Myriad Genetics Inc (MYGN) 2007 Q1 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Myriad Genetics first quarter fiscal 2007 results conference call. [OPERATOR INSTRUCTIONS] I will now turn the call over to Mr. Peter Meldrum, President and CEO of Myriad Genetics. President and CEO of Myriad Genetics.

Thank you. Good morning and welcome to the Myriad Genetics earnings conference call for our first fiscal quarter ending September 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 Genetics 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 our financial results. Dr. Critchfield will review the Company's molecular diagnostic business and Dr. Hobden will discuss our drug development activities. 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 future events or the future financial performance of the Company. These statements are based on management's current expectations and actual events or results may differ materially 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 and Exchange Commission, specifically the Company's annual report on Form 10-Km its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the results to differ materially from those contained in our projections or forward-looking statements.

This was an exceptionally strong quarter for the Company. We achieved record molecular diagnostic revenue of $30.9 million. Record gross profit margins of 74%. And record operating profit margins, a phenomenal 42%. We experienced strong customer demand and increased market penetration across all four of our molecular diagnostic products throughout the entire quarter.

And we have continued to experience this strong demand in October. Increased sample volume accounted for the majority or approximately 90% of the first quarter revenue growth. While the remaining 10% was the result of recent price increase last April. This tremendous growth serves as a backdrop and I'm pleased to announce that we plan to launch our fifth molecular diagnostic product during the first half of calendar 2007. And our sixth molecular diagnostic test in the second half of the year.

On September 5, 2006, the FDA issued draft regulatory guidance on in vitro diagnostic multivariate tests. This guidance clarifies the FDA's position that these diagnostic tests are subject to FDA regulation as medical devices. We are fortunate at Myriad that all of our current molecular diagnostic products are based on specific disease causing genes that yield definitive direct results. As such, none of our products are subject to this draft guidance. And Myriad has not received any correspondence from the FDA to the contrary.

Other multivariate tests that analyze dozens of associated genes and require software algorithms to interpret and evaluate the test results are subject to FDA scrutiny under the new draft regulatory guidance. Again, this FDA guidance is not applicable to any Myriad products. The net cash generated from the first quarter from profits from our molecular diagnostic business, was approximately $10 million. And was used to fund a significant portion of our drug development programs including our two Phase 3 studies of Flurizan for the treatment of Alzheimer's disease. As we discussed at the last earnings conference call, we completed enrollment of 1,684 Alzheimer's patients in August. This is the largest and most comprehensive Alzheimer's study in the world.

The Phase 3 trial is going well and if the interim work is triggered, we should report out top line results next October. Enrollment of the European Phase 3 trial is also proceeding on schedule and we anticipate completing enrollment in that study during the first half of calendar 2007. The end points for both studies are tests that assess cognitive function and behavior in these Alzheimer's studies -- patients using slope analysis.

At the recent EMEA Workshop On Neurodegenerative Disease Modifiers in London, representatives of the EMEA expressed their opinion that slope analysis is indicative of disease modification when observed over a period of 18 months. Therefore, we remain optimistic that Flurizan will meet the EMEA's disease modification criteria. Prior to completing Phase 2 study of Flurizan for the treatment of Alzheimer's disease, no therapy had ever demonstrated the ability of slowing the underlying progression of this insidious disease.

Based on the Phase 2 results from 128 mild Alzheimer's disease patients, the Flurizan treated groups, as compared to placebo, experienced a 60% improvement in the occurrence of psychiatric events. A 48% improvement in the performance of simple activities of daily living. And a 34% improvement in memory and cognitive function. From this study, Flurizan shows promise of becoming the first disease modifying drug for the treatment of Alzheimer's disease. We have encouraged an entrepreneurial atmosphere within the Company and have focused our employees on the achievement of specific goals.

From the initial discovery of the genes that caused hereditary breast cancer, to compelling enrollment of patients in the most comprehensive clinical trial ever undertaken to study Alzheimer's disease, we met every challenge with drive and determination. The results of our dedication to progress, the quality of our science, and the commitment to developing products that improve health and quality of life of patients has provided Myriad with a unique opportunity to build a leading life science Company. Now, it is my pleasure to turn the call over to our CFO, Jay Moyes.

Thank you, Pete. It certainly is a pleasure to discuss Myriad's strongest first quarter performance in the history of the Company. We are very pleased to report that molecular diagnostic revenue this quarter has once again hit a record. Molecular diagnostic revenue for the quarter ended September 30, 2006, was $30.9 million.

This result represents a 43% increase over the same quarter in the prior year and over a 7% increase when compared to the previous quarter ended June 30, 2006. This sequential growth over the June 30, 2006 quarter is significant because our first fiscal quarter is historically our weakest quarter. Last year, for example, our quarterly sequential growth was only 3%. The excellent result this year exceeded the analysts' consensus molecular diagnostic revenue forecast for the quarter of $30.4 million.

When analyzing the 43% growth, it's important to note that we estimate only about 4% of the 43% was attributable to pricing. And the remaining 39% was due to sample growth. Much of the sample growth was driven by additional ordering physicians, which was triggered by our dissemination of recent positive statements by the American Society of Breast Surgeons. And improved BRACAnalysis turnaround times, both of which impact initial surgical decisions.

It's also worth noting that the individual growth of both MELARIS and COLARIS each exceeded 100% of the amounts sold in the quarter ended September 30, 2005 and that sample flows across the board continued to look strong this quarter. Total revenues for quarter ended September 30, 2006, which include both molecular diagnostic and research revenues were $33.5 million. This revenue result also exceeded the Thompson First Call consensus revenue estimates. Our gross profit margin on molecular diagnostic revenue this quarter was 74%, an increase of 2% over the 72% margin in the previous quarter.

As I mentioned last quarter, we expect to see continued growth in our gross margins as the year progresses due to the implementation of new technologies in our laboratory. The investments we made last year, including improved informatics that reduce analyst review time and process enhancements that lead to lower rework rates and faster turnaround times, coupled with the new 384 capillary sequencers introduced this past quarter, have contributed to the gross margin improvement. The significant earnings contribution of our molecular diagnostic business amounting to $13.6 million before taxes, depreciation and amortization continues to improve. This represents an 88% increase over the prior quarter ended September 30, 2005.

Further, the operating margin of our molecular diagnostic business was 42% for the quarter, which is a significant improvement over the 31% operating margin generated in the same quarter of the prior year. Much of this operating margin improvement was facilitated by healthy productivity gains in sales and customer service. These costs grew at half the rate of our molecular diagnostic revenue growth and as a result of the CRM improvements we made last year.

The accounts receivable collections, as measured by the number of days sales outstanding, was 68 days for the quarter ended September 30, 2006, compared to 78 days for the same quarter in the prior year. This substantial improvement is a direct result of the dedication and expertise of our internal billing and collections team. The quality of our accounts receivable remains excellent.

Research revenues for the three months ended September 30, 2006 were $2.7 million, compared to $3.6 million for the same three months in 2005. This 25% decrease in research revenue is primarily associated with the successful completion of a research collaboration in the prior year. Research and development expenses for the quarter ended September 30, 2006 were $26.4 million. This represents a 43% increase over the same quarter in the prior year and an increase of 8% over the prior quarter. This increase is primarily comprised of the costs associated with our seven ongoing clinical studies.

Much of these costs were associated with our two Alzheimer's disease clinical trials, including our 1,684 patient U.S. Alzheimer's disease trial, which is a largest Alzheimer's clinical trial ever undertaken. As well as the 800 patient European trial, which commenced enrollment in the prior fiscal year. We have also made significant expenditures in the late stage preclinical development of our other drug candidates. Additionally, we have invested heavily in developing new molecular diagnostic products and plan on launching two of them next calendar year.

Since we expect to move additional drug candidates into the clinic and advance our current clinical drug programs, as well as develop new molecular diagnostic products, we believe our research and development expenses continue to grow over the next several quarters. Selling, general and administrative expenses for the quarter ended September 30, 2006 were $14.1 million, compared to $10.9 million for the same quarter in the prior year. The 29% increase over the first quarter of 2005 was attributable to expenses incurred to support the 43% growth in our molecular diagnostic revenues, including the addition of several OB-GYN sales representatives 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 development and discovery efforts, and our growth in molecular diagnostic revenue. The non-GAAP net loss per share for the first quarter ending September 30, 2006 was $0.28. An improvement of $0.01 from the non-GAAP loss reported in the same quarter of the prior year of $0.29. Stock option expense attributable to the first quarter was $0.03 per share, compared to $0.01 per share for the first quarter of the prior year.

The research analysts' consensus for loss per share is a blended average that currently includes some estimates incorporating stock option expense and others that do not. So, we have included estimates of loss per share both with equity compensation expense and without the expense. Our GAAP net loss for the quarter ending September 30, 2006, which includes stock option expense, was $12.4 million or $0.31 per share. This compares with $9.2 million or $0.30 per share in the same quarter in 2005.

Cash, cash equivalents and marketable investment securities were a healthy $212.1 million at September 30, 2006. This compares to $103 million for the same period in the prior year. We again point out the Myriad has no debt and no convertible securities and that the total number of shares outstanding at September 30, 2006, was a modest 39.7 million shares. Thank you for your attention. I will now turn the conference call over to Dr. Gregory Critchfield.

Thank you, Jay. It's a great pleasure to speak with you today about our molecular diagnostics business. As Pete and Jay have discussed, our first quarter revenue for our molecular diagnostics was $30.9 million, a 43% increase over the same quarter last year. This record revenue was achieved through growth across all four of our molecular diagnostic products. We continue to see excellent incoming sample flow, the major contributor to the top line growth of our business.

The growth of our business has also been accompanied by a steady improvement in profitability. The net operating income for the first quarter increased by 95% to $13.1 million, compared to $6.8 million from the first quarter of last fiscal year. This growth results in a operating margin of 42% in the first quarter of fiscal 2007. The improvement in profitability is result of achievements by our laboratory operations and customer service groups.

This past quarter, we implemented further improvements in the way we process and analyze increased numbers of samples. This includes new software and robotic changes that have increased our efficiency in analyzing samples. However, we are not satisfied to stand still on these technical improvements. And therefore, we are in the process of bringing you further automation and improvements into the laboratory. Adding higher density capillary instrumentation and state of the art higher density robotics. These improvements will be phased in over this current fiscal year. We believe that these investments should continue to improve quality and throughput in our laboratory operations, as well as increase our profit margins.

Our customer services group and sales organization are benefiting from a newly implemented 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. In the molecular diagnostic market there are three groups of individuals who benefit from our tests. The first group of individuals are newly diagnosed patients with cancer. Myriad's primary focus over the last several years has been working with oncologists, cancer surgeons and cancer geneticists to identify and test these individuals.

The second group is patients who have seen their cancer recur and have returned to the care of their oncologists. The growth in this patient market segment has been substantial and is again, largely a result of addressing the oncology market segments. 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 these individuals who are at highest risk 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 potential numbers of candidates for testing in this category is the largest of our three market segments. And therefore, represents additional opportunity for growth of our molecular diagnostics business.

There are three initiatives that with are undertaking this year to address this large market opportunity. First, we will be expanding our OB-GYN sales force to 53 physicians by the end of the fiscal year. I am pleased to report that we have already assembled a talented group of 25 sales professionals who are addressing this market. Second, we were focusing on womens health -- on large women health practices that are earlier adopters and providing education on the identification of women at risk for hereditary cancer. Our experience indicates that these kinds of practices are primed for adopting 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. We anticipate launching our DTC campaign during the fall of 2007 to generate consumer demand for testing services among these physicians. All our sales and marketing efforts are expected to increase the number of physician practices that routinely identify candidates for testing and the number of patients seeking testing services in those practices, giving patients greater access to these vital services.

I would like to speak briefly about another field of molecular diagnostics, personalized medicine. The goal of personalized medicine is to choose the most appropriate medication and strategy for a particular patient based upon that patient's genetic profile. We recently announced that Myriad is participating in a major clinical trial in selecting treatments for pancreas cancer. Each year in the U.S. there are 34,000 new individuals affected by this disease.

Pancreas cancer is typically diagnosed late, at which time little can be done for the patients. It is one of the most deadly cancers, with five year survival rates less than 10%. At Johns Hopkins University pioneering work by Dr. Scott Kern and colleagues has shown that approximately 7% of all pancreas cancer cases are caused by mutations in the BRCA 2 gene. They have recently published a series of papers that demonstrate that pancreas tumors in patients lacking BRCA 2 function are more than 1000% more sensitive to DNA damaging agents such as Mitomycin-C. These agents, collectively known as cross-linking agents, bridge strands of DNA.

Without the necessary repair function of BRCA 2, the tumor cells die when exposed to cross-linking agents. Based on these findings, a clinical trial has been initiated to determine if the BRCA 2 status and treatment with cross-linking therapy in BRCA 2 mutation carriers will predict superior outcome for these patients. Myriad will provide the critical information needed to identify the patients eligible for this class of drugs. Positive results in this trial will validate this personalized medicine approach for patients with pancreas cancer and open up a new market opportunity for Myriad.

Our molecular diagnostics business is succeeding because testing information is pivotal in managing high risks individuals have for cancer. Armed with the information we provide, all of these individuals can do something about their risk to help them avoid cancer in the future or improve their outcome through selection of the most appropriate drugs to treat their cancer. Molecular diagnostics makes the difference for individuals and families at high risk for cancer. And we are pleased to help more individuals as this business continues to grow. Thank you. I would like not to turn the time over to Dr. Adrian Hobden. Adrian?

Thank you, Greg and good morning. As Pete has already mentioned, we have completed enrollment of the U.S. Phase 3 study for Flurizan with a total of 1,684 patients. This exceeded our goal of 1,600 patients but was a result of the high demand from investigators and patients. This means that the study is even more highly powered than we had originally intended. We believe that we can use some of the excess statistical power for a number of valuable subanalyses. For example, we can now determine the activity of Flurizan in the presence and absence of other Alzheimer's medicines.

An examination of the demographics of patients in the U.S. study revealed some surprises. For example, 48% of our patients were taking Memantine at enrollment. This is despite the fact that Memantine is not approved for the treatment of mild Alzheimer's disease. In marked contrast to this observation, another 20% were not taking any Alzheimer's medicines at all. We are very excited to see the effect of Flurizan in this group. And believe, if anything, that they will show a larger response to Flurizan than those taking other Alzheimer's medicines. As a result, we have a reasonable expectation that we will be able to get a label for monotherapy and for combination therapy.

We have previously believed this objective to be extremely hard, since it is impossible to do an Alzheimer's study in North America or Western Europe in which standard of care medicine is not available to the placebo group. All other demographics of enrolled patients, for example, age and sex, are very similar to those from the Phase 2 study. It is also our intention to use some of the excess statistical power from the study to also look at the impact of severity of disease at base line on the effect size.

You will recall in the Phase 2, study the mild patients had the largest and earliest response as compared to moderate patients. And the mildest patients had an even greater response, being as large as a 90% slowing in decline in patients with an MMSE score of 25 and above. We shall be looking for a similar effect in the Phase 3, since we believe that a disease modifying drug should show this effect and furthermore, the major beneficiaries of such a drug would be the patients treated very early in their disease.

Probably, including those currently diagnosed as having mild cognitive impairment. A population which at $8 million in the U.S. alone is estimated to be approximately double the current number of Alzheimer's patients in the United States. We believe that we will be able to use the U.S. Phase 3 study in combination with the Phase 2 study for submission of the FDA for an NDA. Furthermore, we expect that we will be able to use the Phase 3 data showing sloped divergence over 18 months between treatment and placebo patients and the observation of increased effect size in milder patients, together with the randomized start design of the Phase 2 study to support claim for disease modification.

We shall also be examining in the Phase 3, the ability of Flurizan to reduce the incidents of psychiatric problems in Alzheimer's patients. You will remember that in our Phase 2 study, we showed that Flurizan significantly reduced the incidents of psychiatric problems and significantly delayed the onset of such symptoms. The problems included agitation and aggression. The importance of this observation has recently been put into perspective by a report that antipsychotic drugs are used extensively but are poorly tolerated in Alzheimer's patients. The author of this report in the "New England Journal of Medicine" Dr. Lon Schneider concluded, and I quote, "adverse effects offset advantages in the efficacy of atypical antipsychotic drugs for treatment of psychosis, aggression or agitation in patients with Alzheimer's disease."

I now want to spend some time discussing our other compounds, which are in the clinical trials. I'm pleased to announced that we have reached a maximum tolerated dose in the Azixa Phase 1 studies. As I reported previously, there have been a number of encouraging reports of tumor reports in that study, despite the patients having been treated previously with a standard of care chemotherapy agents, all of which have failed.

These tumor responses were both in brain metastasis and peripheral tumors. We expect to meet with the FDA soon to discuss those results and present our plans for Phase 2 studies. Obviously, until we have that meeting, I cannot confirm the exact plans but we were proposing to study both metastatic brain tumors and also a primary brain tumor such as glioblastoma. Given the terrible nature of these diseases and poor prognosis for the patients, these are not likely to be long studies. We would also hope to be able to use the Phase 2 studies for NDA approval. We are continuing our Phase 1 studies with our drug candidate MPC-2130 for the treatment of blood cancers. Preliminary data suggests that we may be close to the maximum tolerated dose, although this does need to be confirmed.

Finally, our oral antithrombin compound MPC-0920 is progressing well in Phase 1 studies. The objectives of the study are to study safety oral viability, half-life. And unusually for a Phase 1 study, efficacy, as judged by the effect on Thrombin type, a measure of blood clotting time. We have been able to show oral viability of people, as judged by a significant increase in thrombin time and have yet to identify any toxicities.

We will continue to escalate the dose in the study until we have a dose at which we can extend thrombin time by about five minutes. We judge this to be the dose, which will be required for maximal clinical efficacy against thrombosis. Thank you for your attention. I will now hand back to Pete.

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

[OPERATOR INSTRUCTIONS] And your first question will come from the line of Annabel Samimy with UBS.

Just a few quick questions on the BRACAnalysis test. Could you give us an idea to extent you've been able to penetrate the asymptomatic population recently?

Yes. The asymptomatic population of course, is the subject of our initiatives in the OB-GYN offices. We have some experience in doing that because we have had a group of people in the northeast United States for more than a year now. We have excellent penetration into that group when we put people in those offices. To present, though, all of our focus in Myriad, just about all of our focus has been in the oncology market. So the ramp-up that we project this year and into next year as we put OB-GYN representatives in offices, we believe, is going to open up a very large market opportunity for us.

Annabel, if I can just add to that. When we look at the OB-GYN sales force, the growth of the revenue for a particular sales rep in the OB-GYN market is very similar to that in oncology. So the ramp-up and adoption is very close to what will be experienced previously on the oncology sector.

And can you give us a sense of to where you are in getting some of the guidelines in place for the next Society of Gynecological Oncologists, as well as [ACLAS] do you have any timing on that?

What can tell you is that the Societies are in the process of revising guidelines currently. As you may know, the most recent set of guidelines that has been adopted are those of the American Society of Breast Surgeons. The Society of Gynecological Oncologists, this is the leading group of gynecological oncology specialists, are in the process of looking at guidelines currently. We anticipate in the next couple of months those will be out. And then the next group that would follow after those would be ACOG, which provides guidelines for the large number of OB-GYN's around the country.

Should those come out do you -- expect those to come out before the annual meeting?

We don't know actually when they will come out and I hesitate giving a projection because these are really the purview of the professional society committees. But we anticipate that they would follow the guidelines that would come out by SGO.

Okay. And then finally, if I may, could you give us a sense of what the backlog and demand is? And what the turnaround time is for samples, what it's been historically versus what it is today and what your sample flow is per week is now?

We haven't given specific data on the turnaround time other than to say it has improved greatly over the past several quarters. And as Jay and I both mentioned, we saw exceptionally strong demand this summer which, of course, is our weakest of quarters because people go on vacation and physicians and genetics counselors are on vacation. And we have continued through the month of October to see that very strong demand.

Okay. And just really quickly on Flurizan. Do you expect -- are there any other patients from the Phase 2 data that remain on drug that we might be seeing before your release date on the Phase 3?

No. The open label study did end at 24 months. And we stopped any efficacy or monitoring of those patients. So, there will be no further data on the Phase 2 study.

Great. Thank you.

Your next question comes from the line of Geoff Meacham from J.P. Morgan.

Thanks for taking the question. A couple of Flurizan. First, can you give us the alpha spend and taking the interim look for the U.S. trial? And then you mentioned a number of other subgroup analyses that you can conduct. What's the FDA's view on this and what would be the implications for potentially having those subgroups on the label?

I will ask Adrian to address those.

Geoff, thanks for the question. The alpha spend, of course, depends what the stopping role is for the interim analysis. And we certainly don't want to stop the interim analysis unless we have the prospect of using the Phase 3 study for the second supporting study. So, we would be looking for a reasonably p value for stopping around 0.01 or less even than that. So, in order to preserve the alpha for the 18 months, should the stopping rule not occur, then the stopping rule will have to be at least slightly less than .01. So, we are aware of that.

And then to address that in the context of your second question. We are in the process of discussing with the FDA the statistical analysis plan including the subanalysis that I just described earlier on. And so, we expect to get feedback from them very shortly about that, about our ideas. But as you probably are aware, we don't actually have to put in a final statistical analysis plan until just before we do the analyses. In this case, presumably the interim analysis.

Great. That's helpful. Just one follow-up on the predictive medicine franchise. What is the risk that the FDA can come back and actually include your tests in the guidelines? And why do you think that they were excluded? Is it the fact that you have analysis from a single gene and not multiple genes in play here? Or could you just give us some color here?

Yes, Geoff, I would be happy to. The genes that we've discovered involved in breast cancer, ovarian cancer, colon cancer are specific disease causing genes. If you have a mutation in the BRCA 1 gene, for example, your risk of developing breast cancer later in life is about 82%. And your risk of developing ovarian cancer is over 50%. These are not genes that are associated with disease. These are genes that cause disease. It's definitive and in doing the analysis, we look for specific disease causing mutations. There is no algorithm, there is no software, there is no other type of medical device that the FDA could hang their hat on.

So the FDA in terms of their multivariate guidance is saying that when you have a panel of genes that are in some way associated with or potentially predictive of a particular disease or outcome, but requires it a medical device, in this case a software algorithm, to generate and interpret the results, that falls under the FDA purview. A disease causing gene is black and white. It's definitive. You either have the mutation or you don't. A software that tries to predict outcomes based upon expression levels of certain genes is very different. And the FDA has decided that they want to validate the accuracy of that software algorithm.

So we don't use a software algorithm, we don't try to associate outcomes with a panel of genes. We focus on specific disease causing genes where the results are definitive. So under the current guidance, there is no risk that the FDA would include our products in that particular medical device guidance. Now, that's not to say that at some point in time in the future the FDA could decide it wanted to regulate the entire reference laboratory industry and sweep in all current diagnostic tests. But given budget constraints and the FDA's current position that they are comfortable with clear regulation, I think that unlikely.

Thanks. That's really helpful.

Your next question comes from the line of Charles Duncan with JMP Securities.

Good morning, gentlemen, and congratulations on a very strong quarter. I had questions on both the PM business, as well as on Flurizan. With regard to the predictive medicine business, can you give us a little bit more color on what some of the new products might include over the course of next year? And what are the current studies that are ongoing to support those?

Thank you, Charles. We appreciate those kind remarks. I wish I could reciprocate by giving you a little more color on our current thoughts in terms of products we will be introducing. For a variety of reasons, we are not providing additional information in terms of our new molecular diagnostic products, other than to indicate we have probably five or six candidate diagnostic products that are in the pipeline. We have announced today that we will launch a new predictive medicine molecular diagnostic product in the first half of 2007. And a sixth product in the second half of calendar 2007. And you will just have to wait, I'm afraid, for the product launch to learn more about those products.

Okay, that makes sense, Pete. With regard to the pancreatic trial that you mentioned is ongoing, can you give us a little sense as to the size, the scope and kind of the timelines with which you expect data out of that?

You bet. The trial, as I mentioned, will enroll patients who have BRCA mutation. It is anticipated that 35 patients with BRCA mutations will be put on cross-linking therapy. For the trial to be completely enrolled, it is anticipated to be -- to last between 1.5 and two years. And at that point in time, the data will be analyzed and we will know -- it will have the validation data for this personalized medicine approach.

And then finally on PM, Jay, you mentioned the cash flow generation from the business. Could you repeat those numbers or give us little bit more color on that?

Yes, I will give you the pure cash flow number and then I will have Jay repeat the EBITDA numbers as well. In the cash flow number, we take into account a substantial investment that we made in the laboratory in new technologies. And in particular we mentioned the 384 capillary sequencer we are replacing and have replaced all of our 96 length capillary sequencers with the very much more powerful and faster 384 capillary sequencers. So, all of that capital expenditure and research of technology improvement in the lab is taken out of the number. But the number was just over $10 million of pure positive cash generated. And, Jay, the number you gave?

The EBITDA number so that the operating income before taxes, depreciation and amortization was $13.6 million.

That's awesome. With regard to Flurizan, I'm -- really quickly, you give us some sense as to the value of imaging in that area and in that indication? I know that there is a trial going on whereby they are relying on imaging. You spoke about slope analysis. Why aren't you using imaging and what do you think of it?

I will let Adrian address that question.

Charles, the -- we thought long and hard about imaging as part of our U.S. Phase 3 study. The problems that we have with it, firstly, is that it's not acknowledged by the FDA to be indicative of the disease process. You will remember that a trial from a land wire from the vaccine showed somewhat surprisingly that even though some patients benefited -- I should say patients who developed antibodies to the vaccine, benefited in the context of cognitive benefits; they saw rapid decline in the size of their hippocampus, more so than for placebo patients.

And we discussed that with the FDA when we talked about the design our Phase 3 study. And they expressed the view that in the light of that particular result, they now did not understand what an increase or decrease relative to placebo in the size of the hippocampus would actually mean in terms of disease modification. And that coupled with the complexity of doing an imaging study in a trial of the size of the U.S. Phase 3 study 1,600 patients, together with the obvious delays that would result in trying to persuade patients to do it and therefore enroll in the study; made us believe that the smartest way to move forward would be not to do imaging in the Phase 3 study. And rely on slope divergence, which has Pete I think said in his introduction, has been acknowledged on several occasions by the EMEA as being indicative of disease modification, provided that is that the study is at least 18 months in length.

And the randomized stark design that we saw in the Phase 2 study. You may also be aware that [Paleba,] the former divisional director of Neuropharm, Dr. Katz, wrote a paper suggesting a randomized stark design or a randomized withdrawal design would be the way to discriminate between symptomatic drug and a disease modifying drug. And in the context of our Phase 2 study and the results from it, we did not see the patients able to catch up after 12 months -- if they are on placebo for 12 months they could not catch up in the second 12 months for the group that had been treated for 24 months. In fact, not only could they not catch up, they did not get anywhere close to catching up. So, we believe that is very strong support for disease modification and we will be making that argument to the FDA.

That makes more sense to me. Thanks a ton. I will hop back in the queue.

Your next question comes from the line of David Munno with Merrill Lynch.

Can you guys update any progress you made with training new genetic counselors? How many you have now and then how that affects your plans to go out with more direct to consumer marketing for the predictive medicines?

David, this Greg. We've spent a great deal of energy over the last couple of years bringing up to speed individuals in offices who are adept at identifying and educating patients about genetics. In particular, we've worked with oncology nurses. Well over 3,000 nurses have received education from Myriad and are now part of the network of people that are identifying patients who are candidates for testing in oncology offices. In addition to that, we are now in the process of focusing our message for the OB-GYN offices.

We're identifying people on the physician's staff and physicians, physician practices who are able to take the testing and to perform it. One of the importance statistics that I think is worth mentioning, is that the number of physicians that are individual physicians ordering our tests has increased dramatically over the last four years. In 2002, there were approximately 2,000 physicians that were ordering our tests in the previous year. Today that number is over 7,000. So, we've made dramatic progress in getting individual physicians to order the test. And in fact, that is one of the centerpieces of our strategy to go into the OB-GYN market.

In terms of the number of counselors that you trained in oncology offices versus OB-GYN, do you have a break down there or are you starting to ramp-up the training in OB-GYN?

No, we are just beginning to ramp up. And the training, as I said, is going to be for the physician and the physician's staff. What we find is that the physician is the champion and driver for adopting the use of these technologies in their office. And so our training is focused on putting in place the tools and the training for that staff so that they are adept at doing it. And this is what we validated as we begin our experience in the OB-GYN offices in the Northeast United States more than a year ago. And this is going to be the way we move forward again.

The Company has put together a course, in terms of the importance of identifying patients with hereditary cancer, that allows physicians to get comfortable with the genetic counseling component. This course has been approved by the MA and is currently being given to physicians and they get CME credits for it. So, I think we made significant in-roads in that areas, well as the oncology nurses. And I believe we are up to about 3,900 advanced practice and oncology nurses who have been trained and certified to do genetic counseling. And, of course, that's very important because there is only about 300 genetic counselors in the United States who specialize in the oncology area.

Can you give us any sense of what kind of backlog there is now that you have so many counselors trained? And if there is a backlog, how long that backlog tends to last?

There is not really a backlog at the genetic counselors. And as Greg mentioned, physicians are more and more are going to doing the counseling actually in the physician's office itself. So, they are not actually referring the patient across town to a genetic counselor. But we are not aware of any backlog at the present time. Obviously, individual physician practices could vary. But, no, there is no significant backlog in the counseling area.

David, I will add one more comment. In the initial rollout of these technologies, the model was to identify patients and then refer them to a specialized center where people could receive a genetic education and counseling. Today's model is for the individual physician to be capable of doing the counseling and education in his or her office. And that corresponds nicely with the rollout of these technologies out into the community. The great majority of people ordering our tests now are in the community and not in specialized genetic centers.

Great, thanks.

Your next question comes from the line of [William Ho] with Bank of America Securities.

Congratulations on a great quarter. Quick question, Pete. I was wondering if you could elaborate a little bit with respect to your business strategy on your pipeline, potentially with Alzheimer's the big opportunity? But what are you looking to do with some of the other compounds that exists? Would you look to partner them or what?

Thank you, Will. Myriad is very much committed to developing, launching and marketing therapeutic products independently without a pharmaceutical partner where it's very feasible to do and where we can focus on areas that we have particular expertise. And those right now are three specific areas. The first is oncology. We have a very strong oncology sales force, a very strong presence in the oncology market. And the predictive medicine sales forces can sell Azixa and 2130 and other cancer drugs, when we are prepared, if we are fortunate enough to launch those products. So both Azixa and 2130 we would sell ourselves, independent of pharmaceutical involvement. We have an out standing oncology sales force. There's just no need to partner those products away.

In the area Alzheimer's, it slightly different because 70% of the scrips for Alzheimer's drugs are written by primary care physicians. And obviously I can't -- it wouldn't be prudent to build or try to build a primary care sales force. However, that does mean that 30% of the scrips are written by neurologists and psychiatrists. So, if we are fortunate enough to submit an NDA to the FDA for Flurizan, Myriad will go forward and build a neurology sales force and will sell products directly to neurologists. But we will seek a pharmaceutical partner to access that pharma partner's primary care sales force for Alzheimer's disease.

The remaining drug that is in the clinic is 0920, the thrombin inhibitor. And the thrombin inhibitor is outside of our area of expertise. So, it is the Company's intention to partner the thrombin inhibitor, either at the completion of the Phase 1 study or very early in the Phase 2 process.

Great. And a couple other housekeeping. Could you just tell me how many sales people you have today? And if, Jay, you could break out the stock comp in terms of R&D and SG&A?

We have about 130 sales reps, as Greg mentioned. We were going to move that over the next three quarters to about 155. And as Jay mentioned, our equity compensation expense under FASB-123R was $3 million this year as compared to $1 million last year. And Jay, do you have a number for the R&D component of that?

We actually haven't broke than down, Will. But as we pointed out in the press release, the total stock compensation expense for this quarter was almost $1.4 million.

Thank you.

Your next question comes from the line of Shiv Kapoor from Montgomery and Company.

I have questions on three topics and I will move from predictive medicine to the BRAC personalized medicine and eventually to R&D. First, on the two new predictive medicines products that you mentioned in the call. Should we assume these two new products are like classic predictive medicine products and will have a slow launch? Or are these more prognostic products for personalized medicine that can actually have a rapid uptake?

Thank you, Shiv. As I mentioned, unfortunately we aren't giving information in terms of the specific nature of the products that the Company is launching. But I will point out that most of the diagnostic products have a relatively slow ramp-up compared to pharmaceutical products. Although, we have seen a stronger ramp-up in the more recent products that the Company has launched.

And do you believe that the recently launched products, the ramp has been because of your experience or just because of the product?

I think it's physician education and awareness and physicians getting used to how they would treat a patient differently based on the predictive medicine information that we provide that physician and not the product specifically. so I think it's just improved awareness and education within the physician community and the marketplace itself.

All right, thanks. Moving on to the BRAC to personalized medicine diagnostic for pancreatic cancer that you had a press release on recently. Do you think the study that you have started will be sufficient for approval and my question really is, why didn't you do a placebo control study if Mitomycin can be better than standard of care, why not prove it in a controlled study?

Okay, the reason that the study was done the -- designed the way it was, is that typically the patients with pancreas cancer currently are given Gemcitabine as standard of care. The feeling among the community is that while that is the current standard of care, there is tremendous improvement that could be made if there were a molecular approach. And the feeling was that given that cross-linking therapy is an appropriate that could be used, and these drugs have -- all cancer chemotherapy drugs like this have some toxicity. The feeling was this was the best approach for the patients and enrollments in the trial. The question of sufficiency is an important one. This trial will demonstrate the proof of principal that in fact cross-linking therapy is a viable approach in patients that have BRCA 2 mutations. I will remind everyone, that the way that the diagnostic test would work, is that you would test everyone with pancreas cancer in order to find those 7% of patients that will be candidates for this therapy. So, this is a large market opportunity if it proves to be valid approach.

And, Shiv, one additional point of clarification, since we were looking specifically at a disease causing gene, a disease gene that increases a patient's risk for pancreatic cancer, and mutations that render that tumor defenseless against cross-linking agents, even though this is a personalized medicine test, it would not be subject to FDA approval. There is no software algorithm, there is no medical device that will be swept in under the current FDA guidance. So, this is a little different, even though it's a personalized medicine test, even though it assesses for a particular patient based on their individual genetic makeup, which drug would be more effective for them. Because of the nature of the test, it's not part of the current FDA guidance on multivariate analyses.

I have some follow-up questions but I will call you guys. I do have one question for Jay. For obvious reasons, your R&D has been rising in the past quarters and we understand that. My question is, what's going to happen in the next few quarters? Are we going to see some stabilization in the spend? Or are we going to see continued acceleration?

I think with the continued enrollment in the European Phase 3 trial for Flurizan, the costs are still going to be moving up. Then as we start wrapping up the Phase 3 trial in the United States, that will start mitigating some of that. On the other hand, as Pete mentioned and Adrian mentioned, we are also going to be starting a Phase 2 trial in at least one, probably two Phase 2 trials in Azixa. Again, those -- you're going to have more costs there. I would say that to make a short story long here, the costs are probably going to continue to rise over the next several quarters.

Thanks, Jay. Talk to you guys later. Thanks.

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

I would just like to thank everyone for participating and listening in on the Myriad conference call. We enjoyed speaking with you this morning and this does conclude the first quarter 2007 earnings conference call. Thank you.

Once again, ladies and gentlemen, this does conclude the Myriad Genetics first quarter fiscal 2007 results conference call. You may now disconnect.