Myriad Genetics Inc (MYGN) 2007 Q4 法說會逐字稿

Good morning. My name is Felicia and I will be your conference operator today. At this time I would like to welcome everyone to the Myriad Genetics fourth quarter fiscal 2007 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

Mr. Meldrum, you may begin your conference.

Thank you. Good morning and welcome to the Myriad Genetics earnings call for our fiscal year ended June 30, 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, Mark Skolnick our Chief Scientific Officer, Gregory Critchfield, President of Myriad Genetic Laboratories, and Adrian Hobden, President of Myriad Pharmaceuticals. I will begin discussion this morning with a brief review of the past year and will be followed by Mr. Moyes, who will discuss our financial results. Dr. Mark Skolnick will comment on the launch of TheraGuide 5-FU, Dr. Critchfield will review the Company's molecular diagnostic business, and Dr. Hobden will discuss the drug development activities. At the end of the presentation I will turn the 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 financial performance of the Company. These statements are based on management's current expectations and the actual events or results may differ materially and adversely from those expectations for a variety of reasons. We refer you to the documents the Company files from time to time with the Securities and Exchange Commission, specifically the Company's annual report on Form 10-K and its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that could actually cause results to differ materially from those contained in our projections or forward-looking statements.

I am pleased to report that Myriad had another highly successful year, with major accomplishments from both our molecular diagnostic business and our drug development group. As a result of our increased sales and marketing efforts, Myriad achieved record product revenues of $145 million, record molecular diagnostic operating profits of $60 million, and record gross profit margins of 79%. Our record revenues, which represented a 44% increase over the prior year, were driven by a significant increase in consumer demand for all of our molecular diagnostic products. In fact, all four of our cancer products enjoyed double-digit growth over this past year. We were equally excited about next year, in part because of the recent launch of our first personalized medicine product, TheraGuide 5-FU. While our other products assess a person's risk of developing cancers of the breast, ovary, colon, uterus and skin, TheraGuide 5-FU identifies individuals who have a high risk of suffering severe toxicity with the commonly used chemotherapeutic drug, 5-FU. The market potential for our five molecular diagnostic products now exceeds $1 billion annually.

Technology and informatics improvements in our molecular diagnostic laboratory have improved our gross profit margins to 79% for fiscal 2007 from 73% in our prior year. These improvements included the installation of new 384-lane DNA sequencers, high-throughput, robotics, streamlined [limb] system, and paperless review of all patient samples. Because these are permanent changes to our laboratory procedures, we believe that these pharmaceutical-like margins are sustainable for the foreseeable future. The production efficiency improvements have also enabled us to reduce our average turn-around time for patient results to approximately two weeks. Physicians can now receive the results in time to use the information when discussing therapeutic options with their patient.

Recent marketing efficiencies, coupled with these laboratory improvements, have enabled us to achieve a 72% increase in our molecular diagnostic operating profits as compared to last year. This past year Myriad spent over $100 million on drug discovery research and development, including funding the clinical trials for exciting, new, first-in-class drug candidates for Alzheimer's disease and cancer. In spite of the significant therapeutic commitment, our net loss for the year was only $35 million, an 8% drop from the previous year's loss of $38 million. This represents our fourth consecutive decrease in the annual net loss of the Company, even though our R&D expenses have grown at the rate of approximately 30% per year. This also helped us preserve a healthy cash balance of over $300 million.

The therapeutic progress has been no less spectacular. We completed enrollment of two Phase III clinical studies of FLURIZAN for the treatment of Alzheimer's disease. The U.S. study is the largest Alzheimer's drug trial in the world, having enrolled over 1,684 patients. At the tenth International Congress on Alzheimer's Disease Myriad presented Phase II data showing a dramatic 60% decrease in the number of psychiatric events in the FLURIZAN patients versus the placebo group. In addition to occurring less frequently, the first psychiatric events in the patients on FLURIZAN were delayed by over 200 days as compared to those patients on placebo. In March Myriad presented additional Phase II data at the American Association of Geriatric Psychiatry, showing that over a two-year period approximately one third of the patients on FLURIZAN actually improved in behavior and cognitive ability. Not one single patient who had been on the placebo group improved or even stabilized. This exciting data was presented and based on the physician's assessment of the patient's disease progress as measured by the clinical dementia rating sum of box.

This past year also saw the completion of two Phase I studies on Azixa for the treatment of metastatic brain tumors. This data, which was presented at both AACR and ASCO demonstrated that Azixa was well tolerated with no CNS toxicity and no peripheral neuropathy. All of these patients were terminal with less than six months of life expectancy, so it was not surprising that 93% of the serious adverse events were not drug related. More importantly, 38% of the patients who received a therapeutic dose experienced a positive response as measured by tumor shrinkage, disease stabilization, or disruption of the tumor's vasculature. Azixa is particularly exciting due to its efficacy against drug resistant tumors and its dual mode of action. Azixa is both a vascular disruption agent and a micro tubular inhibitor that has a remarkable ability to cross the blood brain barrier and to enter the brain. We have now moved Azixa into three pivotal Phase II adaptive clinical studies to assess its effect on brain metastasis from lung cancer and melanoma, and on primary brain cancers in glioblastoma. Based on discussions with the FDA we believe we believe that we can submit an NDA on Azixa if any one of these studies demonstrates efficacy in these terminally ill cancer patients.

Our molecular diagnostic and therapeutic businesses leverage both our strong research capabilities in genetics and our exciting and existing sales and marketing infrastructure. Our goal is to provide our shareholders significant upside on the therapeutic front while mitigating any downside risk with our growing profitable molecular diagnostic business. In this regard Myriad appears to be a unique investment opportunity.

Now it is my pleasure to introduce our Chief Financial Officer, Jay Moyes.

Thank you, Pete. It certainly is a pleasure to present a more detailed look at Myriad's financial resorts -- results for our fourth fiscal quarter and year end -- year ending June 30, 2007. As Pete mentioned, we are very pleased to report that molecular diagnostic revenues have hit a new milestone this year. Our molecular diagnostic revenues have topped the $145 million mark, which represents a 44% increase over the prior year and exceeded the financial analysts consensus molecular diagnostic revenue forecast for the year. Molecular diagnostic revenues for the fourth fiscal quarter, amounting to $42.3 million, were 47% ahead of the same quarter of 2006 and represented a $4.3 million or 11% sequential increase over the last quarter. Total revenues for the year ending June 30, 2007, which include both molecular diagnostic and research revenues, were $157.1 million and also exceeded the Thomson First Call consensus revenue estimate.

Most importantly, sample flows to date indicate that molecular diagnostic revenue should continue to grow in our first fiscal quarter of 2008. The average sample flow in June was approximately 1,850 samples per week and has increased to over 2,000 samples per week during the first half of this current quarter. Our gross profit margin on molecular diagnostic revenue this quarter was 82%, a sequential increase of two percentage points over the 80% margin last quarter. The gross profit margin for the year ended June 30, 2007, was 79%, which is an improvement of six percentage points over the gross profit margin in 2006. Although our current gross profit margins are comparable to those of most pharmaceutical companies we could still see some modest improvement over the next several quarters, as volumes increase and new laboratory improvements are fully adopted.

The significant earnings contribution of our molecular diagnostic business for the quarter ended June 30, 2007, was $16.4 million before income taxes, depreciation, and amortization. This result represents a 37% increase over the same quarter of the prior year, even though it includes approximately $1.8 million in costs associated with our upcoming direct-to-consumer campaign. The earnings contribution of our molecular diagnostic business, before income taxes, depreciation, and amortization, for the year ended June 30, 2007, was $62.5 million, an increase of $25.4 million or 68% over the amount reported in the 2006 fiscal year. Additionally, the operating margin of our molecular diagnostic business was 41% for the year, which represents a significant improvement over the 35% operating margin generated in the prior year. Although we expect to see continuing productivity gains, the Company will make significant investment in sales and marketing in fiscal 2008, including costs associated with our direct-to-consumer campaign and the expansion of our OB-GYN sales force. We do believe, however, that these campaigns will have a positive impact on our long-term growth in revenue and operating profits.

Accounts receivable collections as measured by the number of day sales outstanding was 66 days for the quarter ended June 30, 2007, compared to 65 days for the same quarter in the prior year. Based on collections in July and August, the slight increase over last year appears to have been primarily the result of a timing difference. Result -- research and development expenses for the year ending June 30, 2007, were $100.7 million, an increase of 20% over the prior year. Research and development expenses for the quarter ending June 30, 2007, were $26.2 million. This represents an 8% 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 trials. We have also made significant expenditures in the late-stage, preclinical development of our other drug candidates, including our novel HIV drug candidate. Additionally, we continue to invest heavily in developing new molecular diagnostic products and plan on launching at least one additional new product this fiscal 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 will continue to grow over the next several quarters.

Selling, general, and administrative expenses for the year ending June 30, 2007, were $73.3 million compared to $48.5 million for the prior year. The 51% increase over 2006 was attributable to expenses incurred to support the 44% growth in our molecular diagnostic revenues, including: Sales commissions; the commencement of our direct-to-physician marketing campaign; the expansion of our OB-GYN sales force; the launch of our fifth molecular diagnostic product, TheraGuide 5-FU; a substantial portion of noncash stock-option expense; the additional rent associated with our new 70,000 square foot facility; and the initiation of our accelerated sample approval program.

As Greg will discuss, we have initiated a new program to accelerate the insurance reimbursement for our molecular diagnostic products. This has improved our turn around time and customer satisfaction; however, it requires a larger allowance for bad debt. While bad debt expense has increased in fiscal year 2007, it is still a very respectable 4% of revenues. We expect our selling, general and administrative expenses will continue to increase depending on a variety of factors including the number and scope of new product launches, our drug discovery and drug development efforts and our growth in molecular diagnostic revenue and future stock-option grants.

Our net loss for the fourth quarter ending June 30, 2007, which includes $2.5 million of noncash stock-option expense, was $7.8 million or $0.18 per share. This favorable result represents a 32% improvement over the same quarter in the prior year, which was $11.4 million $0.29 per share, and also beat the Thomson First Call consensus loss of $8.7 million or $0.19 per share. Our net loss for the fiscal year ending June 30, 2007, which includes $7.7 million of noncash stock-option expense, was $35 million or $0.85 per share. This compares favorably with the loss of $38.2 million or $1.05 per share in the prior year and also beat the Thomson First Call consensus loss for the year of $35.9 million or $0.86 per share. Please recall that the Thomson First Call con census is a blended average that currently includes some estimates incorporating noncash stock-option expense and others that do not.

Stock option expense for the quarter and year ending June 30, 2007, was $0.06 and $0.19 per share respectively, compared to $0.02 and $0.07 per share respectively for the prior year. Cash, cash equivalents and marketable investment securities were a healthy $308.3 million at June 30, 2007. This compares to $227.7 million at June 30, 2006. We again point out that Myriad has no debt and no convertible securities, and the number of total shares outstanding at June 30, 2007, was a modest 43.4 million shares.

Thank you for your attention. I will now turn the conference call over to Dr. Mark Skolnick.

Thank you, Jay. It's a pleasure for me to provide further details on the personalized medicine research program at Myriad and on the TheraGuide 5-FU molecular diagnostic product that was launched last month. This launch was the result of a comprehensive collaboration between the research, development, and commercial groups at Myriad. The research efforts at Myriad are focused on developing a new generation of products in the area of personalized medicine. This is fertile ground for Myriad's unique blend of technical excellence, large bank of patient samples, and operational expertise. We have focused our initial attention on cancer for two reasons. The first is the obvious synergy between the new products under development and our existing products. These new personalized medicine products will be sold through our existing sales force, capitalizing on their relationships with physicians and oncologists.

The second reason is even more compelling. As tumors grow and become malignant, they acquire a series of genetic changes that result in changes in expression of many genes and of their corresponding protein. Tumors also have a variety of options for growth pathways that they can follow, turning different genes on and off as they proliferate and become malignant. Current cancer therapies are directed at genes in these pathways. If a gene or neighboring pathway genes have been affected in tumor development, a therapy that targets a gene or its pathway has a much better chance of being successful than if the tumor grew by mutating through a different pathway. Thus, the molecular tools that direct therapies have very high potential for improving patient outcomes.

More than two million people receive 5-FU-related therapy each year, including an estimated 500,000 people in the United States. The chemotherapy drug is commonly used to treat colorectal cancer, advanced breast cancer, and head and neck cancer. Approximately one third of all patients given the drug will experience dose-limiting toxicity that can be very severe, even life-threatening. Up to 60% of these toxic reactions are due to gene variations that limit a patient's ability to break down the drug, resulting in a patient exposure of up to seven times the desired dose. This toxicity can lead to expensive interventions, possible evasion, severe patient discomfort, compromised quality of health, and even death.

TheraGuide 5-FU is the first and only comprehensive test to evaluate the two genes, BPYD and TYMS, for variations that increase a patient's risk for toxicity to 5-FU-related therapy. With TheraGuide 5-FU test results, oncologists and their patients can take steps to reduce the patient's risk of avoidable toxicity, including dosage estimates, more intensive monitoring of side effects, or the use of therapeutic alternatives. TheraGuide 5-FU provides the guidance oncologists need to personalize chemotherapy for their patients who are being considered for 5-FU-related regimes. Myriad's new test, TheraGuide 5-FU, includes a complete analysis of the coating sequence of the DPYD gene, as well as a survey of functional repeats that affect the bene expression of the TYMS gene. A patient's DNA sequence is compared against a proprietary database of variants known to be associated with drug-related toxicity. The test is conducted rapidly using Myriad's proprietary high-throughput sequencing systems, and the result is delivered to the oncologist and patient within seven days, facilitating optimized and safer treatment regimes.

Our initial discussions with physicians indicate a high level of enthusiasm for this test. All new tests take time for broad adoption, as they imply change in the way the physician practices medicine. Fortunately, Myriad has great experience in educating physicians and promoting new standards adopted by professional societies. It's this partnership with our broad technical experience in genetic and molecular technology, automation and informatics, blended with the deep commercial capability, that is positions us ideally to launch this and other important personalized medicine tests into the market for cancer care. We are excited to introduce TheraGuide 5-FU to the medical community. It points the way to the future of personalized medicine, in which a test can guide therapy choice for improved patient care, while limiting the side effects of otherwise efficacious drugs.

Thank you. I'll now turn over the presentation to Dr. Gregory Critchfield.

Thank you, Mark. It's a great pleasure our to speak to you today about our molecular diagnostics business. As Pete mentioned, year-end revenues -- revenue for our molecular diagnostics business was $145.3 million, a new record, representing a 44% increase over our previous fiscal year's revenue of $100.6 million. This was achieved with an 11 3% quarter three to quarter four increase in revenue this past year. The growth of our molecular diagnostics business has been accompanied by a steady improvement in profitability, with annual operating profit reaching $60 million, an increase of 72% compared to last year's operating profit. We are contributing an increasingly significant amount of cash to help fund our clinical trials and other development programs within Myriad.

Despite a 47% increase in revenue in the fourth quarter of fiscal year '07, the cost of this revenue decreased nearly 6% compared to that of quarter four of fiscal year 2006. This continues to demonstrate the significant improvements made in our laboratory. We've continued to implement higher density capillary sequencing instruments. We've also upgraded a portion of our robots to a sufficiently more efficient robotic platform during this current year. In addition we've also made a number of 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, a new Oracle database platform provides us greater reliability, maximizing total system hardware availability with 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. We feel that all of these operational efforts, both in our laboratory operations and our information technology architecture, position us well to support the exceptional sample 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, as Jay mentioned, we continue to see excellent incoming sample flow, the major contributor to the top-line growth of our business.

At the end of Q4 we initiated a substantial expansion of both our oncology and women's health sales forces to increase the penetration of both of these market segments. Specifically, we will be adding 34 new oncology field personnel and 15 new women's health personnel. We anticipate that our field sales personnel will exceed 200 individuals by the end of the first quarter this year. Recruiting efforts have been successful, and we're currently training the largest and most talented oncology sales class in our corporate history. This large sales force expansion will allow us to substantially increase the penetration with medical oncologists and thereby increasing the adoption rate of our new TheraGuide 5-FU test. In addition, the additional penetration with surgeons should also increase the uptake of our hereditary cancer products by taking advantage of favorable professional society guidelines. 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 Jay mentioned, we are also undertaking an exciting new initiative to improve customer service by streamlining insurance reimbursement process and speeding the delivery of test results to our patients. This new initiative builds on the excellent progress we've already achieved in reducing in-laboratory turn-around time and includes three additional elements; increased contracting with smaller regional insurers for Myriad products, elimination of preauthorization barriers to testing, and reducing front-end processing time for samples. First, increasing regional contracting improves the availability of testing to patients through more contracted insurance plans. To achieve this we have recently increased the size of our managed care group. Second, the elimination of preauthorization removes a logistical barrier to testing and benefits patients. Third, reducing the amounts of time before testing begins decreases turn-around time and helps make vital testing information available sooner to patients and doctors. We're applying lean systems and other paradigms to help us achieve these efficiencies. We believe that the modest increase in bad debt is more than balanced by the increased revenues made possible by this third element of our new strati -- of our new initiative.

We are looking forward to the upcoming direct-to-consumer advertising campaign that will be launched in the northeast United States in September of this year. We believe that this DTC campaign will create greater urgency among women with a family history of breast or ovarian cancer to visit their doctors and to learn about their hereditary cancer risk. The first phase of this initiative began in January and is focused on educating physicians through the direct-to-physician, or DTP, campaign. The DTP campaign prepares doctors in advance of the fall DTC launch. The physician education activities include: Professional journal advertising; direct mail outreach; regional education seminars; field-based clinical support; and educational tools for identifying patients in doctor's offices. We have seen a 54% increase in our customer base from a year ago. This is evidence that our testing is being incorporated into main stream medical care. To further support these activities we are working with professional organizations, including groups like ASCO, AMA, ACOG and others. We've also spoken with government and policy groups, advocacy organizations and insurers so they are prepared as the fall campaign launches.

In September the consumer advertising phase will be launched, reaching out to women between the ages of 25 and 55 who have a strong family or personal history of breast or ovarian cancer. Activities to promote consumer awareness will include: Television advertising; shows like Oprah and Dr. Phil; radio spots; magazine advertising to include a People Magazine hereditary cancer supplement; printed materials for health spas, hair salons and physicians offices; as well as web promotion.

We are very pleased with the launch of Myriad's fifth molecular diagnostic product, TheraGuide 5-FU. 500,000 prescriptions for drugs containing 5-Fluorouracil are used to treat patients in the U.S. every year. Severe dose-limiting toxicity occurs in as many as 30% of individuals taking 5-FU. There is a critical need to identify those individuals most likely to have adverse toxic reactions. TheraGuide 5-FU will give critical information to physicians to identify the high-risk patients and help them individualize the dose of 5-FU that they give to these patients. Our oncology sales force currently calls on medical oncologists, the primary prescribers of the 5-FU drugs. The message to these physicians is that the only way to identify patients most likely to experience toxic reactions to 5-Fluorouracil is through the complete genetic analysis that TheraGuide 5-FU offers. They can use this information to personalize the approach to a patient and to give better treatment to all. An additional benefit of launching this new product is that we believe we will have the opportunity to access a new set of physicians that the may not be using our current products, generating sales of both TheraGuide 5-FU and our predictive medicine products.

On the insurance side we've made excellent progress in obtaining coverage for TheraGuide 5-FU. As you know, we have a large number of contracts for Myriad products with insurers. Our insurers have been contracted concerning the addition of TheraGuide 5-FU to the list of their covered products. Our expectation is that broad insurance coverage will be obtained for TheraGuide 5-FU. Our molecular diagnostic products make a significance difference in the lives of individuals at high risk for cancers, and in treating cancers. We are pleased to help 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. This morning I'm pleased to be able to discuss our third Phase II protocol for Azixa. We will examine the effect of Azixa, either alone or in combination with temazolimide upon the overall survival in patients whose primary tumor was non small-cell lung cancer and whose disease has now spread to the brain. Typically this primary tumor type has a very high incidence of brain metastases, 80% or more, and upon detection of brain metastases, the patient's life expectancy is six months or less. Almost 200,000 people will be diagnosed with year in the United States with non small-cell lung cancer, and there is no FDA-approved treatment for the brain metastases that arise in these patients.

As you will recall, Azixa has a 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 tubulin binding agent that induces apitosis in cancer cells. It is not a substraight for multiple drug resistant pumps 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 datas and data from the two completed Phase I 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 platin. This data was presented at the recent American Academy of Cancer Research meeting and can be viewed on our website.

The Phase I studies not only successfully identified a maximum tolerated dose for Azixa, but also showed clear evidence of activity against a variety of cancers, including melanoma, lung, breast, pancreas and ovarian. We saw activity against both peripheral and brain metastases from a variety of tumor types. In fact, of the 32 patients who actually received a dose of Azixa that was high enough to show biological activity, 38% responded as determined by tumor shrinkage or disruption of the vascular tumor. This was a very encouraging result, since typically the patients in the study were terminal cancer patients with an average life expectancy of about four months and who had been treated with and subsequently failed five to seven different drugs before enrolling in our studies. Most likely the resistance of the patient's tumors to this large range of chemotherapy agents was as a result of the up regulation of multiple drug resistance pumps.

We were also very encouraged by the safety data in the study. Only four of the 55 serious adverse events in the trial were judged by the investigators to be possibly drug related, the remainder being a consequence of the disease itself. At the maximum tolerated dose the only apparent adverse event was a transient rise in blood pressure, which was readily managed by antihypertensive medicines. All the clinical data from the Phase I studies was presented at the recent American Society of Clinical Oncology meeting and can be viewed on our website.

I am now going to spend a little time talking about FLURIZAN. As you're aware, we have two large Phase III trials fully enrolled and ongoing. The U.S. Phase III trial will complete in the clinic in March 2008, with results expected before mid-year 2008. This study is now over 90% complete in terms of the data that is collected throughout the study, and the data monitoring committee has still not identified any safety concerns. Patients who complete the full 18 months of the trial are eligible to enroll in an open-label study where they are certain to receive FLURIZAN. To date over 80% of eligible patients have continued on in this study. They will be receiving drugs indefinitely.

As recent international conference on the prevention of Alzheimer's Disease, which was held in Washington, D.C. in June, Myriad employees presented posters on a novel method of analysis of data from Alzheimer's Disease trials. This novel analysis allows data from a trial to be analyzed, both for the symptomatic and disease-modifying effects of a drug on the disease. Unlike other trial designs, there are few special requirements for this new method of analysis, which makes the trial design simple and practical. The trial can be a simple parallel design without the use of randomized withdrawals or staggered starts. Outcome measures can be the established and FDA-approved outcomes such as ADAS cog. There is no requirement to improve biomarkers or imaging outcomes, which are unvalidated and currently not accepted by the FDA.

Finally, the study needs to be at least 18 months in length and with sufficient patients to provide the statistical power for such an analysis. We believe our U.S. Phase III study easily meets all of these requirements. The posters were very well received at the conference and we expect this analysis to be adopted by many other companies initiating future Phase III trials in Alzheimer's Disease. The concept poster is currently viewable on Myriad's website in the FLURIZAN section. Myriad expects to incorporate this novel analysis into our prospectively-defined statistical analysis plan for the Phase III trial and is currently in discussion with the FDA about this and other aspects of the analysis, including the use of the U.S. Phase III trial as a single trial for NDA approval. We are actively preparing to submit an NDA based on the results of the U.S. Phase III trial. Of course, the results of that study are critical to the outcome of FDA review. However, there are a large number of other clinical and nonclinical studies that have to be performed to support the NDA. Myriad intends to have all necessary supporting studies completed and submitted as study reports prior to the results of the U.S. Phase III so that the NDA can be submitted within a few months of the results being known.

I thought this morning I would share with you a feel for the number and diversity of necessary supporting studies. All of these studies are FDA or EMEA requirements of a small molecule drug and do not reflect safety concerns about FLURIZAN. We've had to examine the metabolism of FLURIZAN in a number of clinical settings. In healthy volunteers we have looked at the effects of co-administration of other drugs, which are metabolized by the same P450 enzyme, 2C9. Our findings suggest that FLURIZAN does not interfere with the metabolism of those other drugs. This was a very important and valuable observation. We're also looking for the effects of renal and hepatic impairment on the rate of metabolism with FLURIZAN so that we can provide dosage guidance for patients with these impairments. Those studies will completed -- will be completed within the next few months.

We're also about to initiate a clinical study with a [radial-labeled] drug to look for any evidence for accumulation within the body. Based on nonclinical studies we don't expect to see any accumulation, but it is a study that has to be completed. The range of nonclinical studies is truly astonishing. In addition to the already completed six and nine-month toxicology studies we are finishing off long-term [carcinogetie] studies. Current data suggests these studies will be negative. We're also embarking on a reproductive toxicity study. It is a study that is always required by the EMEA and the Japanese regulatory authorities, but the FDA has told us that it is not required for U.S. approval.

Finally, we have an obligation to examine the impact of FLURIZAN on the environment. These environmental studies include FLURIZAN's effects on microbial sludge, fish and insects. These studies are almost completed, and thus far I am pleased to say that we have not seen an impact and we expect to pass these environmental studies with flying colors. Finally, with the drug tablets themselves we have to examine the physical stability of the tablet and the chemical stability of the active pharmaceutical ingredient of the tablet over a number of years. This is required for all the batches used throughout the clinical studies and represents a huge amount of data. No problems for stability have been seen. All of these studies require both money and man power. However, we have committed to them early because we truly believe the results from the U.S. Phase III will be compelling. Myriad is committed to FLURIZAN and intends to move rapidly to NDA and then to the market. FLURIZAN could be on the market as early as 2009, and we intend to be ready with an instruct -- infrastructure and a specialty sales force to support the commercialization of this very exciting molecule.

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

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

(OPERATOR INSTRUCTIONS) Your first question is from the line of Geoff Meacham.

This is Matt Roden in for Geoff today. Thanks for taking the questions and congrats on a very good quarter. First question is just on SG&A expenses. Can you say whether or not there is anything one-timish in the SG&A expense this quarter or whether or not we should think of that as a new basis for growth going forward?

As we mentioned earlier, we do have DTP and the beginning portion of the DTC costs that are in there that will also be somewhat present in the next quarter and slightly in the quarter thereafter, but those are pretty much the summation of the one-time costs. You also have to remember that when we have an increase of 44% in our revenues that that's going to have an impact as well, because we pay our commissions both quarterly and at the end of the year.

Okay. And I don't know if I missed it, but, Jay, did you mention what the operating margin was for the PM business on the quarter?

It was -- I don't think I did mention it, but it was right around in the 40% range.

Okay. How are you guys thinking about the operating margin for the PM business in fiscal '08?

Well, as we mention --

Jay, let me take that one. We really haven't been as a Company giving guidance. We rely on the research analyst to provide that guidance for fiscal '08.

Okay, fair enough. I guess lastly, a higher-level question, just in terms of how you're thinking about R&D spend after the two large FLURIZAN trials are finished with and how do you think about your investment in R&D going forward after that point?

You're correct in the assumption that our two large FLURIZAN Phase III studies are quite expensive and represent a large portion of the research and development costs. However, Myriad has a very strong pipeline of other drug candidates. We intend to move Vivicon, our HIV drug, based on its mode of action as a maturation and viral budding inhibitor, into the clinic this year, and have a very strong preclinical pipeline, as well as continuing to advance our three Phase II studies on Azixa. I think you can assume that the R&D spend, because of our strong pipeline, will continue to grow in the future. However, as we've noted, despite a 30% growth over the past four year in R&D spend we've actually seen the net loss decrease each year for the past four years as a result of the very strong predictive medicine growth and we continue to be optimistic about the future of that business as well.

Excellent. Thanks for taking the questions and again congrats on a very good quarter.

Your next question comes from the line of Ted Tenthoff.

Great. Thank you so much for taking my question, and my congratulations as well on the good quarter, good year. I guess my questions were more a little bit along the lines of expanding the sales force in the predictive medicine business as well as in the [past[. Can you give us an idea of how the new 5-FU test is being detailed and how that -- a little bit more detail on how that's complementary to the current sales of the hereditary tests?

You bet. The message to physicians is that the way to detect patients at risk for toxicity is to do the complete analysis provided by the TheraGuide 5-FU product, and our oncology sales force was in Salt Lake City for the national sales meeting. They received three days of extensive product training, role playing, and they are out visiting their physician contacts from the moment we launched, and we are seeing sample revenue increasing for that product. This is a very -- the very extensive part of what they've been trained to do. In addition, they're using the opportunity to talk to segments of physicians who have not been users of our current products. And so having the conversation with them about a drug that they can use in helping to select what chemotherapy is best for a patient also opens up the door to detail them on our current products, and both of those things are being done.

That's helpful. Can you describe how the test complies with the new FDA guidelines for molecular diagnostic tests?

Yes. You're probably referring to the latest guidance that was published on July 26th by the FDA. This guidance covers a class of tests called In vitro diagnostic multivariate index assays. They give specific examples of tests that do not fall into this category, that are outside the scope of this document. All of the tests that we currently sell fall outside of it and are not considered by the FDA to fall under this guidance.

And that includes TheraGuide 5-FU?

That includes TheraGuide 5-FU.

Great. Thanks, guys. Congrats.

Your next question is from the line of Charles Duncan.

Hey, guys, let me add my congratulations on a very strong quarter. I wanted to ask you a question with regard to sales growth. Was there any impact -- favorable impact of a price increase, and what kind of flexibility do you have in terms of the pricing for your tests going into '08?

The price increase that we put in place a year ago April was largely in place and was really not a factor in the last quarter that you saw. Myriad reviews -- is pricing periodically, and we make adjustments to pricing as we feel that they are warranted, and we continue to look at this going forward.

Okay. And then if I could ask a question of Adrian relative to FLURIZAN. Very good update on FLURIZAN in terms of time lines. With regard to your statistical analysis plan, have you thought about incorporating potential compounding variables such as changes in other therapies that patients are on and how you'll handle that in your plan?

In the Phase II trial we did, Charles, we had a very good idea of what variance is introduced in the outcome measures based on all of those sort of things, different therapeutic regimes, the consequence of different sites doing the outcome measures, et cetera, and it's really what gives you the -- actually extremely poor statistical power of ADAS cog. And ADAS cog is what drove our -- the variance on ADAS cog was what drove the choice of the number of patients for our clinical study. So we don't think there's anything that we have to do especially to take account of those kind of variables. We've done that already by increasing the -- putting the number of patients into the study for the Phase III trial, and so we're not concerned about that. The only requirement thing that would be a concern, I think, would be if patients go onto or come off cholinesterase inhibitors during the course of the trial. That's not something that is allowable within the trial design, and we had the same rule within the Phase II, but actually didn't see any variation in that. So we don't expect that to be an issue, and we've taken account of all of those things.

Okay. That's helpful. Thanks a ton. I'll jump back in the queue.

Your next question comes from the line of William Ho.

Hey, guys. Congratulations. Thanks for taking my call. A couple quick questions. Actually, first of all, can you tell me again how many sales people did you have at the end of the las -- of this quarter?

The number of people at the end of this quarter is approximately 170.

And that's --

Oh, I'm sorry, are you saying the quarter we just completed or are you saying the quarter in March? I want to make sure I get the right quarter here.

June quarter.

June quarter is about approximately 1 -- 145. Okay. I stand corrected, it was 145 for the end of June.

Okay, and then I guess the next question's for Adrian. With respect to FLURIZAN, is there any concern about the trial being over powered, and what kind of change in ADAS cog can you now detect with statistical significance?

We never regard our trials as being over powered. Well powered certainly. The history of that trial, Will, as you probably remember, was that it started as a 12-month trial and was extended to 18 months, and the consequence of extending it from 12 months to 18 months resulted in an approximate doubling in the power of the study, so it's extremely well powered. It's powered to be able to detect a 20% effect with statistical significance, which is -- or approximately 20%, which is pretty much what we'd regard as the minimum efficacy that you would require. In other words, what would be clinically significant as opposed to what would be statistically significant, so extraordinarily well powered in that respect.

In the more realistic region, which is -- was based on the Phase II trial where we saw effects around the 40% or more level, the P-values would be much less than 0.001, I think, so in that sense it's very well powered. That's important in consideration when it comes to the global Phase III trial, because that is half the patients and it's half the patients because we decided we didn't need a P-value of 0.01 or greater for a -- or less, rather, for a confirming trial. We merely need a 0.05, and so hence the size of that trial. Having said all of that, we do believe we have spare statistical power within the U.S. Phase III trial and we intend to use that analysis for two things. Firstly, we've discussed with the FDA the possibility of splitting the trial from an analysis perspective so that it can be equivalent to two Phase III trials so that we can use that for approval based on a single Phase III trial. The FDA is open to that concept, and that's part of the negotiations and discussion we're currently having with them. The second thing that takes a lot of statistical power is the analysis for disease modification based on what we're calling a natural history staggered start, the concept I was designing -- describing in my presentation and which is on our website if anybody wants to look at it.

Okay, great. And one final question. With respect to Azixa, can you describe what the -- was it four AEs that were deemed -- related to drug [were] and why you're not overly concerned with risk/reward with respect to cardiovascular toxicities?

I wouldn't say that we are relaxed about it. That was the maximum -- that was the dose-limits toxicity, and we reduced the dose to the point where in ten patients -- ten more patients we did not see that dose-limiting toxicity. It wasn't the case that we saw it in all the patients at a higher dose either. It was that's what we saw in a few patients, and that's why we withdrew the dose. That basically was the serious adverse event. So at the dose that we're using in the Phase II trials we did not see -- we did not see that adverse event. That doesn't mean to say that we're relaxed about it. Obviously we will monitor for that in the Phase II trial, but that was our experience in the Phase I trials.

If I can add, the other thing that is interesting about the drug candidate Azixa is its ability to not only cross the blood brain barrier but be actively transported to the brain. The concentration in the brain is about 14 to 15 times greater than that in the peripheral where you would see the cardiotoxicity. So we do believe with the reduced dose we're still getting an excellent therapeutic dose to the site of the tumors where the tumors have spread from the primary tumor to the brain, and yet are comfortable with the safety, given the dose we selected for our Phase II study.

Great. Thank you.

Your next question comes from the line of Annabel Samimy.

Hi. Thanks for taking my call and thanks for the update on FLURIZAN. A lot of my questions were answered there. On Azixa, though, just wanted to get a sense, do you have -- now that you've gone well under way for enrolling to the Phase II trials, do you have any sense of time lines or the fact that it's an adaptive trial design not going to allow to you set any kind of time lines for that?

Thank you, Annabel. We really don't have a good sense for that because as you correctly pointed out, it is an adaptive design and so there's not a set number of patients we enroll, but we monitor the patients and when we achieve statistical significance we can stop the trial. I think at this point in time it's just very difficult for the Company to try to estimate any timing on the Azixa Phase II studies.

And then, again, on Azixa, can you possibly characterize some of the cardiovascular effects and why -- whether they were significant effects or they're just merely signals of cardiovascular effects? And also can you go through the RECIST criteria in terms of what you saw and whether tumor reduction based on the RECIST criteria effect is exactly the best way to look at it and characterize the drug?

So with the cardiovascular event, it was mostly an enzyme -- blood enzyme that showed an indication of some cardiovascular effects. The patients were not severely impaired by it and they certainly recovered perfectly well, but it was a signal which we were able to see in blood enzymes. And again, not to make light of that, that is something which we're aware of, and we look for them, we look for all of our parents only saw in, I think, the four individuals out of 12, and certainly didn't see elevated blood enzymes in the -- at the dose we're working on for the Phase II. As Pete said, if we do see that we could always reduce the dose because we know that we're going to have a therapeutic effect in the brain -- or therapeutic dose in the brain anyway even if we reduce the level of -- from this, but we don't expect to have to do that. We are, after all, looking at brain tumors for effect on brain tumors.

In terms of the RECIST criteria, we're not using the RECIST criteria for the Phase II. We're using overall survival as our primary outcome and time to progress as a secondary outcome, and the reason for that is RECIST criteria really don't work in the context of selectively treating brain metastases because it requires that you look at metastases throughout the entire body. If you saw reduction in the brain metastases in the brain but a progression of a metastases in the periphery, the patient would be deemed to have failed by RECIST criteria and would be withdrawn from the study, which to us makes no sense when the brain metastases is the life-threatening indication that you're trying to treat at the time. So we have decided and have the agreement of FDA that RECIST is not appropriate for a drug of this type.

Great. And that was very helpful. Also, if you can indulge me with one more, with TheraGuide having been launched about a month ago, are you getting any feedback that gives you a sense of how successful the drug -- the tests can be and just in general what kind of feedback are you getting from physicians?

We're in constant communication with the physicians and with our sales force. We're seeing increases in sample flow and the acceptance is meeting our expectations.

Okay, great. Thank you.

Ladies and gentlemen, I apologize but we have reached the allotted time for questions. Mr. Meldrum, do we have any closing remarks?

We just like to thank everyone for participating on the Myriad earnings conference call. We appreciate your attendance, and this does conclude the conference call for this morning. Thank you again.

Ladies and gentlemen, this concludes today's conference call. At this time you may disconnect.