Myriad Genetics Inc (MYGN) 2007 Q3 法說會逐字稿

Good morning, my name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Myriad Genetics 2007 third-quarter 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, and good morning. And welcome to the Myriad Genetics earnings conference call for our third fiscal quarter ended March 31, 2007. My name is Peter Meldrum and I'm the President and Chief Executive Officer. I am joined today by Jay Moyes, our Chief Financial Officer, Gregory Critchfield, President of Myriad Genetic Laboratories, and Adrian Hobden, President of Myriad Pharmaceuticals. I will begin the discussion this morning with a brief review of the past quarter, and will be followed by Mr. Moyes who will discuss 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 portion of the call. 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 these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on form 10-K, 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 actual results to differ materially from those contained in our projections or forward-looking statements.

Our third fiscal quarter was outstanding, as we once again achieved record revenues, record gross profit margins, and record operating profits. As a result of our increased sales and marketing efforts and the exceptional clinical value of the information from our molecular diagnostic tests, we enjoyed a significant increase in customer demand. Molecular diagnostic revenues for our third fiscal quarter grew 11% over the previous quarter to $38 million. This represents the second consecutive quarter this year that has achieved a double-digit, quarter-to-quarter growth rate. This double-digit, quarter-to-quarter growth rate was achieved with each of our four cancer products.

Based on our present growth rate, our molecular diagnostic business should approach $200 million next year. Based on the recent adoption of more efficient procedures in our laboratory and the introduction of new software and robotic applications, our gross profit margins continued to improve to 80% as compared to 72% for the same quarter one year ago and 78% for the prior quarter this year. Since the gross profit -- I'm sorry, since the growth in gross profit margins was achieved through permanent technology improvements, we believe that these pharmaceutical-like profit margins are sustainable and will likely continue into the foreseeable future.

Our production efficiencies were matched by productivity gains in the administrative area, including the installation of a new, highly automated electronic billing system. As a result, net profits -- operating profits, for the molecular diagnostic business advanced to $16 million for the quarter ended March 31, 2007. A 69% increase in operating profits over the same three months in 2006. Even with the increased drug development costs associated with initiating two pivotal, Phase 2 clinical studies for Azixa, and the completion of enrollment of our second Phase 3 study for Flurizan, we recorded a modest net loss of only $5.9 million for our third fiscal quarter, as compared to $9.6 million for the same quarter last year. As Jay will discuss in further detail, $2.1 million of non-cash stock option expense is included in that quarterly loss figure of $5.7 million [sic -- see Press Release].

Our conservative financial philosophy coupled with the cash generated from our profitable operating business has enabled us to maintain a cash balance of over $300 million. This strong cash position allows us to aggressively pursue the development of exciting, new first-in-class therapeutic compounds. During the third fiscal quarter we successfully completed the enrollment of our global Phase 3 clinical trial for Flurizan in Alzheimer's Disease. This trial was enrolled ahead of schedule and has been well received by both patients and physicians. Additionally, Flurizan will complete the US Phase 3 study next year, and we anticipate reporting top line results in the second calendar quarter of 2008. If successful, we intend to submit an NDA to the FDA for Flurizan by the end of next year, and based on the FDA's approval a disease-modifying Alzheimer's drug could be on the market as early as 2009. If our global Phase 3 study is successful, we will be submitting an MAA for Flurizan to the EMEA for European approval approximately six months after our NDA submission.

Azixa is currently in two pivotal Phase 2 trials, and we plan on initiating a third Phase 2 trial this quarter. In our Phase 1 studies, almost 40% of the cancer patients that received a therapeutic dose of Azixa showed a positive response to this exciting, new treatment. Azixa addresses the challenges of both primary and metastatic brain tumors, for current survival rates are measured in months, not years. Because of the poor prognosis for these cancers, it is not expected that these will be lengthy clinical studies. Given the fast track status afforded cancer drugs, if one of these trials is successful, it is quite possible that Azixa could beat Flurizan to the market. These two first-in-class, late-stage drugs are backed by a robust, earlier stage therapeutic pipeline.

We continue to believe that our molecular diagnostic and therapeutic businesses complement each other nicely. In addition they leverage both our strong research capabilities in genetics and our existing sales and marketing infrastructure. Our goal is to provide our shareholders with significant upside on the therapeutic front while mitigating any downside risk with our growing profitable molecular diagnostic business. In this regard, Myriad appears to represent a unique investment opportunity. Now it is my pleasure to introduce our CFO, Jay Moyes.

Thank you, Pete. It certainly is a pleasure to present a more detailed look at Myriad's exceptional financial results for our third fiscal quarter ending March 31, 2007.

As Pete mentioned we are very pleased to report that molecular diagnostic revenues this quarter have once again hit a record. Molecular diagnostic revenues for the quarter ended March 31, 2007, were $38 million. This rep -- this result represents an 11% sequential increase over the prior quarter ended December 31, 2006, and a 41% increase over the same quarter in the prior year. Further, molecular diagnostic revenues for the nine months ended March 31, 2007, are up 44% over the same nine-month period of the prior year. Our record $38 million in molecular diagnostic revenue also exceeded the analysts' consensus forecasts by over $2 million. Total revenues for the quarter which include both molecular diagnostic and research revenues were $41 million, and also exceeded the Thomson First Call consensus revenue estimate of $38.5 million.

Our sales force expansion in the women's health market continues on schedule. We now have approximately 40 women's health specialists selling all four of our molecular diagnostic products. The sales specialists in the northeast have the added responsibility of educating physicians about BRACAnalysis in preparation for the direct consumer campaign that will commence later this fall. As Pete indicated earlier, sample flows to date indicate that molecular diagnostic revenue should continue to grow in our fourth fiscal quarter.

Our gross profit margin on molecular diagnostic revenue this quarter was 80%, a sequential increase of 2 percentage points over the 78% margin last quarter and an increase of 8 percentage points over the third quarter of the previous year. We should see continued improvement in our gross margins over the next few quarters result of the new technologies in our laboratory. Later in the call, Dr. Critchfield will discuss some of these exciting new technologies including the successful conversion of our laboratory information system from Cybase to a fully integrated Oracle data base.

The significant earnings contribution of our molecular diagnostic business for the quarter ended March 31, 2007, amounting to $16.9 million before taxes, depreciation, amortization, continues to improve. This result represents a 66% increase over the same quarter of the prior year. Further, the net operating margin of our molecular diagnostic business was 43% for the quarter, which is a significant improvement over the 36% operating margin generated in the same quarter of the prior year. Although we expect to see continuing productivity gains in sales and customer service, the costs associated with our recently commenced direct-to-physician campaign and our upcoming direct-to-consumer campaign, may temporarily limit the improvements we had experienced in our operating margins. Nevertheless, we believe these campaigns will positively impact our long-term top line growth and ultimately increase our operating profits.

Accounts receivable collections, as mentioned by the number of day sales outstanding, was 60 days for the quarter ending March 31, 2007, compared to 69 days for the same quarter of the prior year. This substantial improvement is a direct result of the continued dedication and expertise of our talented internal billing and collections team. Research and development expenses for the quarter ended March 31, 2007, was $23.4 million. This represents a 7% increase over the same quarter in the prior year and was primarily comprised of the costs associated with our six human clinical studies. The largest component of these costs was associated with our two Alzheimer's Disease clinical trials including our 1,684 US patient Alzheimer's Disease trial, which is the largest Alzheimer's clinical trial ever undertaken, as well as the 840-patient global trial, which completed enrollment during the quarter ended March 31, 2007. We have also made significant expenditures in the late stage preclinical development of our other drug candidates including HIV. Additionally we continue to invest heavily in developing new molecular diagnostic products and plan on launching two new products later this year. Since we expect to move additional drug candidates into the clinic and advance our clinical drug programs as well as develop new molecular diagnostic products, we believe our research and development expenses will continue to grow modestly over the next several quarters.

Selling, general, and administrative expenses for the quarter ended March 31, 2007, were $19.1 million, compared to $12.3 million for the same quarter in the prior year. The 55% increase over the third quarter of the -- of fiscal 2006, was primarily attributable to the expenses incurred to support the 41% growth in our molecular diagnostic revenues including sales commissions for the commencement of our direct-to-physician marketing campaign, the addition of several OB-GYN sales representatives, our therapeutic development efforts, and a substantial amount of non-cash stock option expense. Additionally, in January we began occupying a new 70,000 square foot facility located on our campus in the research park. 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, growth in molecular diagnostic revenue, and future stock option grants.

Our net loss for the third quarter ending March 31, 2007, which includes $2.1 million of stock option expense, was $5.9 million or $0.14 per share. This favorable result represents a 39% improvement over the same quarter in the prior year, which was $9.6 million or $0.24 per share, and handily beat the Thomson First Call consensus for loss per share of $10.2 million or $0.26 per share. Please recall that the Thomson First Call consensus is a blended average that currently includes some estimates incorporating stock option expense and others that do not. Stock option expense attributable to the third quarter of fiscal 2007 was $0.05 per share compared to $0.02 per share for the third quarter of the prior year. Cash, cash equivalents, and marketable investment securities were a healthy $304.3 million at March 31, 2007. This compares to $229.3 million at March 31, 2007 [sic].

We again point out that Myriad has no debt and no convertible securities, and the total number of shares outstanding at March 31, 2007, was a modest 43 million shares. Thank you for your attention. I will now turn the conference call over to Dr. Gregory Critchfield.

Thank you, Jay. It is a great pleasure to speak with you today about our molecular diagnostics business. As Pete and Jay have discussed, our third fiscal quarter revenue for our molecular diagnostics business was $38 million. A 41% increase over the same quarter last year, and an 11% quarter-to-quarter increase during this fiscal year. It is notable that the company has now exceeded the revenues posted for our entire record fiscal year 2006, with $103 million during the first three quarters of this year, versus $100.6 million for all of last fiscal year. The growth of this business has been accomplished by a steady improvement in profitability, with the operating profit reaching $16 million during the last quarter, an increase of 69% compared to the same quarter last year. We are contributing an increasingly significant amount of cash to help fund our clinical trials and other programs within Myriad. Indeed, we are currently contributing approximately $5 million in monthly operating cash flow from our molecular diagnostics business.

Despite a 41% increase in revenue, costs of revenue remained almost the same as that of quarter three, fiscal year 2006. Again, demonstrating the significant improvements made in our laboratory. We have previously discussed the implementation of higher-density capillary sequencing instruments. During the last quarter, we upgraded a portion of our robots to significantly more efficient robotic platforms and plan on continually upgrading the rest of these through this current quarter next year. We have made additional process improvements through continued Lean systems, quality training, and implementation. These Lean systems improvements have led to lower rework rates, thereby increasing efficiency. Finally in the information technology area, we recently completed an important enabling transition by moving our entire data base platform on to Oracle. This change now provides us with what is termed a fault-tolerant hardware environment. Maximizing total system availability -- hardware availability, massive scalability of our systems as we continue to grow our testing volumes, and a hardened test environment to develop future improvements in our systems. In addition, the move to an Oracle data base platform enables Myriad to leverage its data and software applications across the entire company, yielding greater efficiencies. We feel that all these efforts, both in our operations and our information technology architecture, position us well to support the exceptional growth we are experiencing.

The increase in testing volume has been driven by sales and marketing efforts to educate new physicians of the clinical value of our products and to broaden utilization among current physician customers. Because of these efforts, we continue to see excellent incoming sample flow, the major contributor to the top line growth of our business. Our strategy to grow revenue through expansion into the OB-GYN market is also succeeding, as we see strong sales growth with rates that are at least equal to those of our oncology territories.

As we have previously discussed, Myriad is planning on launching a direct-to-consumer advertising campaign in the northeast United States in September of this year. We believe that this DTC campaign will create greater urgency among consumers to visit their doctors and learn about their hereditary cancer risk. The first phase of this initiative, which began in January, is the physician education phase or DTP campaign. The direct-to-physician campaign prepares doctors in advance of the fall direct-to-consumer launch. We are actively involved with the American College of Obstetrics and Gynecology chapters to discuss effective means for educating OB-GYN physicians. Our advertisements for the DTC campaign have been tested with focus groups and opinion leaders and they appear to have a greater impact than during our first pilot campaign. We have seen a 54% increase in our customer base from a year ago. This is continued evidence that our testing is being incorporated into mainstream medical care. All of our sales and marketing efforts are focused on increasing the number of physician practices who routinely identify candidates for testing and a number of patients seeking testing services in those practices, giving patients greater access to these vital services.

A major change in guidelines for breast cancer screening was recently announced by the American Cancer Society. Based upon six prospective studies conducted in the Netherlands, the United Kingdom, Canada, Germany, and the United States and Italy during the mid to late 1990s, the significant benefit of MRI over conventional mammography for women at increased risk of breast cancer was determined. Participants in each of the six major studies had either a documented BRCA-1or BRCA-2 mutation or a very strong family history of breast cancer. Overall, the studies found high sensitivity for MRI, ranging from 71% to 100% versus 16% to 40% for mammography in these high-risk populations that participated. The new American Cancer Society guideline unequivocally states, quote -- Any woman with a BRCA-1 or BRCA-2 mutation, should be considered high risk and in women with BRCA mutations, MRI has demonstrated superiority to mammography. Therefore, to the best our knowledge, MRIs should be performed annually. The implications for BRACAnalysis testing are clear. It is important to know who has a BRCA mutation and such a person should undergo screening -- early screening with the more sensitive MRI. BRACAnalysis is the test that determines who carries these mutations and who should be tested by MRI.

During this past quarter, the growth of our molecular diagnostics business was supported by more scientific studies that emphasized the value of testing, by professional organizations that recognize the importance of educating physicians and the public about cancer detection and prevention, and by improvements in our operations and information technology infrastructure. Myriad's molecular diagnostics business is succeeding because testing information is pivotal in managing the high risks individuals have for cancer. We feel that our increased efforts on the OB-GYN market segment is generating success and offers excellent growth potential.

Myriad is also focusing on launching two new molecular diagnostics products. We anticipate launching the first of our two new molecular diagnostic products this summer. Our molecular diagnostics products make a difference in the lives of individuals and families at high risk for cancer. We are pleased to be helping more individuals as this business continues to grow. Thank you. I'd like now to pass the microphone to Dr. Adrian Hobden. Adrian?

Thank you, Greg, and good morning. The last quarter has been a very busy and productive period for Myriad Pharmaceuticals. We submitted two Phase 2 protocols to the FDA for Azixa and are close to submitting a third protocol. We also completed enrollment in our second Phase 3 trial for Flurizan.

As you will recall, Azixa has very exciting characteristics which lead us to believe that it should have utility in the treatment of brain tumors. The compound is a highly potent, two blend, binding agent that induces apoptosis in cancer cells. It is not a substrate for multiple drug resistance problems and readily crosses the blood-brain barrier. In fact the concentration of Azixa in the brains of animals was 14 to 15 times higher than the plasma concentration. Animal studies and data from the two completed Phase 1 studies show that Azixa is also able to disrupt the vasculature, supplying blood and, therefore, oxygen to the tumors. Furthermore because of this unique dual mode of action of Azixa, we were able to demonstrate synergy between Azixa and other chemotherapy agents such as Cisplatin. This data was presented at the recent American Academy of Cancer Research meeting. The Phase 1 studies successfully identified a maximum tolerated dose for Azixa, and showed clear evidence of activity against a variety of cancers including melanoma, breast, lung, pancreas, and testicular. As Pete mentioned we saw activity against both peripheral and brain metastasis. We will be presenting clinical data from the Phase 1 studies at the next American Society of Clinical Oncology meeting.

The Phase 1 did not include patients with primary brain tumors, but we have shown that human brain tumor cell lines are exquisitely sensitive to Azixa with I.C. 50's of less than one nanomolar. We've initiated a Phase 2 study of Azixa, in late stage Glioblastoma, in which we will compare its activity alone versus Oxaliplatin alone, or a combination of Azixa and Oxaliplatin. Our second Phase 2 study, is looking for an effect of Azixa versus Temozolomide, or a combination of Azixa and Temozolomide against brain metastasis in patients whose primary brain -- primary cancer was melanoma. In both trials the primary end point is overall survival and the secondary is progression free survival.

Unfortunately, the prognosis for individuals with these diseases is very poor. They have no therapeutic or surgical options, and life expectancies as short as 8 to 12 weeks. Furthermore, the incidence of brain metastasis in melanoma patients is very high. Up to 90% of patients at postmortem are revealed to have brain metastasis. If Azixa works in these patients, the effects should become apparent quickly. And we believe that we may be able to submit for NDA approval off of these single studies.

Our studies with Flurizan continue to progress rapidly. In March we completed enrollment of the second Phase 3 study in mild Alzheimer's Disease. This global study enrolled a total of 840 patients in 10 western European countries, Canada, and the United States and took just over six months to enroll. We were both surprised and delighted by the speed of enrollment. We believe the speed reflects the appreciation by investigators, patients, and caregivers of the exciting data from the Phase 2 study and the apparent good safety profile of Flurizan. Our investigators tell us that they are unable to differentiate drug from placebo patients based on side effect profiles.

The global study will finish about six months after the US study. We understand from our discussions with the FDA that it may be possible to submit an NDA based solely on the results from the first Phase 3. Therefore, our current projections are that we could submit an NDA for Flurizan as early as fall 2008. Since the European regulatory authorities, the EMEA, may want to see data on patients in Europe, we currently plan on submitting an MAA for Flurizan six months after submission of the NDA. As you may recall, Flurizan has the ability to inhibit as much as 75% of the production of amyloid beta 42. Amyloid beta 42, also referred to as A-beta 42, is a toxic molecule that most people believe is the root cause of Alzheimer's Disease. This is the so-called amyloid hypothesis of Alzheimer's Disease and is supported by a huge amount of data from human genetics, transgenic animal studies, and the observed toxicity of A-beta 42 against neurons in culture.

In principle, there are three ways that it would be possible to design a drug to counteract the toxic effects of A-beta 42. You can inhibit the production of A-beta 42, the Flurizan approach. You can enhance the appearance of A-beta 42 using, for example, antibodies that bind to A-beta 42. Or you can antagonize the toxic effects of A-beta 42 by, for example, preventing its aggregation. In principle, each approach could be successful and drugs from each class might give additive benefit against Alzheimer's Disease. However, there are expected differences in side effect profiles and the likelihood of success.

The pathogenesis of Alzheimer's Disease involves several critical factors. First, A-beta 42 disables and then kills human brain cells. We believe that this is the primary factor in the memory loss and cognitive decline of Alzheimer's patients. Second, A-beta 42 is an insoluble peptide and aggregates to form the senile plaques that are the hallmark of Alzheimer's . Finally, A-beta 42 is responsible for the hyperphosphorylation of a protein called TALE, which forms the tangles.

So, accumulation of A-beta 42 is the primary culprit in Alzheimer's Disease causing neuronal cell death, plaques and tangles. Under the amyloid hypothesis, drugs with different mechanisms will show different levels of efficacy. For example, a drug that prevents the production of A-beta 42 will address all three pathogenic factors and may likely be more effective than a drug that clears the toxic peptide after it has been produced. Or one that antagonizes the effect of A-beta 42. Most people agree that the more pathogenic factors a drug addresses the more likely its chance to show efficacy. Failure of one drug would not speak to the chances of its success for another drug in a different class, nor disprove the amyloid hypothesis. In contrast, success of a drug in these categories would provide support to the amyloid hypothesis but would not predict the chance of success for a different drug.

Of course, it is not enough to simply demonstrate efficacy against Alzheimer's Disease. One must also do it with an acceptable side effect profile. We now have patient exposure data for Flurizan on over 1,500 patients. Furthermore, our two data monitoring committees meet quarterly and see unblinded safety data. They have not brought any concerns to our attention. Our Phase 2 study allowed us to make some informed decisions about the design of our Phase 3 trials. We were able to determine the effect size against a number of clinical outcome measures and determine the effect over time. We were able to choose the most effective dose for the Phase 3 trial and were able to determine that mild Alzheimer's patients had both the biggest benefit and the earliest onset of an effect. Thus we enrolled only mild Alzheimer's patients in our two-arm Phase 3 study. If Flurizan proves to be effective in our Phase 3 studies, the obvious extension of use for it would be into very mild Alzheimer's Disease, which is sometimes referred to as mild cognitive impairment or MCI. If we could stop the disease at this stage, people should live longer, fuller, and more independent lives. Thank you for your attention, I will now hand back to

Thank you, Adrian, and now I will turn it back to the operator for the Q & A portion of the call.

(OPERATOR INSTRUCTIONS) To ensure adequate time for all questions, we request that you please ask only one question and with a brief follow-up question if necessary. If you would like to ask any additional questions, please re-enter the queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Geoff Meacham from JPMorgan.

Hi, guys, there is Joe Ellis, actually pitch hitting for Geoff today. First of all, congratulations on the good quarter. And I wanted to just ask you a quick question about your PM business -- the predicted medicine business. Obviously you've had above-average growth over the last couple of quarters. And although I realize that you don't usually do a breakdown of the different components of the PM franchise, I just wanted to kind of get a feel from you guys whether the BRAC analysis component, whether or not any increased uptake may be disproportionately responsible for that growth. Thank you.

Thank you. As we mentioned in the conference call, we've seen exceptional growth across all four of our product lines. The breast / ovarian cancer product, the colon / uterine product, and the melanoma product. So, we've seen excellent growth in all areas. I do think this quarter we benefited in particular as Greg mentioned from the MRI study. Which is looking at, of course, the breast cancer results.

Yes, I think that it's important to understand that all of our products are experiencing growth. I believe tat -- that this is part of the general trend that physicians are beginning to understand that -- that molecular diagnostics in particular, the genetics of predictive medicine, are important for their patients. What we're seeing is that physicians are routinely asking questions that pertain to family history and routinely identifying individuals who are at risk. This supports -- helps us to support the growth of all of our products.

Thank you.

Your next question comes from Annabel Samimy with UBS.

Hi, thank you for taking my call, I'm going to ask you a bunch of financial questions actually because we saw that your R&D was probably lower than we might have expected. And I guess, you know, and the SGA was higher. So, the question I have is what kind of R&D buildup might we see in the fourth quarter and through next year as, you know, given that both of your Flurizan trials, which were the biggest trials they're enrolled, and you just started some smaller, adaptable trials for Azixa and for SG&A (Inaudible) in that for the third quarter -- for the fourth quarter when its (Inaudible) campaign actually starts that starts (Inaudible) for that, or (Inaudible).

Thank you, Annabel. Let me start of and then I will ask Jay to provide more detail. The R&D spend was up this quarter but not quite as large as one might expect primarily because we just initiated the two Phase II studies and didn't really incur significant costs associated with Azixa. We will see that increase this quarter and into our next fiscal year. But as Jay mentioned, we see or at least anticipate only modest increases in the R&D spend. From the standpoint of the SG&A as Jay mentioned, there are two components in there in particular that caused the SG&A to be up a little bit more than one might expect. The first was the direct-to-physician campaign which proceeds the direct-to-consumer marketing campaign. That was significant in the third quarter, and we'll see that continue into the fourth quarter and through the summer, in anticipation of the direct-to-consumer marketing campaign which will start on September 1. The other component, of course, is the non-cash stock option expense, under 123 R. And as Jay mentioned, that was about $2.1 million this quarter.

And I don't know that I can add a whole lot to that, that shows the exquisite knowledge of our CEO.

When we talk about increases for next year, are we talking modest increases or (Inaudible) noticeable bumps that we see for the GTC campaign, for example?

Well, I think it's going to be more modest. There's nothing on the horizon that I'm aware of at this point.

Okay. For gross margins, to what extent are the new products going to affect the gross margin?

I mean, they'll have an effect on it, but, you know, I think as the -- the bulk of our current sales -- those are going to overwhelm probably the -- at least initially, the newly introduced products. And, so at least in the near term, it probably won't have much of an affect, but, you know, as time goes on it potentially could. Again, though, we price our products, you know, in a value-based format. So, you know, there's -- you know, potentially we may not have a whole lot of impact on that.

Okay. I'll get back in the queue. Thanks.

Thank you, Annabel.

Your next question comes from William Ho with Bank of America.

Hello guys, thanks for taking my call. Just a quick question. I know you raised a bunch of cash this year and you have a strong, healthy balance sheet with $304 million, do you think that is sufficient to take you through the full commercialization if both Azixa and Flurizan was to get to the market or do you have other plans for that cash?

Thank you, Will. As you're aware, we have a strong oncology sales force of 145 full-time, dedicated Myriad sales reps. We call on all of the major cancer centers and most of the oncologists in the country. So we do plan on launching Azixa ourselves. We will not do a joint venture or seek a collaboration with a large pharmaceutical company. We feel very confident in the launch of that product. With Flurizan, we will seek a pharmaceutical partner to access the primary care sales force. But with Flurizan, we do intend to be an active partner in the marketing of that product, and we do intend to build our own neurology sales force of approximately 200 to 300 sales reps. Since we'll take an active role in the sale and marketing of both products, that's a fairly significant undertaking to launch a new pharmaceutical drug. So, if the Phase II study for Azixa or the Phase III study for Flurizan were successful, I would anticipate the company -- based on those successful results, raising additional money to launch those products.

Right. Thank you. I have -- just quickly, can you tell us how many sales -- salespeople you have?

We have 145.

Perfect, thank you.

Your next question comes from Shiv Kapoor with Montgomery & company.

Thanks for taking my question. I have a couple of questions. One on the DTP ad campaign. Can you tell us more about how that was done and how extensive that -- that campaign can be? Were there ads on -- on newsletters, and is most of the $3 million increase in SG&A coming from that?

Shiv, this is Greg. The campaign consists of -- of putting salespeople in the field. And of course we've been hiring to do that. And as Pete mentioned, we -- we've made tremendous progress in getting the number of people addressing that market this year. The other thing that we do, is we identify physician practices based on data. We know which physicians are likely to be early adopter's in large OB-GYN practices. Those are the first tier of individuals that we contact. Our salespeople go out and meet with these individuals. We also have clinical educators that -- that help the physician to understand the educational aspects of how they would identify patients. That -- that portion of the campaign is -- is a very important one. We show them the materials that will be -- that will be part of the campaign, so they are aware of the kinds of questions their patients will be asking, and so that they are prepared to answer the questions that patients have. So, that's sort of the mechanics of what we do in the field. I'll let -- I'll let Jay answer the question on the financials.

Yes, so -- yes, you're right, Shiv, there is an element of cost to the -- the DTV portion in terms of materials and so on. And advertising, we have taken out -- the other thing to remember is that as our sales continue to grow, you know, the commissions continue to grow, as well. And so, you know, it makes logical sense that SG&A is going to increase, you know, quarter after quarter, if for no other reason than that.

Great. One more question on comparing mechanisms. As we all know, "The New York Times" is going to report from results from their Alzheimers drug, Alzamed, in the near future. I think it would be helpful if you can -- if you can remind us what the difference is between Flurizan and Alzamed are, in term of the mechanism of action and also in terms of the trial design.

Shiv, Adrian. Bear in mind that we have no insight into what's happening with New York and Alzamed, beyond that which we read publicly. But the -- the major differences that we see is that the mechanism of action of Alzamed, as we understand it, is the prevention of the accumulation of A-beta 42 into this toxic fibrals which result in -- in neuronal death. Whereas the mechanism of Flurizan, is in the production of A-beta 42. So we prevent A-beta 42 being produced at all, and Alzamed antagonizes the activity, if you like, of A-beta 42. And both are legitimate approaches to the issue. We have to think about the absolute amount of drug that you would need to do that. Flurizan would be acting on just the amount of enzyme that's there, whereas Alzamed would have to work on all of the A-beta 42 that's produced. And so, there needs to be a molar equivalent of Alzamed for each A-beta 42 molecule, if that makes sense. Where as you don't need as much for Flurizan. At another level, there is a -- a known mechanism of transport of A-beta 42 to and from the brain through the CSF and into the plasma. And there were many people who would argue that if you would use A-beta 42 in the plasma, you will have a consequential effect on A-beta 42 concentrations in the brain just by a mass effect. Whereas -- as far as I can see, the Alzamed -- Alzamed would have to get into the brain in order to work, since that's type -- thats the sight of activity of A-beta 42. Those are -- so those are major differences. In terms of the study design, our study is mild Alzheimer's patients only, that is MMSE20 to 26. And it's a two-arm trial. Just the one dose of Flurizan versus placebo, and the US Phase III trial is 1,684 trials, the global study is 840 patients. So, in other words saying it is about 800 patients per arm in the US Phase III and 400 patients per arm in the global study. Alzamed is mild and moderate Alzheimer's patients. I think MMSE16 to 26. Three arm study, two doses of drug and placebo, and the US study was 1,052 patients. So 350 patients per arm. So that's 800 patients per arm versus 350 patients per arm if you want to look at it in terms of power, and also only mild versus mild and moderate. To the best of my knowledge, the second Alzamed trial has not enrolled -- fully enrolled its patients yet. So we don't know what final number of patients will be enrolled in the study. But the design, the objective was to enroll 900 -- 950 patients, I think. So somewhat less than the number in the US Phase III study. But again, mild and moderate patients. And both are 18 months in duration. All are 18 months in duration.

Thanks, Adrian that's really helpful understanding that these compounds are really different and the study designs are also -- probably very different. Thanks.

Your next question comes from Charles Duncan with JMP Securities. Mr. Duncan, your line is open. There is no response from Charles Duncan. You next question will be from Annabel Samimy, with UBS.

Thanks for taking my call again. A couple of quick questions. On Azixa, I'm sorry, did I miss what you had said in terms of activity that you saw in patients? I think you said something about 1/3 of patients so some kind of clinical benefit and was that in the Phase I or is that something -- I don't think that you have seen that in the Phase II, right?

Correct. That was in the Phase I study. As Adrian mentioned the Phase I data will be presented at ASCO. And, what I said about the data was that approximately 40% of the patients who received a therapeutic dose of Azixa, exhibited a response based on the activity of the drug.

Okay. This was either a partial response or a complete response, not necessarily stable disease, right?

Correct.

Okay, and then really quickly. On the molecular diagnostics, are the -- the new tests that are being introduced, are they in the oncology area again, or have you -- are you spanning outside of oncology?

We haven't actually said much about the new tests, and we do that for a variety of reasons. The most person one, we don't want to preannounce the launch of a test, have patients run to a physician and ask questions of the physician before we've had an opportunity to work with the physicians and educate them on the utility and the value of the test. We have said in the past, however, that we were working on a number of potential opportunities in both the oncology area and areas outside of oncology. In particular we're looking at a variety of opportunities in the area of prostate cancer, in the area of pancreatic cancer, but also non-oncology areas such as depression and diabetes. And, you know, really have to just wait until we actually launch the -- the test, as Greg mentioned. This summer we'll launch the -- the first of the two new product launches.

Okay, great. Thank you.

Your next question comes from Arthur Panko with Bear Stearns.

Hi, Adrian. I -- I would like you really to reconsider the possibility of not partnering Flurizan if it turns out to be a large -- if the trials turned out to be very definitive for this reason. I know a number of neurologists and people in the field, and they say the drug would sell itself. This is how you become an AmiGen or a Genintech, not by taking partials and hoping the other company does a good job. Its in your power to do a good job without the help of anyone else. And that's my -- my view.

Thank you. We appreciate that point of view.

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

I would just like to thank you everyone for participating and listening in on the Myriad Genetics conference call for our third quarter fiscal 2007 results. And this does conclude the conference call at this time. Thank you again.

This concludes today's conference call. You may now disconnect.