avatar Myriad Genetics, Inc. Manufacturing
  • Location: Utah 
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    Building on Our Success in Cancer Predictive Medicine    [  , . ]


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    Shareholder Letter 2 Myriad Pharmaceuticals 4 Myriad Genetic Laboratories 6 Officers and Directors 8 Consolidated Financial Statements 9


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       [  , . ] Myriad is the world leader in cancer predictive medicine. We are developing drugs to prevent and treat cancer and viral diseases to help people live longer, healthier lives.         in millions percent . .   . . . .  .  . 1999 2000 2001 2002 1999 2000 2001 2002 1999 2000 2001 2002


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       [  , . ] To Our Shareholders e are pleased to report that  was a success- new opportunities in cancer and anti-virals such as HIV and W ful year for Myriad Genetics. It was a year in which we made great strides in both our ther- apeutic development programs and our predictive medicine Hepatitis C. In October , we announced the discovery of an exciting new cancer compound. This compound, -, selectively kills cancer cells by causing them to commit suicide, business. Your company achieved each of the major goals it thus preventing them from becoming immortal, a hallmark set out for itself during the year, an accomplishment that builds of cancer. This drug candidate continues to look promising in upon our past track record of achievement of our pre-clinical development studies. such milestones. Myriad is in strong financial Outside of the therapeutic fields of cancer condition as well. Our predictive medicine and viral diseases upon which Myriad focuses revenue was approximately  million, an most of its attention, we intend to seek phar- increase of % over the  level. We maceutical partners for development of our continue to maintain a low cash burn, with a discoveries. Myriad scientists have discovered loss for fiscal year  of just . million. a number of interesting drug candidates that We finished the year with over  million in have the potential for the treatment of cash and investments and no debt, providing important medical problems, including blood a solid foundation for aggressively advancing clotting resulting from orthopedic surgery,  . ’ Chairman of the Board our new therapies into the clinic and intro- rheumatoid arthritis and cardiovascular ducing products to the market. disease. In these therapeutic areas, relatively larger, lengthier Among the many highlights of , your company initi- and more expensive trials are generally required, making them ated a human clinical trial with Flurizan for the treatment of ™ ideal for partnering to realize their potential. prostate cancer. Flurizan holds promise for the treatment of Our predictive medicine business continued to prosper in prostate cancer and other cancers. Myriad is preparing to enter . Not only did we achieve strong revenue growth on human clinical trials with Flurizan in the prevention of pre- current products, but we also extended our cancer prediction cancerous polyps in the colon. We believe that prevention franchise with two new product introductions during the fiscal of polyps effectively prevents colon cancer. The Flurizan year. MELARIS,™ which identifies individuals at high risk of program paves the way for a series of other new clinical stud- melanoma skin cancer, was introduced in the fall of  and ies with compounds discovered and developed at Myriad in the has been well received by oncologists and dermatologists. That areas of cancer, HIV infection, Alzheimer’s disease and other introduction was followed in the spring by COLARIS AP,™ major diseases. which complements another Myriad product, COLARIS,® in Our pipeline of drug candidates has become deeper with the prediction of hereditary colon cancer. The gross profit 


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       [  , . ] margins of our predictive medicine products exceeded % greed and an erosion of business ethics, in which investors have this year. come to mistrust corporate management, we at Myriad pledge to Strategic alliances serve multiple purposes to your company. maintain the highest standards of integrity. Our financial state- They validate its technology by demonstrating its acceptance ments accurately present the financial condition and results of by third parties and they enable us to maintain our technology operations of Myriad and are prepared under GAAP, the gener- leadership. Several key alliances were formed this year that build ally accepted accounting principles. potential for future growth. We established a The synergy between predictive medicine collaboration with Abbott Laboratories to and disease prevention is more widely recog- discover and develop drugs to treat depression. nized than ever. To prevent disease, a high-risk Shortly thereafter, Myriad and DuPont formed population must be identified and a therapy a genomics alliance that will allow us to developed to specifically address that risk. As improve DNA sequencing quality and effi- well as being efficacious, the therapy must be ciency that is already second-to-none. We also extremely safe, since there will be no present formed a marketing alliance that we believe disease. Myriad is developing such therapies will help us reach the many thousands of men today, building upon our success with the and women at serious risk of cancer. Along identification of people at high risk of cancer.  .  President and CEO with Myriad’s professional oncology sales force, One day soon we hope to identify risk, treat Laboratory Corporation of America will now call on primary- and prevent cancer, all with Myriad developed products. care physicians to help identify individuals with a family history This dedication to a greater purpose is what motivates the of breast, ovarian, colon, endometrial or skin cancer. This large more than  Myriad employees. They are the reason that at-risk population of individuals is the greatest opportunity for we will succeed. They have the faith in our vision of the future, us as a company to make an impact in delaying the onset or the confidence in our ability to prevail, and the excitement of potentially even preventing cancer. moving toward a common goal every day. In the present business environment of apparent corporate Sincerely, Hugh A. D’Andrade Peter D. Meldrum Chairman of the Board President and Chief Executive Officer 


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       [  , . ] Myriad Pharmaceuticals At Myriad, our mission is to discover and develop a new generation of products in predictive and therapeutic medicines with a particular focus on saving lives through the prevention and treatment of cancer and viral diseases. he genomic and proteomic tools forcing them to commit suicide. The mecha- T we have developed to accomplish this goal have also brought us additional opportunities outside our primary nism has not yet been published or divulged, but our analysis leads us to believe that it should affect cancer cells of most types, includ- therapeutic focus areas. It is our strategy to ing solid tumors and blood cancers, preventing partner these opportunities with major phar- them from growing or spreading to other areas maceutical organizations and leverage their of the body. - is in late-stage preclin- expertise in drug development and marketing. ical testing and is a potential candidate for Our own pipeline for internal pharmaceutical human clinical trials in the near term. development is filled with potential. Our cancer program area has several addi-  . , .. President, Myriad Pharmaceuticals, Inc. tional compounds in development, including Anti-Cancer Programs - for later stage colon cancer. This molecule acts Flurizan,™ our lead drug candidate, is in an advanced clinical through a mechanism that is unrelated to that of Flurizan. trial for prostate cancer. This -center trial is scheduled to enroll approximately  prostate cancer patients, focusing on Anti-Viral Programs disease progression. Flurizan has potential beyond prostate One of the most exciting developments for Myriad in the anti- cancer as well. Although the prostate cancer indication for viral therapeutic area was the publication of the discovery of a Flurizan was the first to reach advanced human clinical trials, novel aspect of HIV replication in the scientific journal Cell. it may be overtaken on the road to the market by another The October ,  issue featured on its cover the work of indication. We are preparing for a Phase II clinical trial with Myriad and collaborator, Professor Wesley Sundquist of the Flurizan, in pre-cancerous colon polyp prevention. University of Utah, on HIV budding and the basis for an Our newest cancer program is -. It is a small entirely new approach to stopping the spread of the AIDS virus. molecule drug candidate that kills cancer cells by selectively The work has continued at Myriad and has led to the identifi- 


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       [  , . ] cation of several drug targets and a candidate collaboration to discover and develop novel drug series with an exctiting lead compound drug targets for the treatment of depression. that shows great promise against HIV in vitro. The key to reducing the cost The collaboration will merge Myriad’s inte- Anti-viral work is flourishing at Myriad, and the risk in drug develop- grated drug target identification and validation ment lies in choosing high including advancement of the Hepatitis C technologies with Abbott’s drug development potential validated drug development program. expertise. targets. Myriad has developed an integrated set of technolo- Strategic Partnering for Development gies to choose innovative Acute Thrombosis targets, screen them against As Myriad fills its internal drug discovery and Acute thrombosis is a therapeutic area that is diverse molecular libraries development pipelines with exciting opportu- underserved by currently marketed drugs and validate active compounds nities, collaborations take on a different role. with multiple corroborating and Myriad has a preclinical program that The great value to Myriad in discovering and biological measures. addresses it directly. - is designed to validating drug targets for partners comes in stop excessive blood clotting following major developing opportunities known to Myriad in areas that are surgery such as hip replacement or open-heart surgery, and has outside our corporate focus on cancer and anti-viral disease. potential in patients undergoing chemotherapy as well. The Additional value is derived from using these programs to compound has progressed well and is a candidate for near-term advance our leadership in technology and to maintain a reduced clinical study. Myriad intends to partner the drug in later stage level of research and development expense. An example of clinical development. Additional drug development partner- one such partnership is our collaboration with Abbott ship opportunities are being developed in heart disease, obesity, Laboratories. Myriad and Abbott formed a  million rheumatoid arthritis and depression.     in millions . # of programs  . .  .  1999 2000 2001 2002 2000 2001 2002 


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       [  , . ] Myriad Genetic Laboratories Two product introductions during  served to further our worldwide leadership position in cancer predictive medicine. Myriad’s product range now covers breast cancer, ovarian cancer, colon cancer, endometrial cancer and melanoma skin cancer. e are developing products be marketed directly to individuals. W today that will extend this range, and include prostate cancer, which will leave only lung cancer to Myriad’s predictive medicine products provide their greatest benefit among people who have a history of cancer in their family, address among the major hereditary cancers of but have not themselves been diagnosed with the Western world. the disease. To address this important market, Our predictive medicine business is grow- Myriad and LabCorp have forged a combined ing vigorously and we believe that it has only force of over  professional sales represen- just begun to realize its true potential. We have tatives. Myriad’s own -plus member sales built a solid base of knowledge among cancer  . , .. group will continue to call on cancer special- President, Myriad Genetic Laboratories specialists and have earned a reputation for the ists, while LabCorp will call on its client highest quality and professionalism. We are off to a great start, population of over , physicians, addressing the primary but to fully realize the potential to prevent cancer, we must care market. Patients at high-risk of cancer due to a family identify those individuals at high risk that have not developed history, are a large and important market for Myriad’s predic- the disease. These men and women do not visit oncologists, tive medicine products. The greatest potential of predictive so to raise awareness among them we have to reach their medicine is realized when our products are used to identify primary care physicians and work with these physicians to iden- patients who are at high risk, so they can take action to delay tify patients with a family history of cancer. By the time you the onset or even prevent cancer from occurring. are reading this, we will have begun a campaign to address COLARIS AP this population through a pilot program of direct to consumer advertising. This campaign marks a milestone in the develop- There are two types of hereditary colon cancer responsible for ment of the predictive medicine field as our BRACAnalysis® the majority of inherited colon cancer. The first is character- test becomes broadly available as the first product of its kind to ized by the development of a modest number of colon polyps 


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       [  , . ] that progress to full-blown colon cancer. The the MELARIS predictive medicine product. second is associated with the development of Melanoma is lethal in % of cases in which a very large number of colon polyps, in some Prevention is the goal of it has spread to other sites in the body, but predictive medicine. To realize cases hundreds or even thousands of polyps. when diagnosed early, melanoma patients have this potential, individuals at The addition of Myriad’s latest predictive presumed high risk need posi- a survival rate of better than %. Frequent medicine product, COLARIS AP, which tive risk identification and the surveillance along with the removal of suspi- addresses patients with greater numbers of ability to reduce their risk cious moles and pre-cancerous lesions can often through proven measures. polyps, means that Myriad now provides a delay the onset or prevent melanoma altogether. Myriad has initiated an inten- comprehensive evaluation of risk for these The market is ready. The hurdles have been sive advertising campaign to colon cancer syndromes. Colon cancer is in raise awareness among surmounted. Early concerns that were voiced large part a highly preventable disease. It is women at high risk that there as we pioneered this new medical paradigm primarily the failure to identify colon cancer are demonstrated options have been addressed. Health insurers pay for available today that reduce the at an early stage that contributes to its high our tests and they do not discriminate against risk of cancer and save lives. death rate. With the identification of high-risk individuals who have been tested. There are individuals through COLARIS AP, and early intervention now good options that have been demonstrated effective for the strategies including removal of pre-cancerous polyps, death prevention of cancer among high-risk individuals. Therapies are from colon cancer may be reduced significantly. available that can reduce the risk of breast cancer by % and the risk of ovarian cancer by %. Surgical procedures such as MELARIS removal of the ovaries can reduce the risk of ovarian cancer by Individuals who carry a mutation in the p gene, resulting in more than % and reduce the breast cancer risk by % at the a positive MELARIS test, have an estimated lifetime risk that same time. Because our predictive medicine products help save is more than  times higher than the risk for those in the lives, it is now imperative that people know it and have the general population. Prevention of melanoma is the goal of opportunity to take advantage of the vital knowledge we provide.   ..   in millions .  .  .   . 1999 2000 2001 2002 1999 2000 2001 2002 


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       [  , . ] Officers and Directors  . ’  , ..  . , ., .. Chairman of the Board Vice Chairman of the Board  .  Director Former Vice Chairman, Carl M. Loeb University Professor, President and CEO President, MediScience Associates Schering-Plough Corporation Harvard University  . , ..  . , ..  . , .. Director Director  . , .. Chief Scientific Officer, President, Myriad Genetic Laboratories Director President and CEO, Berlex Laboratories, Inc. President Emerita, Radcliffe College  .   . , ..  . ,  .   Chief Financial Officer, President, Myriad Pharmaceuticals, Inc. Vice President, Corporate Communications Vice President, Business Development Vice President of Finance 


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       [  , .   ] Consolidated Financial Statements Selected Consolidated Financial Data 10 Quarterly Financial Data 11 Management’s Discussion and Analysis 12 of Financial Condition and Results of Operation Consolidated Balance Sheets 17 Consolidated Statements of Operations 18 Consolidated Statements of Stockholders’ 19 Equity and Comprehensive Loss Consolidated Statements of Cash Flows 20 Notes to Consolidated Financial Statements 21 Independent Auditors’ Report 31 Market Price of Common Stock 32


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       [  , .   ] Selected Consolidated Financial Data The following table sets forth our consolidated financial data as of and for each of the five years ended June , . The selected consolidated financial data as of and for each of the five years ended June ,  have been derived from our consolidated finan- cial statements. The consolidated financial statements and the report thereon for the year ended June ,  are included elsewhere in this Annual Report. 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.” Years ended June ,      Consolidated Statement of Operations Data: Research revenue  ,,  ,,  ,,  ,,  ,, Predictive medicine revenue ,, ,, ,, ,, ,, Total revenues ,, ,, ,, ,, ,, Costs and expenses: Predictive medicine cost of revenue ,, ,, ,, ,, ,, Research and development expense ,, ,, ,, ,, ,, Selling, general and administrative expense ,, ,, ,, ,, ,, Total costs and expenses ,, ,, ,, ,, ,, Operating loss (,,) (,,) (,,) (,,) (,,) Other income (expense): Interest income ,, ,, ,, ,, ,, Interest expense — — — (,) (,) Other (,) (,) (,) (,) , Loss before income taxes (,,) (,,) (,,) (,,) (,,) Income taxes , , — — — Net loss  (,,)  (,,)  (,,)  (,,)  (,,) Basic and diluted net loss per share  (.)  (.)  (.)  (.)  (.) Basic and diluted weighted average shares outstanding ,, ,, ,, ,, ,, As of June ,      Consolidated Balance Sheet Data: Cash, cash equivalents and marketable investment securities  ,,  ,,  ,,  ,,  ,, Working capital ,, ,, ,, ,, ,, Total assets ,, ,, ,, ,, ,, Stockholders’ equity ,, ,, ,, ,, ,, 


  • Page 13

       [  , .   ] Quarterly Financial Data () Quarters ended June ,  March ,  December ,  September ,  Consolidated Statement of Operations Data: Research revenue  ,,  ,,  ,,  ,, Predictive medicine revenue ,, ,, ,, ,, Total revenues ,, ,, ,, ,, Costs and expenses: Predictive medicine cost of revenue ,, ,, ,, ,, Research and development expense ,, ,, ,, ,, Selling, general and administrative expense ,, ,, ,, ,, Total costs and expenses ,, ,, ,, ,, Operating loss (,,) (,,) (,,) (,,) Other income (expense): Interest income , ,, ,, ,, Other (,) (,) , (,) Loss before income taxes (,,) (,,) (,,) (,,) Income taxes , , , , Net loss  (,,)  (,,)  (,,)  (,,) Basic and diluted net loss per share  (.)  (.)  (.)  (.) Basic and diluted weighted average shares outstanding ,, ,, ,, ,, Quarters ended June ,  March ,  December ,  September ,  Consolidated Statement of Operations Data: Research revenue  ,,  ,,  ,,  ,, Predictive medicine revenue ,, ,, ,, ,, Total revenues ,, ,, ,, ,, Costs and expenses: Predictive medicine cost of revenue ,, ,, ,, ,, Research and development expense ,, ,, ,, ,, Selling, general and administrative expense ,, ,, ,, ,, Total costs and expenses ,, ,, ,, ,, Operating loss (,,) (,,) (,,) (,,) Other income (expense): Interest income ,, ,, ,, ,, Other (,) (,) (,) (,) Loss before income taxes (,,) (,,) (,,) (,,) Income taxes , , — — Net loss  (,,)  (,,)  (,,)  (,,) Basic and diluted net loss per share  (.)  (.)  (.)  (.) Basic and diluted weighted average shares outstanding ,, ,, ,, ,, 


  • Page 14

       [  , .   ] Management’s Discussion and Analysis of Financial Condition and Results of Operation Overview We are a leading biopharmaceutical company focused on the development and marketing of novel therapeutic and predictive medi- cine products. We have developed a number of proprietary proteomic technologies which permit us to identify genes, their related proteins and the biological pathways they form. We use this information to better understand the role proteins play in the onset and progression of human disease. We operate two wholly owned subsidiaries, Myriad Pharmaceuticals, Inc. and Myriad Genetic Laboratories, Inc., to commercialize our therapeutic and predictive medicine discoveries. Myriad Pharmaceuticals, Inc. develops and intends to market novel therapeutic products. Myriad Genetic Laboratories, Inc. focuses on the development and marketing of predictive medicine products that assess an individual’s risk of developing a specific disease. Myriad researchers have made important discoveries in the fields of cancer, viral diseases such as AIDS, and acute thrombosis. These discoveries point to novel disease pathways and have paved the way for the development of new drugs. Additionally, our pipeline of drug targets offers therapeutic opportunities for the treatment of diseases such as heart disease, rheumatoid arthritis, Alzheimer’s disease and other central nervous system disorders. We have identified  drug targets to date. We have also estab- lished an extensive portfolio of drug candidates that are under development at Myriad. Fifteen of these drug candidates are in pre-clinical testing. Flurizan™, our lead therapeutic product for the treatment of prostate cancer, is currently in a large, multi- center human clinical trial. We also recently submitted an Investigational New Drug (IND) application for the evaluation of R-flurbiprofen (-) for the treatment of Alzheimer’s disease. We intend to independently develop and, subject to regulatory approval, market our therapeutic products, particularly in the area of cancer and infectious diseases. We also have developed and commercialized five innovative predictive medicine products: BRACAnalysis®, which is used to assess a woman’s risk of developing breast and ovarian cancer, COLARIS® and COLARIS AP™, which are used to determine a person’s risk of developing colon cancer, MELARIS™, which is used to determine a person’s risk of developing malignant melanoma, and CardiaRisk®, which is used for therapeutic management of hypertensive patients. We market these products using our own inter- nal  person sales force in the United States and we have entered into marketing collaborations with other organizations in Austria, Brazil, Canada, Germany, Japan, and Switzerland. Revenues from these proprietary products grew approximately % from the prior year to . million in the fiscal year ended June , . We believe that the future of medicine lies in the creation of new classes of drugs that prevent disease from occurring or progress- ing and that treat the cause, not just the symptoms, of disease. In addition, we believe that advances in the emerging field of predictive medicine will improve our ability to determine which patients are subject to a greater risk of developing these diseases and who there- fore should receive these new preventive medicines. We have devoted substantially all of our resources to maintaining our research and development programs, undertaking drug discovery and development, and operating our predictive medicine business. Our revenues have consisted primarily of sales of predic- tive medicine products and research payments received pursuant to collaborative agreements, upfront fees, and milestone payments. We have yet to attain profitability and, for the year ended June , , we had a net loss of . million and as of June ,  had an accumulated deficit of . million. We have formed strategic alliances with  major pharmaceutical or multinational companies including Abbott Laboratories, Bayer Corporation, E.I. du Pont de Nemours and Company (DuPont), Eli Lilly and Company, Hitachi Ltd., Hoffmann-LaRoche Inc., Novartis Corporation, Oracle Corporation, Pharmacia Corporation, Schering AG, Schering-Plough Corporation, and Torrey Mesa Research Institute, a subsidiary of Syngenta. We intend to enter into additional collaborative relationships to discover genes, proteins, protein networks, and drug targets associated with common diseases as well as to continue to fund internal research proj- ects. However, we may be unable to enter into additional collaborative relationships on terms acceptable to us. In April , we announced the formation of Myriad Proteomics, Inc., a new venture with Hitachi, Ltd. and Oracle Corporation to map the human proteome. Myriad Proteomics, which is  percent owned by the Company, intends to develop and market a proprietary map of the human proteome to pharmaceutical and biotechnology companies for therapeutic and diagnostic product development. We expect to incur losses for at least the next several years, primarily due to expansion of our drug discovery and development efforts, expansion of our research and development programs, launch of new predictive medicine products, and expansion of our facilities. Additionally, we expect to incur substantial sales, marketing and other expenses in connection with building our phar- maceutical and predictive medicine businesses. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. 


  • Page 15

       [  , .   ] Critical Accounting Policies Critical accounting policies are those policies which are both important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are as follows: • revenue recognition; • investments in privately-held companies; • investment in Myriad Proteomics, Inc.; Revenue Recognition. We apply the provisions of Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. , Revenue Recognition ( ) to all our revenue transactions. Research revenues include revenues from research and tech- nology licensing agreements. We recognize revenue from research contracts in accordance with the percentage-of-completion method of accounting and following the guidance in Statement of Position -, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Percent complete is estimated based on costs incurred relative to total estimated contract costs. We make adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses and we gain experience. Our estimates of total contract costs include assumptions, such as estimated research hours to complete, mate- rials costs, and other direct and indirect costs. Actual results may vary significantly from our estimates. Revenues related to up-front payments and technology license fees when continuing involvement or research services are required of us are recognized over the period of performance. Predictive medicine revenues include revenues from the sale of predictive medicine products and related marketing agreements. Predictive medicine revenue is recognized upon completion of the test and communication of results. Up-front payments related to marketing agreements are recognized ratably over the life of the agreement. Investments in Privately-Held Companies. We review the valuation of our investments in privately-held biotechnology and pharma- ceutical companies for possible impairment as changes in facts and circumstances indicate that impairment should be assessed. The amount of impairment, if any, and valuation of these investments are based on our estimates and, in certain circumstances, the completion of independent, third-party appraisals of the investments. Inherent in these estimates and appraisals are assumptions such as the comparability of the investee to similar publicly traded companies, the value of the investee’s underlying research and development efforts, the likelihood that the investee’s current research projects will result in a marketable product, and the investee’s expected future cash flows. Accordingly, the amount recognized by us upon ultimate liquidation of these investments may vary signif- icantly from the estimated fair values at June , . Investment In Myriad Proteomics. In April , we announced the formation of a new alliance with Hitachi, Ltd. (Hitachi), Friedli Corporate Finance A.G. (Friedli), and Oracle Corporation (Oracle) to map the human proteome. The newly formed entity, Myriad Proteomics, Inc. (Myriad Proteomics) intends to develop and market its proprietary proteomic information to pharmaceutical and biotechnology companies for therapeutic and diagnostic product development. As part of the formation of Myriad Proteomics we entered into administrative and scientific outsourcing agreements with Myriad Proteomics. These agreements expired on June ,  and new agreements covering subsequent limited outsourcing services have been established. Charges to Myriad Proteomics for services incurred related to the administrative and scientific outsourcing agreements were based on actual time and expenses that we incurred on behalf of Myriad Proteomics and were not recorded as revenues but as a contra research expense. Results of Operations Years ended June ,  and  Research revenues for our fiscal year ended June ,  were . million compared to . million for the fiscal year ended June , . Research revenue is comprised of research payments received pursuant to collaborative agreements, amortization of license fees and milestone payments. This decrease of % in research revenue is primarily attributable to greater emphasis on our internal research and drug development programs, performing research for Myriad Proteomics, and the successful completion of the Bayer and TMRI collaborations in December . Partially offsetting the overall decrease in research revenue were revenues from our new collaborations with Abbott Laboratories and DuPont, both entered into in March . Research revenue from our research collab- oration agreements is generally recognized as related costs are incurred. Consequently, as these programs progress and costs increase or decrease, revenues increase or decrease proportionately. 


  • Page 16

       [  , .   ] Predictive medicine revenues for our fiscal year ended June ,  were . million, an increase of % or . million over the prior fiscal year. Predictive medicine revenue is comprised of sales of predictive medicine products and fees and royalties from our predictive medicine product marketing partners. Increased sales and marketing efforts and wider acceptance of our products by the medical community have resulted in increased revenues for the fiscal year ended June , . However, there can be no assurance that predictive medicine revenues will continue to increase at historical rates. Research and development expenses for the fiscal year ended June ,  were . million compared to . million for the prior fiscal year. The increase of % was primarily due to increased costs associated with our ongoing clinical trial for Flurizan™ and increased research spending for our ongoing drug discovery efforts in Myriad Pharmaceuticals. Research and development expenses were partially offset by reimbursement for research we performed for Myriad Proteomics as part of a scientific outsourc- ing agreement. For the fiscal year ended June , , research and development expenses were reduced by . million as a result of these scientific outsourcing services. Selling, general and administrative expenses for the fiscal year ended June ,  were . million compared to . million for the prior fiscal year. Selling, general and administrative expenses consist primarily of salaries, commissions and related person- nel costs for sales, marketing, executive, legal, finance, accounting, human resources, information technology, and business development personnel, allocated facilities expenses and other corporate expenses. The increase of % was primarily attributable to increases in our sales force from  to  sales representatives, the launch of two new predictive medicine products, and market- ing costs related to our direct-to-consumer campaign to support our predictive medicine business. We expect this larger sales force and related marketing efforts to enable us to increase awareness of our predictive medicine business. We expect our selling, general and administrative expenses will continue to fluctuate dependent on the number and scope of new product launches and our drug discovery and development efforts. Cash, cash equivalents, and marketable investment securities decreased . million or % from . million at June ,  to . million at June , . This decrease in cash, cash equivalents, and marketable investment securities is primarily attrib- utable to increased expenditures for our internal drug development programs and other expenditures incurred in the ordinary course of business. As a result of the our decreased cash position and declining interest rates, interest income for the fiscal year ended June ,  was . million compared to . million for the fiscal year ended June , , a decrease of %. Years ended June ,  and  Research revenues for our fiscal year ended June ,  were . million compared to . million for the fiscal year ended June , . The increase in our research revenue of % was primarily attributable to increased revenue recognized from both our Hitachi and TMRI collaborations. Research revenue from our 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 propor- tionately. Predictive medicine revenues of . million were recognized in the fiscal year ended June , , an increase of % or . million over the prior year. Predictive medicine revenue is comprised of sales of predictive medicine products resulting from our discovery of important disease genes. The successful launch of COLARIS®, as well as increased sales and marketing efforts, together with wider acceptance of our products by the medical community, gave rise to the increased revenues for the fiscal year ended June , . However, there can be no assurance that predictive medicine revenues will continue to increase at historical rates. Research and development expenses for the year ended June ,  increased to . million from . million for the prior year, an increase of %. This increase was primarily due to an increase in the drug discovery and drug development efforts of Myriad Pharmaceuticals, Inc., our wholly-owned subsidiary, as well as research activities relating to our strategic collaborations. Selling, general and administrative expenses for the fiscal year ended June ,  were . million compared to . million for the fiscal year ended June , . This increase of % was primarily attributable to costs associated with the ongoing promotion of our predictive medicine business, including the launch of COLARIS®, that was introduced in September . We also bolstered our sales force to  full time employees, to allow us to increase awareness of our predictive medicine business through direct contact with health care professionals. We expect that our selling, general and administrative expenses will continue to fluc- tuate as needed in support of our predictive medicine business and our drug discovery and development efforts. Cash, cash equivalents, and marketable investment securities increased . million, or %, from . million at June ,  to . million at June , . This increase in our cash, cash equivalents and marketable investment securities was primarily attributable to the sale of approximately . million of our Common Stock in private placements during the year, as well as receipt of approximately  million from license fees and milestone payments. As a result of our increased cash position, interest income 


  • Page 17

       [  , .   ] for the fiscal year ended June ,  was . million compared to . million for the fiscal year ended June , , an increase of %. The loss on disposition of assets of . million in the fiscal year ended June ,  was primarily the result of our retiring unproductive assets. Liquidity and Capital Resources Net cash used in operating activities was . million during the fiscal year ended June ,  compared to . million used in operating activities during the prior fiscal year. Trade receivables increased . million between June ,  and June , , primarily due to the % increase in predictive medicine sales during the same period. Prepaid expenses increased . million between June ,  and June ,  due to advance payments to purchase lab supplies at a discount. Related party receivables decreased . million between June ,  and June , , due to reimbursement for services provided to Myriad Proteomics. Other assets increased . million between June ,  and June , , primarily due to the acquisition of patents. Related party payables increased . million between June ,  and June ,  due to equipment purchased from Myriad Proteomics. Deferred revenue, representing the difference in collaborative payments received and research revenue recognized, decreased by . million between June ,  and June , . Our investing activities provided cash of . million during the fiscal year ended June ,  and used cash of . million during the prior fiscal year. Investing activities were comprised primarily of changes to marketable investment securities and capi- tal expenditures for research equipment. During the fiscal year ended June , , we shifted a portion of our investments from marketable investment securities to cash and cash equivalents due to changes in interest rates. During the fiscal year ended June ,  other assets increased . million due to an investment in a privately held pharmaceutical company, and was partially offset . million due to the sale of part of our investment in a separate privately held biotechnology company. Additional investing activ- ities included capital expenditures of . million for research equipment and facility improvements. Financing activities provided . million during the fiscal year ended June , , due to the exercise of stock options. On November , , we filed a Form - shelf registration statement with the Securities and Exchange Commission for the sale of up to  million of various types of securities, which the SEC declared effective on November , . The registered shares are available for sale at our discretion upon the filing of a prospectus supplement with the SEC. We believe that with our existing capital resources, we will have adequate funds to maintain our current and planned opera- tions 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. Our future capital requirements will be substantial and will depend on many factors, including: • the progress of our preclinical and clinical activities; • the progress of our research and development programs; • the progress of our drug discovery and drug development programs; • the cost of developing and launching additional predictive medicine products; • the costs of filing, prosecuting and enforcing patent claims; • the costs associated with competing technological and market developments; • the payments received under collaborative agreements and changes in collaborative research relationships; • the costs associated with potential commercialization of our discoveries, if any, including the development of manufacturing, marketing and sales capabilities; and • the cost and availability of third-party financing for capital expenditures and administrative and legal expenses. Because of our significant long-term capital requirements, we intend to raise funds when conditions are favorable, even if we do not have an immediate need for additional capital at such time. Effects of Inflation We do not believe that inflation has had a material impact on our business, sales, or operating results during the periods presented. 


  • Page 18

       [  , .   ] Quantitative and Qualitative Disclosures About Market Risk We maintain an investment portfolio in accordance with our Investment Policy. The primary objectives of our Investment Policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our Investment Policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. Our investments consist of securities of various types and maturities of three years or less, with a maximum average maturity of  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 our investment portfolio are subject to interest rate risk. Changes in interest rates affect the fair market value of the marketable investment securities. After a review of our marketable securities as of June , , we have determined that in the event of a hypothetical ten percent increase in interest rates, the resulting decrease in fair market value of our marketable investment securities would be insignificant to the consolidated financial statements as a whole. Certain Factors That May Affect Future Results of Operations The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Annual Report contains such “forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of . These statements may be made directly in this Annual Report, and they may also be made a part of this Annual Report by reference to other documents filed with the Securities and Exchange Commission, which is known as “incorporation by reference.” Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of simi- lar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, among other things: our inability to further identify, develop and achieve commercial success for new products and technologies; the possibility of delays in the research and development necessary to select drug development candi- dates and delays in clinical trials; the risk that clinical trials may not result in marketable products; the risk that we may be unable to successfully finance and secure regulatory approval of and market our drug candidates; our dependence upon pharmaceutical and biotechnology collaborations; the levels and timing of payments under our collaborative agreements; uncertainties about our abil- ity to obtain new corporate collaborations and acquire new technologies on satisfactory terms, if at all; the development of competing systems; our ability to protect our proprietary technologies; patent-infringement claims; and risks of new, changing and competi- tive technologies and regulations in the United States and internationally. Please also see the discussion of risks and uncertainties under “Risk Factors” in Item  of this Report. In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Annual Report or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only of the date of this Annual Report or the date of the document incor- porated by reference in this Annual Report. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward- looking statements attributable to the Company or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. 


  • Page 19

       [  , .   ] Consolidated Balance Sheets As of June ,   Assets Current assets: Cash and cash equivalents  ,,  ,, Marketable investment securities ,, ,, Prepaid expenses ,, ,, Trade accounts receivable, less allowance for doubtful accounts of , in  and , in  ,, ,, Other receivables , , Related party receivables — ,, Total current assets ,, ,, Equipment and leasehold improvements: Equipment ,, ,, Leasehold improvements ,, ,, ,, ,, Less accumulated depreciation and amortization ,, ,, Net equipment and leasehold improvements ,, ,, Long-term marketable investment securities ,, ,, Other assets ,, ,,  ,,  ,, Liabilities and Stockholders’ Equity Current liabilities: Accounts payable  ,,  ,, Related party payable ,, — Accrued liabilities ,, ,, Deferred revenue ,, ,, Total current liabilities ,, ,, Commitments and contingencies Stockholders’ equity: Preferred stock, . par value. Authorized ,, shares; no shares issued and outstanding — — Common stock, . par value. Authorized ,, shares; issued and outstanding ,, shares in  and ,, shares in  , , Additional paid-in capital ,, ,, Accumulated other comprehensive income , , Accumulated deficit (,,) (,,) Total stockholders’ equity ,, ,,  ,,  ,, See accompanying notes to consolidated financial statements. 


  • Page 20

       [  , .   ] Consolidated Statements of Operations Years ended June ,    Research revenue  ,,  ,,  ,, Predictive medicine revenue ,, ,, ,, Total revenues ,, ,, ,, Costs and expenses: Predictive medicine cost of revenue ,, ,, ,, Research and development expense ,, ,, ,, Selling, general, and administrative expense ,, ,, ,, Total costs and expenses ,, ,, ,, Operating loss (,,) (,,) (,,) Other income (expense): Interest income ,, ,, ,, Other (,) (,) (,) Loss before income taxes (,,) (,,) (,,) Income taxes , , — Net loss  (,,)  (,,)  (,,) Basic and diluted loss per common share  (.)  (.)  (.) Basic and diluted weighted average shares outstanding ,, ,, ,, See accompanying notes to consolidated financial statements. 


  • Page 21

       [  , .   ] Consolidated Statements of Stockholders’ Equity and Comprehensive Loss Years ended June , , , and  Accumulated Other Additional Comprehensive Comprehensive Common Stock Paid-In Income Deferred Accumulated Income Stockholders’ Shares Amount Capital (Loss) Compensation Deficit (Loss) Equity Balances at June ,  ,,  ,  ,,  (,)  (,) (,,)  ,, Issuance of common stock for cash upon exercise of options and warrants ,, , ,, — — — — ,, Issuance of common stock for cash, net of offering costs ,, , ,, — — — — ,, Amortization of deferred compensation — — — — , — — , Net loss — — — — — (,,) (,,) (,,) Unrealized gains (losses) on marketable investment securities: Unrealized holding losses arising during year — — — — — — (,) — Less classification adjustment for losses included in net loss — — — — — — , — Other comprehensive loss — — — (,) — — (,) (,) Comprehensive loss — — — — — —  (,,) — Balances at June ,  ,, , ,, (,) — (,,) ,, Issuance of common stock for cash upon exercise of options and warrants , , ,, — — — — ,, Issuance of common stock for cash, net of offering costs , , ,, — — — — ,, Net loss — — — — — (,,) (,,) (,,) Unrealized gains (losses) on marketable investment securities: Unrealized holding gains arising during year — — — — — — , — Less classification adjustment for losses included in net loss — — — — — — — — Other comprehensive gain — — — , — — , , Comprehensive loss — — — — — —  (,,) — Balances at June ,  ,, , ,, , — (,,) ,. Issuance of common stock for cash , , ,, — — — — ,, Net loss — — — — — (,,) (,,) (,,) Unrealized gains (losses) on marketable investment securities: Unrealized holding losses arising during period — — — — — — (,) — Less classification adjustment for gains included in net loss — — — — — — , — Other comprehensive loss — — — (,) — — (,) (,) Comprehensive loss — — — — — — (,,) — Balances at June ,  ,,  , ,,  ,  — (,,) ,, See accompanying notes to consolidated financial statements. 


  • Page 22

       [  , .   ] Consolidated Statements of Cash Flows Years ended June ,    Cash flows from operating activities: Net loss  (,,)  (,,)  (,,) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ,, ,, ,, Loss on disposition/impairment of assets , , , Loss (gain) on sale of investment securities (,) — , Bad debt expense , , , Changes in operating assets: Trade receivables (,,) (,,) (,,) Prepaid expenses (,) (,,) (,,) Other receivables , , ,, Related party receivables ,, (,,) — Other assets (,) — , Accounts payable and accrued expenses , ,, ,, Related party payable ,, — — Deferred revenue (,,) , ,, Net cash provided by (used in) operating activities (,,) (,,) ,, Cash flows from investing activities: Proceeds from sale of equipment — — , Capital expenditures (,,) (,,) (,,) Investments in other companies (,,) (,,) (,) Proceeds from sale of investments in other companies , — — Purchases of investment securities held-to-maturity (,,) (,,) (,,) Maturities of investment securities held-to-maturity ,, ,, ,, Purchases of investment securities available-for-sale (,,) (,,) (,,) Sales of investment securities available-for-sale ,, ,, ,, Net cash provided by (used in) investing activities ,, (,,) (,,) Cash flows from financing activities: Net proceeds from issuance of common stock ,, ,, ,, Net cash provided by financing activities ,, ,, ,, Net increase (decrease) in cash and cash equivalents ,, (,,) ,, Cash and cash equivalents at beginning of year ,, ,, ,, Cash and cash equivalents at end of year  ,,  ,,  ,, Supplemental disclosures of noncash investing and financing activities: Fair value adjustment on marketable investment securities charged to stockholders’ equity  (,)  ,  (,) See accompanying notes to consolidated financial statements. 


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       [  , .   ] Notes to Consolidated Financial Statements ( , ,   ) Note 1 Summary of Significant Accounting Policies (a) Organization and Business Description Myriad Genetics, Inc. and subsidiaries (collectively, the Company) is a leading biopharmaceutical company focusing on the devel- opment and marketing of novel therapeutic and predictive medicine products. The Company has developed a number of proprietary proteomic technologies that permit it to identify genes, their related proteins, and the biological pathways they form. The Company uses this information to understand the role they play in the onset and progression of major human disease. The Company oper- ates two wholly owned subsidiaries, Myriad Pharmaceuticals, Inc. and Myriad Genetic Laboratories, Inc., to commercialize its therapeutic and predictive medicine discoveries. 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 ,, and ,, at June ,  and , respectively, consist of short-term securities. The Company considers all highly liquid debt instruments with maturities at date of purchase of  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) Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. , Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (f ) Income Taxes Income taxes are recorded using the asset and liability method. Under the asset and liability method, deferred tax assets and liabil- ities 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. (g) Revenue Recognition Research revenues include revenues from research and technology licensing agreements. The Company recognizes revenue from research contracts in accordance with the percentage-of-completion method of accounting and following the guidance in Statement of Position -, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Percent complete is estimated based on costs incurred relative to total estimated contract costs. The Company makes adjustments, if necessary, to the estimates used in the percentage-of-completion method of accounting as work progresses and the Company gains experience. Payments to the Company under these agreements cover the Company’s direct costs and an allocation for overhead and general and adminis- trative 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. Revenues related to technology license fees when continuing involvement or research services by the Company are required are recognized over the period of performance. 


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       [  , .   ] Predictive medicine revenues include revenues from the sale of predictive medicine products and related marketing agreements. Predictive medicine revenue is recognized upon completion of the test and communication of results. Payments received in advance of predictive medicine work performed are recorded as deferred revenue. Up-front payments related to marketing agree- ments are recognized ratably over the life of the agreement. Revenues are recognized in accordance with the provisions of Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. , Revenue Recognition, ( ). In December of , the SEC staff released   to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company adopted   during the second quarter of fiscal . The adoption of   did not have an impact on the Company’s results of operations or financial position. (h) Net Loss per Common and Common Equivalent Share Net 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 outstand- ing 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. For the years ended June , , , and , there were antidilutive potential common shares of ,,, ,,, and ,,, 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. (i) 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. (j) Marketable Investment Securities The Company accounts for marketable investment securities by grouping them into one of two categories: held-to-maturity or avail- able-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 holding 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 effec- tive-interest method. (k) Fair Value Disclosure At June , , the consolidated financial statements’ carrying amount of the Company’s financial instruments approximates fair value except as disclosed in note . (l) Stock-Based Compensation The Company has adopted the disclosure provisions of SFAS No. , Accounting for Stock-Based Compensation ( ).   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 account- ing prescribed by Accounting Principles Board (APB) Opinion No. , Accounting for Stock Issued to Employees ( ). The Company has elected to continue to apply the provisions of   and provide pro forma disclosures required by  . (m) Other Assets Other assets are comprised of purchased intellectual property and investments in privately held biotechnology and pharmaceutical companies. The private biotechnology and pharmaceutical company investments are both accounted for under the cost method. 


  • Page 25

       [  , .   ] Management reviews the valuation of both investments for possible impairment as changes in facts and circumstances indicate that impairment should be assessed. For the year ended June , , the Company recognized an impairment loss of , related to its investment in a privately held pharmaceutical company, which is included in other expenses in the accompanying consolidated statements of operations. The amount of impairment and valuation of this investment were based on management’s estimates and the completion of an independent, third-party appraisal of the investment. Accordingly, the amount recognized by the Company upon the ultimate liquidation of this investment may vary significantly from the estimated fair value at June , . (n) Recent Accounting Pronouncements In May , the Financial Accounting Standards Board (FASB) issued SFAS No. , Rescission of FASB Statements Nos. , , and , Amendment of FASB Statement No. , and Technical Corrections ( ).   eliminates Statement  (and Statement , as it amends Statement ), which requires gains and losses from extinguishments of debt to be aggregated and, if material, clas- sified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion No.  will now be used to classify those gains and losses.   amends FASB Statement No.  to require that certain lease modifications that have economic effects similar to sale-leaseback transactions are accounted for in the same manner as sale-leaseback transactions. In addi- tion,   makes technical corrections to some existing pronouncements. The Company is required to adopt the provisions related to the rescission of Statements  and  on July , , and for all transactions entered into beginning May , , adopt the provision related to the amendment of Statement . The Company is currently evaluating this statement but does not expect that it will have a material effect on its business, results of operations, financial position, or liquidity. In July , the FASB issued SFAS No. , Accounting for Costs Associated with Exit or Disposal Activities ( ).   addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) No. -, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).   requires recognition of a liability for a cost associated with an exit or disposal activ- ity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. -. The Company is required to adopt the provisions of   for exit or disposal activities that are initiated after December , . The Company is currently evaluating this statement but does not expect that it will have a material effect on its business, results of operations, finan- cial position, or liquidity. Note 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 ,  and  were as follows: Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value At June ,  Held-to-maturity: U.S. government obligations  ,,  ,  —  ,, Corporate bonds and notes ,, , — ,,  ,,  ,  —  ,, Available-for-sale: Corporate bonds and notes  ,,  ,  (,)  ,, Euro dollar bonds ,, , (,) ,,  ,,  ,  (,)  ,, 


  • Page 26

       [  , .   ] Gross Gross Unrealized Unrealized Amortized Holding Holding Cost Gains Losses Fair Value At June ,  Held-to-maturity: Auction rate securities  ,,  —  —  ,, U.S. government obligations ,, , — ,, Corporate bonds and notes , — () ,  ,,  ,  ()  ,, Available-for-sale: Commercial paper  ,,  ,  (,)  ,, Corporate bonds and notes ,, , (,) ,, Certificates of deposit ,,  (,) ,, Asset-backed securities , , (,) , Euro dollar bonds ,, , (,) ,,  ,,  ,  (,)  ,, Maturities of debt securities classified as available-for-sale and held-to-maturity are as follows at June , : Amortized Fair Cost Value Held-to-maturity: Due within one year  ,,  ,, Due after one year through three years ,, ,,  ,,  ,, Available-for-sale: Due within one year  ,,  ,, Due after one year through three years ,, ,,  ,,  ,, Note 3 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 ,  are as follows: Fiscal year ending:   ,,  ,,  ,,  ,,  ,, Thereafter ,,  ,, Rental expense was ,, in , ,, in , and ,, in . 


  • Page 27

       [  , .   ] Note 4 Stock-Based Compensation Prior to , the Company granted nonqualified stock options to directors, employees, and other key individuals providing serv- ices to the Company. In , the Company adopted the “ Employee, Director, and Consultant Fixed Stock Option Plan” (subsequently renamed the  Amended and Restated Employee, Director and Consultant Stock Option Plan) and has reserved ,, 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 granted in , , and  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 four or five years and expire ten years from date of grant. As of June , , ,, shares are reserved for future grant under the  plan. A summary of activity is as follows: 2002 2001 2000 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 ,,  . ,,  . ,,  . Plus options granted , . ,, . ,, . Less: Options exercised (,) . (,) . (,,) . Options canceled or expired (,) . (,) . (,) . Options outstanding at end of year ,,  . ,,  . ,,  . Options exercisable at end of year ,, . ,, . ,, . Weighted average fair value of options granted during the year  .  .  . The following table summarizes information about fixed stock options outstanding at June , : Options Outstanding Options Exercisable Number Weighted Weighted Number Weighted Outstanding Average Average Exercisable Average Range of at June 30, Remaining Exercise at June 30, Exercise Exercise Prices 2002 Contractual Life Price 2002 Price  . – . ,, .  . ,  . . – . ,, . . , . . – . ,, . . , .  . – . , .  . ,  . ,, ,, 


  • Page 28

       [  , .   ] The Company accounts for these plans under  , under which no compensation cost has been recognized for those options granted whose exercise price was equivalent to the estimated fair market value at the date of grant. Had compensation cost for these plans been determined consistent with  , the Company’s net loss and loss per share would have been the following pro forma amounts:    Net loss: As reported  ,,  ,,  ,, Pro forma ,, ,, ,, Basic and diluted loss per share: As reported  .  .  . Pro forma . . . 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 , , and , respectively: risk-free interest rates of .%, .%, and .%, expected dividend yields of % for all years; expected lives of . years, . years, and . years, and expected volatil- ity of %, %, and %, respectively. Note 5 Income Taxes The Company recorded , and , of foreign income tax expense in  and , respectively, and no income tax expense in . The difference between the expected tax benefit for all periods presented and the actual tax expense is primarily attributable to the effect of net operating losses being offset by an increase in the Company’s valuation allowance, plus the effect of foreign income taxes in  and . The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June ,  and  are presented below:   Deferred tax assets: Net operating loss carryforwards  ,,  ,, Unearned revenue ,, ,, Research and development credits ,, ,, Accrued expenses and other ,, , Capital loss carryforwards , , Total gross deferred tax assets ,, ,, Less valuation allowance (,,) (,,) Net deferred tax assets , , Deferred tax liability: Equipment, principally due to differences in depreciation , , Total gross deferred tax liability , , Net deferred tax liability  —  — 


  • Page 29

       [  , .   ] The net change in the total valuation allowance for the years ended June ,  and  was an increase of ,, and ,,, respectively. Approximately ,, of deferred tax assets at June , , if recognizable in future years, will be recognized as additional paid-in capital, and the remainder will be allocated as an income tax benefit to be reported in the consoli- dated statement of operations. At June , , the Company had total tax net operating losses of approximately ,, and total research and devel- opment credit carryforwards of approximately ,,, 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  through . Under the rules of the Tax Reform Act of , 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 are 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. Note 6 Common Stock Warrants During the year ended June , , the Company completed private placements of common stock wherein the placement agents received warrants to purchase , shares of the Company’s common stock through the year  at a weighted average price of ., which are all still outstanding at June , . Note 7 Employee Deferred Savings Plan and Stock Purchase Plan The Company has a deferred savings plan which qualifies under Section () of the Internal Revenue Code. Substantially all of the Company’s employees are covered by the plan. The Company makes matching contributions of % of each employee’s contri- bution with the employer’s contribution not to exceed % of the employee’s compensation. The Company’s contributions to the plan were ,, ,, and , for the years ended June , , , and , 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 , under which a maximum of , shares of common stock may be purchased by eligible employ- ees. At June , , , 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, there- fore, is excluded from the pro forma loss shown in note . Note 8 Collaborative Research Agreements In March , the Company formed a  million drug discovery collaboration to identify novel drug targets for the diagnosis and treatment of depression. The collaboration will merge the Company’s integrated drug target identification and validation technologies with the collaborator’s drug discovery and development expertise. The agreement provides the collaborator with license rights and specifies an upfront payment to the Company, plus guaranteed research funding, potential milestones and royalties. Revenue related to the license agreement is being recognized ratably over the service period and revenue related to this research collaboration is being recognized as the research is performed on a percent-complete basis. Also in March , the Company formed a  million research collaboration whereby the Company will apply its high-speed genomic sequencing capability and bioinformatics expertise to deliver molecular genetic information to the collaborator. Revenue related to this research collaboration is being recognized as the research is performed on a percent-complete basis. In May , the Company entered into a . million license agreement and research collaboration to utilize the Company’s protein interaction technology (ProNet®). Under the agreement, the licensee will receive a nonexclusive, fully paid, worldwide license to utilize ProNet® and receive support and related upgrades from the Company on a when-and-if-available basis over the support period. Revenue related to the license agreement is being recognized ratably over the service period and revenue related to the research collaboration is being recognized as the costs of the contract are incurred on a percent-complete basis. In August , and as expanded in December , the Company entered into a two-year collaboration to perform research related to crop genomics. The Company received . million from this collaboration, which was completed in December . Revenue related to this research collaboration was recognized as the research was performed on a percent-complete basis. In September , the Company entered into a collaborative research and license agreement to perform various research for a pharmaceutical company. This agreement was expanded in  and . Under the agreement, as expanded, the Company received . million through December  when the project was completed. Revenue related to this project was recognized as the research was performed on a percent-complete basis. 


  • Page 30

       [  , .   ] Under some agreements the Company may license to the collaborator certain rights to therapeutic applications. The Company is entitled to receive royalties from sales of therapeutic products made by its collaborators. Revenue from research collaborations is recognized as research is performed using the percentage-of-completion method based on costs incurred relative to total estimated contract costs. Because the Company has granted therapeutic rights to some of its collaborative licensees, 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 licensees termi- nate the above agreements, such termination may have a material adverse effect on the Company’s operations. Note 9 Segment and Related Information The Company’s business units have been aggregated into two reportable segments: (i) research and (ii) predictive medicine. The research segment is focused on the discovery and sequencing of genes related to major common diseases, the discovery of proteins and their related biological pathways, and the development of therapeutic products for the treatment and prevention of major diseases. The predictive medicine 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 ). 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. Predictive Research Medicine Total Year ended June ,  Revenues  ,,  ,,  ,, Depreciation and amortization ,, ,, ,, Segment operating loss ,, ,, ,, Year ended June ,  Revenues  ,,  ,,  ,, Depreciation and amortization ,, ,, ,, Segment operating loss ,, ,, ,, Year ended June ,  Revenues  ,,  ,,  ,, Depreciation and amortization ,, , ,, Segment operating loss ,, ,, ,,    Total operating loss for reportable segments  (,,)  (,,)  (,,) Unallocated amounts: Interest income ,, ,, ,, Other (,) (,) (,) Income taxes (,) (,) — Net loss  (,,)  (,,)  (,,) 


  • Page 31

       [  , .   ] All of the Company’s revenues were 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 seven, six, and seven collaborators in fiscal , , and , respectively. Further, revenue from two of the seven collaborators was in excess of % of the Company’s consolidated revenues for each year presented. Note 10 Investment in Myriad Proteomics, Inc. In April , the Company announced the formation of a new alliance with Hitachi, Ltd. (Hitachi), Friedli Corporate Finance A.G. (Friedli), and Oracle Corporation (Oracle) to map the human proteome. The newly formed entity, Myriad Proteomics, Inc. (Myriad Proteomics), will market its proprietary proteomic information to pharmaceutical and biotechnology companies for ther- apeutic and diagnostic product development. The Company contributed technology to Myriad Proteomics in exchange for a % ownership interest and Hitachi, Friedli, and Oracle contributed a combined  million in cash in exchange for the remaining % ownership in Myriad Proteomics. The Company is accounting for its investment in Myriad Proteomics using the equity method. Because the Company’s initial investment in Myriad Proteomics consisted of technology with a carrying value of  on the Company’s consolidated financial state- ments, and given the uncertainty of the realizability of the difference between the  million carrying amount and the Company’s proportionate share of the net assets of Myriad Proteomics, the Company’s initial investment in Myriad Proteomics was recorded as . The Company allocated  million of this difference to technology and this amount is being reduced as the related technol- ogy charges, including in-process research and development, are incurred at Myriad Proteomics. At June , , the remaining technology basis difference is estimated to be  million. The remaining  million of unallocated basis difference is being accreted to income over the period of expected benefit of  years. As part of the formation of Myriad Proteomics, the Company entered into administrative and scientific outsourcing agree- ments with Myriad Proteomics. The original terms of these agreements expired on December , , but were extended until June ,  at the option of Myriad Proteomics. Charges to Myriad Proteomics for services incurred related to the administrative and scientific outsourcing agreements are based on actual time and expenses incurred by the Company on behalf of Myriad Proteomics. During the years ended June ,  and , the Company provided ,, and ,,, respectively, of administrative and scientific services to Myriad Proteomics. As of June , , the Company has received all but , of payments from Myriad Proteomics for these outsourcing services. This amount has been recorded as a reduction of a ,, payable to Myriad Proteomics for equipment purchased by the Company from Myriad Proteomics, resulting in ,, included as a related party payable on the accompanying consolidated balance sheets. 


  • Page 32

       [  , .   ] Summarized balance sheet information as of June ,  and  for Myriad Proteomics is as follows:   () Current assets  ,,  ,, Noncurrent assets ,, ,, Current liabilities ,, ,, Noncurrent liabilities ,, ,, Stockholders’ equity  ,,  ,, Summarized statement of operations information for Myriad Proteomics for the years ended June ,  and  (the years in which the Company had an investment in Myriad Proteomics) is as follows:   () Total revenues  —  — In-process research and development — ,, Other operating costs and expenses ,, ,, Net loss  ,,  ,, 


  • Page 33

       [  , .   ] 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 ,  and , 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 , . 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 auditing standards generally accepted in the United States of America. 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 finan- cial 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 posi- tion of Myriad Genetics, Inc. and subsidiaries as of June ,  and , and the results of their operations and their cash flows for each of the years in the three-year period ended June , , in conformity with accounting principles generally accepted in the United States of America. Salt Lake City, Utah August ,  


  • Page 34

       [  , .   ] Market Price of Common Stock Our Common Stock began trading on the Nasdaq National Market on October ,  under the symbol “MYGN”. The follow- ing 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 2002 Fourth Quarter  .  . Third Quarter  .  . Second Quarter  .  . First Quarter  .  . Fiscal 2001 Fourth Quarter  .  . Third Quarter  .  . Second Quarter  .0  . First Quarter  .  . As of August , , there were approximately  stockholders of record of the Common Stock and, according to our estimates, approximately , beneficial owners of the Common Stock. We have not paid dividends to our stockholders since our inception and we do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any, to finance our growth. Corporate Information Corporate Office Independent Auditors Form 10-K  Wakara Way KPMG LLP A printed copy of the Company’s Salt Lake City, UT   West South Temple Annual Report to the Securities and Phone: .. Suite  Exchange Commission on Form - Fax: .. Salt Lake City, UT  may be obtained by any shareholder without charge upon written request to: Legal Counsel Annual Meeting Myriad Genetics, Inc. Mintz, Levin, Cohn, Ferris, The Annual Meeting of Shareholders Investor Relations Glovsky and Popeo, P.C. will be held at the offices of  Wakara Way One Financial Center Myriad Genetics, Inc., Salt Lake City, UT  Boston, MA   Wakara Way, Salt Lake City, Utah, on Wednesday, November , , Internet Transfer Agent and Registrar at : a.m. The Company’s Form - can also American Stock Transfer & be found on its website at Trust Company www.myriad.com  Maiden Lane New York, NY  


  • Page 35

    © 2002 Myriad Genetics, Inc. All rights reserved. Myriad and the graphical logo device, BRACAnalysis, COLARIS, and ProNet are registered trade- marks. COLARIS AP, MELARIS, and Flurizan are trademarks and ProTrap is a service mark of Myriad Genetics, Inc. All other products and company names mentioned herein are properties of their respective owners.


  • Page 36

     , .,   ,   ,  


  • Page 37

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