's disease study, which is the largest Alzheimer's clinical trial ever undertaken.

We have also made significant expenditures in the late stage preclinical development of our other drug candidates. Since with expect to move additional drug candidates into the clinic and advance our current clinical drug programs, we believe our research and development expenses will continue to grow over the next several quarters.

Selling, general and administrative expenses for the year ended June 30, 2006 were $48.5 million compared to $43.6 million for the prior year. The modest increase over the fiscal 2005 was attributable to expenses incurred to support the 41% growth in our predictive medicine revenues and our therapeutic development efforts.

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 fiscal year ended June 30, 2006 was $38.2 million, or $1.05 per share. This compares with $40 million, or $1.30 per share in the prior year. We are pleased that this result achieved the First Call consensus loss per share for the year of $1.05.

The reduction in our net loss over the prior year is a direct result of the significant earnings contribution made by our predictive medicine business which was $37.1 million before taxes, depreciation, and amortization. As a point of reference this was a $19.3 million increase over the prior year ended June 30, 2005.

The operating margin of our predictive medicine business was 35% for the year ended June 30, 2006 which represents a significant improvement over the 22% operating margin generated in the prior year. Additionally, the operating margin for our fourth fiscal quarter ended June 30, 2006 was 40% as compared to 25% for the same quarter of the prior fiscal year.

Cash, cash equivalents and marketable investment securities were a healthy $227.7 million at June 30, 2006. This compares to $113.8 million at June 30, 2005 and $229.3 million at March 31, 2006.

We again point out that Myriad has no debt and no convertible securities, and that the total number of shares outstanding at June 30, 2006 was a modest 39.7 million shares.

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

Thank you, Jay. It is a great pleasure to speak to you today about our predictive medicine business.

As Pete and Jay have discussed, year-end revenue for our predictive medicine business was $100.6 million, a 41% increase over last year's record revenue. The growth of our business has been accompanied by a steady improvement in profitability with the operating profit margin reaching 40% during the last quarter and the yearly operating profit margin of 35%.

We are contributing a significant amount of cash to help fund clinical trials and other programs within Myriad. We continue to see excellent incoming sample flow, the major contributor to the top line growth of our business.

Our operations group, both in our laboratory and in customer services, have implement and are adopting further improvements in the way we process and analyze the increased numbers of samples. In the past we have implemented a number of software and robotic changes that have increased our efficiency in analyzing samples.

We are also making further improvements in automation with the addition of higher density capillary instrumentation and higher density robotics, anticipating that these improvements will be phased in over the current fiscal year. We anticipate that these investments should continue to improve quality and throughput in our laboratory operations.

Our customer services group is also benefiting from our new software system that tracks all interactions with our customers, encompassing information about testing, the verification of insurance eligibility, requests for additional testing and the release of tests into the laboratory for analysis.

We are seeing price increases that we announced in April impact our margins, and we anticipate seeing continued improvement take effect on the contract anniversary dates with our major insurers. We believe that the margins of our business will improve as we make progress on all of these fronts.

The increase in our testing volume has been driven by sales and marketing efforts to convince new customers of the clinical value of predictive medicine testing and to broaden utilization among current customers. We continue to see benefits of implementing this new customer development strategy.

We are driving growth by increasing the number of high test ordering physicians. These new physicians contribute solid growth across all our products. We believe that generally greater acceptance of genetic testing is responsible for the growth in COLARIS and MELARIS as well as BRACAnalysis products.

In our predictive medicine market there are three groups of individuals who would benefit from our tests. The first group of individuals is the newly diagnosed patient with cancer. Myriad's primary focus over the last several years has been on working with our oncologists, cancer surgeons and cancer geneticists to identify and test those individuals.

The second group of patients who are diagnosed with cancer many years ago before our tests were available and who have seen their cancer recur and return to the care of their oncologist. The growth of this patient market segment has been substantial and, again, is the result of addressing the oncology market segment.

The third group of individuals who should be tested are patients who have not yet been diagnosed with cancer yet who belong to high-risk families. Preventing cancer in those individuals who are at highest risks for cancer is an important goal with enormous public health implications.

We are aggressively expanding our marketing programs to make testing available to this latter group. The number of candidates for testing in this category is the largest of our three markets and therefore represents further opportunity for growth in our predictive medicine business.

There are three initiatives that we are undertaking this year to address this large market opportunity. First, we are expanding our OB-GYN salesforce by 40 positions over the current fiscal year. We've already begun to assemble the talented group of sales professionals who will address this market.

Second, we are focusing on large women's healthcare practices who are early adapters in educating them on how to identify and test women at risk for hereditary cancer. Our experience indicates that these kinds of practices are prime for adopting a predictive medicine testing.

Finally, the third element of our strategy is to use direct to consumer advertising to create demand for testing services in these physician practices. A DTC campaign is anticipated to launch during the fall of 2007 to generate consumer demand for testing services among these physicians.

All of our sales and marketing efforts are expected to increase the number of physician practices who routinely identify candidates for testing and the number of patients seeking testing services in those practices giving patients greater access to these vital services. The value of clinical testing continues to grow as mutation status is becoming increasingly important in clinical management decisions.

A recent study conducted over four-year period at the Erasmus Medical Center in the Netherlands found that MRI, Magnetic Resonance Imaging, showed the greatest improvement in cancer detection among women with BRCA mutations. From this analysis the authors concluded, "MRI should be a standard screening method for breast cancer in BRCA1 and BRCA 2 mutation carriers."

Beyond the important question of surveillance, treatment of individuals is informed by knowing BRCA status. Current medications used to treat breast cancer include spindle poisons and DNA damaging agents.

Laboratory data indicate that DNA damaging agents may be a more effective therapy than spindle poisons in BRCA deficient tumors. New clinical studies are underway to further support the use of BRCA status in selecting current and new medications for patients. The personalized medicine impact of knowing the BRCA status will continue to grow as the results of these studies are published.

As we have now surpassed our first $100 million annual revenue milestone, our predictive medicine business is succeeding because testing information is pivotal in managing the high-risk individuals have for cancer. We are expanding our efforts to prevented cancer in those that do not yet have it and to provide information that helps those diagnosed with cancer to achieve better outcomes.

Armed with the information we provide, all of these individuals can do something about their risks. Preventive measures may help them to avoid cancer in the future. More rational selection of drugs to treat cancer in mutation carriers has the potential of higher cure rates.

Volumes of literature enhance the clinical utility of our predictive medicine products as new, published studies support our predictive medicine paradigm. More data will emerge as these discoveries are explored in clinical studies.

Predictive medicine makes a difference for individuals and families at high-risk for cancer. We are pleased to help more individuals as this business continues to grow.

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

Thank you, Greg, and good morning.

It's my great pleasure this morning to announce that Myriad has completed enrollment for its U.S. Phase III trial of Flurizan in Alzheimer's disease. As you may remember, Flurizan represents a new class of amyloid lowering agents, and this trial of approximately 1600 patients is the largest clinical study of an experimental medicine ever conducted for this devastating disease.

The U.S. Phase III trial is extremely well powered to see a slowing in the rate of decline of the two primary outcome measures, cognitive function and activities of daily living in Flurizan treated patients versus patients who are only taking standard of care medicine. Assuming a very conservative dropout rate of 40% over 18 months, the twelve-month interim look is powered to see about a 30% slowing in the rate of decline across both primary endpoints with a P value of less than .01.

In our Phase II study the slowing of the rate of decline was much larger than this and our dropout rate over twelve months was only 20%. Currently our dropout rate in the Phase III is very low and tracking the Phase II rate.

We have deliberately powered this study to allow us to seek approval on the basis of a single Phase III study with the Phase II study as supporting evidence and to provide statistical power for a number of [SOB] analyses.

Recently at the International Conference on Alzheimer's Disease in Madrid, Myriad reported the 24-month data from its double-blinded Phase II study of Flurizan for the treatment of Alzheimer's disease. The results were extremely encouraging with statistical significance being achieved on two of the three outcome measures when compared to placebo.

Furthermore, there was a statistically significant larger benefit of treatment with the higher dose than the lower dose on the rate of cognitive decline with a P value of .02. The higher dose, is of course, the dose under study in the Phase III trials.

The data also suggests that the benefit increases with time on drug. That is, patients taking the higher dose of drug for longer than twelve months appear to have little or no further decline in their cognitive performance. This type of effect would be expected for a compound such as Flurizan, which, in animal studies, appeared to affect the underlying pathology of the disease.

It was also very encouraging that the second twelve months of the Phase II did not result in any safety issues beyond those already identified in the first twelve months. The drug appears, therefore, to be very well tolerated in this elderly population.

Over the course of the last year we have been able to analyze the data from the trial extensively. We noticed that patients on drug had far fewer physician reported adverse psychiatric events and less incontinence than the patients receiving placebo.

Not only was this different statistically significant for a number of psychiatric events, but when we determined the time to the first such event in patients, we discovered that there was a highly significant delay in the onset of such events with a P value of .011. Patients on Flurizan experienced the delay of over 200 days in the occurrence of the first psychiatric adverse event.

This observation is consistent with an effect on the progression of Alzheimer's disease and may prove, if confirmed in the Phase III trials, to be very clinically significant. The two biggest reasons for Alzheimer's patients having to go into nursing homes are psychiatric problems such as aggression towards their caregiver and incontinence.

We presented this unique data in a poster at the International Congress on Alzheimer's Disease in Madrid. It generated a large amount of interest in physicians who find it easier to relate to the effects of this type rather than the standard outcome measures used for FDA approval in Alzheimer's clinical trials. We look forward to confirming the results in the Phase II study in our two ongoing Phase III trials.

The second Phase III study is currently enrolling patients in several western European countries and Canada and already a significant number of patients have been enrolled. We expect to complete enrollment in that trial in the second quarter of next year.

I'm please to do announce Myriad has tentatively identified a maximum tolerated dose for Azixa, our anti-cancer experimental drug with high brain penetration. We are currently enrolling a few more patients in order to confirm this dose and expect to move to Phase II studies late this fall.

Interestingly, despite the high CNS penetration that we saw in animals, we have not seen any obvious CNS toxicity of Azixa in patients. Anecdotally however, we have seen suggestions of activity with Azixa in Phase I patients with measurable reductions in the size of their brain metastasis.

We have seen this shrinkage of tumor size in brain metastasis from both non-small cell lung cancer and melanoma primary tumors. These are very encouraging results, and we will certainly consider the practicality of exploring those tumor types in Phase II studies.

At the same time, we intend to explore the utility of Azixa for the treatment of primary brain tumors. As you may know, brain tumors were the primary or secondary of very poorly treated by existing medicines and result in both a short life expectancy and a very poor quality of life.

Finally, we are continuing our Phase I studies with both our experimental drugs MPC-2130 for the treatment of blood cancers and our oral anti-thrombin compound MPC-0920. Those studies are progressing very well but we have yet to reach a maximum tolerated dose.

Thank you for your attention. I will now hand back to Pete.

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

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Geoff Meacham.

Hi, guys. Congratulations on a good quarter.

Financial question for you. First, can you talk about the margins, the gross margins, excluding FAS 123 for the fiscal year? And then also, the volume increase in the quarter on a sequential basis?

Let me start off, and I'll let Jay answer that in more detail.

As Jay pointed out, we saw our gross profit margins improve even with the FAS 123 expense this year compared to last year and those margins are now 73%. Given what Greg mentioned in terms of additional improvements, we anticipate seeing those gross profit margins grow next year into the mid-70s.

We're also seeing substantial improvement in our sample flow over the summer. As you'll remember, the summer is traditionally a weaker period for our sample flow given that many of the folks go on vacation, and this year we've actually seen a very strong sample flow continuing the growth in line with what we were seeing the last several quarters.

Yes, so maybe a little more detail on the gross margin. Like I mentioned in my comments, we expect to have a much more meaningful impact on gross margins over the next year as a result of the investments that we made, and so I think that we still have some room to grow in the gross margin area, and I think you'll see that start to occur next quarter and the quarters thereafter.

Okay. And then the volume increase on the quarter, are you guys going to break that out?

We haven't actually broken it out. But I mean we can safely say that it is probably in the 12 to 1300-sample range so far that we've seen this quarter. Again, as Pete mentioned earlier, we're, even though this is a slow time, we're seeing some good strong sample growth and we're very encouraged by the results we've seen so far.

Just a final question on the pipeline for Azixa. When could we see the full Phase I results vis-a-vis like a meeting or maybe just a press release? And then what were some of the DLTs seeing in the study so far?

We like to present our data in clinical conferences rather than in press releases, so we will be looking for a conference probably something like ASCO to represent the Phase I data from the trial. We haven't really thought about that too much yet, Geoff, to be honest with you, but I think that's what we plan to do over the next year.

In terms of the dose limiting talks, its peripheral toxicity which, as I said before, is good news in the sense that we believe that the CNS concentration of the drug is 14 to 15 times higher than the peripheral plasma concentration. We haven't yet established that in humans because it's not easy to do brain samples in humans for obvious reasons. However, the PK data would be consistent with the reservoir which we believe to be the brain.

In terms of the type of toxicities we're talking about, they tended to have been effects on vascular chirp which I think is consistent with this class of drug.

Geoff, if I can add, we will report our top line results of the Phase I data this fall, but as Adrian pointed out, we do like to present at scientific conferences and so the full data analysis will be presented later in the year.

Great. Thanks a lot.

Your next question comes from the line of Edward Tenthoff.

Thank you and congratulations on the good year. Two quick questions if I may.

Firstly, with the strong growth that we've seen in the predictive medicine business, you touch on a little of this in the comments. What gives you strength that we, or what gives you confidence that we should see continued growth going forward, and do you think it would be at this same level or do you think it may pull back just a little bit?

And then the second question for Adrian with respect to Flurizan, what should we be expecting in terms of events or data releases from that over the next twelve to eighteen months?

Thank you, Ted.

As you're aware the Company has four commercial products and those products represent a total market opportunity of over $700 million per year. Having seen our revenues go over $100 million, we're about 15% penetrant so we're still in the steep part of the curve of the product lifecycle, and still have an awful lot of market to penetrate yet before we start seeing those revenues slow down or plateau.

Also, I might point out that Myriad is undertaking several very important initiatives to accelerate growth in its predicted medicine products that Greg mentioned. That includes adding additional 40 sales reps to our salesforce this year and the direct to consumer marketing campaign that we're anticipating for next year.

To answer your other question, Ted, about Flurizan, the two obvious things in the next eighteen months to say is that we will certainly expect to complete enrollment in the second Phase III study, and as I said, we're estimating at the moment the second quarter of the calendar 2007. We also will expect the interim analysis to occur sometime in the fall of next year as well, so those are two things within the eighteen months.

The other thing, and as we look at the data in more detail, and we continually look at the data, we're always looking for other interesting aspects of the study.

One of the areas that we're looking at right now is the responder analysis within the study which is something which certainly the European regulatory authorities like. We anticipate we may have data on responder analysis later on this year at a scientific conference, but we don't have the data yet to be certain about that.

Thank you.

Your next question comes from the line of Charles Duncan.

Good morning, gentlemen, and congratulations on a strong year.

Had a quick question with regard to predictive medicine. Could you give us some additional color on the impact of the April instituted price increase, give us some sense as to what percentage of contracts that started to positively impact, what percentage is yet to come?

Charles, this is Greg.

With regard to contracts, all of our insurance contracts had different anniversary dates, and so what happens is that as these anniversary dates are met, then we under the contract have the ability to institute the price increase for that particular payor. And the best way to state it is it will takes place over the entire year, and they're basically distributed uniformly over the year.

Charles, I might add that the strong growth we saw in the fourth quarter was really driven by sample volume, not price increase. And as Greg has pointed out, the majority of the contracts have not yet seen their anniversary or experienced the price increase, so that all represents upside next year.

Thanks, Pete. That clarifies.

The second question on PM that I had is with regard to your direct to consumer campaign that you expect to launch, can you provide additional color as to certain regions or how broadly a focus that will be?

Yeah. What we're looking at is direct to consumer campaign that will be focused largely in the northeast United States.

As you remember, we began putting a salesforce in place over a year ago in that area. We've documented the performance of that group, and we look at that as an excellent area for us to launch our direct to consumer activities, so our sales people will be in that area.

We've also targeted other areas in large metro areas in the U.S. that will ultimately have sales reps present. When we flush out the entire growth of the sales organization, there will be about 40 cities, 40 large metro areas across the U.S. that will have sales reps calling on OB-GYNs.

If I could ask a quick question of Adrian regarding Flurizan in Alzheimer's, in the Phase III that you completed enrollment in, did you allow patients to be on Namenda, first question. Secondly, did you allow that in Phase II, and do you think that that will skew the results or do you believe Namenda possibly doesn't impact at all these patients?

So the answer is yes, we did allow the patients to be on stable dose of memantine in addition to or instead of, I guess, stable doses of cholinesterase inhibitors. Certainly we, even thought that drug is not approved for the used in mild Alzheimer's patients, there is significant usage in the United States and we have seen that quite a few patients in our study are using Namenda.

In terms of the Phase II study, Namenda wasn't used in that study because it wasn't approved in Canada at the time and it was not, even though it was approved in the U.K., it was not used in the U.K., or essentially not used in the U.K. So we didn't have any patients in the Phase II study that were on Namenda although, to remind you, 95% of our patients were taking cholinesterase inhibitors.

In terms of do we think it will have any impact, the answer is we don't think it will have any impact because the studies that have been done of combinations of Namenda and cholinesterase inhibitors in mild Alzheimer's patients have consistently failed to show any extra benefit of Namenda over cholinesterase inhibitor. So we think it's really going to be neutral in terms of an effect, but it will be interesting to make that comparison.

And then finally with regard to the ongoing prostate cancer, I know most people have written that off as probably should. Is there any point at which we get to see that final data set?

Charles, yes, the prostate cancer study has completed. We are in the process of assembling and cleaning the data. I'll remind you that this was a four-year study, so there's a lot of data in about 265 patients with prostate cancer.

So it's going to take us some time before the database can be locked and we can analyze the data, but I think you can expect data in probably late October or November for that prostate cancer study.

Okay. Thanks, Pete.

Your next question comes from the line of Akhtar Samad.

Good morning.

Just a couple questions on the Flurizan Alzheimer's program. Could you elaborate a bit on the [Atralyzine] powering details et cetera for the ex-U.S. trial?

And then secondly, you indicated earlier that the U.S. study would have about a sufficient power to detect about a 30% delta, and I was just wondering what power was that? Was that 90%?

Yeah. To talk about the ex-U.S. study, just really the headlines of it, it's again, we allow patients to be on stable cholinesterase inhibitors and/or memantine. We don't expect ex-U.S. to see many patients taking memantine in mild patients but nonetheless they're allowed to.

The study is very, very similar to the U.S. study in terms of outcome measures with ACOG and ADCS/ADL being the primary outcome measures, CDL [inaudible] boxes being a secondary outcome. The only real difference between the two studies other than some slightly different pharmacoeconomic outcomes, which are more attuned to the European market, is that we allow -- we're looking at the neuropsychiatric test battery as an exploratory outcome measure.

That's NTB rather than NPI, and the rational for that is that there are certainly studies suggesting that NTB is a more sensitive scale for cognition in mild patients than [ADASK] cogs. And it's really towards, a view towards looking for the future where we might want to studying this drug at some stage in the future in MCI. That's really the differences.

In terms of the power of the study, you're correct. It's 90% power to see the 30% effect size at the interim analysis. If we went to eighteen months, it's significantly more power than that.

And then just --

And also I'll add that the European study is also powered at a 90% confidence level to see a 30% effect over the eighteen months.

Is that also on both the end points?

Yes, it is. That's correct.

Thanks a lot.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Annabel Samimy.

Hi, guys. Thanks for taking my call. Good quarter.

I had a couple questions regarding the [PM] and the therapeutic pipeline. First on the predictive medicine, with regard to moving into the asymptomatic patient population, are you working diligently with ACOG to establish guidelines similar to ASCO and when might we see some kind of guidelines coming out that to help adoption in that physician population?

Guidelines are very important in this population. We've been working with a number of professional societies. I'll remind you that recently the ASBS, the American Society of Breast Cancer Surgeons published guidelines.

Currently SGO, one of the premier groups within the group of gynecological oncologists and specialists is reviewing guidelines. They are slated to make recommendations soon, within the next several months, and then those recommendations will be used as a template that ACOG will be looking at very carefully as it revises its recommendations as well.

The professional society guideline development is a very important process. We are using that to make sure that the guidelines are in place so that women in the asymptomatic group can receive our vital testing services.

I'm sorry, what was the specific professional society that you said would be established?

SGO, Society of Gynecologist Oncologists, SGO and then ACOG will follow.

Okay. Okay.

And with regard to the Phase II program for Azixa, what might that look like?

And also for Phase I, you mentioned that there would be additional enrollment to confirm the dose, how many more patients do you think you're going to enroll?

Just to answer the second question first, it's really just a half a dozen more patients. It's part of our protocol once you've established, once you believe you've established the dose just to confirm that in more patients. So that's a routine thing, it's nothing particular.

In terms of the Phase II study, we're still finalizing the designs of those. Because of the encouraging data on with brain metastasis, we're certainly very focused on brain cancers.

Although we still have reasons to think it would work in peripheral tumors, I think our focus in Phase II studies and a number of Phase II studies will be on different types of brain tumors, whether primary or secondary brain tumors, but specific ones. In other words, treatment of brain metastasis in patients whose primary tumor was, for example, melanoma.

Are there any specifically that you're going to be focusing on or have you narrowed that down, I guess, the number of primary tumors that could metastasize to the brain?

Well, it's always encouraging when you see activity in certain tumor types, so those are obviously going to attract our attention, but that doesn't really restrict us because the Phase I is all-comers type study so you get patients, you know, what you get and you tend to get some fairly rare tumors in there as well.

So we like the, from a Phase II and from a commercial perspective, we like the tumor types that are well represented, unfortunately, amongst patient and typically ones that metastasizes to the brain so I think that's where our focus is going to be.

How large might the Phase II program be and where can you take it from there?

You're asking questions where we haven't really finalized this but the concept would be to start with a certain number of patients and see whether you see effect because these are not going to be blinded studies, these will be open label studies, and if we see an encouraging response, then we'll expand the studies to the numbers we need for approval. I think we're only talking initially about 30 patients per study and then expanding if we see encouraging results.

Okay. Great. Thank you.

Your next question comes from the line of David Munno.

Thanks for taking the question.

Just one on the predictive medicine business and new development there. Is there any progress on new tests that you're developing for other indications and if so, when might those enter the testing phase?

David, this is Greg.

We're looking at a number of opportunities in predictive medicine. As you know, Myriad has made a number of gene discoveries in the area of prostate cancer, depression and diabetes. Those are things that we are continuing to evaluate.

In addition, we're looking at extensions of our current products and looking at personalized medicine products. We anticipate that there will be a product available sometime later on during the fiscal year.

Anything specific that you've done additionally in the last year or so on the diabetes program identifying more genes or getting that ready to test in a clinical setting?

David, this is Peter.

No, we haven't identified additional genes. We are working very hard on the type 2 diabetes potential predictive medicine diagnostic, and we're just right now generating clinical data and validating the positive predictive value of that test.

As you pointed out, we're working on a number of very exciting tests in our predictive medicine pipeline. It's hard to say right now exactly which one will come out first, but as Greg mentions, we do anticipate launching a new predictive medicine or personalized medicine test within the next twelve months.

Okay. Great. Thanks a lot.

Your next question comes from the line of Shiv Kapoor.

Thanks for taking my question, guys.

I have a couple on Azixa, just a couple of follow-ups from Annabel's questions. Could you tell us what kind of patient population you would be looking at in [inaudible] vis-a-vis the first line, second line? And secondly, what kind of an endpoint would you be looking at? Thanks.

So there's always got to be second line in as much at this stage these are patients who have been treated for their cancer and have developed brain metastasis. So by definition they are failing on their current therapy. So in that sense it would be second line therapy.

On the other hand, there aren't a lot of options that these patients currently have with no drug approved for the treatment of brain metastasis currently. So in that sense they will probably have not been treated for their brain metastasis. That's how we're seeing the study.

Will they have been treated by radiation before for metastasis?

That's the only available treatment. So yes, we would anticipate that this would be done in combination with radiation. That's true.

Okay.

And your second question, Shiv?

Primary endpoint?

Primary endpoint, you know, we think at this stage it's likely to be survival although we will be looking at, obviously, the effect on tumor size.

It's one of the ironies of the current way you evaluate tumor progress is there's no real provision written in for brain metastasis and so if you were to see an effect, if you were to clear brain metastasis completely but the peripheral tumors continue to grow, then that would be currently classified as disease progress which doesn't make any logical sense when you consider that it's the brain metastasis that are going to be life-threatening. I think that we probably are going to be focused on survival, but that's something which we have to finalize.

Great. Thanks a lot.

Your next question comes from the line of David Webber.

Thank you. Question for you, Adrian.

Can you tell us what the statistical hurdle is to actually stop the U.S. Phase III Alzheimer's trial at the interim look?

That's a very good question, David. We have not finalized the statistical analysis plan for that and want to have some further discussions with the regulatory authorities before we do do that.

For approval on the basis of a single Phase III trial if you read the regulations, then you should have a P value of less than .01. Various divisions of FDA have established a level, a P value below which they believe it is unethical to do a second placebo controlled trial which would be a P value somewhere less than .0025.

And so those are the numbers we're considering but, again, we want to have the discussion with the regulatory authorities before we finalize that interim look, all the, the stopping rule.

Can you update us on MPI-49839?

The HIV compound?

Yes.

Yeah. It's still progressing in preclinical development. We are just finalizing all of the tox studies on that compound and we look forward to making some further announcements of that later on this year.

Thanks. Jay, can you say what the FAS 123R expense was?

For the quarter?

Yes.

Okay. For the year it was, you'll see this in the 10-K, it will be roughly $2.6 million.

For the year?

For the year. Although you have to remember, I mean don't take that as a number, as a going forward number because going forward it is going to be substantially higher than that. It could be as much as three times that going forward just to keep it in perspective.

Okay. Thanks very much.

Thanks.

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

I want to thank everybody for participating on the Myriad Genetics earnings conference call. And this will conclude our conference call today. Thank you again.

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