<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
[ ] 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
--------------------------------- ------------------------------------
(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
--------------
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 [ ]
As of November 9, 2000 the registrant had 22,745,459 shares of $0.01 par value
common stock outstanding.
<PAGE>
MYRIAD GENETICS, INC.
INDEX TO FORM 10-Q
Page
----
PART I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000
(unaudited) and June 30, 2000 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 2000 and 1999 (unaudited) 5
Notes to Condensed Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE(S) 15
2
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MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30, 2000 June 30, 2000
-------------------- --------------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 58,631,551 $ 56,214,736
Marketable investment securities 26,599,942 24,286,955
Trade accounts receivables, less allowance for
doubtful accounts of $180,000 at Sept. 30, 2000
and $145,000 at June 30, 2000 2,768,094 2,352,154
Prepaid expenses 1,872,121 2,678,984
Other receivables 495,353 398,947
--------------------- ---------------------
Total current assets 90,367,061 85,931,776
--------------------- ---------------------
Equipment and leasehold improvements:
Equipment 18,305,329 16,965,545
Leasehold improvements 4,046,964 4,005,729
--------------------- ---------------------
22,352,293 20,971,274
Less accumulated depreciation and amortization 10,588,219 9,719,556
--------------------- ---------------------
Net equipment and leasehold improvements 11,764,074 11,251,718
Long-term marketable investment securities 19,316,983 8,154,153
Other assets 779,845 1,037,658
--------------------- ---------------------
$ 122,227,963 $ 106,375,305
===================== =====================
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 3,969,284 $ 4,262,359
Accrued liabilities 4,392,410 4,905,857
Deferred revenue 15,667,641 19,500,442
--------------------- ---------------------
Total current liabilities 24,029,335 28,668,658
Stockholders' equity:
Common stock, $0.01 par value, 60,000,000 shares
authorized; issued and outstanding 22,326,814 at
Sept. 30, 2000 and 21,866,482 at June 30, 2000 223,268 218,666
Additional paid-in capital 152,770,290 130,235,403
Accumulated other comprehensive loss (62,487) (85,440)
Accumulated deficit (54,732,443) (52,661,982)
--------------------- ---------------------
Total stockholders' equity 98,198,628 77,706,647
--------------------- ---------------------
$ 122,227,963 $ 106,375,305
===================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
(Unaudited) (Unaudited)
Sept. 30, 2000 Sept. 30, 1999
------------------- ------------------
<S> <C> <C>
Revenues:
Research revenue $ 7,769,251 $ 5,247,645
Molecular diagnostic revenue 3,050,009 1,614,286
------------------- ------------------
Total revenues 10,819,260 6,861,931
Costs and expenses:
Molecular diagnostic cost of
revenue 1,305,362 802,931
Research and development expense 8,790,797 5,786,801
Selling, general and administrative
expense 3,943,390 3,021,986
------------------- ------------------
Total expenses 14,039,549 9,611,718
------------------- ------------------
Operating loss (3,220,289) (2,749,787)
Other income (expense):
Interest income 1,398,293 573,789
Other (248,465) (15,094)
------------------- ------------------
1,149,828 558,695
------------------- ------------------
Net loss $ (2,070,461) $ (2,191,092)
=================== ==================
Basic and diluted loss per share $ (0.09) $ (0.12)
=================== ==================
Basic and diluted weighted average
shares outstanding 22,032,596 18,865,474
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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MYRIAD GENETICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
(Unaudited) (Unaudited)
Sept. 30, 2000 Sept. 30, 1999
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,070,461) $ (2,191,092)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 878,142 793,727
Loss on disposition of assets 248,465 609
Bad debt expense 35,000 18,723
Increase in trade receivables (450,940) (277,394)
Decrease (increase) in other receivables (96,406) 1,569,750
Decrease in prepaid expenses 806,863 223,891
Increase in other assets (362,982)
Decrease in accounts payable and
accrued expenses (806,522) (949,015)
Increase (decrease) in deferred revenue (3,832,801) 9,483,634
---------------------- ----------------------
Net cash provided by (used in) operating
activities (5,288,660) 8,309,851
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (1,381,150) (944,604)
Net change in marketable investment securities (13,452,864) 2,725,704
---------------------- ----------------------
Net cash provided by (used in) investing
activities (14,834,014) 1,781,100
---------------------- ----------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 22,539,489 182,001
---------------------- ----------------------
Net cash provided by financing activities 22,539,489 182,001
---------------------- ----------------------
Net increase in cash and cash equivalents 2,416,815 10,272,952
Cash and cash equivalents at beginning of period 56,214,736 5,404,944
---------------------- ----------------------
Cash and cash equivalents at end of period $ 58,631,551 $ 15,677,896
====================== ======================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MYRIAD GENETICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements have been
prepared by Myriad Genetics, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information
and pursuant to the applicable rules and regulations of the Securities and
Exchange Commission. The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, the accompanying financial
statements contain all adjustments (consisting of normal and recurring
accruals) necessary to present fairly all financial statements. The
financial statements herein should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for
the fiscal year ended June 30, 2000, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 2000. Operating results
for the three month period ended September 30, 2000 may not necessarily be
indicative of the results to be expected for any other interim period or
for the full year.
(2) Comprehensive Loss
------------------
The components of the Company's comprehensive loss are as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
(Unaudited) (Unaudited)
Sept. 30, 2000 Sept. 30, 1999
--------------------- ----------------------
<S> <C> <C>
Net loss $ (2,070,461) $ (2,191,092)
Unrealized gain (loss) on available-for-sale
marketable investment securities
22,953 (27)
--------------------- ----------------------
Comprehensive loss $ (2,047,508) $ (2,191,119)
===================== ======================
</TABLE>
(3) Net Loss Per Common 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 and warrants 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 earnings 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 share the net loss and the weighted average
common shares outstanding were the same for both the basic and diluted
calculation.
6
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As of September 30, 2000 and 1999, there were antidilutive potential common
shares of 3,996,802 and 4,035,290, respectively. Accordingly, these
potential common shares were not included in the computation of diluted
loss per share for the years presented, but may be dilutive to future basic
and diluted earnings per share.
(4) Segment 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 basis of presentation (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.
<TABLE>
<CAPTION>
Molecular
Research diagnostics Total
-------------------- -------------------- ----------------
<S> <C> <C> <C>
Three months ended Sept. 30, 2000:
Revenues $ 7,769,251 3,050,009 10,819,260
Depreciation and amortization 635,977 242,165 878,142
Segment operating loss 1,357,734 1,862,555 3,220,289
Three months ended Sept. 30, 1999:
Revenues $ 5,247,645 1,614,286 6,861,931
Depreciation and amortization 608,603 185,124 793,727
Segment operating loss 1,586,948 1,162,839 2,749,787
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited) (Unaudited)
Sept. 30, 2000 Sept. 30, 1999
---------------------- ---------------------
<S> <C> <C>
Total operating loss for reportable segments $ (3,220,289) (2,749,787)
Interest income 1,398,293 573,789
Other (248,465) (15,094)
---------------------- ---------------------
Net loss $ (2,070,461) (2,191,092)
====================== =====================
</TABLE>
7
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(6) Subsequent Events
-----------------
On October 27, 2000 the Company received $41 million from the private
placement of 400,000 shares of common stock. We have agreed to register
these shares with the Securities and Exchange Commission.
(7) Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133), that establishes
new accounting and reporting standards for companies to report information
about derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. For a derivative not designated as
a hedging instrument, changes in the fair value of the derivative are
recognized in earnings in the period of change. The Company adopted SFAS
133 on July 1, 2000, and at September 30, 2000, the Company had no
freestanding derivative instruments in place and had no embedded derivative
instruments. Based on the Company's application of SFAS 133, its adoption
had no materially adverse effect on the Company's consolidated financial
statements.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition, (SAB 101) to
provide guidance on the recognition, presentation and disclosure of revenue
in financial statements; however, SAB 101 does not change existing
literature on revenue recognition. SAB 101 explains the staff's general
framework for revenue recognition, stating that four criteria need to be
met in order to recognize revenue. The four criteria, all of which must be
met, are the following:
. There must be persuasive evidence of an arrangement;
. Delivery must have occurred or services must have been rendered;
. The selling price must be fixed or determinable; and
. Collectibility must be reasonably assured.
The Company will adopt SAB 101 during the quarter ended June 30, 2001. The
Company believes that its current revenue recognition policy is in
compliance with this guidance; however, the Company continues to evaluate
the impact, if any, of SAB 101 and subsequent interpretations of SAB 101 on
the Company's policies and procedures.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leader in the emerging field of proteomics and gene-based medicine
focusing on the development of therapeutic and molecular diagnostic products. We
have developed, and will continue to expand upon, a number of proprietary
proteomic databases which permit us, through the use of our bioinformatics and
robotics technologies, to identify human genes and related proteins that may
play a role in the onset or progression of major human diseases. We formed two
wholly owned subsidiaries, Myriad Pharmaceuticals, Inc. and Myriad Genetic
Laboratories, Inc., to commercialize our therapeutic and molecular diagnostic
discoveries, respectively. Myriad Pharmaceuticals, Inc. independently and in
conjunction with collaborative partners, focuses on the discovery and
development of therapeutic products. Myriad Genetic Laboratories, Inc. focuses
on the development of molecular diagnostic products that assess a person's risk
of developing a specific disease and permits physicians and their patients to
take appropriate health care measures to reduce the risk.
We have devoted substantially all of our resources to maintaining our research
and development programs, supporting collaborative research agreements,
operating a molecular diagnostic laboratory, establishing high-throughput drug
screening, and undertaking drug discovery and development. Our revenues have
consisted primarily of research payments received pursuant to collaborative
agreements, upfront fees, milestone payments, and sales of molecular diagnostic
products. We have yet to attain profitability and, for the three months ended
September 30, 2000, we had a net loss of $2,070,461 and as of September 30, 2000
had an accumulated deficit of $54,732,443.
In September 1995, we commenced a five-year collaborative research and
development arrangement with Bayer Corporation. The total equity investment,
research funding and potential milestone payments under this collaboration may
provide us with up to $71,000,000. In November 1997 and again in December 1998,
we announced expansions of our collaborative research and development
arrangement with Bayer. The expanded collaboration may provide us with
additional research funding and potential milestone payments of up to
$137,000,000. We granted Bayer an exclusive worldwide license to human
therapeutic products developed from this collaboration. We are entitled to
receive royalties from sales of therapeutic products commercialized by Bayer for
a term of ten years following the first commercial sale or 20 years following
discovery of a disease gene, whichever is longer. We have received approximately
$34,000,000 in non-refundable research payments during the life of this
agreement.
In October 1996, we announced the introduction of BRACAnalysis(R), a
comprehensive BRCA1 and BRCA2 gene sequence analysis for susceptibility to
breast and ovarian cancer. In January 1998, we announced the introduction of
CardiaRisk(R), which may 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. In September 2000, we
announced the launch of COLARIS(TM), a predicitive medicine test for hereditary
colon cancer and uterine cancer. We began accepting COLARIS(TM) samples during
the current quarter. We, through our wholly owned subsidiary Myriad Genetic
Laboratories, Inc., recognized molecular diagnostic revenues, primarily from
BRACAnalysis(R), of $3,050,009 for the three months ended September 30, 2000.
In October 1998, we entered into a five-year collaboration with Schering AG, to
utilize ProNet(R) for drug discovery and development. Under the agreement, we
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(R). Outside of North America, we granted Schering AG an
exclusive license to therapeutic products developed from this collaboration. We
may receive future royalty payments from the sale of these products. The total
research funding, license fees, subscription fees,
9
<PAGE>
option payments and potential milestone payments under this collaboration may
provide us with up to $51,000,000. If we choose to co-promote a drug developed
by Schering AG as a 50 percent partner, we are required to pay funds to Schering
AG to establish equal ownership. If we do not choose to co-promote a drug
developed under this collaboration, Schering AG will receive a worldwide
exclusive license to therapeutic products developed from this collaboration from
which we may receive future royalty payments. Royalty terms are tied to either
the life of any patents that may result from this research or ten years
following the first commercial sale of a therapeutic product, whichever is
longer. In October 1999, we announced the expansion of our collaboration with
Schering AG to include research in the field of cardiovascular disease.
In November 1998, we entered into a 15 month collaboration with Pharmacia
Corporation (formerly Monsanto Company) to utilize ProNet(R) for drug discovery
and development. We granted Pharmacia non-exclusive access to proteins contained
in the pathways analyzed under the collaboration and an option to obtain an
exclusive, worldwide license to therapeutic products developed from this
collaboration. In December 1999, Pharmacia exercised its option to extend the
research term for an additional 12 months and exercised its option to expand the
research funding. The total research funding, option payments, license fees and
potential milestone payments under this collaboration may provide us with up to
$28,000,000. In addition, we are entitled to receive royalties from sales of
therapeutic products commercialized by Pharmacia for a term of the later of 15
years from the first commercial sale or the life of any resulting patent. We
have received approximately $1,000,000 in non-refundable research payments
during the life of this agreement.
In July 1999, we 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 genetic structure of cereal
crops. We granted NADII a royalty-free worldwide co-exclusive right for
commercial use of any resulting data. We will have joint ownership with NADII
to all data developed under this agreement and a right to receive 50 percent of
all proceeds derived from the sale of the data. The total funding under this
collaboration is expected to provide us with up to $33,500,000. Upon completion,
we and NADII intend to jointly offer commercial access to the genomic databases
and share equally in any resulting proceeds. We have received approximately
$23,000,000 in non-refundable research payments during the life of this
agreement.
In December 1999, we entered into a 12 month collaboration with Hoffmann-LaRoche
Inc. to utilize ProNet(R) for drug discovery and development in the area of
cardiovascular disease. The total research funding, license fees and potential
milestone payments under this collaboration may provide us with up to
$13,000,000. We granted Roche exclusive access to proteins contained in the
pathways analyzed under this collaboration and an option to obtain an exclusive,
worldwide license to the therapeutic and diagnostic products developed from this
collaboration. In addition, we are entitled to receive royalties from sales of
therapeutic products commercialized by Roche for a term of ten years from the
first commercial sale. We have received approximately $500,000 in non-
refundable research payments during the life of this agreement.
In May 2000, we entered into a three year strategic alliance with Hitachi Ltd.
Under the terms of the agreement, we will work with Hitachi to exploit the
ProNet (R) technology together in Japan and Hitachi will establish a designated
ProNet (R) facility to expedite the discovery of novel protein-protein
interactions for Japanese customers. We granted Hitachi an exclusive, royalty-
bearing license in Japan to the ProNet (R) database and technology. Total
payments under this collaboration are expected to provide us with $26,000,000.
In addition, we are entitled to receive royalties from sales of the database in
Japan and from sales of therapeutic products commercialized by Hitachi. We are
entitled to receive royalties for a period of ten years. We have received
approximately $7,500,000 in non-refundable research payments during the life of
this agreement.
We intend to enter into additional collaborative relationships to locate and
sequence genes and discover protein networks associated with other common
diseases as well as to continue to fund internal research
10
<PAGE>
projects. We may be unable to enter into additional collaborative relationships
on terms acceptable to us. We expect to incur losses for at least the next
several years, primarily due to expansion of our research and development
programs, expansion of our drug discovery and development efforts, increased
staffing costs and expansion of our facilities. Additionally, we expect to incur
substantial sales, marketing and other expenses in connection with building our
molecular diagnostic business. We expect that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial.
Results of Operations for the Three Months Ended September 30, 2000 and 1999
Research revenues for the quarter ended September 30, 2000 were $7,769,251 as
compared to $5,247,645 for the same quarter of 1999. The increase in research
revenue is primarily attributable to revenue recognized from our new
collaborations. Research revenue from the research collaboration agreements is
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 $3,050,009 were recognized in the quarter ended
September 30, 2000, an increase of 89% or $1,435,723 over the same quarter of
the prior year. Molecular diagnostic revenue is comprised primarily of sales of
molecular diagnostic tests. The Company's sales and marketing efforts, together
with the increased demand as a result of wider acceptance of the test by the
medical community, have resulted in increased testing volume and increased
revenues for the quarter ended September 30, 2000. There can be no assurance,
however, that molecular diagnostic revenues will continue to increase at the
historical rate, if at all.
Research and development expenses for the quarter ended September 30, 2000 were
$8,790,797 as compared to $5,786,801 for the same quarter in 1999. This
increase of 52% was in part due to an increase in research activities as a
result of the Company's research collaborations. The increased level of
research spending also includes the ongoing drug discovery efforts of Myriad
Pharmaceuticals, a wholly-owned subsidiary.
Selling, general and administrative expenses for the quarter ended September 30,
2000 were $3,943,390 as compared to $3,021,986 for the same quarter in 1999.
The increase of 30% was primarily attributable to costs associated with
supporting our research and drug development efforts and ongoing promotion of
the molecular diagnostic business, including preparations for the launch of
COLARIS (TM), a predictive medicine test for hereditary colon and uterine cancer
launched in September 2000. The Company expects its selling, general and
administrative expenses will continue to fluctuate as needed in support of its
research and drug development efforts and its molecular diagnostic business.
Cash, cash equivalents, and marketable investment securities increased
$58,074,796 or 125% from $46,473,680 at September 30, 1999 to $104,548,476 at
September 30, 2000. This increase in cash, cash equivalents, and marketable
investment securities is primarily attributable to the private sale of
approximately $56 million worth of the Company's Common Stock, as well as the
receipt of advance payments from the Company's collaborators. These cash
receipts were offset by expenditures incurred in the ordinary course of
business. As a result of the Company's increased cash position, interest income
for the quarter ended September 30, 2000 was $1,398,293 compared to $573,789 for
the same quarter in 1999. The loss on disposition of assets of $248,465 in the
quarter ended September 30, 2000 is the result of the Company retiring
unproductive assets.
11
<PAGE>
Liquidity and Capital Resources
Net cash used in operating activities was $5,288,660 during the three months
ended September 30, 2000 compared to $8,309,851 provided by operating activities
during the same period of the prior fiscal year. Trade receivables for the
three months ended September 30, 2000 increased $450,940. This increase is
primarily attributable to the 89% increase in genetic testing revenue for the
three month period ended September 30, 2000 as compared to testing revenue for
the three month period ended September 30, 1999. Other receivables increased
$96,406 for the three months ended September 30, 2000 primarily as a result of
an increase in stock option proceeds due to the Company. Prepaid expenses
decreased by $806,863 during the three months ended September 30, 2000 due to
the use of lab supplies previously purchased at a discount. Accounts payable
and accrued expenses decreased by $806,522, primarily as a result of payments
for equipment and lab supplies that were accrued into the prior quarter.
Deferred revenue, representing the difference in collaborative payments received
and research revenue recognized, decreased by $3,832,801 during the three months
ended September 30, 2000.
The Company's investing activities used cash of $14,834,014 in the three months
ended September 30, 2000 and provided cash of $1,781,100 in the three months
ended September 30, 1999. Investing activities were comprised primarily of
capital expenditures for research equipment and changes to marketable investment
securities. During the three months ended September 30, 2000, the Company
shifted a portion of its investment from cash and cash equivalents to marketable
investment securities in order to take advantage of favorable interest rates.
Financing activities provided $22,539,489 during the three months ended
September 30, 2000. In August 2000 we sold 350,000 shares of the Company's
common stock in a private placement for a purchase price of $22 million. We
have agreed to register these shares with the Securities and Exchange
Commission. Additional cash was provided from the exercise of stock options
during the three months ended September 30, 2000.
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 and drug
discovery and drug development programs; the cost of developing and launching
additional molecular diagnostic tests; results and costs of clinical correlation
testing of the Company's molecular diagnostic tests; the costs of filing,
prosecuting and enforcing patent claims; competing technological and market
developments; payments received under collaborative agreements and 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.
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.
12
<PAGE>
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 part of accumulated other
comprehensive loss. 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 September 30, 2000, 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
Some of the matters discussed in this Quarterly Report on Form 10-Q include
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. In some cases you can identify forward-looking
statements by terminology such as "may", "will", "should", "potential",
"continue", "expects", "anticipates", "intends", "plans", "believes",
"estimates", and similar expressions. We have based these forward-looking
statements on our current expectations and projections about future events. We
caution investors that actual results may vary significantly and are subject to
a number of factors and uncertainties, including, but not limited to, the
following: intense competition related to the discovery of disease-related genes
and the possibility that others may discover, and we may not be able to gain
rights with respect to, genes important to the establishment of a successful
genetic testing business; difficulties inherent in developing genetic tests once
genes have been discovered; our limited experience in operating a genetic
testing laboratory; our limited marketing and sales experience and the risk that
tests which we have or may develop may not be marketed at acceptable prices or
receive commercial acceptance in the markets that we are targeting or expect to
target; uncertainty as to whether there will exist adequate reimbursement for
our services from government, private healthcare insurers and third-party
payors; uncertainties as to the extent of future government regulation of our
business; uncertainties as to whether we and our 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 our ability to develop therapeutic lead compounds,
which is a new business area for us; and the risk that markets will not exist
for therapeutic lead compounds that we develop or if such markets exist, that we
will not be able to sell compounds which we develop at acceptable prices.
These forward-looking statements are made as of the date of this report and
actual results may differ. In light of these assumptions, risks, and
uncertainties, the results and events discussed in the forward-looking
statements contained in this Quarterly Report on Form 10-Q might not occur.
13
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
Neither the Company nor any of its subsidiaries is a party to any material legal
proceedings.
Item 2. Changes in Securities.
(c) Sales of Unregistered Securities
--------------------------------
Effective August 29, 2000, the Company sold 350,000 shares of its Common
Stock, $.01 par value per share, to Acqua Wellington North American
Equities Fund, Ltd., for an aggregate purchase price of $22 million. The
transaction was exempt from registration under the Securities Act of 1933,
as amended, pursuant to Section 4(2) and Rule 506 of Regulation D
thereunder, as the purchaser was an accredited investor and no public
offerings were involved. No person acted as an underwriter with respect to
this transaction.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 15, 2000, the Company held a Special Meeting of Shareholders (the
"Special Meeting"). A quorum of 14,464,640 shares of Common Stock of the
Company (of a total 21,870,706 outstanding shares, or approximately 66.14%) was
represented at the Special Meeting in person or by proxy, which was held to vote
on the following proposal:
1. To consider and act upon a proposal recommended by the Board of Directors
to amend the Company's Restated Certificate of Incorporation to increase
the Company's authorized common stock from 15 million shares to 60 million
shares.
The proposal was adopted, with 11,706,506 voting FOR, 2,746,418 voting AGAINST
and 11,716 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
The following is a list of exhibits filed as part of this Quarterly Report on
Form 10-Q.
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30, 2000.
14
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SIGNATURES
Pursuant to the requirements 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.
MYRIAD GENETICS, INC.
Date: November 14, 2000 By: /s/ Peter D. Meldrum
----------------- -------------------------------------
Peter D. Meldrum
President and Chief Executive Officer
Date: November 14, 2000 By: /s/ Jay M. Moyes
----------------- ---------------------------------------------
Jay M. Moyes
Vice President of Finance
Principal financial and chief accounting officer
15
<PAGE>
MYRIAD GENETICS, INC.
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
