Myriad Genetics Inc (MYGN) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Myriad Genetics fourth-quarter financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, August 19, 2008.

It is now my pleasure to introduce Peter Meldrum, President and Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning and welcome to the Myriad Genetics earnings call for our fourth fiscal quarter and year ended June 30, 2008. My name is Peter Meldrum, and I am the President and Chief Executive Officer.

I am joined today by Jim Evans, our Chief Financial Officer; Gregory Critchfield, President of Myriad Genetics Laboratories; and Adrian Hobden, President of Myriad Pharmaceuticals.

I will begin the discussion this morning with a brief review of the past year and will be followed by Mr. Evans, 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 call back over to the operator for the question-and-answer period.

Please note that some of the information presented here today may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on management's current expectations, and the 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.

The Company was extremely disappointed with the results of a Phase 3 Flurizan study and, as previously announced, has discontinued all development of Flurizan. Because of the additional development risks associated with all CNS disorders, the Company has lost its appetite for further drug development in the CNS area and will now focus its efforts exclusively on cancer and infectious diseases.

These indications -- Myriad is fortunate to have a very strong clinical and preclinical pipeline of novel drug candidates including Azixa, Vivecon, MPC-2130 MPC-3100, MPI-451936, and MPI-461359.

Even with the Flurizan results, I am very pleased to report that Myriad enjoyed another highly successful year, particularly in our molecular diagnostic business. As a result of our increased sales efforts, including the recently completed direct-to-consumer marketing campaign, Myriad achieved record product revenues of $223 million; record gross profit margins of 85%; and record net operating profits of 43%.

Our fiscal 2008 revenue, which represented a 53% increase over the prior year, was driven by a significant increase in customer demand across all of our molecular diagnostic products. In fact BRACAnalysis, COLARIS, and MELARIS all experienced sample flow growth rates of 50% or higher when compared to the prior fiscal year.

We are also pleased that fiscal 2008 saw the launch of our first personalized medicine product, TheraGuide 5-FU. While our other products assess a person's risk of developing cancer later in life, TheraGuide 5-FU guides the therapeutic decision by identifying patients who have a high risk of suffering a severe toxic reaction to the commonly-used chemotherapeutic drug 5-FU. TheraGuide 5-FU has been embraced by oncologists and has exceeded our expectations during its first year of commercial sales.

With this strong product portfolio, Myriad is the global leader in this exciting field of molecular diagnostics. Molecular diagnostics has the potential of saving lives, guiding the healthcare management, and improving the quality of life of patients, and reducing overall healthcare costs.

This critical industry will change the practice of medicine and should grow significantly. The annual market potential for our five molecular diagnostic products approaches $1.4 billion in the United States alone.

BRACAnalysis for the genetic predisposition of breast and ovarian cancer has a revenue potential of over $700 million per year. COLARIS, which tests for the genetic predisposition of colon and uterine cancer, is projected at $360 million per year, while TheraGuide 5-FU is estimated at $270 million per year. Even our smallest product, MELARIS, for the genetic predisposition of melanoma, has a market size of over $50 million per year.

Clearly, the future of our molecular diagnostics business is bright.

Myriad's present hybrid strategy of combining a profitable, rapidly growing molecular diagnostic business with the significant opportunities of a pharmaceutical business has served the Company well. It has enabled us to invest in drug development with the cash flow from our molecular diagnostic business, rather than having to continually go back to our shareholders. As a result, we only have a modest 44.7 million shares issued and outstanding.

This strategy reduced the risk typically associated with more traditional biotechnology companies while preserving the upside of new pharmaceutical product development. Additionally, since the initial public offering, our stock has performed well for our shareholders, appreciating over 600%.

Myriad is now embarked on an exciting new era, one of sustained profitability; and we are going to be viewed very differently by Wall Street as a profitable Company. The challenge facing the Company will be to address Wall Street's growth and earnings expectations without shortchanging our investment in R&D and the long-term future of the Company.

While our hybrid strategy certainly benefited the Company in the past, when we were not profitable, I believe it is incumbent on the Board and management team at Myriad to revisit the strategy in light of the dynamics surrounding a profitable Company. As a management team, our goal will be to recommend to the Board a strategy that maximizes both the potential of our molecular diagnostic business and the opportunity associated with our pharmaceutical research and development programs, thereby maximizing shareholder value.

The strategy must allow the Company to continue its strong revenue and earnings growth, while maintaining its position as a leader in the molecular diagnostics field. It must enable the introduction of new products, both internally developed and those acquired from other organizations. Equally important, it must support a strong commitment to research and development to ensure that we realize the promise of our pharmaceutical candidates.

In determining the future course for Myriad, management will do a comprehensive review and consider a variety of strategic alternatives, including -- but not limited to -- a possible corporate restructuring that would separate the molecular diagnostics business from the pharmaceutical operations as independent operating entities.

To assist the Board in considering and evaluating these alternatives, the Company has engaged the investment banking firm of JPMorgan. JPMorgan and the Company management will be reporting their analysis to the Board of Directors at the fall Board meetings. Of course, the Board will be responsible for determining the most appropriate strategy to move the Company forward in this new era of profitability. We anticipate announcing the Board's deliberations by the end of this calendar year.

Now it is my pleasure to introduce our CFO, Jim Evans.

Thank you, Pete. As Pete has discussed, Myriad's fiscal 2008 and specifically the quarter ended June 30, 2008, have been very significant for the Company. This is also true as we take a more detailed look at Marianne's financial results for those periods.

Myriad's total revenues for the quarter ended June 30, 2008, were $166.9 million as compared to $45.5 million for the same period of the prior year. Total revenues for the fiscal year were $333.6 million as compared to $157.1 million for fiscal 2007.

The first component of total revenue that jumps out is a new line on our income statement -- pharmaceutical revenue. As you will recall, on May 22 of this year Myriad announced that it had entered into a collaboration with Lundbeck, wherein Myriad received an upfront nonrefundable payment of $100 million. At that time, it was determined that the $100 million would be taken into revenue straight-lined over the 15-year contract term.

The intended accounting treatment changed with the June announcement of the unsuccessful Flurizan US Phase 3 trial and the Company's decision to discontinue the development of Flurizan.

While we are engaged in various activities to wind up the discontinued development of Flurizan, some of which have carried over into fiscal 2009, we have determined in consultation with our auditors that as of June 30, 2008, under the terms of the agreement we had no further substantive obligations to Lundbeck. This resulted in our booking the entire $100 million into revenue in the quarter ended June 30, 2008.

I will also point out that on June 30, 2008, Lundbeck announced that it was writing off its $100 million investment in Flurizan European rights.

Beyond the therapeutic revenue, we continued to see impressive growth of Myriad's molecular diagnostics sales. Molecular diagnostic revenues for the quarter were $64.7 million, which is a 53% increase over the same quarter of our previous fiscal year.

Similarly, annual product revenues grew by 53.4% to $222.9 million, or an increase of $77.6 million over the prior year. I will again point out that the growth that we are seeing in testing revenues has been driven entirely by increases in sample flow, which continue to be strong during July and August.

We were pleased to note that both the quarter and annual molecular diagnostic revenue numbers exceeded the average analyst's projections.

Costs to produce the 53.4% growth in molecular diagnostic revenues for the year ended June 30, 2008, increased by only 5% over the prior year. Myriad's gross margin percentage grew from 79% for the fiscal year ended June 30, 2007, to 85% for the 2008 fiscal year. Gross margins for the quarter ended June 30, 2008, were 86%.

Workflow and automation enhancements to our laboratory process have allowed us to make substantial improvements to our margins over the past year. These major initiatives have resulted in reduced per-sample labor and reagent costs, while improving our processing time. Not only do we feel that these margin levels are sustainable, we expect to see continued modest improvements over the next year or two.

Research and development expenses for the quarter ended June 30, 2008, were $55.2 million. This includes a one-time license fee of $20 million that was accrued to reflect the maximum amount that may be payable by Myriad to the licensor of Flurizan. Let me further explain.

To set the stage, I take you back to December of 2000, when Myriad licensed from Encore Pharmaceuticals certain rights to what would become Flurizan. As part of that license, Myriad agreed to pay to Encore 20% of any related sublicense payments Myriad right might receive. Additionally, the Encore license agreement allows Myriad to offset against the 20% payment obligation certain credits and expenses incurred by Myriad in developing Flurizan.

The $100 million payment from Lundbeck triggered the sublicense clause of the Encore agreement. We must now work with Encore to determine the appropriate credits and expenses which are allowable as an offset to the payment obligation we owe under the license agreement. But until a final resolution is reached, we are required to book the entire $20 million. If it is determined that we owe less, we will reverse the expense at the time of that determination.

The balance of research and development expenses recognized during the June 30, 2008, quarter was primarily comprised of the costs associated with our pharmaceutical, preclinical, and clinical studies including the US open-label Flurizan trial, the global Phase 3 Flurizan trial, and the data collection and analysis from the US Flurizan Phase 3 trial. Also included in these expenses was approximately $3 million for costs associated with the termination of the Flurizan studies.

Additionally, we continue to invest in developing new molecular diagnostic products and plan on launching at least one additional new product this year.

Selling, general, and administrative expenses for the quarter ended June 30, 2008, were $36.4 million compared to $30.2 million for the prior quarter ended March 31, 2008. The increase over the prior quarter was attributable to costs necessary to support the double-digit quarter-to-quarter sales growth and to several important Company initiatives, including the initiation of the direct-to-consumer campaign in the South and expenses associated with the preparations for a Flurizan launch.

Taking a closer look at these initiatives, during the June 2008 quarter, we kicked off the direct-to-physician portion of the Southern DTC campaign, spending approximately $2 million more than was spent in March 2008 quarter. This spend is consistent with the amount incurred for the Northeast DTC for the same quarter of the prior year. We plan on running the Southern DTC with approximately the same budget as the Northeast DTC, spread over the year in a similar fashion as we encountered last year.

Next, our pharmaceutical commercial operations group incurred expenses of approximately $5 million during our fourth fiscal quarter, the bulk of which were directly associated with planning for the launch of Flurizan.

Finally, as we have discussed in past years, our commission plan incorporates both quarterly commission goals and annual commission goals. The result is an increased commission expense in the fourth fiscal quarter as we pay out both the quarter and annual awards.

We expect our selling, general, and administrative expenses will continue to fluctuate, depending on a variety of factors, including the number and scope of new product launches; growth in molecular diagnostic revenue; and future non-cash stock option expense.

Other non-operating expense for the quarter ended June 30, 2008, reflects a one-time $3 million writeoff of Myriad's investment in Encore Pharmaceuticals. As allowed under the Encore license agreement, the upfront and milestone payments made by Myriad to Encore were in exchange for an equity interest in Encore.

From time to time, Myriad employed an independent valuation consultant to assess the value of Encore and, therefore, the value of Myriad's investment. Prior to the Flurizan results, Myriad carried its investment in Encore on its books at $3 million. Given the discontinuation of the Flurizan program and the fact that Encore's valuation was substantially driven by the anticipated cash flows from Flurizan, Myriad has determined that the investment is impaired and has written the investment to zero.

Another new line on our income statement is income taxes. While Myriad had over $300 million in net operating losses to offset against its taxable income for the quarter and year ended June 30, 2008, Myriad is subject to a 20% corporate alternative minimum tax. Under the corporate AMT rules, NOLs can only offset 90% of income subject to AMT. We therefore have an AMT tax liability of approximately $600,000 and a resulting AMT credit that can be used against a regular tax liability in the future.

As a result of operations and the one-time events that I have discussed, our net income for the quarter ended June 30, 2008, was $65.5 million or $1.47 basic earnings per share and $1.40 fully diluted EPS.

For the fiscal year ended June 30, 2008, our net income was $47.8 million or $1.08 basic EPS and $1.02 fully diluted earnings per share. While this was the first profitable quarter for Myriad, we certainly anticipate that it will not be our last.

Cash, cash equivalents, and marketable investment securities grew from $310 million at March 31, 2008, to $420 million at June 30, 2008. Even excluding the Lundbeck payment of $100 million, our cash balance grew during the quarter by approximately $10 million.

Our accounts receivable are of a high quality and the average collection period, as measured by the number of days sales outstanding, improved to 57 days for the quarter ended June 30, 2008, as compared to 61 days for the quarter ended March 31, 2008.

Now before turning the time over to Dr. Critchfield, I want to take a moment to comment on our first return on investment analysis of the BRACAnalysis direct-to-consumer marketing campaign we launched last year in the Northeast United States.

As you remember the campaign had the goal of increasing the number of physicians that routinely order Myriad tests. There were two phases to the campaign. First, a physician education campaign that began in June 2007; and the consumer awareness phase where advertising to consumers began in September 2007 and continued through March 2008. The cost for both phases of the campaign was approximately $8 million.

The result was a 72% increase in the number of physicians ordering the test in the campaign area. In conducting the ROI analysis, we compared the projections of historical revenue growth in the target area, as well as actual growth in the noncampaign areas, to actual revenue generated during the campaign in the Northeast territory.

With only three months under our belt since the completion of the campaign, it was necessary to make some assumptions as to the sustainability of future incremental revenue in the territory. We then calculated the net present value of the future incremental revenue stream, adjusted for cost of sales, and calculated a return on investment.

The result was an ROI well in excess of our 10% benchmark. While it is still too early to assess the sustainability of the campaign, we are comfortable moving ahead on the DTC campaign in the South, Texas and Florida.

The physician education phase is already underway, and we look forward to launching the consumer advertising phase next month. We will complete a second ROI calculation in December 2008, wherein we will fine-tune our sustainability assumptions. That, we believe, will provide us with additional critical information needed to determine the wisdom of moving the campaign to other regions in the future.

To conclude my comments, it is my pleasure to state that Myriad has no debt and no convertible securities, and that the total number of shares outstanding at June 30, 2008, was a modest 44.7 million shares. With that, I will now turn the call over to Dr. Greg Critchfield.

Thank you, Jim. It is a great pleasure to speak with you today about our molecular diagnostics business. As Jim mentioned, year-end fiscal '08 revenues for our molecular diagnostics business were $222.9 million, a new record, representing a 53% increase over our previous year's annual revenue of $145.3 million.

Even without the BRACAnalysis Public Awareness Campaign, which ended in March, the last quarter achieved double-digit growth over quarter 3 fiscal '08, with $64.7 million in revenue. Our operating margin for the year was a record 43%.

We are focused on a growth strategy that has four components -- increased penetration in the oncology market; expansion into the women's health segment; broadened indications for our existing products; and the development of a personalized medicine portfolio. We continue to make excellent progress in all four of these areas, and I would like to provide details on our progress.

As Pete mentioned, the market potential for our hereditary cancer products is very large. We estimate the market potential for BRACAnalysis alone to be approximately $700 million per year. We believe that COLARIS, COLARIS AP, MELARIS, and TheraGuide 5-FU have a large combined market potential that is high, like that of BRACAnalysis.

We estimate the combined total annual market potential for our tests, with current indications for testing, to be over $1.3 billion. We anticipate significant growth given these large potentials for each of our products.

Recognizing this potential is the focus of two of our strategic initiatives -- to increase penetration in the oncology market and to expand our presence in the women's health segment.

In the oncology market, increased utilization has been driven by three factors -- enhanced professional society guidelines; decreased turnaround times, leading to physicians incorporating tests for real-time decision-making; and sales and marketing efforts focused on expanding the physician customer base.

New guidelines by the American Cancer Society and the Society of Gynecological Oncologists now further emphasize the importance of identifying individuals with mutations for hereditary cancer. The American Cancer Society guidelines show the importance of testing for mutations with BRACAnalysis and following patients that carry mutations with the more sensitive MRI screening technology.

The Society of Gynecological Oncologists guidelines expand the kinds of patients that are candidates for testing, including individuals that may have less extensive family histories of cancer due to small numbers of individuals in the family, a lack of female relatives, or adoption where family history is not available.

From an operational standpoint, we continue to utilize more efficient automation systems and work processes, which have now led to an average total turnaround time of our tests of 10 days. This is significant, because it allows physicians to use hereditary cancer tests for real-time surgical decisions and increases their sense of urgency to order the tests.

Lastly, we have seen improved sales and marketing programs increase our physician customer base by 59% over the last fiscal year.

Our second strategic focus is to increase the penetration for our hereditary cancer test into the women's health market by expanding our OB/GYN sales force and further conducting the BRACAnalysis Public Awareness Campaign. We are on track in our expansion of the number of OB/GYN sales reps by 40 during this year. By fiscal year end, the number of OB/GYN sales reps will be approximately 100.

As we have seen previously, our OB/GYN reps become profitable every bit as rapidly as their oncology counterparts. The OB/GYN physician customer is positioned perfectly, as many women use their OB/GYN as their primary care doctor, and OB/GYNs are accustomed to providing preventive healthcare services to their patients.

We are pleased to see that OB/GYNs understand the importance of ovarian and uterine cancers' hereditary risk factors in our BRACAnalysis and COLARIS tests.

Our third area of strategic focus is to broaden indications for our current genetic tests. The BRCA1 and BRCA2 gene discoveries have demonstrated utility beyond increasing the risk of breast and ovarian cancer in the future. We are involved in a number of studies with key groups who are interested in knowing if BRCA mutations, BRCA1 or BRCA2, can predict a more favorable drug response to certain kinds of drugs.

In particular, in vitro data shows that intact BRCA1 function is necessary in order for drugs like taxanes, spindle poisons, to work. By contrast, drugs that damage DNA have been shown to be 1,000 times more effective against tumor cells that lack BRCA function.

Myriad is involved in a number of clinical studies to look at these important questions. Two of these are the AstraZeneca trials in advanced breast and ovarian cancer, where mutation carriers are given PARP inhibitors. PARP, poly(adenosine ribose) polymerase, is an enzyme involved in the normal metabolism of DNA. If it is inhibited, breaks in DNA occur. The large breaks are normally repaired by BRCA proteins, which if defective -- as they are in tumors of mutation carriers -- the tumor cells will die.

This hypothesis argues that it is important to understand the BRCA status of every breast and ovarian cancer patient through BRACAnalysis in order to administer the best drug possible for the patient. This is targeted, personalized medicine at its best.

We are working with other groups on similar approaches for drugs they are developing for breast, ovary, colon, and pancreas cancers.

Our last strategic focus is to expand our personalized medicine business. We are on track to launch one new molecular diagnostic product a year. Our next product will be an oncology product. We are working both on internal development programs and external business development opportunities that we anticipate will yield new important molecular diagnostic products.

Myriad has made a number of important discoveries in cancer biology, including BRCA1, BRCA2, p10, p16, and HPC2/ELAC2, all of which are covered by strong Myriad intellectual property. These genes and associated proteins are important elements of cancer pathways; and many of them have implications both for pathway signaling and drug response.

Beyond internal discoveries and development, there are a number of additional opportunities we are actively exploring to in-license new products into Myriad from external sources.

Given our demonstrated commercial expertise in growing our molecular diagnostics business, our strong sales force presence in both oncology and women's health, our ability to secure excellent insurance reimbursement, and our focus on innovative high-value products, Myriad is increasingly the choice with which companies explore partnerships when they lack these capabilities. We are currently in discussions regarding over 30 potential product or technology acquisitions. We believe we are in an excellent position to evaluate and select opportunities that make sense from a scientific, medical, and commercial perspective.

Our molecular diagnostic products make a significant difference in the lives of individuals at high risk for cancer and in treating cancers. We look forward to future growth of our current products and launching new, innovative products that make a difference for patients. We are pleased to be helping more individuals as our business continues to grow.

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

Thank you, Greg, and good morning. It was, of course, a huge surprise and disappointment that Flurizan did not show clinical efficacy. However, as promised, we presented the data to the audience at the International Conference on Alzheimers Disease and will provide the data to the Alzheimers Disease Cooperative Study Group so that it can assist others in designing their clinical trials.

Myriad will not be pursuing further studies in Alzheimer's disease and, in fact, has decided to cease all research and development in the CNS arena. Instead, we will be concentrating on our core expertise, cancer and infectious diseases, particularly on Azixa, Vivecon, and MPC-3100.

We continue to make good progress with our clinical programs with Azixa in melanoma and glioblastoma. As you may recall, Azixa is a very potent inhibitor of tubulin and rapidly induces apoptosis in dividing cells.

In our Phase 1 studies there were several observations of antitumor activity against a number of cancers including melanoma, ovarian, and testicular. We also noticed that it disrupts the blood vessels feeding oxygen to the tumors, an observation that we were subsequently able to confirm with detailed studies in mouse xenograft.

By itself, these observations would make Azixa a very exciting compound. However, the molecule has two other properties that make it truly unique. Firstly, it is not a substrate for any of the multi-drug-resistant pumps that are up-regulated in tumors as a result of repeated treatment with the current generation of chemotherapy agents. We would expect, therefore, that tumors that become resistant to Taxol, which is another tubulin targeting agent, would remain fully sensitive to Azixa. We have been able to confirm this in xenograft studies.

Secondly, and perhaps of most significance, Azixa has the remarkable ability to cross the blood-brain barrier and accumulate in the brain. We have now examined this phenomenon in two animal species and find that Azixa has between 15 to 30 times higher concentrations in the brain than the plasma. Furthermore, the drug is evenly distributed to all parts of the brain.

Surprisingly, there have been no observations in nonclinical animal studies or in our clinical studies to date of CNS toxicity.

As a result of these observations, we have concentrated our resources on metastatic melanoma, where there is a very high incidence of brain metastases -- up to 90% of patients, by some estimates -- and on glioblastoma, where patients have relapsed following surgery and radiation.

Although the glioblastoma study is relatively early, significant shrinkage of tumors has been observed. The primary endpoint, of course, is survival.

Myriad also has an orally available analog of Azixa, which we have yet to progress into clinical studies. This compound also has extensive CNS penetration and accumulation. We see great potential for such a compound for continued outpatient treatment for patients who have responded to Azixa. But we will await more definitive evidence of activity from Azixa before moving this compound into the clinic.

Our clinical development program for Vivecon is progressing very well. Vivecon is a novel maturation inhibitor for the treatment of HIV infection. It has now completed several dose escalations in healthy volunteers. We are able to confirm that Vivecon is orally bioavailable in humans. Furthermore, the half-life of the drug in humans is very long, which should allow us to administer Vivecon as a daily or even less frequent dose.

We have already reached plasma concentrations of drug that exceed the IC50 for inhibition of HIV replication. Vivecon appears to be very well tolerated, and we have not seen any drug-related adverse effects to date. We are actively planning to initiate a multiple ascending-dose study in HIV-positive but treatment-naive patients; and expect to initiate that study later this year.

Earlier in development we have a backup to Vivecon, MPI-461359, which is equally potent but has a longer half-life and an even greater oral bioavailability. A decision to initiate development of this compound awaits further data from the Vivecon clinical trials.

We also have a very potent inhibitor of HIV fusion, MPI-451936. We expect to be able to make a decision about further development of this compound shortly.

In our previous earnings conference calls, I have mentioned our excitement about our novel Hsp90 inhibitor, MPC-3100, that is currently in preclinical development. We expect to submit an IND for MPC-3100 early in 2009. We continue to be very excited by the preclinical data on this compound.

As you will be aware, there are a number of Hsp90 inhibitors in clinical development; and we have compared and MPC-3100 to many of these compounds in head-to-head studies. Our review of the competitive landscape for Hsp90 inhibitors suggests that compounds can be divided into two classes -- semi-synthetics based on the natural product, geldanamycin, and completely synthetic small molecules which bear no resemblance to geldanamycin. MPC-3100 falls into the second class.

Hsp90 is a molecular chaperone which stabilizes oncogenic proteins, such as Her-2, AKT, and BCRA1. In addition, oncogenes often acquire mutations that confer drug resistance or inappropriate activation. These mutant forms depend on Hsp90 to function.

Hsp90 inhibitors are most effective when dosed on a daily schedule, which means for practical purposes an oral drug form is essential.

The natural product geldanamycin validated Hsp90 as a cancer target in tumor cells, but was too toxic for use in animal models. Modified geldanamycins are still limited by severe organ toxicity, especially liver, kidney, and pancreas. They are given by infusion and cannot be administered orally.

MPC-3100 is a highly potent and specific inhibitor of Hsp90 which has very good oral bioavailability and pharmacokinetics in animals. In head-to-head comparison with competing compounds, it reduced tumor volume in a gastric tumor xenograft model without showing any evidence of toxicity. In contrast, a competing compound could reduce the rate of tumor growth but did not show any reduction of tumor volume.

The standard chemotherapy for tumors of this type, 5-fluorouracil, caused significant weight loss and also was less efficacious. Coupling this observation with the apparent low toxicity of the compound, we believe that MPC-3100 has the potential to have a profound impact on the treatment of cancer.

Thank you for your attention. I will now hand the call back to Peter.

Thank you, Adrian. I will turn the call over to the operator for the question-and-answer portion.

(Operator Instructions) Geoff Meacham from JPMorgan.

Thanks for taking the question. Congrats on a good quarter. I wanted to -- if you can comment to the extent that you can about your operating expenses related to the overall therapeutics business. I know in the past you guys have broken out the percent of R&D that was attributed to Flurizan. I'm wondering if you can break out in a general way the expenses attributed to just drug development on the R&D and on the SG&A side.

Just trying to get a better sense for what a spinoff could look like.

Thank you, Geoff. I will have Jim elaborate on this. First of all, our total R&D spend is about $120 million. About $20 million of that is associated with our diagnostics group; about $100 million associated with pharmaceutical development.

Of course, we indicated that we would discontinue all development of Flurizan, which was about $60 million of that $100 million spend.

I would also direct you to the 10-Qs and our 10-K, which breaks out -- using segment analysis -- the R&D and some of the other expenses among the various operating divisions within Myriad.

Yes, Geoff, as far as the -- I think Pete helped out with the R&D pretty specifically.

On the SG&A, it is relatively small what is directly associated with the pharmaceutical business. As I pointed out in my comments earlier, we did have about $5 million of cost that went through the SG&A associated with preparations for Flurizan launch. Those obviously will be reduced going forward until the time that we are preparing our next drug for launch. So that should be reduced fairly significantly in the coming months.

Just a follow-up question, on the predictive medicine business. You guys have run DTC campaigns in the Northeast, you are in the Southeast now. What other markets in the US do you consider yourself to be underpenetrated? How do you think about maybe the West Coast opportunity versus where you are today, and maybe Midwest? Thank you.

Thank you, Geoff. I think if you look at the main population centers, that reflects fairly accurately our revenue density throughout the country. So if we decide to continue the DTC campaign beyond the South region, we would look at the West Coast, the Chicago area, other areas of the country that are the population density centers.

William Ho from Banc of America Securities.

Congrats on the great quarter. Can you just elaborate a little bit on Geoff's question? With respect to SG&A, how much do you generally spend on advertising expenses and campaigns in order to push the sales in predictive medicines?

As Jim mentioned earlier, we spent about $8 million on the direct-to-consumer marketing campaign in the Northeast. That represents about 12% of our total revenue base.

The South region is actually larger. It represents about 18% of our total revenue base. Yet we will hold the spend to roughly that same $8 million.

So, for the regions that we would look at as we go from region to region, I think you can rely on that $8 million as a reliable figure for the cost of a direct-to-consumer campaign.

I guess more specifically in this year, of the approximately $120 million or so in SG&A expenses, how much of that is compensation for sales and marketing staff, for campaigns, etc., versus how much is generally rent, etc., the finance group, etc.?

Well, we have never broken out to that type of detail what the SG&A cost is for each of those individual components. We talk about the major initiatives and what it is costing to do the DTC campaigns or those kind of one-off type of things. But I don't have for you to the detail on each of those individual line items within SG&A.

Okay. Then just one final question, I guess, for Greg. I do get a lot of questions from investors about concerns about the top line and whether or not you will hit any kind of a glass ceiling, leading to revenue slowing down.

That being said, over the last four years or so you have had very, very robust growth on the top. Do you see anything that could potentially slow that revenue growth? Or do you see yourself accelerating revenue growth or continuing revenue growth from here?

This has been a concern that has been expressed to us over the last four years, Will. We have had excellent growth. I think it is very important to pay attention to the large market potentials of all of our products; and that includes BRACAnalysis as well as our other four products.

We see this revenue potential as something that will allow us to continue to grow and to grow at significant rates. I think that is what we anticipate seeing, and we are excited about that.

Now, this would be accelerated even further if we are able to broaden indications for our current products. That is why that is one of the prongs of our four-pronged strategy.

So we will increase penetration in both our oncology and women's health markets. We are working on that. We have talked about those initiatives.

And then broadening the indications will further increase the potential and allow us to continue excellent growth.

I think the last time we had an update, Jay may have still been the CFO. But at that time, some of the other markets or other products were growing at significantly higher growth rates, potentially even in the triple digits. Are they still growing at that rate or at a similar rate?

Will, in this earnings conference call I mentioned that for the last year BRACAnalysis, COLARIS, and MELARIS, all three, grew in excess of 50%.

Okay, great.

Annabel Samimy from UBS.

Thanks for taking my call. Just on the line of broadening out the predictive medicine platform or the molecular diagnostics platform, when you think about new products and expansion and new technologies, is it still in the realm of personalized medicine? Or does it -- and does this bring a whole new level of competition for you? And how do you address that?

Or are the areas that you are looking at in terms of personalized medicine areas that you have IP around?

As you are aware, Myriad is focused in the general field of molecular diagnostics, but in particular on predictive medicine and personalized medicine. More recently, our last product was a personalized medicine product.

In all of these areas, Myriad seeks as strong IP protection as we can attain. We are fortunate in that the tests that we look at are all based on disease-causing genes or genes that metabolize specific drugs, as opposed to association studies where the IP situation is much more tenuous.

So we do have very strong IP in the products that are in our pipeline under development; and we feel very comfortable with the intellectual property around those.

Having said that, however, I would like to point out that Myriad has strong competitive advantage in other areas in terms of its customer service, its insurance reimbursement programs, the excellent turnaround time and quality of the test results, and a very strong and talented sales force. So I think our competitive advantage goes well beyond just the IP protection.

Okay. One other question if I may. The SG&A. I guess, Jim, you had mentioned that with the $5 million that was associated with Flurizan launch costs, that SG&A will be coming down although it still does fluctuate.

Could you give us a sense of what is the right number to sort of look at a run rate going forward? Is it just a $36 million with $5 million lopped off? Or is it sort of something different?

Trying to project into the future is difficult. Like I said, the bulk of that $5 million will go away. We have those other issues that I described as far as the commissions that came through in the quarter; and so that will get backed off a little bit.

So you know, without giving guidance -- as we don't do -- I will reiterate those couple of items that are kind of out of the ordinary, one-time things that we have run into.

Obviously, we plan on having the expense associated with the DTC campaign go through for the next couple of quarters; so you can project that to be fairly consistent for the next couple of quarters.

But just taking into consideration those other items that are kind of one-time out of the ordinary, and hopefully that will get you to an SG&A number for your models going forward.

Okay, thank you.

Michael Yee from RBC Capital Markets.

Congratulations on a good quarter. A couple questions regarding the DTC that was previously in the Northeast. Can you kind of characterize better for us how well that message was sticking with docs and patients? What was the growth in this region, specifically relative to last quarter?

Then, how would you characterize demand in these regions from the oncology side versus the OB/GYN side this quarter and last quarter?

Thank you, Michael. As we mentioned, we saw very excellent growth in our physician customer base in the Northeast region as a result of the DTC campaign. I think it's important to remember that our customer is the physician. It requires a physician to order any of the Myriad tests, and it is the physician that we have directed our attention to.

As Jim mentioned and Greg mentioned, we saw a 72% increase in our physician customer base in that region. So that is very exciting in terms of the DTC campaign. Based on the assumptions we made it certainly exceeded our ROI hurdle.

The real question, however, is the sustainability of that after the ads stopped running. So that is something we will be looking at very closely over the next several months and will actually do a formal ROI calculation in December of this year.

But we have seen excellent growth from the campaign. The campaign looks like it has been very effective at getting the message out and increasing physician customers.

As Greg mentioned, our reps that cover the OB/GYNs achieved profitability just as fast as the oncology section. We are, of course, much more penetrated into the oncology market, having addressed that market now for a number of years. But we see the growth potential in the OB/GYN market as being substantial, and we look at those reps coming up to speed just every bit as fast as in the oncology market.

On the margins on the diagnostics business, about 44% or so this quarter, things look good on the gross margin line. Where do you think both the gross margin and the EBIT margins can go to over the near or longer term? Do you think that is getting over 50%?

Well, we do consider that we have room to grow on both of those numbers. Gross margins, we have seen 600 basis point increase over the last year, I think as I like to say we have kind of picked the low-hanging fruit there. But there still are areas that we can improve our processes, and increasing our -- reducing our turnaround time and improving the cost per sample. So I would anticipate we would continue to see improvements in the gross margin over the next couple of years.

Last quarter, we had 47% net operating margins, which I think gives us an idea of the strength of the net operating margins in a non-DTC period. So we will continue to monitor how well the DTC campaign performs as we determine if we are going to roll that forward into other areas in the future. That obviously will have an impact on the operating margins.

Now, if we are able to maintain the DTC campaign spend in the $8 million range or less, as we have been able to do with the last two campaigns, obviously that number becomes less of an impact as the top-line number continues to grow. So we would expect to see the net operating margins improve as well as we go forward.

Right, I am just thinking on the R&D and SG&A line there, probably a lot more leverage. So that is why -- the sensitivity being the DTC spend; that would be reasonable?

Yes.

Okay. Thanks.

Kim Lee from Pacific Growth Equities.

Good morning. I have couple questions for you. First, the financial questions. Do you expect additional costs associated with the termination of the Flurizan program going forward in the next couple quarters? Or have you seen the last of those expenses?

No, as we were able to look forward and -- since the viability of the contract and the discontinuation of the Flurizan program, we were allowed to go through and say if we had any solid invoices that are associated with the wrapup of that program -- even though some of those expenses might happen in the 2009 period -- we were able to accrue those back into 2008. But that was only for expenses that we had an invoice in hand for. So that is the $3 million that I mentioned earlier that we were able to accrue for the termination costs.

We still anticipate that there will be additional costs as invoices come in, in the next couple of quarters. Somewhere probably in the $4 million to $5 million range that we would expect to see going forward as we wrap up the final loose ends of the project.

Okay. I assume you expect those costs earlier in '09 versus -- or in your fiscal year '09 versus spread out.

Yes, yes, I would expect that we will be working diligently to try to get all those loose ends wrapped up and get those costs booked as soon as we can.

Great. Also, just curious. What are your days payable outstanding right now?

Probably in the 60s -- I think about 66 days actually. So we take our time in getting those turned around.

That was for last quarter, and that does represent a substantial improvement over the prior quarters. So we do feel that our receivables are of very high quality; and a 66 days sales outstanding I think is excellent in the industry.

I'm sorry, were you asking about payables or receivables?

Payables, yes. Payables seemed a lot more days than normal.

Payables, we normally are in the 45- to 60-day period. But obviously, we try to stretch those out for as long as we can each month and take advantage of the interest rate we get on conserving our own cash. So yes, those fluctuate from vendor to vendor; but I would say in the 45- to 60-day period.

Okay, great. One last question on -- I know you mentioned going to product launches for this year. You plan to launch a product this year in the oncology space. Can you elaborate on what other products are in your molecular diagnostics pipeline?

I think you're addressing that question to Adrian; but really it is a molecular diagnostic question, so let me handle it. And then Greg, feel free to jump in if you would like as well.

Yes, the next product we will launch is in the oncology area. Of course, Myriad is very strong in oncology and we see tremendous upside potential in that.

Myriad on the predictive medicine front has discovered genes associated with the predisposition of prostate cancer. We have discovered genes associated with genetic predisposition in the area of major depression, Type 2 diabetes, are working on personalized medicine products in the area of lung cancer, pancreatic cancer, ovarian cancer, breast cancer, and colon cancer.

So we have a very strong molecular diagnostics product pipeline in both the areas of predictive In personalized medicine, and are very excited about our ability to launch products in the future in both those fields.

Pete, I would just add that in addition to this, the discoveries as I mentioned that Myriad has made in cancer pathways really gives us some insight and the ability to leverage some of these discoveries. That is true in broadening indications for our tests. The BRACAnalysis genes, the BRCA1 and 2 are very important predictors of response to spindle poisons or to DNA-damaging agents.

There are a large number of trials underway. Myriad is participating with key groups in this area to broaden those indications, and that will be an important area.

In addition, our internal research group is looking at these discoveries and the way that the cancer pathways are signaled, and looking at ways to leverage the information that they provide in providing information about response to drugs and/or prognosis.

So these are all the areas that we are looking at, and as Pete mentioned, there are a lot of very interesting opportunities that we anticipate will come forward.

Great, thanks a lot for the clarity.

Charles Duncan for JMP Securities.

Good afternoon, guys. First of all, let me add my congratulations on a good quarter and strong execution. I had two quick questions.

One is for Greg. Can you give us some insights on the timing, potential timing of some of the data that you outlined? That is a pretty intriguing use of BRACAnalysis, for example.

Yes, these are trials that take years to finally get the endpoints. As you may know, the AstraZeneca trial we announced probably about two years ago; and that was a very preliminary trial. There will need to be more work done to have this come to fruition.

But it takes usually a couple of years before the endpoints are known, to see where it is. We don't really have a completion timeline at this point in time. All we know is that the trials are underway and we anticipate hearing more in the future, and we are looking forward to it.

There are some external groups that are working on trials now that are anticipated to last three to four years total. Some of these groups began these trials in the 2005-2006 time frame, so they are getting closer to where they would have results. But with recruitment issues, some of them have been a little slower.

Myriad's is involvement is actually going to accelerate things and make it easier for the data to come out. When we have some more specific timelines, we will announce them; but right now I can't give you a precise timeline on any of these.

Thanks, Greg. Then my last quick question is perhaps for Pete. Can you outline perhaps the form in terms of the disposition of cash in NOLs? Do you have some additional color on that, if the Company decides to split itself into two?

Thank you, Charles. I don't want to get ahead of ourselves, because the Company has made no decision to change its current strategy or operating structure.

As we mentioned in this call, periodically, the Board does take a look at the strategy, as is appropriate, and makes sure that we are still moving the Company forward and operating the Company in the best interest of the shareholders. And we certainly are in that process right now.

As I mentioned, in the fall we will present our findings to the Board of Directors; and of course, it is a Board decision as to whether or not we do anything differently or maintain our current operating structure. So unfortunately, Charles, it's a good question but I think it is premature until we are further down the process to even think about what alternative structure the Company may consider as appropriate and how the Company may move down to then implement that strategic decision.

Then, Pete, not to be too cute, but the definition of fall includes September as well as November?

Yes. As I mentioned, our hope is -- and again, this is a Board decision, so it is not completely within my control. But our hope is to have a final deliberation and assessment completed by the end of the calendar year.

We do have two Board meetings in the fall, one in September and one in November around our annual shareholders meeting. The Board will be deliberating certainly and discussing this in September. I would be very surprised if any decision is made as quickly as the September Board meeting.

The Board will then reconvene; we have a two-day meeting in November. Again, if there are additional questions that the Board has or additional analyses they would like to have performed, we certainly can call telephone Board meetings as well. But I think we should be in reasonably good shape to present to the Board in those fall meetings.

Good deal. Thanks for the added color. Congrats.

Thank you, Charles.

Mr. Meldrum, I will turn the call back to you, sir, for closing remarks.

Well, thank you very much. We appreciate everybody's attendance on the earnings call this morning and appreciate the continued support in Myriad. This does now end the earnings call for our fiscal year end 2008. Thank you again.

Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Have a great day, everyone.