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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________to__________
Commission file number: 0-26642
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MYRIAD GENETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0494517
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
320 Wakara Way, Salt Lake City, UT 84108
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 584-3600
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value Per Share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant (without admitting that any person whose shares are
not included in such calculation is an affiliate) on August 27, 1999 was
$107,387,088, based on the last sale price as reported by The Nasdaq Stock
Market.
As of September 20, 1999 the registrant had 9,438,989 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference
into the following parts of this Form 10-K: Certain information required in
Part III of this Annual Report on Form 10-K is incorporated from the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on November 10, 1999.
PART I
Item 1. BUSINESS
General
Myriad Genetics, Inc. ("Myriad" or the "Company") is a genomics company
focused on the development of therapeutic and diagnostic products based on the
discovery of major common human disease genes and their biological pathways. The
Company utilizes analyses of extensive family histories and genetic material, as
well as a number of proprietary technologies, to identify inherited gene
mutations which increase the risk to individuals of developing these diseases.
The Company has also developed ProNet(TM), a proprietary high-throughput assay
to identify protein-protein interactions. The Company believes that the
application of these technologies may provide new insights into protein function
and cellular organization which may lead to the identification of novel
therapeutic targets. The discovery of disease-predisposing genes and their
biochemical pathways provides the Company with three significant commercial
opportunities: (i) the development of therapeutic products for the treatment and
prevention of major diseases associated with these genes and their biochemical
pathways; (ii) the marketing of subscriptions to the ProNet(TM) database of
protein interactions; and (iii) the development and marketing of molecular
diagnostic and information services for the identification of individuals who
are genetically predisposed to developing a particular disease. The Company has
established two wholly-owned subsidiaries-- Myriad Pharmaceuticals, Inc.
("Myriad Pharmaceuticals") which develops therapeutic lead compounds and expects
to market them to pharmaceutical companies, and Myriad Genetic Laboratories
("Myriad Labs") which develops and markets proprietary molecular diagnostic
products in the areas of predictive medicine and personalized medicine. The
Company intends to pursue the development of therapeutic products either in
conjunction with its strategic partners such as Bayer Corporation ("Bayer"), Eli
Lilly and Company ("Lilly"), Monsanto Company ("Monsanto"), Novartis Corporation
("Novartis"), Schering Corporation ("Schering"), and Schering AG, Germany
("Schering AG"), or independently through Myriad Pharmaceuticals.
Since its inception in 1991, the Company has discovered and sequenced, with
its academic collaborators, the following major genes: BRCA1, BRCA2, CHD1,
MMAC1, MMSC1, MMSC2, CtIP, p16, p19, and MTS2. In addition, the Company has
located a number of genes that interact in the biochemical pathways of its gene
discoveries and discovered the chromosomal location of additional genes involved
in heart disease, asthma, cancer, osteoporosis, obesity, and depression.
Myriad has achieved the following major milestones during the fiscal year
ended June 30, 1999:
. Announced the formation of Myriad Pharmaceuticals, a wholly owned subsidiary
established to develop therapeutic lead compounds for selected common diseases
with large potential markets that are under-served by current medical options.
. Entered into a five-year, $51 million collaboration with Schering AG to
utilize ProNet(TM) for drug discovery and development.
. Expanded its strategic alliance with Bayer for an additional two years. Under
this extension, the Company may receive up to $12 million in additional
research funding and milestone payments, with the research term ending in
September 2002. The Company also delivered four drug targets to Bayer for
studies which may lead to drug candidate screening.
. Entered into a $15 million collaboration with Monsanto to utilize ProNet(TM)
for drug discovery and development.
In order to accelerate its gene discovery and therapeutic target
identification programs, the Company employs three synergistic sets of
technologies: (i) the genetic analysis of large Utah families performed by the
Company's
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scientists and collaborators; (ii) the Company's advanced, proprietary
bioinformatic gene mapping, sequencing, and cloning technologies; and (iii) the
Company's advanced protein interaction and functional genomics technologies --
ProNet(TM). The Company uses proprietary gene mapping and DNA sequencing
technologies to identify a narrow chromosomal region, to isolate candidate gene
sequences and, ultimately, to identify the actual DNA sequence comprising the
disease-predisposing gene. Once an important disease-predisposing gene has been
identified, the Company uses advanced protein interaction technologies to
identify genes that are upstream and downstream in the biochemical pathways from
the gene discovered in order to understand the biochemical pathways involved in
the disease process. This enables Myriad and its corporate partners to select
promising points of therapeutic intervention along the biochemical pathway.
Myriad's business strategy has five primary components: (i) to expand the
Company's leadership position in discovering and sequencing genes; (ii) based on
its gene discoveries, to identify potential therapeutic targets by understanding
the biochemical pathways related to common diseases; (iii) to capitalize on
strategic alliances with corporate partners which provide financing for a major
portion of the Company's research and to commercialize certain therapeutic
products for the treatment and prevention of disease; (iv) to discover and
develop therapeutic products independently based on its gene discoveries and
protein interactions; and (v) to build the Company's molecular diagnostic and
information services business.
The Company has begun commercialization of its gene discoveries by providing
genetic tests for individuals to determine whether or not they have inherited
genetic mutations which may increase their risk for specific diseases. In 1996,
Myriad introduced BRACAnalysis(TM), an important genetic test for women who have
been diagnosed with breast or ovarian cancer and women who are at risk for
hereditary breast and ovarian cancer. Women who may benefit from
BRACAnalysis(TM) include: women with a diagnosis of breast or ovarian cancer,
especially premenopausal breast cancer; women with a family history of breast or
ovarian cancer, and women with a blood relative who is known to have a mutation
in BRCA1 or BRCA2. In January 1998, the Company introduced its second genetic
test, CardiaRisk(TM). The Company believes that the test, which identifies a
mutation in the Angiotensinogen gene ("AGT"), will assist physicians both in
identifying which hypertensive patients are at a significantly increased risk of
developing cardiovascular disease, and identifying which patients are likely to
respond to low salt diet therapy and antihypertensive drug therapy.
Myriad has developed a highly automated molecular diagnostic platform which
the Company believes will enable it, once it has discovered and sequenced a
gene, to develop a test for genetic predisposition relatively quickly and
economically. The Company believes that the information gained from tests that
confirm genetic predisposition has potential value to individuals and their
health care providers in the following areas: (i) proactive health care and
lifestyle decisions that may delay or prevent the onset of disease; (ii) early
detection of disease; and (iii) selection of the most appropriate treatment.
Through Myriad Labs, the Company has established a molecular diagnostic testing
laboratory which has received federal certification under the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA") and State of New York
approval from the New York Department of Health.
During the fiscal years ended 1997, 1998, and 1999 revenues from Myriad's
research segment accounted for $14,732,054, $20,999,598, and $20,093,057, or
approximately 97%, 91%, and 80% of the Company's revenues, respectively. During
the fiscal years ended 1997, 1998, and 1999, Bayer, Novartis, and Schering each
accounted for more than 10% of the Company's revenue. During the fiscal years
ended 1997, 1998, and 1999 revenues from Myriad's molecular diagnostics segment
accounted for $504,045, $2,210,983, and $5,220,349, or approximately 3%, 9%, and
20% of the Company's revenue, respectively. All of the Company's revenues are
derived from research and testing performed in the United States. See Note 11
of Notes to Financial Statements for additional industry segment information.
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Myriad's Genomics Strategy
Myriad believes that the Company's strategy of combining the three major
approaches to the discovery and sequencing of genes (positional cloning, high
speed DNA sequencing and protein interaction network analysis) greatly increases
the probability that the genes found will be of diagnostic and therapeutic
importance. The focused and direct application of these three approaches at the
appropriate stage of the gene discovery process enables the Company to discover
and sequence important disease-related genes relatively quickly and
economically. Starting with a disease target, the Company
first utilizes positional cloning, having determined in advance of sequencing
that the gene being sought in fact contributes to a substantial percentage of
incidence of a particular disease and thus may have significant commercial
potential. The Company's positional cloning strategy is based on the presence of
a specific disease-related chromosomal fragment shared by many individuals
within a multi-generational family.
Myriad has developed proprietary high-speed DNA sequencing technologies that
enable the Company to efficiently and rapidly obtain sequences from the
chromosomal region and sequence the entire gene once it has been identified.
Following the identification of the disease-related gene, the Company uses
protein interaction technologies to identify other related genes that may yield
additional diagnostic or therapeutic opportunities. Myriad identifies genes that
interact with the disease-predisposing gene in order to understand the
biochemical pathway associated with the disease. The success of the Company's
approach is demonstrated by its discovery and complete sequencing of a number of
major genes and the identification of numerous genes along their biochemical
pathways.
All stages of the gene discovery process generate a vast amount of
information. Accordingly, the Company has designed a proprietary bioinformatics
system which provides significant analytical and data management capabilities
which are integral to genetic and molecular analysis. The system is based on
integrated, protocol-driven database management software which is utilized to
track experiments and collect the data generated. The system incorporates data
on DNA samples, genetic markers, maps, DNA clones and DNA sequences which are
generated during the gene discovery process. Further, the system directs the
genetic analysis, fine structure mapping, generation of candidate genes and
mutation screening. It allows the automation of labor intensive steps in the
analysis of DNA sequences, and incorporates Myriad's expert system for detecting
coding regions in random DNA sequences. Proprietary software methods have also
been developed by scientists at the Company which significantly accelerate
mutation screening.
The discovery of disease-causing genes leads directly to two important
commercial opportunities for the Company: (i) therapeutic products for treatment
or prevention of disease and (ii) molecular diagnostic products and services
such as BRACAnalysis(TM) and CardiaRisk(TM).
Myriad's Gene Discovery Programs
Myriad's research programs are focused on the discovery of disease-related
genes which predispose individuals to cancer, cardiovascular diseases and other
common diseases. The Company's gene discovery and development programs in
cancer, cardiovascular diseases and other major diseases are described below.
Cancer
Scientists and physicians understand that cancer and other common disorders
have a strong hereditary component. These diseases involve genetic changes that
affect millions of individuals. Individuals genetically predisposed to cancer
have a disease-related mutation in one of the two copies of a gene they inherit
from their parents. Thus, one step that can lead to cancer has already occurred
in every cell of that individual.
BRCA1 Breast and Ovarian Cancer Gene. The Company and its collaborators
reported the discovery of the BRCA1 breast and ovarian cancer predisposing gene
in the October 7, 1994 issue of the journal Science. In 1999, it is estimated
that approximately 175,000 women in the United States will be diagnosed with
breast cancer and an
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additional 25,000 women will be diagnosed with ovarian cancer. During the same
period, an estimated 43,000 women will die from breast cancer (the second
highest cancer mortality rate among women) and an estimated 14,500 women will
die of ovarian cancer. BRCA1 appears to be responsible for approximately half of
the early onset hereditary breast cancer cases in an international study of
breast cancer conducted by the Breast Cancer Linkage Consortium. Hereditary
breast cancer is believed to account for approximately 10% of all cases of
breast cancer. A study of women in the United States published in the American
Journal of Human Genetics indicates that a woman with a BRCA1 mutation has an
86% risk of developing breast cancer by age 80 as compared to a general
population risk of 10%. Additionally, according to a recent study published in
Lancet, the risk to a woman with a BRCA1 mutation of developing ovarian cancer
by age 70 is approximately 44%, compared to a general population risk of
approximately 1%.
BRCA2 Breast Cancer Gene. In December 1995, Myriad and its collaborators
announced the discovery of the complete sequence of BRCA2, a second hereditary
breast cancer gene which was found to be responsible for the majority of the
remaining cases of inherited breast cancer, as reported in the journal Nature
Genetics. BRCA2 mutations are thought to account for a large proportion of the
remaining early onset hereditary female breast cancers which are not accounted
for by BRCA1, as well as most hereditary male breast cancers. Women with BRCA2
mutations have approximately the same risk of breast cancer as BRCA1 mutation
carriers; the risk of ovarian cancer is also increased, although not as much as
in those with BRCA1 mutations. Myriad has developed a genetic test for this
gene which has been combined with the test for BRCA1 to form a comprehensive
integrated test for hereditary breast and ovarian cancer.
MMAC1 Mutated Multiple Advanced Cancer Gene. In January 1997, the Company
announced the identification of a major gene responsible for glioma, a form of
brain cancer that is a leading killer of children with cancer. In March 1997,
the Company further announced that the identified gene was found to be
associated with other advanced cancers of the prostate, breast, kidney, and
skin. MMAC1 was located through a collaborative effort by scientists at the
Company and the University of Texas M.D. Anderson Cancer Center. It is
anticipated that the location of MMAC1 will accelerate development of new
diagnostic and therapeutic approaches to brain, prostate, breast, kidney, and
skin cancers. There can be no assurance, however, that the identification of
this gene will lead to the development of diagnostic tests or therapeutic
products.
MMSC1 Scaffold Gene. In January 1998, the Company announced the discovery of
MMSC1, a gene which appears to interact directly with the MMAC1 brain and
prostate cancer gene. MMSC1 is expected to provide a superior target for
possible small molecule therapeutic intervention. There can be no assurance,
however, that the identification of this gene will lead to the development of
therapeutic products. Analysis of the MMSC1 gene and its biological pathway is
in progress through the Myriad/Schering collaboration.
p16 Tumor Suppressor Gene. The Company's first major discovery was the
involvement of the p16 gene in the formation of many types of cancer including
melanoma, lymphoma, leukemia and cancers of the lung, breast, brain, bone,
bladder, kidney and ovary. The role of p16 as a tumor suppressor was discovered
by Myriad and was reported in the April 15, 1994 issue of the journal Science.
When p16 is mutated, its function as a molecular brake during a key step in the
cell division process is lost and uncontrollable cell growth may take place.
Myriad has shown that p16 is deleted or mutated in approximately half of all
tumor cell lines tested. Because p16 is one of the most commonly mutated or
deleted tumor suppressor genes discovered to date, Myriad believes that it is a
promising candidate for the development of new anti-cancer therapies. The p16
gene may also have value in monitoring disease progression.
Myriad also discovered that abnormal p16 genes can be inherited and predispose
individuals to melanoma. The Company's discovery of the p16 predisposition to
melanoma was reported in the September 1994 issue of the journal Nature
Genetics. Melanoma is lethal in 86% of cases where it has metastasized (spread
to another site in the body). However, when melanoma is diagnosed at an early
stage, less than 10% of patients die within 5 years. Since the early 1970s, the
incidence of melanoma has increased at about 4% per year and melanoma has become
one of the fastest growing cancers in the United States. In 1999 it is
estimated that approximately 44,000 Americans will be
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diagnosed with melanoma. The Company believes that approximately 10% of melanoma
cases are hereditary. The Company and its collaborators have substantial
expertise in the genetic analysis of melanoma and have begun to identify
important disease-predisposing p16 mutations.
MTS2 and p19 Cell Cycle Genes. Myriad scientists located p16 on a narrow
region of chromosome 9. Further analysis of this region yielded two other novel
genes involved in cell growth and cell cycle control, MTS2 and p19. Although
other researchers sequenced a portion of MTS2, the Company discovered that
MTS2's expression levels increased during DNA replication and cell division.
Myriad also discovered MTS2's potential involvement in cancer and is
investigating its specific potential role in several types of cancer. Myriad's
discovery of the p19 gene has led to a new area of research in cell division and
its possible role in the regulation of another important tumor suppressor gene,
p53.
Other Cancer Genes. The Company also has active research programs to
identify additional genes believed to be implicated in cancer. Studies by the
Company and its collaborators are focused on major cancer sites including
prostate cancer, colorectal cancer, lung cancer, brain cancer, leukemia and
lymphoma, all of which have a strong hereditary component.
Cardiovascular Diseases
Scientists recognize that cardiovascular diseases represent a group of related
disorders that are highly familial and result from both genetic and
environmental risk factors. Genetic predisposition to cardiovascular diseases
involves a number of familial risk factors including, among others, abnormal
levels of triglycerides (fats used for storage and energy), cholesterol,
angiotensinogen (a protein involved in the regulation of salt and water
retention), and homocysteine (an amino acid involved in blood coagulation), all
of which may interact with environmental risk factors, such as the level of
physical activity, stress, smoking and diet.
AGT Hypertension Gene. Hypertension (high blood pressure) is a complex
disorder which is believed to have a number of causes, including: excess weight,
atherogenesis (formation of fat deposits on the interior walls of arteries), and
salt sensitivity. Approximately 50 million people in the United States are
hypertensive. Hypertension has a significant genetic component and is a major
risk factor for cardiovascular disease, kidney failure and stroke. The
angiotensinogen ("AGT") gene is believed to be involved in salt-dependent
hypertension. Certain mutations in the AGT gene are believed to cause
individuals to retain excessive amounts of salt, thus increasing their risk for
hypertension. The Company has an agreement with the University of Utah and the
Institue National de la Sente et de la Recherche Medicale, pursuant to which it
has a co-exclusive license to develop diagnostic products from the genetic
mutations of AGT associated with hypertension, and an exclusive license to
develop therapeutic products from such genetic mutations of AGT.
CHD1 Heart Disease Gene. Heart disease is the leading cause of death in the
United States and is believed to have a significant genetic component. Each
year, an estimated 1.1 million Americans will have a new or recurrent myocardial
infarctions (heart attack). Approximately one-third of these attacks will be
fatal. In March 1998, Myriad and Novartis announced the discovery of a novel
gene that is believed to play an important role in cardiovascular disease. The
gene, named CHD1 for Coronary Heart Disease 1, encodes a novel protein that may
lead to a new class of therapies for cardiovascular disease. The Company has
filed U.S. Patent applications, jointly prepared with Novartis, on the CHD1 gene
and its protein as well as its use in diagnostic and therapeutic applications.
The Company believes that a genetic test for familial cardiovascular disease
would be of value to predisposed individuals, who could benefit from regular
monitoring.
Other Major Diseases
HOB1 and HOB2 Human Obesity Genes. There are approximately 34 million adult
Americans who are classified as obese. The mechanisms of fat storage and energy
balance have a substantial hereditary component. The
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Company believes that a gene or combination of genes is likely to be responsible
for a significant percentage of obesity. It has not been established that the
human counterparts of the rare obesity genes recently discovered in mice play a
significant role in common human obesity. Myriad believes that its
collaborator's collection of DNA from members of extended families with obesity
give it a competitive advantage in the search for human obesity genes. Myriad's
scientists have determined the chromosomal locations of two significant obesity
genes, HOB1 and HOB2. The Company believes that the HOB1 and HOB2 genes are
important in human obesity and may be responsible for a majority of hereditary
obesity.
OS1 Osteoporosis Gene. Osteoporosis is a disorder of decreasing bone mass
affecting approximately one quarter of women over age 60, nearly half of all
women over 75, and approximately 25 million individuals in the United States.
Osteoporosis is the most significant underlying cause of skeletal fractures
among late middle-aged and elderly women. Early detection of a predisposition to
osteoporosis is important because nutritional and therapeutic intervention can
delay the onset and reduce the severity of the disease. Myriad had determined
the chromosomal location of a significant gene involved in osteoporosis, OS1.
The Company believes that the OS1 gene plays an important role in the
pathogenesis of osteoporosis.
ASM1 Asthma Gene. It is estimated that between 10 and 15 million people in
the United States have asthma and there is strong evidence supporting the
existence of a genetic component to asthma. Deaths from severe asthma attacks
have been increasing in the United States and now number approximately 5,000 per
year. Detailed case reviews suggest that many deaths from asthma could have been
prevented by earlier and more intensive medical care. There is currently no
laboratory test which can establish a diagnosis of asthma. Myriad and its
collaborators have begun systematic collection of data from asthma families with
a history of asthma and have determined the location of a significant gene
involved in asthma, ASM1, and have narrowed the ASM1 gene to a small region of
the chromosome.
Depression and Bipolar Disease Genes. There are approximately 13 million
people in the United States that are affected by major depression and an
additional approximately 4 million in the United States with bipolar disorders
or manic depression. In June 1996, the Company entered into a research
collaboration with IHC Health Services, Inc. ("IHC") to link IHC's medical data
and patient records of individuals with disorders of the central nervous system
with the Company's proprietary database of families.
Myriad's Product Development Programs
The Company has identified three commercial opportunities arising from the
discovery of genes which predispose individuals to common diseases: (i) the
development of therapeutic products for the treatment and prevention of major
diseases; (ii) the marketing of subscriptions to the ProNet(TM) database of
protein interactions, and (iii) the development and marketing of molecular
diagnostic and information services for the identification of individuals who
are genetically predisposed to developing a particular disease, such as its
BRACAnalysis(TM) and CardiaRisk(TM) tests.
Therapeutic Products
The Company believes that, to a large extent, the future of medicine will be
in the combination of new drugs which either prevent disease from initially
developing or prevent disease from progressing, and in diagnostic tests that
will determine which patients should receive these new drugs. The Company
believes it can capture a greater portion of the value of new drugs by
initiating drug discovery within Myriad Pharmaceuticals. The Company's
proprietary database, ProNet(TM), contains information on a large number of
protein networks and the association of these networks with human diseases.
While the Company has partnerships that allow its collaborators to look at parts
of this database, the majority of the information is freely available for Myriad
to use independently. Myriad Pharmaceuticals has identified genes within the
ProNet(TM) database which it believes are key regulators of several important
and common human diseases.
Through Myriad Pharmaceuticals, the Company is building drug discovery screens
for a number of diseases for which a large and unmet medical need exists, such
as cancer, rheumatoid arthritis, chronic pain, and diseases of the central
nervous system. Myriad Pharmaceuticals has recruited a group of experienced
scientists who will assist in the design, construction and operation of drug
discovery screens. These screens will be used to discover small molecular weight
compounds which can be used as the starting points for the design of effective
new medicines. The Company anticipates that Myriad Pharmaceuticals will identify
a number of compounds that show some benefit in use against the target genes.
However, as is the case for all drug discovery programs, many of these compounds
will not be of long-term interest because of lack of selectivity, toxicity or
problems with metabolism. The Company will seek to identify and cease
development work on these compounds early in the development process and only
proceed with the best candidate molecules. It is the intention of the Company
that Myriad Pharmaceuticals will test its drug candidates in a variety of pre-
clinical assays in order to establish their efficacy and safety and then, where
possible, partner the drug candidates with major pharmaceutical companies.
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ProNet(TM) Database
ProNet(TM) is a proprietary database of human proteins, the proteins they
interact with and their biochemical pathways. Each protein and its interacting
partners form a network, which reads like a map positioning the protein in the
disease pathway and tracing the protein's role in that pathway. The Company
believes that since virtually all cellular processes are controlled by proteins,
including important disease processes, knowledge of how proteins interact can be
extremely valuable in the identification of drug targets for novel therapeutic
development.
Myriad's proprietary automation and sequencing capabilities developed for
the Company's positional cloning and diagnostic efforts have been applied to the
search process to allow high throughput processing of protein interactions. As
Myriad's efforts to identify protein interactions progresses, the Company's
elucidation of an ever increasing fraction of these interactions may enable
researchers to identify functional complexes and trace pathways that are
involved in disease progression. The Company believes that ProNet(TM) provides a
significant opportunity to identify and develop novel drug targets and that the
drug discovery efforts of pharmaceutical and biotechnology companies may benefit
from ProNet(TM) in a number of ways:
. Information from ProNet(TM) may enable researchers to identify proteins
involved in critical interactions. These proteins can be developed as
targets for therapeutic intervention;
. Knowledge of interacting partners may aid in assigning proteins to
biochemical or disease-related pathways;
. Analysis of ProNet(TM) may suggest functions for many novel proteins;
. Identification of new relationships may suggest novel roles for known
proteins; and
. Selection of high-quality drug discovery targets from the numerous
candidate genes involved in disease pathways may be possible.
On November 20, 1997, the Company and Bayer jointly announced a research
collaboration focusing on the discovery of gene targets and the development of
new therapeutics to treat dementia and depression. On October 6, 1998, the
Company announced a five-year collaboration with Schering AG. Under the
agreement, Myriad will have an option to co-promote all new therapeutic products
in North America and receive 50 percent of the profits from North American sales
of all new drugs discovered. On November 12, 1998, the Company announced a
research collaboration with Monsanto which will initially focus on two major
disease pathways, with Monsanto having the option to extend the research program
to look at additional disease areas. Each of these research programs will
utilize the Company's ProNet(TM) database to assist in locating drug targets.
Molecular Diagnostic Tests
BRACAnalysis(TM)
In 1996, the Company introduced BRACAnalysis(TM), a comprehensive BRCA1 and
BRCA2 sequence analysis for susceptibility to breast and ovarian cancer.
BRACAnalysis(TM) provides women and their family members who are at risk for
hereditary breast and ovarian cancer with important information that the Company
believes will help them and their physicians make better informed lifestyle,
surveillance and treatment decisions.
BRACAnalysis(TM) is a fully automated testing platform that can deliver a
direct full sequence analysis of BRCA1 and BRCA2 to women who seek knowledge of
their predisposition to breast and ovarian cancer. The Company believes that
women who may benefit from BRACAnalysis(TM) include: (i) women with a diagnosis
of breast or ovarian cancer, especially premenopausal breast cancer; (ii) women
with a family history of breast or
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ovarian cancer; and (iii) women with a blood relative who is known to have a
mutation in BRCA1 or BRCA2.
In order to have the test performed, an individual visits his or her
physician or health care provider and a blood sample is obtained, placed in a
bar coded test tube and forwarded to Myriad Labs for processing. Upon receipt
by Myriad Labs, each sample is logged for sample tracking and is then handled by
advanced robotic systems to process the sample and perform the genetic test.
BRACAnalysis(TM) identifies mutations in the BRCA1 and BRCA2 genes through a
process that involves the performance of over 80 separate PCR amplifications and
the full sequencing of more than 35,000 DNA base pairs of the two genes from the
individual's blood sample.
CardiaRisk(TM)
In 1998, the Company introduced CardiaRisk(TM). This test, like
BRACAnalysis(TM), has been fully automated and is performed by Myriad Labs using
DNA extracted from a patient's blood sample. There are approximately 50 million
hypertensive patients in the United States. Therapy for these patients includes
the use of a low-salt diet, other dietary regimens, and numerous drug therapies,
including ACE inhibitors, to control the blood pressure. Although a low salt
diet is frequently recommended for hypertensive patients, either alone or in
combination with drug therapy, only an estimated 20%-30% of patients actually
receive any benefit from a special low salt diet. Moreover, patients often have
difficulty complying with the low salt diet.
Results of a recent study of 1,509 patients by the National Institutes of
Health showed that of all patients placed on a low salt diet, only patients with
the AGT mutation achieved a significant reduction in blood pressure over the
three year course of the study. Hypertensive patients in this study with the
variant form of the AGT gene were also found to be 42% more likely to progress
beyond borderline hypertensive blood pressure levels, and their hypertension is
more likely to occur earlier in life and become more severe. Additional clinical
studies have shown that individuals with both copies of the variant form of the
AGT gene have experienced greater reduction in blood pressure with ACE inhibitor
therapy versus individuals with normal copies of the AGT gene.
CardiaRisk(TM) identifies patients who have a greater risk of myocardial
infarction (heart attack) and coronary disease by determining the presence of a
genetic variation of the AGT gene. In a study published in the June 24, 1995
issue of Lancet of 422 patients with documented coronary heart disease, those
with two copies of the variant AGT gene had a 2.6 times greater risk of coronary
heart disease and a 3.4 fold greater risk of myocardial infarction than those
individuals with one or no copies of the variant.
The Company maintains a sales force with regional responsibilities for
sales, promotion and education of physicians nationwide, and expects to expand
its sales force over the next three years. Marketing and educational efforts
initially have been directed to cancer centers, oncologists and managed care
organizations as primary customers for BRACAnalysis(TM) and CardiaRisk(TM).
Myriad also conducts educational symposia for physicians in conjunction with the
major medical conferences across the country.
There can be no assurance that these tests or other similar tests developed
by the Company in the future will achieve overall market acceptance. The degree
of market acceptance will depend on a number of factors, including the
availability of third-party reimbursement and demonstration to the medical
community of the value, efficacy and cost-effectiveness of the tests to
patients, payors and health care providers.
Myriad's Commercialization Strategy
Myriad's commercialization strategy is to focus on the development of
therapeutic and diagnostic products based on the discovery of major common human
disease genes and their biological pathways. In addition, the establishment of
the ProNet(TM) database also gives the Company potential licensing and
subscription revenues in the near term. The development of therapeutic
treatments for major diseases will be pursued in collaboration with strategic
partners and independently through Myriad Pharmaceuticals.
9
Therapeutic Product Development
Genes control all physiological processes through the expression of proteins.
Genetic disease manifests itself when a gene produces a protein that causes a
harmful effect or fails to produce a protein necessary for good health. For
example, a mutated gene may express a protein that causes certain cells to
proliferate without control, causing cancer. The Company believes that the
technologies it has developed to identify genes and their biochemical pathways
will enable it to identify important proteins for therapeutic intervention.
Preventing or treating disease involves either (i) intervening, through the use
of a drug, in the complex series of cellular processes (which may include a
series of receptor, enzyme, hormone and other protein interactions in the
biochemical pathway) that block the activity of a harmful protein or replace the
function of a beneficial protein; (ii) blocking, replacing, modifying or
regulating the gene responsible for a beneficial or harmful protein; or (iii)
replacing a beneficial protein.
Myriad Pharmaceuticals was created to develop therapeutic lead compounds for
selected common diseases with large potential markets that are under-served by
current therapeutic options. Myriad Pharmaceuticals will use drug targets
discovered with the Company's ProNet(TM) technology to identify candidates for
pre-clinical development.
Myriad Pharmaceuticals has initiated its drug discovery programs, concentrating
initially on therapeutics for cancer, inflammatory disorders and central nervous
system disorders. The Company plans to develop drug targets into fully-validated
lead candidates, ready for clinical trials. Taking the drug discovery process
further along the development pathway, including data on safety, efficacy,
toxicology and pharmacokenetics, should enable the Company to capture a greater
portion of the value of new drugs. The company does not plan to perform clinical
trials on the compounds it generates but expects to partner clinical development
of its therapeutic candidates with major pharmaceutical companies. There can be
no assurance that the Company will be successful in identifying or partnering
lead compounds or, once partnered, that the selected compounds will prove
efficacious for drug discovery.
ProNet(TM) Database Opportunity
ProNet(TM) is a powerful technology which the Company believes will aid major
pharmaceutical collaborators in identifying the most appropriate targets for
therapeutic interventions. Myriad intends to license non-exclusive access to
the ProNet(TM) database to pharmaceutical companies for use in identifying novel
proteins and their biochemical pathways for use in the development of new
therapeutics. There can be no assurance that the Company will be able to obtain
information on all of the proteins in the human body and their biochemical
pathways or that the Company will successfully license rights to the database.
Molecular Diagnostic Business
Through Myriad Labs, the Company has established a central molecular
diagnostic laboratory to provide genetic information services to health care
providers based on the genes discovered or licensed by the Company. The
Company is developing a clinical database of information on mutations of each
gene discovered, including the frequencies of occurrence in different population
groups and the clinical effect of these mutations. This database will permit
Myriad Labs to provide health care professionals with detailed genetic
information regarding the risk profile associated with an individual's genetic
test results. Myriad Labs also provides educational and support services to
physicians and health care professionals as part of its genetic information
business.
By targeting its gene discovery efforts to the genetic predisposition
components of major common diseases such as cancer and cardiovascular disease,
the Company believes it will be able to assist health care providers in
determining an individual's predisposition to such illnesses. The Company
believes that genetic predisposition testing will be of great medical value to
large segments of the population. Both affected individuals and those who are
not currently affected but have a high risk of developing the disease in the
future can benefit from the molecular diagnostic information which will enable
them to make more informed decisions concerning selection of the most
appropriate therapy, increased monitoring and preventive measures.
In the longer term, the Company believes that as more genes are added to its
portfolio through discoveries by the Company and licenses of genes discovered by
others, the Company may be positioned to offer an array of molecular diagnostics
which cover a number of major diseases. The availability of a broad molecular
diagnostic profile could lead to expanded markets encompassing substantial
additional segments of the population who could benefit from knowing their risk
of developing a variety of major diseases.
10
There are numerous difficulties and challenges associated with developing
molecular diagnostics based on gene discoveries, as well as uncertainties in
interpreting the results. A defective gene may malfunction in many ways, and the
numerous mutations of the gene may make tests for the mutations difficult. In
addition, even when a molecular diagnostic identifies the existence of a
mutation in a particular individual, the interpretation of the molecular
diagnostic results is limited to the identification of a statistical probability
that the tested individual will develop the disease for which the test has been
completed. There can be no assurance that the Company will be successful in
developing molecular diagnostics in addition to BRACAnalysis(TM) and
CardiaRisk(TM) or that BRACAnalysis(TM), CardiaRisk(TM), or any such tests will
be able to be marketed at acceptable prices or will receive commercial
acceptance in the markets that the Company expects to target.
Strategic Alliances
The Company seeks to obtain financing for a portion of its research and
development activities through strategic alliances with corporate partners and
endeavors to leverage its research efforts through collaborative agreements with
academic institutions. Myriad has formed strategic alliances with six major
pharmaceutical companies to date. The Company is collaborating with (i) Bayer,
Monsanto and Schering AG to discover drug targets through the use of ProNet(TM);
(ii) Schering to discover genes involved in prostate and other cancers; (iii)
Novartis to discover genes involved in certain types of cardiovascular disease;
(iv) Bayer to discover genes involved in obesity, osteoporosis, asthma,
dementia, depression; and (v) Lilly on the discovery of the BRCA1 breast and
ovarian cancer gene. The Company is actively pursuing potential strategic
alliances with other partners in areas where it believes they may enhance the
Company's ability to develop and exploit its technology. The material terms of
the Company's current strategic alliances and collaborative agreements are
described below.
Monsanto Company
In November 1998, the Company announced a collaboration with Monsanto to use
Myriad's ProNet(TM) technology to discover and develop new therapeutic products.
The 15 month collaboration will initially focus on two major disease pathways,
with Monsanto having the option to extend their research program an additional
12 months to look at other disease areas. The agreement may provide up to $15
million to the Company including an upfront payment, option payments, license
fees and milestone payments. The Company will also receive royalties on
worldwide sales of drugs resulting from the discovery of novel targets found
through use of the ProNet(TM) database.
Schering AG, Germany
In October 1998, the Company entered into a five-year collaboration with
Schering AG to utilize ProNet(TM) to understand the biochemical pathways of
major diseases that could ultimately lead to numerous potential therapeutic
targets. This collaboration may provide the Company with licensing fees,
subscription fees, option payments and milestone fees with a value of up to $51
million. Under the agreement, the Company will have an option to co-promote all
new therapeutic products in North America and receive 50 percent of the profits
from North American sales of all new drugs discovered with ProNet(TM). If the
Company chooses to co-promote the drug as a 50 percent partner, the Company may
be required to pay funds to Schering AG to establish equal ownership.
Schering-Plough Corporation
In April 1997, the Company entered into a Collaborative Research and License
Agreement and Stock Purchase Agreement with Schering with a value of up to $60
million. Under the agreements, Schering made a $4 million equity investment in
the Company, a $4 million one-time license payment to the Company, and agreed to
provide $9 million of funding over a three-year period to support the Company's
research and development programs to identify and sequence certain genes
involved in the field of prostate and other cancers. The three-year term of the
agreement may be extended for two additional one-year periods with annual
research and development funding of up to $4 million each additional year. In
addition, the Company may receive future milestone payments up to $35 million
and future royalty payments on therapeutic product sales.
In October 1997, the Company announced that Schering had licensed the
therapeutic rights to the MMAC1 gene. In March 1998, the Company demonstrated
the tumor-suppressor activity of the MMAC1 gene. Each event
11
triggered milestone payments from Schering to the Company.
Bayer Corporation
In September 1995, Myriad entered into a Collaborative Research and License
Agreement and Stock Purchase Agreement with Bayer with a value of up to $71
million. Under the agreements, Bayer made a $10 million equity investment in the
Company and agreed to provide $25 million of funding over a five-year period to
support the Company's research and development programs to identify and sequence
genes involved in the field of obesity, osteoporosis and asthma. In addition,
the Company may receive future milestone payments up to $36 million and future
royalty payments on therapeutic product sales.
In November 1997 and again in December 1998, the Company announced expansions
of its collaborative research and development arrangement with Bayer. The
expanded agreement will add dementia and depression to the fields of research
and extend the collaborative effort until September 2002. The expanded
collaboration provides the Company with additional research funding and
potential milestone payments of up to $66.5 million or a total potential of up
to $137 million.
Novartis Corporation
In April 1995, Myriad entered into a Collaborative Research and License
Agreement and Stock Purchase Agreement with Novartis. Under the agreements,
Novartis made a $7 million equity investment in the Company and agreed to
provide $25 million of funding over a five-year period to support the Company's
research and development programs to identify and sequence certain genes
involved in the field of cardiovascular disease. In addition, the Company may
receive future milestone payments up to $28 million and future royalty payments
on therapeutic product sales.
In March 1998, the Company announced that Novartis had licensed from the
Company the therapeutic rights to the CHD1 gene which triggered a milestone
payment from Novartis to the Company.
Eli Lilly and Company
In August 1992, the Company entered into a Research Collaboration and License
Agreement with Lilly and its former subsidiary, Hybritech Incorporated
(''Hybritech''), pursuant to which Lilly and Hybritech made an equity investment
in the Company and provided funding over a three-year period to support the
Company's research and development program to discover the BRCA1 gene. The
Company may also receive future milestone payments and future royalty payments
on therapeutic and diagnostic product sales. The Company granted to Lilly an
exclusive, worldwide license to develop, manufacture and sell therapeutic
products derived from the BRCA1 gene, and granted to Hybritech an exclusive,
worldwide license to develop, manufacture and sell diagnostic kits derived from
the BRCA1 gene. Royalties with respect to therapeutic and diagnostic products
which may in the future be developed by Lilly and Hybritech will be payable on
product sales in each country until the expiration of the last valid patent
covering such products in that country. Under the agreement, the Company
retained the exclusive, worldwide rights to provide molecular diagnostic
services based on the BRCA1 gene.
Hybritech, a subsidiary of Beckman Instruments, Inc.
In March 1993, the Company and Hybritech entered into a related Collaborative
Agreement which establishes certain rights and obligations of the Company and
Hybritech with respect to Hybritech's development and sale of diagnostic kits.
The agreement provides that Hybritech will have access to the BRCA1 mutation
profile developed by the Company for use in connection with Hybritech's
development of diagnostic kits. The agreement gives the Company the exclusive
right to manufacture DNA or RNA-based reagents for use in Hybritech's diagnostic
kits, should Hybritech elect to develop diagnostic kits based on such reagents.
The agreement also requires Hybritech to make periodic milestone payments to the
Company keyed to progress in the development of a diagnostic kit. The first of
such milestones has been achieved and paid to the Company.
Aetna U.S. Healthcare
In addition to its collaborations with major pharmaceutical companies, Myriad,
in order to facilitate patent access to its genetic predisposition testing, has
entered into an agreement with Aetna. Under the agreement, Aetna will provide
medical coverage for the Company's BRACAnalysis(TM) test for patients throughout
their system who are
12
at hereditary risk for breast or ovarian cancer. Aetna serves the health
insurance needs of approximately 23 million people nationwide. In addition,
Aetna has contracts with more than 250,000 independent physicians and 2,300
hospitals from all 50 states. BRACAnalysis(TM) test information will be used by
Aetna to provide improved healthcare management of their patients. No patient
test result information will be provided to Aetna by the Company unless the
patient specifically requests in writing that the information be released.
Academic Collaborations
The Company has a number of collaborative agreements with the University of
Utah (the "University"), IHC, the University of Texas M.D. Anderson Cancer
Center ("MDA"), and Valley Mental Health ("VMH") which represent important
elements of the Company's research and development programs. The Company
provides funding for its scientific collaborators at the University, IHC, MDA,
and VMH to expand the development of databases of families, the collection of
clinical information and the analysis of DNA samples relating to specific gene
discovery projects targeted by the Company. The University, IHC, MDA, and VMH
have granted the Company an exclusive, worldwide, royalty bearing license to any
commercial application including all gene discoveries, inventions and
improvements created or discovered during such research for use by the Company
or its corporate partners for diagnostic and therapeutic purposes.
Collaborations Related to Cancer. The Company has entered into a research
agreement and four related exclusive license agreements with the University in
the field of cancer. The Company and University entered into an Exclusive
License Agreement in October 1991, pursuant to which the Company was granted an
exclusive, worldwide license to the University's patent rights arising out of
the discovery of the BRCA1 breast and ovarian cancer gene for use in the
diagnosis and treatment of breast cancer.
In December 1992, the Company entered into a Standard Research Agreement to
provide funding to the University of Utah Center for Cancer Genetic Epidemiology
for research projects directed to the isolation, sequencing and characterization
of genes predisposing to cancer, including but not limited to colon cancer, lung
cancer, prostate cancer and melanoma. Following the Company's discovery of the
p16 gene, the Company entered into a second Exclusive License Agreement with the
University in June 1994, pursuant to which the Company was granted an exclusive,
worldwide license to discoveries and inventions arising out of research at the
Center for Cancer Genetic Epidemiology related to germline mutations of the p16
gene and methods of detecting predisposition to cancer based on the p16 gene. In
November 1994, the Company entered into a third Exclusive License Agreement with
the University, pursuant to which it was granted an exclusive, worldwide license
to discoveries and inventions arising out of research at the Center for Cancer
Genetic Epidemiology directed to the localization, sequencing and
characterization of the BRCA2 breast cancer predisposing gene.
In February 1997, the Company entered into a fourth Exclusive License
Agreement with the University, pursuant to which the Company was granted an
exclusive, worldwide license to the University's patent rights arising out of
research directed to the isolation, sequencing and characterization of genes
responsible for prostate cancer.
In July 1997, the Company entered into a Standard Research Agreement to
provide supplemental funding to the University of Utah Center for Cancer Genetic
Epidemiology for research projects directed to the isolation, sequencing and
characterization of genes responsible for prostate cancer.
In September 1996, the Company entered into a Patent and License Technology
Agreement with the University of Texas and MDA in connection with research
directed to the isolation sequencing and characterization of genes involved in
leukemia, pursuant to which the Company was granted an exclusive, worldwide
license to any commercial application of leukemia genes discovered during such
research. In December 1996, the Company entered into a second Patent and
License Technology Agreement with the University of Texas and MDA in connection
with research directed to the isolation sequencing and characterization of genes
involved in glioma, prostate, and renal cancer, pursuant to which the Company
was granted an exclusive, worldwide license to any commercial application
13
of glioma, prostate, and renal cancer genes discovered during such research.
Collaborations Related to Cardiovascular Disease , Diabetes and Obesity. In
May and August 1995, as amended in December 1996, the Company entered into two
Standard Research Agreements and two Exclusive License Agreements with the
University under which the Company agreed to reimburse the University for
research performed at its Cardiovascular Genetics Research Clinic on behalf of
the Company in the fields of cardiovascular disease, diabetes and obesity. The
University granted the Company exclusive, worldwide rights to use the database
of families, clinical information and DNA samples for the discovery of genes for
the diagnosis and treatment of cardiovascular disorders, diabetes and obesity.
The research agreement covering cardiovascular disorders and diabetes terminates
on April 30, 2000, while the obesity research agreement terminates on July 31,
2000.
Collaborations Relating to Chronic Obstructive Pulmonary Disease. In July
1998, the Company entered into a Standard Research Agreement with the University
under which the Company agrees to reimburse the University for research
performed on behalf of the Company in the field of chronic obstructive pulmonary
disease.
Collaborations Relating to Asthma and Osteoporosis. In September 1995, the
Company entered into a Standard Research Agreement with IHC under which the
Company reimburses IHC for research used to develop a clinical database in the
fields of asthma and osteoporosis, by linking IHC's database of patient records
to the Company's genealogy database. IHC will also collect clinical information
and DNA samples on selected patients. The Company and IHC will jointly own the
clinical database, except that IHC may only use the database for educational and
research purposes and to improve health care services to its patients and may
not (i) use the clinical database to discover genes or develop products from the
genes discovered or (ii) sell, license or furnish access to the database to any
other party.
The Company has the exclusive rights to use the clinical database, clinical
information and DNA samples for the discovery of genes and the development of
products for the diagnosis, prevention and treatment of asthma and osteoporosis.
The research agreement covering asthma and osteoporosis terminates on August 31,
2000.
Collaborations Relating to Central Nervous System ("CNS") Diseases. In June
1996 and September 1997, the Company entered into Standard Research Agreements
with IHC and VMH, respectively. Under these agreements, the Company reimburses
IHC and VMH for research used to develop clinical databases in the study of CNS
disorders, such as depression, attention deficit hyperactivity disorder,
addictive behavior, and obsessive-compulsive disorders, by linking IHC's and
VMH's databases of patient records to the Company's genealogy database. IHC and
VMH will also collect clinical information and DNA samples on selected patients.
The Company and IHC will jointly own the IHC clinical database and the Company
and VMH will jointly own the VMH database. IHC and VMH may only use the
databases for educational and research purposes and to improve health care
services to their patients and may not (i) use the clinical database to discover
genes or develop products from the genes discovered or (ii) sell, license or
furnish access to the databases to any other party.
The Company has the exclusive rights to use the clinical databases, clinical
information and DNA samples for the discovery of genes and the development of
products for the diagnosis, prevention and treatment of CNS disorders. The IHC
and VMH research agreements covering CNS diseases terminate on April 30, 2001
and August 31, 2002, respectively.
Patents and Proprietary Rights
The Company intends to seek patent protection in the United States and major
foreign jurisdictions for the genes it discovers, mutations and products of the
genes and related processes, transgenic animals, and other inventions which it
believes are patentable and where the Company believes its interests would be
best served by seeking patent protection. The Company also intends to seek
patent protection or rely upon trade secret rights to protect certain other
technologies which may be used in discovering and characterizing new genes and
which may be used in the development of novel diagnostic and therapeutic
products. To protect its trade secrets and other proprietary
14
information, the Company requires that its employees and consultants enter into
confidentiality and invention assignment agreements. There can be no assurance
as to the protection that the confidentiality and invention assignment
agreements will afford the Company. In addition, there can be no assurance that
any such patents will issue, or that the breadth or the degree of protection of
any claims of such patents will afford significant protection to the Company.
The Company owns or has licensed rights to 17 issued patents and numerous
patent applications in the United States as well as numerous foreign patent
applications relating to genes associated with cancer, heart disease, and
hypertension; processes for identifying and sequencing genes, and other related
gene discovery technologies. There can be no assurance, however, that any patent
applications which the Company has filed or will file or to which the Company
has licensed or will license rights will issue or that patents that do issue
will contain commercially valuable claims. In addition, there can be no
assurance that any patents issued to the Company or its licensors will afford
meaningful protection for the Company's technology or products or will not be
subsequently circumvented, invalidated or narrowed.
The Company's processes and potential products may also conflict with patents
which have been or may be granted to competitors, academic institutions or
others. As the biotechnology industry expands and more patents are issued, the
risk increases that the Company's processes and potential products may give rise
to interferences in the U.S. Patent and Trademark office, or to claims of patent
infringement by other companies, institutions or individuals. Such entities or
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the related
product or process. If any such actions are successful, in addition to any
potential liability for damages, the Company could be required to cease the
infringing activity or obtain a license in order to continue to manufacture or
market the relevant product or process. There can be no assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available on acceptable terms, if at all. Failure by
the Company to obtain a license to any technology that it may require to
commercialize its technologies or potential products could have a material
adverse effect on the Company's business, financial condition and results of
operations. There is also considerable pressure on academic institutions to
publish discoveries in the genetic field. Such a publication by an academic
collaborator of the Company prior to the filing date of the Company's
application, if it covers a gene claimed in the application, may preclude the
patent from issuing or the filing of foreign patent applications, or if a patent
was issued, may invalidate the patent.
The Company also relies upon unpatented proprietary technology, and in the
future may determine in some cases that its interests would be better served by
reliance on trade secrets or confidentiality agreements rather than patents or
licenses. These include the Company's positional cloning, protein interaction,
robotics and bioinformatics technologies. There can be no assurance that the
Company will be able to protect its rights to such unpatented proprietary
technology or that others will not independently develop substantially
equivalent technologies. If the Company is unable to obtain strong proprietary
rights to its processes or products after obtaining regulatory clearance,
competitors may be able to market competing processes and products.
Others may obtain patents having claims which cover aspects of the Company's
products or processes which are necessary for or useful to the development, use
or manufacture of the Company's services or products. Should any such other
group obtain patent protection with respect to its discoveries, the Company's
commercialization of molecular diagnostic services and potential therapeutic
products could be limited or prohibited.
In addition, the Company is party to various license agreements which give it
rights to use certain technology in its research, development and testing
processes. There can be no assurance that the Company will be able to continue
to license such technology on commercially reasonable terms, if at all. Failure
by the Company to maintain rights to such technology could have a material
adverse effect on the Company.
Competition
Competition in the Company's potential markets is intense. The technologies
for discovering genes which
15
predispose individuals to major diseases and approaches for commercializing
those discoveries are new and rapidly evolving. Rapid technological developments
could result in the Company's potential services, products, or processes
becoming obsolete before the Company recovers a significant portion of its
related research and development costs and capital expenditures associated
therewith. Competitors of the Company in the United States and abroad are
numerous and include, among others, major pharmaceutical and diagnostic
companies, specialized biotechnology firms, universities and other research
institutions, including those receiving funding from the Human Genome Project.
Many of the Company's potential competitors have considerably greater financial,
technical, marketing and other resources than the Company, which may allow these
competitors to discover important genes in advance of the Company. If the
Company does not discover disease-predisposing genes, characterize their
functions, develop genetic tests and related information services based on such
discoveries obtain regulatory and other approvals, and launch such services or
products before competitors, the Company could be adversely affected. In
addition, any predisposing tests which the Company may develop, including the
BRACAnalysis(TM) test and the recently introduced CardiaRisk(TM) test, could be
made obsolete by less expensive or more effective tests or methods which may be
developed in the future. The Company expects competition to intensify in the
fields in which it is involved as technical advances in such fields are made and
become more widely known.
The Company also expects to encounter significant competition with respect to
any drugs that may be developed using its technologies. Companies that complete
clinical trials, obtain required regulatory approvals and commence commercial
sales of therapeutic products prior to the Company or its collabarative
partners may achieve a significant competitive advantage. There can be no
assurance, however, that the Company or its collaborative partners will be able
to develop such products successfully or that such parties will obtain patents
covering such products that provide protection against competitors. Moreover,
there can be no assurance that the Company's competitors will not succeed in
developing therapeutic products that circumvent the Company's products, that
such competitors will not succeed in developing technologies or products that
are more effective than those developed by the Company and its collaborative
partners or that would render technologies or products of the Company and it
collaborators less competitive or obsolete.
Government Regulation
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the development, manufacture and marketing
of the Company's proposed services and in its ongoing research and development
activities. The Company's molecular diagnostic and information services, as well
as any therapeutic products which may be developed, will require regulatory
approval by governmental agencies prior to commercialization. The establishment
and operation of a genetic laboratory requires regulatory approval and periodic
compliance reviews. Various federal statutes and regulations also govern or
influence the testing, manufacturing, safety, labeling, storage, record keeping,
and marketing of such products. The process of obtaining these approvals and the
subsequent compliance with applicable statutes and regulations require the
expenditure of substantial time and financial resources. Any failure by the
Company or its collaborators, licensors or licensees to obtain, or any delay in
obtaining, regulatory approval could have a material adverse effect on the
Company's business, financial condition or results of operations.
16
Therapeutics. Under the Company's current strategic alliances, the Company's
partners have the right to develop certain therapeutic products based on the
Company's gene discoveries. The Company also intends to develop independently
therapeutic products based on gene discoveries that it has not licensed to
partners. Such products, including any human gene therapy products, will be
subject to regulation by the FDA and foreign regulatory authorities and require
approval before they may be clinically tested and commercially marketed for
human therapeutic use in the United States and other countries. The precise
regulatory requirements with which the Company and its corporate partners will
have to comply are undergoing frequent revisions and refinement due to the
novelty of the human gene therapies being developed. Human gene therapy products
are a new category of therapeutics, and there can be no assurance as to the
length of the clinical trial period or the number of patients the FDA will
require to be enrolled in the clinical trials in order to establish the safety,
efficacy, and potency of human gene therapy products. It is uncertain that the
clinical data generated in such studies will be acceptable to the FDA such that
the FDA will approve the marketing of such products. In addition, obtaining FDA
approval for therapeutic products is a costly and time consuming process.
The steps required before a pharmaceutical agent may be marketed in the United
States include (a) preclinical laboratory, in vivo and formulation studies, (b)
the submission to FDA of an Investigational New Drug application, which must
become effective before human clinical trials may commence, (c) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug, (d) the submission of a New Drug Application ("NDA") to FDA and (e)
FDA approval of the NDA, including approval of all product labeling and
advertising. Failure to successfully develop therapeutic products could have a
material adverse effect on the Company's business, financial results and results
of operations.
Molecular Diagnostics. Myriad Labs is subject to government regulation at the
federal, state, and local levels as a clinical laboratory. Myriad Labs has
received CLIA certification from the Department of Health and Human Services. On
the state level, only New York has implemented regulations concerning DNA-based
diagnostic testing and the Company has received approval from the State of New
York for both breast cancer susceptibility and hypertension/heart disease risk.
The Company is aware of several other states that require licensing or
registration of clinical laboratory activities. The Company believes that it
has taken all steps required of it in such jurisdictions in order for Myriad
Labs to conduct business in those jurisdictions. However, there can be no
assurance that the Company will be able to maintain state level regulatory
compliance in all states where Myriad Labs may do business. Failure to maintain
state regulatory compliance, or changes in state regulatory schemes, could
result in a substantial curtailment or even prohibition of Myriad Lab's clinical
activities and could have a material adverse effect on the Company's business,
financial condition and results of operations.
CLIA authorizes the Department of Health and Human Services to regulate
clinical laboratories. These regulations, which affect the Company, mandate that
all clinical laboratories be certified to perform testing on human specimens and
provide specific conditions for certification. These regulations also contain
guidelines for the qualification, responsibilities, training, working conditions
and oversight of clinical laboratory employees. In addition, specific standards
are imposed for each type of test which is performed in a laboratory. CLIA and
the regulations promulgated thereunder are enforced through quality inspections
of test methods, equipment, instrumentation, materials and supplies on a
periodic basis. Any change in CLIA or these regulations or in the interpretation
thereof could have a material adverse effect on the Company's business,
prospects, financial condition or results of operations.
The Company's business is also subject to regulation under state and federal
laws regarding environmental protection and hazardous substances control,
including the Occupational Safety and Health Act, the Environmental Protection
Act, and the Toxic Substance Control Act. The Company believes that it is in
material compliance with these and other applicable laws and that its ongoing
compliance therewith will not have a material adverse effect on its business.
There can be no assurance, however, that statutes or regulations applicable to
the Company's business will not be adopted which impose substantial additional
costs to assure compliance or otherwise materially adversely affect the
Company's operations.
Human Resources
As of September 15, 1999, Myriad had 244 full-time equivalent employees,
including 33 persons holding doctoral degrees and four medical doctors. Most of
the Company's employees are engaged directly in research development, production
and marketing activities. The Company believes that the success of its business
will depend, in part, on its ability to attract and retain qualified personnel.
17
The Company's employees are not covered by a collective bargaining agreement,
and the Company considers its relations with its employees to be good.
Item 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located in Salt Lake City, Utah. The Company
currently leases a 92,000 square foot building dedicated to research and
development, administration and laboratory space which has received federal
certification under CLIA to serve as a genetic predisposition testing
laboratory. Activity related to the Company's research and molecular diagnostics
segments is performed at this location. Additionally, the Company leases 6,440
square feet for various research segment support functions. Leases are
generally for terms of five to ten years, and usually provide renewal options
for terms of up to five additional years.
The Company believes that its existing facilities and equipment are well
maintained and in good working condition. The Company believes its current
facilities will provide adequate capacity for the foreseeable future. The
Company continues to make investments in capital equipment as needed to meet the
research requirements of its collaborative agreements, its lead compound
development requirements, and the anticipated demand for its molecular
diagnostic tests.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the year ended June 30,
1999.
18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock began trading on the Nasdaq National Market on
October 6, 1995 under the symbol "MYGN". The following table sets forth, for
the last two fiscal years, the high and low sales prices for the Common Stock,
as reported by the Nasdaq National Market:
High Low
------- -------
Fiscal 1999:
Fourth Quarter... $12.375 $ 8.75
Third Quarter.... $ 11.50 $ 8.50
Second Quarter... $ 12.50 $ 7.875
First Quarter.... $ 16.00 $ 5.75
Fiscal 1998:
Fourth Quarter... $23.625 $ 14.00
Third Quarter.... $25.625 $18.188
Second Quarter... $ 30.00 $ 21.50
First Quarter.... $28.125 $ 22.75
As of August 4, 1999, there were approximately 186 stockholders of record
of the Common Stock and, according to the Company's estimates, approximately
2,300 beneficial owners of the Common Stock. The Company has not paid dividends
to its stockholders since its inception and does not plan to pay cash dividends
in the foreseeable future. The Company currently intends to retain earnings, if
any, to finance the growth of the Company.
Sale of Unregistered Securities
None.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth consolidated financial data with respect to
the Company as of and for each of the five years ended June 30, 1999. The
selected consolidated financial data as of and for each of the five years ended
June 30, 1999 have been derived from the consolidated financial statements of
the Company. The consolidated financial statements and the report thereon for
the year ended June 30, 1999 are included elsewhere in this Annual Report on
Form 10-K. The information below should be read in conjunction with the
consolidated financial statements (and notes thereon) and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included in Item 7.
19
Years Ended June 30,
=============================================================================================================================
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Consolidated Statement
of Operations Data:
Research revenue............... $ 20,093,057 $ 20,999,598 $ 14,732,054 $ 6,628,624 $ 1,294,500
Molecular diagnostic revenue 5,220,349 2,210,983 504,045 -- --
------------ ------------ ------------ ------------ ------------
Total revenues............... 25,313,406 23,210,581 15,236,099 6,628,624 1,294,500
Costs and expenses:
Molecular diagnostic cost of
revenue..................... 3,066,354 1,391,368 340,461 -- --
Research and development....... 23,452,220 23,002,340 18,580,229 12,990,566 5,161,978
Selling, general and
administrative.............. 11,105,520 11,807,023 8,755,217 2,525,814 1,788,247
------------ ------------ ------------ ------------ ------------
Total costs and expenses..... 37,624,094 36,200,731 27,675,907 15,516,380 6,950,225
============ ============ ============ ============ ===========
Operating loss............... (12,310,688) (12,990,150) (12,439,808) (8,887,756) (5,655,725)
Other income (expense):
Interest income.............. 2,348,827 3,223,683 3,414,379 3,173,749 458,353
Interest expense............. (6,278) (32,681) (66,661) (97,414) (71,011)
Other........................ (27,314) 2,113 (114,190) (86,052) --
------------ ------------ ------------ ------------ ------------
Net loss................... ($9,995,453) ($9,797,035) ($9,206,280) ($5,897,473) ($5,268,383)
============ ============ ============ ============ ===========
Basic and diluted net loss
per share................. ($1.06) ($1.05) ($1.03) ($0.78) ($1.19)
Basic and diluted weighted
average shares outstanding 9,391,122 9,289,481 8,903,918 7,608,548 4,427,095
As of June 30,
=========================================================================================
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Consolidated Balance
Sheet Data:
Cash, cash equivalents and
marketable investment
securities.................... $ 38,926,459 $ 53,109,493 $ 63,077,439 $ 70,002,780 $ 16,140,935
Working capital................. 8,348,224 21,806,290 38,796,960 41,665,513 13,784,051
Total assets.................... 53,550,940 67,391,972 76,063,331 79,607,497 19,744,451
Notes payable less current
portion....................... -- -- 128,844 471,640 780,261
Stockholders' equity 48,215,736 57,481,013 66,178,975 70,185,747 16,256,165
20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
OVERVIEW
Since inception, the Company has devoted substantially all of its resources
to maintaining its research and development programs, establishing and operating
a molecular diagnostic laboratory, supporting collaborative research agreements,
and more recently establishing a high throughput screening and drug development
facility. Revenues received by the Company primarily have been payments pursuant
to collaborative research agreements, upfront fees, milestone payments, and
sales of genetic tests. The Company has been unprofitable since its inception
and, for the year ended June 30, 1999, the Company had a net loss of $9,995,453
and as of June 30, 1999 had an accumulated deficit of $43,939,880.
In April 1995, the Company commenced a five-year collaborative research and
development arrangement with Novartis Corporation ("Novartis"). This
collaboration may provide the Company with an equity investment, research
funding and potential milestone payments of up to $60,000,000. The Company is
entitled to receive royalties from sales of therapeutic products sold by
Novartis.
In September 1995, the Company commenced a five-year collaborative research
and development arrangement with Bayer Corporation ("Bayer"). This
collaboration provides the Company with an equity investment, research funding
and potential milestone payments of up to $71,000,000. In November 1997 and
again in December 1998, the Company announced expansions of its collaborative
research and development arrangement with Bayer. The expanded collaboration may
provide the Company with additional research funding and potential milestone
payments of up to $137,000,000. The Company is entitled to receive royalties
from sales of therapeutic products sold by Bayer.
In October 1996, the Company announced the introduction of
BRACAnalysis(TM), a comprehensive BRCA1 and BRCA2 gene sequence analysis for
susceptibility to breast and ovarian cancer. In January 1998, the Company
announced the introduction of CardiaRisk(TM) which may assist physicians both in
(i) identifying which hypertensive patients are at a significantly increased
risk of developing cardiovascular disease and (ii) identifying which patients
are likely to respond to low salt diet therapy and antihypertensive drug
therapy. The Company, through its wholly owned subsidiary Myriad Genetic
Laboratories, Inc., recognized molecular diagnostic revenues, primarily from
BRACAnalysis(TM), of $5,220,349 for the year ended June 30, 1999.
In April 1997, the Company commenced a three-year collaborative research
and development arrangement with Schering Corporation ("Schering"). The three-
year term may be extended for two additional one-year periods. This
collaboration provides the Company with an equity investment, license fees,
research funding and potential milestone payments totalling up to $60,000,000.
The Company is entitled to receive royalties from sales of therapeutic products
sold by Schering.
In October 1998, the Company entered into a five-year collaboration with
Schering AG, Germany ("Schering AG"), to utilize the Company's protein
interaction technology ("ProNet(TM)) for drug discovery and development. Under
the agreement, the Company will have an option to co-promote all new therapeutic
products in North America and receive 50 percent of the profits from North
American sales of all new drugs discovered with ProNet(TM). This collaboration
may provide the Company with licensing fees, subscription fees, option payments
and milestone fees with a value of up to $51,000,000. If the Company chooses to
co-promote the drug as a 50 percent partner, the Company may be required to pay
funds to Schering AG to establish equal ownership.
In November 1998, the Company entered into a 15 month collaboration with
Monsanto Company ("Monsanto"), to utilize ProNet(TM) for drug discovery and
development. Under the agreement, Monsanto has the
21
option to extend the research term for an additional twelve months. If the
anticipated milestones, option payments, license fees and upfront payments are
achieved, the value of the agreement may reach up to $15,000,000. The Company
will also receive royalties on worldwide sales of drugs resulting from the
discovery of novel targets found through use of the ProNet(TM) technology.
The Company intends to enter into additional collaborative relationships to
locate and sequence genes and discover protein networks associated with other
common diseases as well as continuing to fund internal research projects. There
can be no assurance that the Company will be able to enter into additional
collaborative relationships on terms acceptable to the Company. The Company
expects to incur losses for at least the next several years, primarily due to
expansion of its research and development programs, increased staffing costs and
expansion of its facilities. Additionally, the Company expects to incur
substantial sales, marketing and other expenses in connection with building its
molecular diagnostic business. The Company expects that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial.
RESULTS OF OPERATIONS
Years ended June 30, 1999 and 1998.
Research revenues for the Company's fiscal year ended June 30, 1999 were
$20,093,057 as compared to $20,999,598 for the fiscal year ended June 30, 1998.
Greater research revenue recognized during the fiscal year ended June 30, 1998
versus the current fiscal year is the result of $3,950,000 in research
milestones and contract expansion payments received by the Company in 1998.
Excluding the milestone and contract expansion payments, the Company's ongoing
research revenue increased $3,043,459 for the fiscal year ended June 30, 1999
versus fiscal 1998. Research revenue from the research collaboration agreements
is generally recognized as related costs are incurred. Consequently, as these
programs progress and costs increase or decrease, revenues increase or decrease
proportionately.
Molecular diagnostic revenues of $5,220,349 were recognized in the fiscal
year ended June 30, 1999, an increase of 136% or $3,009,366 over the prior year.
Molecular diagnostic revenue is comprised of sales of diagnostic tests resulting
from the Company's discovery of disease genes. The test for genetic
predisposition to breast and ovarian cancer was launched by the Company in
October 1996 and the test for heart disease and hypertension risk was launched
by the Company in January 1998. Sales and marketing efforts since that time
have given rise to the increased revenues for the fiscal year ended June 30,
1999. There can be no assurance, however that molecular diagnostic revenues
will continue to increase at the historical rate.
Research and development expenses for the year ended June 30, 1999
increased to $23,452,220 from $23,002,340 for the prior year. This increase was
primarily due to an increase in research activities as a result of the Company's
collaborations with Novartis, Bayer, Schering, Schering AG, and Monsanto, as
well as those programs funded by the Company. The increased level of research
spending includes ongoing development of the Company's ProNet(TM) and mutation
screening technologies, third-party sponsored research programs, and the
formation of Myriad Pharmaceuticals, Inc. ("Myriad Pharmaceuticals"). Myriad
Pharmaceuticals, a wholly-owned subsidiary, was created to develop therapeutic
lead compounds for selected common diseases with large potential markets that
are under-served by current therapeutic options.
Selling, general and administrative expenses for the fiscal year ended June
30, 1999 decreased $701,503 from the fiscal year ended June 30, 1998. During
the fiscal year ended June 30, 1998, the Company was pursuing a plan to
dramatically increase its sales force. Start-up expenses for the sales staff
included training, relocation, and sales supplies. For the fiscal year ended
June 30, 1999, the Company maintained a steady, well-trained sales force which
resulted in fewer selling expenses. In addition, during the fiscal year ended
June 30, 1998, the Company incurred significant expenses in defense of its
intellectual property, including the successful settlement of legal actions with
OncorMed. Such expenses were drastically reduced during the fiscal year ended
June 30, 1999. The Company expects its selling, general and administrative
expenses will continue to fluctuate as needed in support of its molecular
diagnostic business and its research and development efforts.
22
Interest income for the fiscal year ended June 30, 1999 decreased to
$2,348,827 from $3,223,683 for the prior year. Cash, cash equivalents, and
marketable investment securities were $38,926,459 at June 30, 1999 as compared
to $53,109,493 at June 30, 1998. This decrease in cash, cash equivalents and
marketable investment securities was attributable to expenditures incurred in
the ordinary course of business and has resulted in reduced interest income.
Interest expense for the year ended June 30, 1999, amounting to $6,278, was due
entirely to borrowings under the Company's equipment financing facility.
Years ended June 30, 1998 and 1997.
Research revenues for the Company's fiscal year ended June 30, 1998
increased $6,267,544 from the prior year to $20,999,598. The increase was
attributable primarily to the achievement of certain research milestones with
Novartis and Schering and the Company's new and expanded corporate research
collaboration agreements with Schering and Bayer. During the fiscal year ended
June 30, 1998, the Company recognized $3,000,000 in research milestones
consisting of $500,000 from Novartis and $2,500,000 from Schering. During the
same period, the Company recognized $3,000,000 in research funding from Schering
under an agreement initiated in April 1997. Research revenue from the research
collaboration agreements is recognized as related costs are incurred.
Consequently, as these programs progress and costs increase, revenues increase
proportionately.
Molecular diagnostic revenues of $2,210,983 were recognized in the fiscal
year ended June 30, 1998, an increase of 339% or $1,706,938 over the prior year.
The test for genetic predisposition to breast and ovarian cancer was launched by
the Company in October 1996 and the test for heart disease and hypertension risk
was launched by the Company in January 1998. Sales and marketing efforts since
that time have given rise to the increased revenues for the fiscal year ended
June 30, 1998. There can be no assurance, however that molecular diagnostic
revenues will continue to increase at the historical rate.
Research and development expenses for the fiscal year ended June 30, 1998
increased to $23,002,340 from $18,580,229 for the prior year. This increase was
primarily due to an increase in research activities as a result of progress in
the Company's collaborations with Novartis, Bayer and Schering as well as those
programs funded by the Company. The increased level of research spending
includes third-party research programs, increased depreciation charges related
to purchasing of additional research equipment, the hiring of additional
research personnel and the associated increase in use of laboratory supplies and
reagents. The Company also incurred expenses related to milestones achieved by
its academic collaborators. Such expenses will likely increase to the extent
that the Company enters into additional research agreements with third parties.
Selling, general and administrative expenses for the fiscal year ended June
30, 1998 increased $3,051,806 from the fiscal year ended June 30, 1997. The
increase was primarily attributable to costs associated with the ongoing
promotion of BRACAnalysis(TM) and the launch of CardiaRisk(TM), including the
expansion of the Company's internal sales staff from 8 to 33 employees.
Additionally, the Company expended significant amounts in the defense of its
intellectual property, including the successful settlement of legal actions with
OncorMed. The increase is also a result of additional administrative, marketing
and education personnel, market research activities, educational material
development, and facilities-related costs. The Company expects its selling,
general and administrative expenses will continue to increase in support of its
genetic predisposition testing business and its research and development
efforts.
Interest income for the fiscal year ended June 30, 1998 decreased to
$3,223,683 from $3,414,379 or 5.6% for the prior year. The Company has been
able to maintain its cash reserves at a relatively constant level as a result of
its ongoing collaborative research agreements, entering new collaborative
agreements, achieving research milestones, and sales of its genetic tests. As a
result, interest income has not changed significantly from the prior year.
Interest expense for the fiscal year ended June 30, 1998, amounting to $32,681,
was due entirely to borrowings under the Company's equipment financing facility.
23
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $14,137,559 during the fiscal
year ended June 30, 1999 as compared to $7,028,883 used during the prior year.
Trade receivables increased $859,062 between June 30, 1998 and June 30, 1999.
This increase is primarily attributable to the 136% increase in molecular
diagnostic revenue during fiscal 1999. Trade receivables as a percentage of
molecular diagnostic revenue continues to be in the 20-25% range for both June
30, 1999 and June 30, 1998. Other receivables increased $1,738,643 during the
fiscal year ended June 30, 1999. This increase is primarily the result of the
Company recognizing revenue for it's collaborative research projects which
exceed the cash which the Company has received. The Company receives funding
from it's collaboration partners evenly over the life of each agreement while
research revenue is recognized as expenses are incurred. In past years, as many
of the collaborative projects were in their start-up phases, cash received
exceeded the amount of revenue recognized, resulting in deferred revenue.
Corresponding to the increase in other receivables, deferred revenue decreased
$2,059,355 during the fiscal year ended June 30, 1999. Prepaid expenses
increased $356,021 during the fiscal year ended June 30, 1999. The increase is
primarily due to advance payments to purchase lab supplies at a discount,
advanced royalties, and insurance premiums. Accounts payable and accrued
expenses decreased by $2,387,557 during the fiscal year ended June 30, 1999 as a
result of decreased accruals for unbilled work provided by the Company's
research collaborators, a reduction in unbilled legal fees, and payments for lab
supplies and equipment which were accrued into the prior fiscal year.
The Company's investing activities provided cash of $4,506,423 in the
fiscal year ended June 30, 1999 and used cash of $2,681,493 in the fiscal year
ended June 30, 1998. Investing activities were comprised primarily of capital
expenditures for research equipment, office furniture, and facility improvements
and marketable investment securities. During the fiscal year ended June 30,
1999, the Company shifted a portion of its investment in marketable securities
to cash and cash equivalents from longer term investments in order to provide
for ongoing corporate expenditures. During the same period, the Company entered
into a leasing arrangement with General Electric Capital Corporation ("G.E.
Capital"). Under this agreement, the Company sold equipment with a value, net
of depreciation, of $3,551,784 ("net book value") to G.E. Capital. The Company
received proceeds from G.E. Capital equal to the net book value of the
equipment.
Financing activities provided $441,046 during the fiscal year ended June
30, 1999. The Company paid $128,843 in principal to retire its equipment
financing facility. Payments on the financing facility were offset by proceeds
of $569,889 from the exercise of options during the period. Financing
activities provided $229,647 during the fiscal year ended June 30, 1998. During
the fiscal year ended June 30, 1998, proceeds received by the Company of
$572,444 from the exercise of options and warrants were offset by payments by
the Company of $342,797 to reduce principal owing on its equipment financing
facility.
The Company anticipates that its existing capital resources will be
adequate to maintain its current and planned operations for at least the next
two years, although no assurance can be given that changes will not occur that
would consume available capital resources before such time. The Company's
future capital requirements will be substantial and will depend on many factors,
including progress of the Company's research and development programs, the
results and cost of clinical correlation testing of the Company's genetic tests,
the costs of filing, prosecuting and enforcing patent claims, competing
technological and market developments, payments received under collaborative
agreements, changes in collaborative research relationships, the costs
associated with potential commercialization of its gene discoveries, if any,
including the development of manufacturing, marketing and sales capabilities,
the cost and availability of third-party financing for capital expenditures, and
administrative and legal expenses. Because of the Company's significant long-
term capital requirements, the Company intends to raise funds when conditions
are favorable, even if it does not have an immediate need for additional capital
at such time.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Any of the Company's
computer programs or other information systems that have time-
24
sensitive software or embedded microcontrollers may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations.
During fiscal 1998, the Company completed an initial review ("Phase I") of
its information and non-information technology systems. This review included
its existing and planned computer software and hardware. The Company has made an
initial determination, based on its Phase I review, that the costs and/or
consequences associated with the Year 2000 issue are not expected to have a
material effect on its business, operations or future financial condition.
A second, more in-depth analysis ("Phase II") is currently ongoing.
Internally, Phase II will include the testing of internally developed systems.
Although the internal portion of Phase II is substantially complete, it is not
expected to be fully completed until September 1999. The Company presently
believes that with modifications to existing software and conversions to new
software and systems, the Year 2000 Issue will not pose significant operational
problems for its computer and other information systems. If required, the
Company will utilize both internal and external resources to reprogram, or
replace, and test the software and systems for Year 2000 modifications.
Externally, Phase II of the Company's preparations for the Year 2000 Issue
consists of soliciting and obtaining certification of Year 2000 compliance from
third-party software vendors and determining the readiness of its significant
suppliers and customers.
If such modifications, conversions and/or replacements are not made, are
not completed timely, or if any of the Company's suppliers or customers do not
successfully deal with the Year 2000 Issue, the Year 2000 Issue could have a
material impact on the operations of the Company. The Company could experience
delays in receiving or sending its molecular diagnostic products that would
increase its costs and that could cause the Company to lose business and even
customers and could subject the Company to claims for damages. Problems with
the Year 2000 Issue could also result in delays in the Company invoicing its
genetics testing customers or in the Company receiving payments from them. In
addition, the Company's research and development efforts which rely heavily on
the storage and retrieval of electronic information could be interrupted
resulting in significant delays in discovering genes, the loss of current
collaborations, and the impairment of the Company's ability to enter into new
collaborations. The severity of these possible problems would depend on the
nature of the problem and how quickly it could be corrected or an alternative
implemented, which is unknown at this time. In the extreme, such problems could
bring the Company to a standstill.
While management has not yet specifically determined the costs associated
with its Year 2000 readiness efforts, monitoring and managing the Year 2000
Issue will result in additional direct and indirect costs to the Company.
Direct costs include potential charges by third-party software vendors for
product enhancements, costs involved in testing software products for Year 2000
compliance and any resulting costs for developing and implementing contingency
plans for critical software products which are not enhanced. Indirect costs
will principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and implementing
any necessary contingency plans. Such costs have not been material to date.
Both direct and indirect costs of addressing the Year 2000 Issue will be charged
to earnings as incurred.
After evaluating its internal compliance efforts as well as the compliance
of third parties as described above, the Company will develop appropriate
contingency plans to address situations in which various systems of the Company,
or of third parties with which the Company does business, are not year 2000
compliant. Some risks of the Year 2000 Issue, however, are beyond the control
of the Company and its suppliers and customers. For example, no preparations or
contingency plan will protect the Company from a downturn in economic activity
caused by the possible ripple effect throughout the entire economy caused by the
Year 2000 Issue.
Subsequent Event
In July 1999, the Company entered into a two-year collaboration and license
agreement with the Novartis Agricultural Discovery Institute, Inc. ("NADII").
The genomic collaboration will focus on the discovery of the
25
genetic structure of cereal crops. The collaboration may provide the Company
with an upfront payment and research funding of up to $33,500,000. Upon
completion, NADII and the Company intend to jointly offer commercial access to
the genomic databases and share equally in any resulting proceeds.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company maintains an investment portfolio in accordance with its
Investment Policy. The primary objectives of the Company's Investment Policy
are to preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The Company's Investment Policy specifies credit quality
standards for the Company's investments and limits the amount of credit exposure
to any single issue, issuer or type of investment.
The Company's investments consist of securities of various types and
maturities of three years or less, with a maximum average maturity of 12 months.
These securities are classified either as available-for-sale or held-to-
maturity. Available-for-sale securities are recorded on the balance sheet at
fair market value with unrealized gains or losses reported as a separate
component of stockholders' equity. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization or accretion of premiums or
discounts. Gains and losses on investment security transactions are reported on
the specific-identification method. Dividend and interest income are recognized
when earned. A decline in the market value of any available-for-sale or held-
to-maturity security below cost that is deemed other than temporary results in a
charge to earnings and establishes a new cost basis for the security. Premiums
and discounts are amortized or accreted over the life of the related held-to-
maturity security as an adjustment to yield using the effective-interest method.
The securities held in the Company's investment portfolio are subject to
interest rate risk. Changes in interest rates affect the fair market value of
the available-for-sale securities. After a review of the Company's marketable
securities as of June 30, 1999, the Company has determined that in the event of
a hypothetical ten percent increase in interest rates, the resulting decrease in
fair market value of the Company's marketable investment securities would be
insignificant to the financial statements as a whole.
Certain Factors That May Affect Future Results of Operations
The Company believes that this report on Form 10-K contains certain
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's
current expectations and are subject to a number of factors and uncertainties
which could cause actual results to differ materially from those described in
the forward-looking statements. The Company cautions investors that there can
be no assurance that actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to, the following:
the timely implementation by the Company of its plan to prepare its computer
systems for the Year 2000, the costs to the Company of such preparation, and the
timely conversion by other parties on which the Company's business relies;
intense competition related to the discovery of disease-related genes and the
possibility that others may discover, and the Company may not be able to gain
rights with respect to, genes important to the establishment of a successful
molecular diagnostic business; difficulties inherent in developing genetic tests
once genes have been discovered; the Company's limited experience in operating a
molecular diagnostic laboratory; the Company's limited marketing and sales
experience and the risk that tests which the Company has or may develop may not
be able to be marketed at acceptable prices or receive commercial acceptance in
the markets that the Company is targeting or expects to target; uncertainty as
to whether there will exist adequate reimbursement for the Company's services
from government, private health care insurers and third-party payors; and
uncertainties as to the extent of future government regulation of the Company's
business; uncertainties as to whether the Company and its collaborators will be
successful in developing and obtaining regulatory approval for, and commercial
acceptance of, therapeutics based on the discovery of disease-related genes and
proteins; uncertainties as to the Company's ability to develop therapeutic lead
compounds, which is a new business area for the Company; and the risk that
markets will
26
not exist for therapeutic lead compounds that the Company develops or if such
markets exist, that the Company will not be able to sell compounds which it
develops at acceptable prices. As a result, the Company's future development
efforts involve a high degree of risk. For further information, refer to the
more specific risks and uncertainties disclosed throughout this Annual Report on
Form 10-K.
27
Item 8. FINANCIAL STATEMENTS
MYRIAD GENETICS, INC.
Index to Financial Statements Number
----------------------------- ------
Independent Auditors' Report.................................................... F-1
Consolidated Balance Sheets as of June 30, 1999 and 1998........................ F-2
Consolidated Statements of Operations for the Years Ended June 30, 1999,
1998 and 1997.............................................................. F-3
Consolidated Statements of Stockholders' Equity and Comprehensive Loss for
the Years Ended June 30, 1999, 1998 and 1997............................... F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 1999,
1998 and 1997.............................................................. F-6
Notes to Consolidated Financial Statements...................................... F-7
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
28
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Management" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for the 1999
Annual Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in the Company's
Proxy Statement for the 1999 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Share Ownership" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation--Employment
Agreements, Termination of Employment and Change of Control Arrangements" in the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
29
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
Item 14(a). The following documents are filed as part of this annual report
on Form 10-K.
Item 14(a)(1). See "Index to Consolidated Financial Statements and Financial
and (2) Statement Schedules" at and (2) Item 8 to this Annual Report on
Form 10-K. Other financial statement schedules have not been
included because they are not applicable or the information is
included in the financial statements or notes thereto.
Item 14(a)(3) Exhibits
--------
The following is a list of exhibits filed as part of this Annual
Report on Form 10-K.
Exhibit
Number Description
------ -----------
(3.1)++ -- Restated Certificate of Incorporation of the Registrant (Filed as Exhibit 3.1)
(3.2)++ -- Restated By-Laws of the Registrant (Filed as Exhibit 3.2)
(4.1)++ -- See Exhibits 3.1, and 3.2 (Filed as Exhibit 4.1)
(4.2)* -- Form of Common Stock Certificate (Filed as Exhibit 4.2)
(10.1)/\$ -- 1992 Employee, Director and Consultant Stock Option Plan as amended and restated September 11,
1997 (Filed as Exhibit 10.1)
(10.2)*$ -- Employee Stock Purchase Plan (Filed as Exhibit 10.2)
(10.3)*$ -- Employment Agreement between Myriad Genetics, Inc., Myriad Genetic Laboratories, Inc. and
Peter D. Meldrum, dated May 15, 1993 (Filed as Exhibit 10.3)
(10.4)*$ -- Employment Agreement between Myriad Genetics, Inc., Myriad Genetic Laboratories, Inc. and
Mark H. Skolnick, Ph.D., dated January 1, 1994 (Filed as Exhibit 10.4)
(10.5)*$ -- Employment Agreement between Myriad Genetics, Inc., Myriad Genetic Laboratories, Inc. and
Jay M. Moyes, dated July 12, 1993 (Filed as Exhibit 10.5)
(10.6)* -- Form of Registration Agreement executed in connection with the private placement of Series A
Preferred Stock (Filed as Exhibit 10.6)
(10.7)* -- Stock Purchase Agreement for Series C Convertible Preferred Stock between the Registrant and
Novartis Corporation, dated April 27, 1995 (Filed as Exhibit 10.7)
(10.8)* -- Standstill Agreement between the Registrant and Novartis Corporation, dated April 27, 1995
(Filed as Exhibit 10.8)
(10.9)* -- Voting Agreement between the Registrant and Novartis Corporation, dated April 27, 1995
(Filed as Exhibit 10.9)
(10.10)# -- Collaborative Research and License Agreement between the Registrant and Novartis
Corporation, dated April 27, 1995 (Cardiovascular Diseases) (Filed as Exhibit 10.10)
(10.11)# -- Research Collaboration and License Agreement between the Registrant, Eli Lilly & Company
and Hybritech Incorporated, dated August 1, 1992 (Breast Cancer--BRCA1) (Filed as Exhibit 10.11)
(10.12)# -- Collaborative Agreement between the Registrant and Hybritech Incorporated, dated March 5,
1993 (BRCA1 Test Kits) (Filed as Exhibit 10.12)
(10.13)# -- Exclusive License Agreement between the Registrant and the University of Utah Research Foun-
dation, dated October 8, 1991, as amended (Breast Cancer--BRCA1) (Filed as Exhibit 10.13)
30
(10.14)# -- Standard Research Agreement and Form of License Agreement between the Registrant and the
University of Utah, effective January 1, 1993, as amended (Genes Predisposing to Cancer)
(Filed as Exhibit 10.14)
(10.15)# -- Exclusive License Agreement between the Registrant and the University of Utah Research
Foundation, dated August 4, 1993 (Angiotensinogen Variants and Predisposition to
Hypertension) (Filed as Exhibit 10.15)
(10.16)# -- Exclusive License Agreement between the Registrant and the University of Utah Research
Foundation, dated June 21, 1994 (MTS1 or p16) (Filed as Exhibit 10.16)
(10.17)# -- Exclusive License Agreement between the Registrant and the University of Utah Research
Foundation, dated November 23, 1994 (Breast Cancer--BRCA2) (Filed as Exhibit 10.17)
(10.18)# -- Standard Research Agreement dated May 1, 1995 between the Registrant and the University of
Utah (Cardiovascular Disorders and Coronary Heart Disease Database) (Filed as Exhibit 10.18)
(10.19)# -- Exclusive License Agreement dated May 1, 1995 between the Registrant and the University of
Utah Research Foundation (Cardiovascular Disorders and Coronary Heart Disease Database)
(Filed as Exhibit 10.19)
(10.20)# -- Standard Research Agreement dated July 31, 1995 between the Registrant and the University of
Utah (Obesity Database) (Filed as Exhibit 10.20)
(10.21)# -- Exclusive License Agreement dated July 31, 1995 between the Registrant and the University of
Utah Research Foundation (Obesity Database) (Filed as Exhibit 10.21)
(10.22)# -- Co-Exclusive License Agreement among the Registrant, the University of Utah Research
Foundation and Institut National de la Sante et de la Recherche Medicale, dated October 6,
1993 (Angiotensinogen and Predisposition to Essential Hypertension) (Filed as Exhibit 10.22)
(10.23)# -- License Agreement between the Registrant and California Institute of Technology, dated
April 21, 1994 (MTS1 or p16) (Filed as Exhibit 10.23)
(10.24)* -- Research Agreement between the Registrant and California Institute of Technology, dated
June 3, 1994 (MTS1 or p16) (Filed as Exhibit 10.24)
(10.25)* -- Stock Purchase Agreement for Series D Convertible Preferred Stock between the Registrant and
Bayer Corporation, dated September 11, 1995 (Filed as Exhibit 10.25)
(10.26)* -- Standstill Agreement between the Registrant and Bayer Corporation, dated September 11, 1995
(Filed as Exhibit 10.26)
(10.27)* -- Voting Agreement between the Registrant and Bayer Corporation, dated September 11, 1995
(Filed as Exhibit 10.27)
(10.28)# -- Collaborative Research and License Agreement between the Registrant and Bayer Corporation,
dated September 11, 1995 (Filed as Exhibit 10.28)
(10.29)# -- Standard Research Agreement between the Registrant and IHC Health Services, Inc., dated as
of September 1, 1995 (Filed as Exhibit 10.29)
(10.30)@ -- Research Agreement between the Registrant and IHC Health Services, Inc., dated as
of June 24, 1996
(10.31)(N) -- Patent and Technology License Agreement dated September 26, 1996 among the Board of Regents of
the University of Texas System, the University of Texas M.D. Anderson Cancer Center and the
Registrant (Filed as Exhibit 10.1)
(10.32)(N) -- Lease Agreement, dated October 12, 1995, between the Boyer Research Park Associates V, by its
general partner, the Boyer Company and the Registrant (Filed as Exhibit 10.2)
(10.33)(N) -- Amendment to Lease Agreement, dated March 29, 1996 between the Boyer Research Park Associates V,
by its general partner, the Boyer Company and the Registrant (Filed as Exhibit 10.3)
(10.34)(N) -- Letter Agreement, dated March 4, 1996, among the University of Utah, Genetic Epidemiology and
the Registrant regarding Extension of Standard Research agreement and Form of License Agreement
between the Registrant and the University of Utah, effective January 1, 1993, as amended (Genes
Predisposing to Cancer) (Filed as Exhibit 10.4)
31
(10.35)+@ -- Patent and Technology License Agreement dated December 2, 1996 among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center and the
Registrant (Filed as Exhibit 10.1)
(10.36)(S)@ -- Collaborative Research and License Agreement among the Registrant, Schering Corporation and
Schering-Plough, Ltd., dated April 22, 1997 (Prostate and Other Cancers) (Filed as Exhibit 10.36)
(10.37)(S) -- Standstill Agreement between the Registrant and Schering Corporation, dated April 22, 1997
(Filed as Exhibit 10.37)
(10.38)(S) -- Stock Purchase Agreement for Common Stock between the Registrant and Schering Corporation, dated
April 22, 1997 (Filed as Exhibit 10.38)
(10.39)(P)@ -- Standard Research Agreement between the Company and Valley Mental Health dated September 1, 1997
(central nervous system disorders) (Filed as Exhibit 10.1)
(10.40)(P) -- International Swap Dealers Association, Inc. Master Agreement ("ISDA Master Agreement") between
the Registrant and Swiss Bank Corporation, London Branch dated October 8, 1997 (Filed as Exhibit
10.2)
(10.41)(P) -- Schedule to ISDA Master Agreement between the Registrant and Swiss Bank Corporation, London
Branch dated October 8, 1997 (Filed as Exhibit 10.3)
(10.42)(P) -- Confirmation for Contract A entered into pursuant to ISDA Master Agreement between the
Registrant and Swiss Bank Corporation, London Branch dated October 8, 1997 (Filed as Exhibit
10.4)
(10.42)(P) -- Confirmation for Contract B entered into pursuant to ISDA Master Agreement between the
Registrant and Swiss Bank Corporation, London Branch dated October 8, 1997 (Filed as Exhibit
10.5)
(10.43)%@ -- Amendment and Supplement to Collaborative Research and License Agreement dated November 19, 1997
between Bayer Corporation and the Registrant (Filed as Exhibit 10.1)
(10.44)= -- Lease Agreement-Research Park Building Phase II, dated March 6, 1998, between the Research Park
Associated VI, by its general partner, the Boyer Company, L.C. and the Registrant
(10.45)& -- Memorandum of Lease between the Company and Boyer Foothill Associates, Ltd. dated August 24,
1998 (Filed as Exhibit 10.1)
(10.46)& -- Memorandum of Lease between the Company and Boyer Research Park Associates VI, L.C. dated August
24, 1998 (Filed as Exhibit 10.2)
(10.47)& -- Subordination Agreement and Estoppel, Attornment and Non-Disturbance Agreement (Lease to Deed of
Trust) between the Company and Wells Fargo Bank, National Association dated June 24, 1998 (Filed
as Exhibit 10.3)
(10.48)! -- Master Lease Agreement dated December 31, 1998 between General Electric Capital Corporation and
the Company (Filed as Exhibit 10.1)
(10.49)! -- Addendum No. 1 to Master Lease Agreement dated December 31, 1998 between General Electric
Capital Corporation and the Company (Filed as Exhibit 10.2)
(10.50)! -- Addendum No. 2 to Master Lease Agreement dated December 31, 1998 between General Electric
Capital Corporation and the Company (Filed as Exhibit 10.3)
(10.51)! -- Biotech Equipment Schedule Schedule No. 001 dated December 31, 1998 to Master Lease Agreement
dated December 31, 1998 between General Electric Corporation and the Company (Filed as Exhibit
10.4)
(10.52)! -- Annex A to Equipment Schedule No. 001 to Master Lease Agreement dated December 31, 1998 between
General Electric Corporation and the Company (Filed as Exhibit 10.5)
(10.53)! -- Annex B to Equipment Schedule No. 001 to Master Lease Agreement dated December 31, 1998 between
General Electric Corporation and the Company (Filed as Exhibit 10.6)
(10.54)! -- Addendum to Schedule No. 001 to Master Lease Agreement dated as of December 31, 1998 between
General Electric Corporation and the Company (Filed as Exhibit 10.7)
(10.55)!@ -- Collaborative Research, License and Co-Promotion agreement dated as of October 5, 1998 between
Schering Aktiengesellschaft and the Company (Filed as Exhibit 10.8)
(10.56)!@ -- Collaborative ProNet Research and License Agreement dated as of November 11, 1998 between
Monsanto Company and the Company (Filed as Exhibit 10.9)
32
(10.57)!@ -- Letter Amendment to the Collaborative Research and License Agreement dated as of November 30,
1998 between Bayer Corporation and the Company (Filed as Exhibit 10.10)
(21.1) -- Revised List of Subsidiaries of the Registrant
(23.1) -- Consent of KPMG LLP
(27.1) -- Financial Data Schedule
- -------------------
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Company's Registration Statement filed
on Form S-1, File No. 33-95970
# Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Company's Registration Statement filed
on Form S-1, File No. 33-95970, and for which Confidential Treatment
has been granted by the Securities and Exchange Commission as to
certain portions.
@ Confidential Treatment requested as to certain portions, which
portions are omitted and filed separately with the Commission.
++ Previously filed and incorporated herein by reference from the Form
10-Q for the period ending September 30, 1995.
$ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
(N) Previously filed and incorporated herein by reference from the Form
10-Q for the period ending September 30, 1996.
+ Previously filed and incorporated herein by reference from the Form
10-Q for the period ending December 31, 1996.
(S) Previously filed and incorporated herein by reference from the Form
10-K for the period ending June 30, 1997.
(P) Previously filed and incorporated herein by reference from the Form
10-Q for the period ending September 30, 1997.
% Previously filed and incorporated herein by reference from the Form
10-Q for the period ending December 31, 1997.
/\ Previously filed and incorporated herein by reference from the
Company's Registration Statement filed on Form S-8, effective November
25, 1997, File No. 333-40961.
= Previously filed and incorporated herein by reference from the
Form 10-K for the period ending June 30, 1998.
& Previously filed and incorporated herein by reference from the Form
10-Q for the period ending September 30, 1998.
! Previously filed and incorporated herein by reference from the Form
10-Q for the period ending December 31, 1998.
Where a document is incorporated by reference from a previous filing, the
Exhibit number of the document in that previous filing is indicated in
parentheses after the description of such document.
33
Item 14(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of the year ended
June 30, 1999.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Salt Lake City,
Utah on September 24, 1999.
MYRIAD GENETICS, INC.
By: /s/ Peter D. Meldrum
-----------------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated below and on the dates indicated.
Signatures Title Date
---------- ----- ----
By: /s/ Peter D. Meldrum President and Chief Executive September 24, 1999
----------------------------- Officer and Director
Peter D. Meldrum (principal executive officer)
By: /s/ Jay M. Moyes Vice President of Finance September 24, 1999
----------------------------- (principal financial and
Jay M. Moyes accounting officer)
By: /s/ John J. Horan Chairman of the Board September 24, 1999
-----------------------------
John J. Horan
By: /s/ Walter Gilbert Vice Chairman of the Board September 24, 1999
-----------------------------
Walter Gilbert, Ph.D.
By: /s/ Mark H. Skolnick Director September 24, 1999
-----------------------------
Mark H. Skolnick, Ph.D.
By: /s/ Arthur H. Hayes, Jr. Director September 24, 1999
-----------------------------
Arthur H. Hayes, Jr., M.D.
By: /s/ Dale A. Stringfellow Director September 24, 1999
-----------------------------
Dale A. Stringfellow, Ph.D.
By: /s/ Alan J. Main Director September 24, 1999
-----------------------------
Alan J. Main, Ph.D.
By: /s/ Michael J. Berendt Director September 24, 1999
-----------------------------
Michael J. Berendt, Ph.D.
35
Independent Auditors' Report
The Board of Directors and Stockholders
Myriad Genetics, Inc.:
We have audited the accompanying consolidated balance sheets of Myriad Genetics,
Inc. and subsidiaries, as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended June
30, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Myriad Genetics,
Inc. and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Salt Lake City, Utah
September 8, 1999
F-1
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30
-------------------------
Assets 1999 1998
---------- ----------
Current assets:
Cash and cash equivalents $ 5,404,944 14,595,034
Marketable investment securities (note 2) 4,477,138 16,267,156
Prepaid expenses 622,700 266,679
Trade accounts receivables, less allowance for doubtful
accounts of $73,439 in 1999 and $66,000 in 1998 1,322,950 471,327
Other receivables 1,855,696 117,053
------------ -----------
Total current assets 13,683,428 31,717,249
------------ -----------
Equipment and leasehold improvements:
Equipment 13,351,229 16,049,721
Leasehold improvements 3,520,253 2,288,241
------------ -----------
16,871,482 18,337,962
Less accumulated depreciation and amortization 6,871,981 5,902,926
------------ -----------
Net equipment and leasehold improvements 9,999,501 12,435,036
Long-term marketable investment securities (note 2) 29,044,377 22,247,303
Other assets 823,634 992,384
------------ -----------
$ 53,550,940 67,391,972
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,917,810 5,121,279
Accrued liabilities 1,754,634 1,938,722
Deferred revenue 662,760 2,722,115
Current portion of notes payable (note 3) --- 128,843
------------ -----------
5,335,204 9,910,959
------------ -----------
Commitments and contingencies (notes 4, 7, and 9)
Stockholders' equity (notes 2, 5, 6, and 10):
Preferred stock, $0.01 par value. Authorized 5,000,000 shares;
No shares issued and outstanding --- ---
Common stock, $0.01 par value. Authorized 15,000,000 shares; issued
and outstanding 9,428,732 in 1999 and 9,337,501 shares in 1998 94,287 93,375
Additional paid-in capital 92,377,949 91,907,034
Accumulated other comprehensive income (loss) (68,846) 1,477
Deferred compensation (247,774) (576,446)
Accumulated deficit (43,939,880) (33,944,427)
------------ -----------
Stockholders' equity 48,215,736 57,481,013
------------ -----------
$ 53,550,940 67,391,972
============ ===========
See accompanying notes to consolidated financial statements.
F-2
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
Research revenue $ 20,093,057 20,999,598 14,732,054
Molecular diagnostic revenue 5,220,349 2,210,983 504,045
------------ ----------- -----------
Total revenues 25,313,406 23,210,581 15,236,099
Costs and expenses:
Molecular diagnostic cost of revenue 3,066,354 1,391,368 340,461
Research and development expense 23,452,220 23,002,340 18,580,229
Selling, general, and administrative expenses 11,105,520 11,807,023 8,755,217
------------ ----------- -----------
Total cost and expenses 37,624,094 36,200,731 27,675,907
------------ ----------- -----------
Operating loss (12,310,688) (12,990,150) (12,439,808)
Other income (expense):
Interest income 2,348,827 3,223,683 3,414,379
Interest expense (6,278) (32,681) (66,661)
Other (27,314) 2,113 (114,190)
------------ ----------- -----------
2,315,235 3,193,115 3,233,528
------------ ----------- -----------
Net loss $ (9,995,453) (9,797,035) (9,206,280)
============ =========== ===========
Basic and diluted loss per common share $ (1.06) (1.05) (1.03)
============ =========== ===========
Basic and diluted weighted average shares outstanding 9,391,122 9,289,481 8,903,918
============ =========== ===========
See accompanying notes to consolidated financial statements.
F-3
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended June 30, 1999, 1998, and 1997
Accumu-
lated
other
Additi- compre- Compre-
Common stock tional hensive Deferred Accum- hensive Stock-
------------------------- paid-in income compen- ulated income holders'
Shares Amount capital (loss) sation deficit (loss) equity
---------- ---------- ---------- --------- ---------- ----------- ---------- ----------
Balances at
June 30, 1996 8,702,215 $87,022 87,015,215 (67,865) (1,907,513) (14,941,112) -- 70,185,747
Issuance of
common stock for
cash upon exercise
of options and warrants 386,007 3,860 625,802 -- -- -- -- 629,662
Issuance of common
stock for cash 4,665 47 99,722 -- -- -- -- 99,769
Issuance of common
stock for cash, net of
issuance costs of $133,703
(note 9) 129,665 1,297 3,865,000 -- -- -- -- 3,866,297
Amortization of
deferred compensation -- -- -- -- 530,533 -- -- 530,533
Net loss -- -- -- -- -- (9,206,280) (9,206,280) (9,206,280)
Unrealized gains
on marketable
investment securities:
Unrealized holding
gains arising
during period -- -- -- -- -- -- 27,819 --
Less: classification
adjustment for
losses included
in net loss -- -- -- -- -- -- 45,428 --
----------
Other comprehensive
income -- -- -- 73,247 -- -- 73,247 73,247
----------
Comprehensive loss -- -- -- -- -- (9,133,033 --
==========
--------- ------- ---------- ------- ---------- ----------- ----------
Balances at
June 30, 1997 9,222,552 92,226 91,605,739 5,382 (1,376,980) (24,147,392) 66,178,975
Issuance of
common stock for
cash upon exercise
of options and
warrants 105,704 1,057 393,128 -- -- -- 394,185
Issuance of common
stock for cash 9,245 92 178,167 -- -- -- 178,259
Amortization of
deferred
compensation -- -- -- -- 530,534 -- 530,534
Forfeiture of deferred
compensation -- -- (270,000) -- 270,000 -- --
Net loss -- -- -- -- -- (9,797,035) (9,797,035)
Unrealized gains (losses)
on marketable
investment securities:
Unrealized holding
gains arising
during period -- -- -- -- -- -- --
Less: classification
adjustment for
gains included
in net loss -- -- -- -- -- -- --
Other comprehensive loss -- -- -- (3,905) -- -- (3,905)
Comprehensive loss -- -- -- -- -- --
--
--------- ------- ---------- ------- ---------- ----------- ----------
57,481,013
(Continued)
F-4
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended June 30, 1999, 1998, and 1997
Accumu-
lated
other
Additi- compre- Compre-
Common stock tional hensive Deferred Accum- hensive Stock-
-------------------------- paid-in income compen- ulated income holders'
Shares Amount capital (loss) sation deficit (loss) equity
----------- ------------ ----------- ----------- ---------- ----------- ---------- -----------
Issuance of
common stock for
cash upon exercise
of options and warrants 68,827 688 365,607 --- --- --- 366,295
Issuance of common
stock for cash 22,404 224 203,370 --- --- --- 203,594
Amortization of
deferred compensation --- --- --- --- 230,610 --- 230,610
Forfeiture of deferred
compensation --- --- (98,062) --- 98,062 --- ---
Net loss --- --- --- --- --- (9,995,453) (9,995,453) (9,995,453)
Unrealized losses
on marketable
investment securities:
Unrealized holding
losses arising
during period --- --- --- --- --- --- (115,287) ---
Less: classification
adjustment for
losses included
in net loss --- --- --- --- --- --- 44,964 ---
------------
Other comprehensive loss --- --- --- (70,323) --- --- (70,323) (70,323)
------------
Comprehensive loss --- --- --- --- --- --- (10,065,776) ---
============
----------- ------------ ----------- ----------- ------------ ------------ -----------
Balances at
June 30, 1999 9,428,732 $ 94,287 92,377,949 (68,846) (247,774) (43,939,880) 48,215,736
=========== ============ =========== =========== ============ ============ ===========
See accompanying notes to consolidated financial statements.
F-5
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30,
---------------------------------------------------------
1999 1998 1997
--------------- -------------- ---------------
Cash flows from operating activities:
Net loss $ (9,995,453) (9,797,035) (9,206,280)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,223,779 3,272,936 2,505,479
Loss (gain) on sale of equipment (17,650) 14,856 68,762
Loss (gain) on sale of investment securities 44,964 (16,969) 45,428
Bad debt expense 7,439 66,000 ---
Changes in operating assets:
Trade receivables (859,062) (354,161) (183,166)
Prepaid expenses (356,021) 179,581 (357,837)
Other receivables (1,738,643) 177,914 (215,901)
Other assets --- (941,405) (9,283)
Accounts payable and accrued expenses (2,387,557) 3,346,712 733,213
Deferred revenue (2,059,355) (2,977,312) 38,051
--------------- -------------- ---------------
Net cash used in operating activities (14,137,559) (7,028,883) (6,581,534)
--------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from sale of equipment 3,604,579 4,133 68,424
Capital expenditures (3,975,813) (3,185,906) (4,727,121)
Purchase of investment securities held-to-maturity (17,462,407) (117,237,699) (111,098,966)
Maturities of investment securities held-to-maturity 20,001,804 117,100,138 127,713,265
Purchase of investment securities available-for-sale (274,244,194) (723,380,886) (471,745,972)
Sale of investment securities available-for-sale 276,582,454 724,018,727 472,924,917
--------------- -------------- ---------------
Net cash provided by (used in) investing activities 4,506,423 (2,681,493) 13,134,547
--------------- -------------- ---------------
Cash flows from financing activities:
Payments of notes payable (128,843) (342,797) (308,658)
Net proceeds from issuance of common stock 569,889 572,444 4,595,728
--------------- -------------- ---------------
Net cash provided by financing activities 441,046 229,647 4,287,070
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents (9,190,090) (9,480,729) 10,840,083
Cash and cash equivalents at beginning of year 14,595,034 24,075,763 13,235,680
--------------- -------------- ---------------
Cash and cash equivalents at end of year $ 5,404,944 14,595,034 24,075,763
=============== ============== ===============
Supplemental disclosure of cash flow information -
- ------------------------------------------------
Interest paid $ 6,278 32,681 66,678
Supplemental disclosures of noncash investing and
- -------------------------------------------------
financing activities:
--------------------
Decrease in additional paid-in capital as a result of
forfeitures of stock options $ (98,062) (270,000) --
Fair value adjustment on marketable investment securities
(charged) credited to stockholders' equity (70,323) (3,905) 73,247
See accompanying notes to consolidated financial statements.
F-6
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(1) Summary of Significant Accounting Policies
(a) Organization and Business Description
Myriad Genetics, Inc. (the Company) is a genomics company focused on the
development of therapeutic and diagnostic products based on the discovery
of major common human disease genes and their biological pathways. The
Company utilizes analyses of extensive family histories and genetic
material, as well as a number of proprietary technologies, to identify
inherited gene mutations which increase the risk to individuals of
developing these diseases. The discovery of disease-predisposing genes
and their biochemical pathways provides the Company with three
significant commercial opportunities: (i) the development and marketing
of molecular diagnostic and information services, (ii) the marketing of
subscriptions to the ProNet(TM) database of protein interactions, and
(iii) the development of therapeutic products for the treatment and
prevention of major diseases associated with these genes and their
biochemical pathways. The Company's operations are located in Salt Lake
City, Utah.
(b) Principles of Consolidation
The consolidated financial statements presented herein include the
accounts of Myriad Genetics, Inc., and its wholly owned subsidiaries
Myriad Genetic Laboratories, Inc., Myriad Pharmaceuticals, Inc. and
Myriad Financial, Inc. All intercompany amounts have been eliminated in
consolidation.
(c) Cash Equivalents
Cash equivalents of $1,595,446 and $9,979,106 at June 30, 1999 and 1998,
respectively, consist of short-term securities. The Company considers
all highly liquid debt instruments with maturities at date of purchase of
90 days or less to be cash equivalents.
(d) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation
and amortization are computed using the straight-line method based on the
lesser of estimated useful lives of the related assets or lease terms.
Equipment and leasehold improvements have depreciable lives which range
from five to seven years.
(e) Income Taxes
Income taxes are recorded using the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
F-7 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(f) Revenue Recognition
The Company recognizes revenue from research contracts in accordance with
the terms of the contract and the related research activities undertaken.
This includes recognizing research revenue from research contracts over
time as research is performed using the percentage-of-completion method
based on costs incurred relative to total estimated contract costs.
Payments to the Company under these agreements cover the Company's direct
costs and an allocation for overhead and general and administrative
expenses. Payments received on uncompleted long-term research contracts
may be greater than or less than incurred costs and estimated earnings
and have been recorded as other receivables or deferred revenues in the
accompanying consolidated balance sheets. Molecular diagnostic revenue
is recognized upon completion of the test and communication of results.
Payments received in advance of molecular diagnostic work performed are
recorded as deferred revenue.
(g) Net Loss Per Common and Common Equivalent Share
Loss per common share is computed based on the weighted-average number of
common shares and, as appropriate, dilutive potential common shares
outstanding during the period. Stock options are considered to be
potential common shares.
Basic loss per common share is the amount of loss for the period
available to each share of common stock outstanding during the reporting
period. Diluted loss per share is the amount of loss for the period
available to each share of common stock outstanding during the reporting
period and to each share that would have been outstanding assuming the
issuance of common shares for all dilutive potential common shares
outstanding during the period.
In calculating loss per common and common-equivalent share the net loss
and the weighted average common and common-equivalent shares outstanding
were the same for both the basic and diluted calculation.
For the years ended June 30, 1999, 1998, and 1997, there were
antidilutive potential common shares of 2,072,165, 2,068,720, and
1,390,917, respectively. Accordingly, these potential common shares were
not included in the computation of diluted earnings per share, for the
years presented, but may be dilutive to future basic and diluted earnings
per share.
(h) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
F-8 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(i) Marketable Investment Securities
The Company accounts for marketable investment securities by grouping
them into one of two categories: held-to-maturity or available-for-sale.
Held-to-maturity securities are those securities that the Company has the
ability and intent to hold until maturity. All other securities are
classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Available-for-
sale securities are recorded at fair value. Unrealized holdings gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized.
Gains and losses on investment security transactions are reported on the
specific-identification method. Dividend and interest income are
recognized when earned. A decline in the market value of any available-
for-sale or held-to-maturity security below cost that is deemed other
than temporary results in a charge to earnings and establishes a new-cost
basis for the security. Premiums and discounts are amortized or accreted
over the life of the related held-to-maturity security as an adjustment
to yield using the effective-interest method.
(j) Fair Value Disclosure
At June 30, 1999, the book value of the Company's financial instruments
approximates fair value except as disclosed in note 2.
(k) Stock-Based Compensation
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 permits entities to adopt a fair value
based method of accounting for stock options or similar equity
instruments. However, it also allows an entity to continue measuring
compensation cost for stock based compensation using the intrinsic-value
method of accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The
Company has elected to continue to apply the provisions of APB 25 and
provide pro forma disclosures required by SFAS 123.
(l) Other Assets
Other assets are comprised of a purchased customer list, patent, and
security deposits. The customer list and patent were acquired in fiscal
year 1998 and are stated at cost. Amortization of the customer list and
patents are computed using the straight-line method over the estimated
useful lives of the related assets, which range from four to nine years.
Accumulated amortization related to the patent and customer list totaled
$189,844 and $21,094 at June 30, 1999 and 1998, respectively. On an
ongoing basis, management reviews the valuation of the customer list and
patent to determine possible impairment by comparing the carrying value
to undiscounted estimated future cash flows from the related assets.
F-9 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(m) Other Receivables
At June 30, 1999, other receivables are comprised of costs in excess of
research payments received of $1,682,420 and nontrade receivables of
$173,276. At June 30, 1998 the entire balance was comprised of nontrade
receivables.
(n) Accrued Liabilities
At June 30, 1999, accrued liabilities are comprised of accrued payroll of
$690,221, accrued vacation of $498,670, and other accrued liabilities of
$565,743. At June 30, 1998, the balance was comprised of accrued payroll
of $615,664, accrued vacation of $396,296, and other accrued liabilities
of $926,762.
(2) Marketable Investment Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding
losses, and fair value for available-for-sale and held-to-maturity securities
by major security type and class of security at June 30, 1999 and 1998, were
as follows:
Gross Gross
unrealized unrealized
Amortized holding holding
cost gains losses Fair value
--------------- --------------- ---------------- ---------------
At June 30, 1999
Held-to-maturity:
U.S. government obligations $ 15,079,412 - (153,713) 14,925,699
Corporate bonds and notes 3,843,675 92 (1,266) 3,842,501
--------------- --------------- ---------------- ---------------
$ 18,923,087 92 (154,979) 18,768,200
=============== =============== ================ ===============
Available-for-sale:
U.S. government obligations $ 6,767,578 - (20,233) 6,747,345
Mortgage-backed securities 123,104 - (607) 122,497
Corporate bonds and notes 7,590,354 561 (48,567) 7,542,348
Certificate of deposit 186,238 - - 186,238
--------------- --------------- ---------------- ---------------
$ 14,667,274 561 (69,407) 14,598,428
=============== =============== ================ ===============
At June 30, 1998
Held-to-maturity:
U.S. government obligations $ 13,605,683 1,140 (21,591) 13,585,232
Corporate bonds and notes 7,856,801 910 (10,113) 7,847,598
--------------- --------------- ---------------- ---------------
$ 21,462,484 2,050 (31,704) 21,432,830
=============== =============== ================ ===============
Available-for-sale:
U.S. government obligations $ 3,806,744 1,460 - 3,808,204
Domestic bank obligations 1,009,885 740 - 1,010,625
Foreign bank obligations 7,021,725 1,469 (602) 7,022,592
Mortgage-backed securities 979,672 - (3,577) 976,095
Corporate bonds and notes 4,050,440 3,157 (1,170) 4,052,427
Certificate of deposit 182,032 - - 182,032
--------------- --------------- ---------------- ---------------
$ 17,050,498 6,826 (5,349) 17,051,975
=============== =============== ================ ===============
F-10 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
Maturities of debt securities classified as available-for-sale and held-to-
maturity are as follows at June 30, 1999. (Maturities of mortgage backed
securities have been presented based upon estimated cash flows assuming no
change in the current interest rate environment):
Amortized Fair
cost value
----------------- -----------------
Held-to-maturity:
Due within one year $ 3,843,675 3,842,501
Due after one year through five years 15,079,412 14,925,699
----------------- -----------------
$ 18,923,087 18,768,200
================= =================
Available-for-sale:
Due within one year $ 634,009 633,463
Due after one year through five years 12,138,793 12,077,243
Due after 10 years 1,894,472 1,887,722
----------------- -----------------
$ 14,667,274 14,598,428
================= =================
(3) Notes Payable
During 1995, the Company entered into equipment financing agreements with
two commercial financial institutions. Under the agreements, the Company
borrowed $1,232,292, at an interest rate of approximately 10.5 percent.
Monthly payments were made over 48 months. The term of the financing
agreement ended during fiscal 1999.
(4) Leases
The Company leases office and laboratory space and equipment under three
noncancelable operating leases. Future minimum lease payments under these
leases as of June 30, 1999 are as follows:
Fiscal year ending:
2000 $ 2,851,580
2001 2,818,308
2002 2,818,308
2003 2,322,600
2004 1,826,891
Thereafter 6,582,136
---------------
$ 19,219,823
===============
Rental expense was $1,855,679 in 1999, $1,282,308 in 1998, and $1,014,931
in 1997.
The Company sold certain fixed assets for $3,551,784 in December of 1998.
The assets were leased back from the purchaser over a period of four years.
There was no gain or loss on this transaction and the resulting lease is
being accounted for as an operating lease.
F-11 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(5) Stock-Based Compensation
Prior to 1992, the Company granted Nonqualified stock options to directors,
employees, and other key individuals providing services to the Company. In
1992, the Company adopted the "1992 Employee, Director, and Consultant
Fixed Stock Option Plan" and has reserved 2,000,000 shares of common stock
for issuance upon the exercise of options that the Company plans to grant
from time to time under this plan. The exercise price of options is
equivalent to the estimated fair market value of the stock at the date of
grant. The number of shares, terms, and exercise period are determined by
the Board of Directors on an option-by-option basis. Options generally vest
ratably over five years and expire ten years from date of grant. As of June
30, 1999, 17,373 shares are reserved for future grant under the 1992 plan.
For financial statement presentation purposes, the Company has recorded as
deferred compensation the excess of the deemed value of the common stock at
the date of grant over the exercise price. The deferred compensation will
be amortized ratably over the vesting period. Amortization expense was
$230,610, $530,534, and $530,533 for the years ended June 30, 1999, 1998,
and 1997, respectively.
A summary of activity is as follows:
1999 1998 1997
--------------------------- ------------------------ -----------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
shares price shares price Shares price
--------- ---------- ---------- -------- --------- -----------
Options
outstanding at
beginning of year 1,642,477 $18.47 1,334,707 $17.08 1,288,925 $ 8.48
Plus options
granted 1,077,593 10.62 492,600 19.82 486,156 28.82
Less:
Options exercised 68,827 6.27 81,740 3.91 373,329 1.69
Options canceled or
expired 696,452 23.95 103,090 18.67 67,045 18.17
---------- --------- ---------
Options
outstanding at
end of year 1,954,791 $12.64 1,642,477 18.47 1,334,707 $17.08
========== ========= =========
Options exercisable
at end of year 722,480 $11.33 582,934 $12.24 438,784 $ 6.84
Weighted - average
fair value of
options granted
during the year 6.00 12.01 19.04
F-12 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
The following table summarizes information about fixed stock options
outstanding at June 30, 1999:
Options outstanding Options exercisable
------------------------------------------------------- -----------------------------
Number Weighted Number
outstanding average Weighted exercisable Weighted
Range of at remaining -average at -average
exercise June 30, contractual exercise June 30, exercise
prices 1999 life price 1999 price
---------------------- --------------- ----------------- -------------- --------------- -----------
$ .028 -- 10.00 594,669 6.3 $ 6.25 364,517 $ 4.52
10.25 -- 15.00 853,622 8.8 10.85 157,016 10.25
15.30 -- 25.00 326,500 8.2 20.85 120,280 22.51
26.00 -- 40.25 180,000 7.9 27.33 80,667 27.54
--------------- ---------------
.028 -- 40.25 1,954,791 7.8 12.64 722,480 11.33
=============== ===============
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS 123, the Company's net loss and loss per
share would have been changed to the following pro forma amounts:
1999 1998 1997
--------------- --------------- -------------
Net loss As reported $ 9,995,453 $ 9,797,035 $ 9,206,280
Pro forma 14,585,479 13,590,274 10,837,607
Basic and diluted loss per share
As reported 1.06 1.05 1.03
Pro forma 1.55 1.46 1.22
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1999, 1998, and 1997, respectively:
risk-free interest rates of 4.8 percent, 5.5 percent, and 6.4 percent;
expected dividend yields of 0 percent for all years; expected lives of 4.3
years, 5.6 years, and 5.5 years; and expected volatility of 69 percent, 63
percent, and 70 percent.
During the 1999 fiscal year, the Company issued options to purchase 223
shares of its wholly owned subsidiary Myriad Pharmaceuticals, Inc. to the
president of that subsidiary. The exercise price was equal to the fair
market value at the date of grant. The underlying shares are convertible to
75,024 shares of the Company's common stock.
On October 22, 1998, the Board of Directors authorized a stock option
repricing amendment. Option holders electing to participate in the repricing
of eligible options were required to surrender one option for every four
options held. Under the repricing amendment, 589,194 options were
surrendered in exchange for 441,962 repriced options. The exercise price of
the repriced options is equal to the fair market value of the Company's
common stock on October 22, 1998. Directors', executive officers', and
outside consultants' options were excluded from the repricing.
F-13 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(6) Common and Preferred Stock
In February 1995, the Company completed a private placement wherein the
placement agents received warrants to purchase 31,572 shares of the
Company's common stock through the year 2002 at a price of $15.40 of which
26,243 are still outstanding as of June 30, 1999.
(7) License Agreements
The Company has entered into license agreements with certain organizations
and academic institutions. The agreements granted the Company exclusive
worldwide licenses to certain technologies and patent applications that the
Company believes will be useful in the development of diagnostic and
therapeutic products. In consideration for the licenses, the Company has
paid $825,000, issued 28,416 shares of common stock, and granted 14,286
stock options which were exercised in 1997. The Company is also required to
make future payments totaling $30,000 and may have to make milestone
payments of $965,000 upon achievement of certain events. The Company is
also required to make royalty payments based on net sales of products or
services subject to a minimum royalty upon commencement of sales.
(8) Income Taxes
There was no income tax expense in 1999, 1998, or 1997 due to net operating
losses. The difference between the expected tax benefit and the actual tax
benefit is primarily attributable to the effect of net operating losses
being offset by an increase in the Company's valuation allowance. The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at June 30, 1999 and
1998, are presented below:
1999 1998
---------------- ----------------
Deferred tax assets:
Net operating loss carryforwards $ 21,288,000 16,737,000
Research and development credits 604,000 905,000
Accrued expenses 408,000 366,000
Unearned revenue 247,000 1,015,000
----------------- ----------------
Total gross deferred tax assets 22,547,000 19,023,000
Less valuation allowance (21,009,000) (17,545,000)
---------------- ----------------
Net deferred tax assets 1,538,000 1,478,000
Deferred tax liability - equipment, principally due to
differences in depreciation 1,538,000 1,478,000
---------------- ----------------
Total gross deferred tax liability 1,538,000 1,478,000
---------------- ----------------
Net deferred tax liability $ - -
================ ================
F-14 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
The net change in the total valuation allowance for the years ended June
30, 1999 and 1998, was an increase of $3,464,000 and $4,118,400,
respectively. Of the subsequently recognized tax benefits relating to the
valuation allowance for deferred tax assets as of June 30, 1999,
approximately $5,072,000 will be recognized as additional paid-in capital
and the remainder will be allocated as an income tax benefit to be reported
in the consolidated statement of operations.
At June 30, 1999, the Company had total tax net operating losses of
approximately $57,072,000 and total research and development credit
carryforwards of approximately $604,000, which can be carried forward to
reduce federal income taxes. If not utilized, the tax loss and research and
development credit carryforwards expire beginning in 2007.
Under the rules of the Tax Reform Act of 1986, the Company has undergone
changes of ownership and, consequently, the availability of the Company's
net operating loss and research and experimentation credit carryforwards in
any one year is limited. The maximum amount of carryforwards available in a
given year is limited to the product of the Company's value on the date of
ownership change and the federal long-term tax-exempt rate, plus any
limited carryforward not utilized in prior years. Management believes that
these limitations will not prevent these net operating losses from
otherwise being utilized.
(9) Collaborative Research Agreements
In October 1998, the Company entered into a five-year collaboration to
utilize the Company's protein interaction technology (ProNet(TM)) for drug
discovery and development. Under the agreement, the Company will have an
option to co-promote all new therapeutic products in North America and
receive 50 percent of the profits from North American sales of all new drug
discovered with ProNet(TM). This collaboration may provide the Company with
licensing fees, subscription fees, option payments, and milestone fees of
up to $51,000,000. If the Company chooses to co-promote the drug as a
50 percent partner, the Company may be required to pay funds to the
collaboration partner to establish equal ownership.
In November 1998, the Company entered into a 15 month collaboration to
utilize ProNet(TM) for drug discovery and development. Under the agreement,
the collaborative partner has the option to extend the research term for an
additional twelve months. If the anticipated milestones, option payments,
license fees, and upfront payments are achieved, the value of the agreement
may reach up to $15,000,000. The Company will also receive royalties on
worldwide sales of drugs resulting from the discovery of novel targets
found through use of the ProNet(TM) technology.
F-15 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
In April 1997, the Company entered into a three-year collaborative research
and license agreement and stock purchase agreement related to locating
genes associated with prostate cancer and other cancers. Under the
agreements, the Company may receive up to $60,000,000, excluding royalties.
The Company received an equity investment of $4,000,000 in exchange for
common stock. The Company also received a license fee of $4,000,000, which
was recognized as revenue in 1997. The Company will receive $3,000,000 in
annual research funding paid quarterly in advance for three years. The
three-year term may be extended for two additional one-year periods. The
Company may also receive up to $35,000,000 upon achievement of specified
milestones, of which $2,500,000 was received and recognized as revenue in
1998. The Company retains all rights to diagnostic products and genetic
testing services using the developed technology while licensing to the
collaborator all rights to therapeutic applications. The Company is
entitled to receive royalties from sales of therapeutic products made by
the collaborator.
In September and April 1995, the Company entered into collaborative
research and license agreements and stock purchase agreements with two
pharmaceutical companies. In November 1997 and again in December 1998, the
Company expanded one of these agreements. Under the agreements, the Company
may receive up to $196,700,000. The Company received initial equity
investments of $17,000,000 in exchange for Series D and Series C preferred
stock, which were subsequently converted to common stock in conjunction
with the Company's initial public offering. The Company may also receive
$67,700,000 in annual research funding paid quarterly in advance for five
years of which $42,000,000 has been received. The Company may also receive
up to $112,300,000 upon achievement of specified milestones. The Company
retains all rights to diagnostic products and genetic testing services
using the developed technology while licensing to the collaborators all
rights to therapeutic applications. The Company is entitled to receive
royalties from sales of therapeutic products sold by the collaborators. The
collaborations may be terminated if a steering committee comprised of an
equal number of representatives of the Company and the collaborators
determines that the research programs will not achieve their objectives in
all areas.
Because the Company has granted therapeutic rights to its collaborative
licensees as described above, the success of the programs is partially
dependent upon the efforts of the licensees. Each of the above agreements
may be terminated early. If any of the licenses terminates the above
agreements, such termination may have a material adverse effect on the
Company's operations.
(10) Employee Deferred Savings Plan and Stock Purchase Plan
The Company has a deferred savings plan which qualifies under Section
401(k) of the Internal Revenue Code. Substantially all of the Company's
employees are covered by the plan. The Company makes matching contributions
of 50 percent of each employee's contribution with the employer's
contribution not to exceed four percent of the employee's compensation. The
Company's contribution to the plan was $358,325, $273,851, and $205,866 in
1999, 1998, and 1997, respectively.
The Company has an Employee Stock Purchase Plan (the Plan) which was
adopted and approved by the Board of Directors and stockholders in December
1994, under which a maximum of 200,000 shares of common stock may be
purchased by eligible employees. At June 30, 1999, 37,912 shares of common
stock had been purchased under the Plan. Because the discount allowed to
employees under the Plan approximates the Company's cost to issue equity
instruments, the Plan is not deemed to be compensatory and, therefore, is
excluded from the pro forma loss shown in note 5.
F-16 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
(11) Segment and Related Information
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information".
The Company's business units have been aggregated into two reportable
segments: (i) research and (ii) molecular diagnostics. The research segment
is focused on the discovery and sequencing of genes related to major common
diseases, marketing of subscriptions to proprietary database information,
and the development of therapeutic products for the treatment and
prevention of major diseases. The molecular diagnostics segment provides
testing to determine predisposition to common diseases.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (note 1). The Company
evaluates segment performance based on loss from operations before interest
income and expense and other income and expense. The Company's assets are
not identifiable by segment.
Molecular
Research diagnostics Total
---------------- ---------------- ----------------
Year ended June 30, 1999:
Revenues $ 20,093,057 5,220,349 25,313,406
Depreciation and amortization 2,262,503 961,276 3,223,779
Segment operating loss 6,315,948 5,994,740 12,310,688
Year ended June 30, 1998:
Revenues 20,999,598 2,210,983 23,210,581
Depreciation and amortization 2,170,771 1,102,165 3,272,936
Segment operating loss 3,010,490 9,979,660 12,990,150
Year ended June 30, 1997:
Revenues 14,732,054 504,045 15,236,099
Depreciation and amortization 1,623,018 882,461 2,505,479
Segment operating loss 3,196,058 9,243,750 12,439,808
1999 1998 1997
---------------- ---------------- ----------------
Total operating loss for reportable segments $ (12,310,688) (12,990,150) (12,439,808)
Unallocated amounts:
Interest income 2,348,827 3,223,683 3,414,379
Interest expense (6,278) (32,681) (66,661)
Other (27,314) 2,113 (114,190)
------------------ ---------------- ----------------
Net loss $ (9,995,453) (9,797,035) (9,206,280)
================== ================ ================
F-17 (Continued)
MYRIAD GENETICS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999, 1998, and 1997
All of the Company's revenues are derived from research and testing
performed in the United States. Additionally, all of the Company's long
lived assets are located in the United States. All of the Company's
research segment revenue was generated from four collaborators in fiscal
1999 and three collaborators in fiscal 1998 and 1997. Additionally,
revenues from three of the four collaborators was in excess of ten percent
of the Company's consolidated revenues for each year presented. Costs in
excess of research payments totaling $1,682,420 at June 30, 1999, were due
from one collaborator and have been classified as an other receivable in
the accompanying consolidated balance sheet. No such concentrations of
costs in excess of research payments or receivables existed at June 30,
1998 and 1997.
(12) Subsequent Event
In July 1999, the Company entered into a $33,500,000 collaboration and
license agreement related to genomic research. Under the agreement, the
Company will receive an upfront payment of $11,500,000 and an additional
$22,000,000 over the two-year term. Upon completion of the project, the
Company will share any profits from the sale of the discovered information
equally with its collaborator.
F-18
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
(21.1) - Revised List of Subsidiaries of the Registrant
(23.1) - Consent of KPMG LLP
(27.1) - Financial Data Schedule