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    M Y RIAD G ENETICS , I NC . PRE VENTION dianosis T R E AT M E N T annua eot 2003


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    MYRIAD IS THE WORLD LEADER IN CANCER PREDICTIVE MEDICINE. WE ARE DEVELOPING DRUGS TO PREVENT AND TREAT ALZHEIMER’S DISEASE, CANCER AND HIV/AIDS TO HELP PEOPLE LIVE LONGER, HEALTHIER LIVES.  C O N T E N T S 1 Letter to Shareholders 3 Alzheimer’s Disease 5 Prostate Cancer 7 HIV/AIDS 9 Breast Cancer 10 Financials


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    TO OUR SHAREHOLDERS We are pleased to report that Myriad Genetics enjoyed a year of achievement in fiscal 2003. Through aggressive goal setting and flexible management that reduces barriers to advancement, we have been able to move Myriad ever closer to its goal of becoming an integrated biopharmaceutical company. We remain committed to a strong product focus and strategy of filling our pipeline with innovative drugs and predictive medicine products. We are proud to have chosen a path that leads to products with the potential to save the minds and memories of our senior citizens, stop the persistent advance of cancer and provide renewed hope that AIDS can  be controlled long-term. m iad ene icsInnova ive eseac fo ea thie ives In the following pages, we would like to tell the stories of people we believe can be helped by the important work that Myriad is doing. The stories are composites, fictionalized from articles seen daily in newspapers around the country. We hope that through these We are particularly excited about our Phase II Alzheimer’s disease study because of the ability of MPC-7869 to reduce Aß42 levels both in-vitro and in- vivo by targeting a key enzyme called gamma-secretase. Aß42 is the abbrevia- tion for a particular beta-amyloid an emerging field. Many of the early perceived barriers to genetic testing have been removed and we believe that we have only just begun to tap  the potential that exists to predict and prevent disease. Our researchers have developed an assay for HOB1 and have screened small molecule compound libraries resulting in the discovery of several potential drug candidates for obesity. We have also shown that HOB1 is We undertook a pioneering effort over involved with diabetes, linking the two 1  stories and associated interviews and peptide consisting of 42 amino acids. the past year to test the concept of diseases at the molecular level. Our commentary that you will learn who Aß42 is the primary constituent promoting our BRACAnalysis® breast scientists are developing a personalized we are today and where we are headed of the senile plaques that accumulate in and ovarian cancer product directly to medicine product to help determine tomorrow. the brains of patients with Alzheimer’s its end users. Although this practice is which individuals are at the greatest disease, and is thought to be the key Myriad is in strong financial condition becoming more commonplace with risk for adult-onset diabetes. initiator of Alzheimer’s disease. as it sets out in the new fiscal year. We pharmaceutical products, this had never The DEP1 gene represented a major have over $126 million in cash and MPC-7869 causes a shift in production been done before with a predictive discovery by Myriad scientists in the investments with no debt and no of beta-amyloid toward Aß38 instead medicine product. We developed an field of human depression. Myriad convertible debentures. While we have of Aß42. Unlike Aß42, Aß38 is a intensive media campaign and delivered licensed the therapeutic rights to DEP1 increased our drug development soluble, non-toxic peptide that does not our message to women living in Denver to Abbott Laboratories for drug devel- opportunities through addition of new accumulate in the formation of senile and Atlanta with a family history of opment. The gene is in a pathway that clinical studies and new drug candidate plaques. Our Alzheimer’s candidate drug breast cancer. The results were impres- is independent of those acted on by programs, our conservative financial was further validated recently by a new sive in raising awareness among the selective serotonin reuptake inhibitors, approach has resulted in a relatively research study conducted by scientists target audience, a strong sign that there the current anti-depressive medica- modest cash burn rate. We are excited at Mayo Clinic, University of California, is a much larger market out there. We tions, so it may provide a drug that is by the potential of these drug programs San Diego and Myriad. The results also learned a great deal from the test effective for the significant percentage to return significant long-term reward demonstrated that, among those drugs market campaign about how to accel- of patients that do not benefit from to Myriad shareholders. tested, Myriad’s MPC-7869 was the erate the education and ordering the current therapies. only drug that had both a significant process. By implementing new strategies Our Alzheimer’s disease drug develop- Aß42 lowering ability and an acceptable that streamline procedures and enhance These are a few of the many reasons ment program achieved the most safety profile without the serious efficiency, we hope to make it much to believe that Myriad is on track to observable progress during the year. gastrointestinal side effects associated easier for women at risk of breast or achieve its ambitious goals. We At the beginning of the fiscal year, we with many of the other drugs. Dr. Todd ovarian cancer to get the information appreciate your continued support submitted an Investigational New Drug Golde, the senior author from the Mayo they need to make informed decisions, and encouragement as we evolve into application to the FDA to begin human Clinic, summarized the study by saying, along with their physicians, that will the company that we have envisioned. studies of our drug candidate MPC- “R-flurbiprofen stands apart from the reduce their risk of cancer and may 7869 (R-flurbiprofen) in the fight drugs tested as a promising drug candi- save their lives. against Alzheimer’s disease. By the end date for lowering Aß42 levels and of the year we had two human clinical Myriad continues to lead in the Sincerely yours, potentially the prevention of cognitive trials underway, a Phase I study in the discovery of genes that cause human decline in Alzheimer’s disease.” United States and a Phase II study in disease. This work paid off in 2003 Canada and the United Kingdom. This As of the end of fiscal 2003, we with two new gene discoveries in HUGH D’ANDRADE is the type of advancement we are achieved 27 consecutive quarters of complex human diseases. The HOB1 Chairman encouraging at Myriad. We are taking increasing revenues from our predictive gene was the first gene found to be every opportunity to maximize the medicine products. While we are significantly associated with common potential to get our drugs on the market pleased with this record, we do not human obesity. in the shortest possible time, once they intend to rest on our laurels. We are are determined to be safe and effective. exploring opportunities to accelerate PETER D. MELDRUM President and Chief Executive Officer additional product offerings through Myriad Genetic Laboratories, Inc. with the goal of further leveraging our 100-person sales force and increasing revenues. Predictive medicine is still


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    ADDRESSING undelin DISEASE None of the drugs available today alter the outcome in Alzheimer’s disease. Models used for illustrative purposes only MPC-7869 may be the first.


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    Alzheimer’s patient found the heel of her shoe broke right off. Mildred was anxious about the N EW YORK—Mildred Sweeney, an 83-year-old woman with Alzheimer’s disease was found dehydrated and scared, but safe, state of her wedding preparations and had no time for such things. and was returned to her home this evening, police said. She She took off the shoes and marched right down Main Street to the was reported missing Saturday morning, and was missing for almost store where she had bought them. She would give that store a piece two days before she was located. of her mind and get this problem sorted out right now. Sweeney’s family and friends had searched the area near her home This is how Mildred remembered that day back in 1943. And it is what Saturday and Sunday without finding any trace. Police used search dogs she thought she was doing again Saturday morning as she walked out to check fields and wooded areas. Following her return, Sweeney’s the front door of her home and headed slowly but determinedly down family related this account of her frightening disappearance: the street. Later on, the old memory stopped replaying in her head. She returned to the present and found herself alone and disoriented, unsure Mildred’s Alzheimer’s disease had gotten worse despite the drugs she of what she was doing. She wasn’t even certain where she had spent the was taking. It had now progressed to the point that her brain played night. Finally, Sunday evening, a shopkeeper downtown called police tricks on her. To Mildred, Saturday morning had suddenly become June to report a lost and confused elderly woman. Mildred was reunited 14, 1943, when she was 23 years old. with her loving family. Many Alzheimer’s patients are far less fortunate. She stumbled slightly on the long train of elegant material as she was This story is a fictionalized composite drawn from news accounts of patients with Alzheimer’s disease. being fitted for her wedding dress. Her left foot caught her weight and alzheimer’sdisease At M iad, we ae doin somet in aout i Over the years, researchers studying counters this assumption. For example, Alzheimer’s Disease Conference. It cyclooxygenase and appears extremely large groups of people taking anti- other potent anti-inflammatory drugs turned out that all of the protective well tolerated, with no gastrointestinal inflammatory drugs discovered an do not affect progression of Alzheimer’s effect of the NSAIDs was due to just toxicity noted to date. interesting association with Alzheimer’s disease. those drugs that reduced Aß42. Myriad is now studying its drug candi- disease. Analysis of more than a dozen Additional data consistent with this Myriad and many leading Alzheimer’s date MPC-7869 in a Phase II of these epidemiological studies hypothesis on NSAIDs were published disease researchers believe there is Alzheimer’s disease trial to determine indicated that long-term use of these on August 1, 2003 by researchers from another mechanism at work behind the its efficacy in slowing or stopping non-steroidal anti-inflammatory drugs Mayo Clinic, the University of protective effect that the studies uncov- cognitive decline. This is good news (NSAIDs) reduced the risk of devel- California, San Diego and Myriad ered. Recent work with cultured brain for Alzheimer’s patients, but there is oping Alzheimer’s disease. Recently, Genetics in the Journal of Clinical cells and in animal models of the possibility of even more than that. researchers in the Netherlands Investigation. The study found that of Alzheimer’s disease shows that only a If the Aß42 theory continues to published the results of a study the twenty compounds tested, Myriad’s small subset of NSAIDs lower levels of develop, the drug may not only slow designed to confirm this association, drug, MPC-7869 (R-flurbiprofen) was the Aß42 peptide. Aß42 is the same the decline in cognition, but may which followed nearly 7,000 patients the best drug in the ability to lower molecule that initiates the cascade of remove Aß42 from circulation for almost seven years. They found Aß42 and was well-tolerated. Being events in the brain that leads to neuro- and also potentially dissolve plaques. that people who took NSAIDs every well-tolerated is an important qualifier logical degeneration in Alzheimer’s That could mean the ability to regain day for more than two years were in this case. Most NSAIDs inhibit patients. It is also the chief component cognition, and the possibility of 80% less likely to develop Alzheimer’s cyclooxygenase, which is associated of the brain plaques, which are the improving the lives of many Alzheimer’s 3  disease. Initially, it was assumed that with potentially severe and sometimes primary feature of Alzheimer’s disease patients by restoring some level the drugs were working by reducing life-threatening gastrointestinal pathology. When these epidemiological of lost function. It is plain to see that the inflammatory effect of neurotoxins bleeding. A few of these drugs will studies looked at the effect of the we are excited by the prospects of in the brain. However, this role was lower Aß42, but serious toxicity elimi- NSAIDs, they did so as a class, and all MPC-7869 to change the face of this never substantiated and other evidence nates them from consideration as an were considered as equals. Then last devastating disease. effective treatment for Alzheimer’s year, a re-analysis of the same data was disease. MPC-7869 does not inhibit presented at the International D. Kenton Zavit DIRECTOR OF CLINICAL AFFAIRS for MYRIAD PHARMACEUTICALS, INC. Dr. Kenton Zavitz talks about Currently, there is only one class of What does the hypothesis mean What do you find most exciting Myriad’s work in developing an drugs that is used for Alzheimer’s for people who have Alzheimer’s about your work? Alzheimer’s drug that has promising disease treatment, but these drugs disease? This is a very satisfying project therapeutic properties. only treat symptoms by enhancing First and foremost, we have evidence because we are developing a memory for a short period. We that this compound is safe in compound that has the potential Would you give us some background believe that our compound will humans. We have started a clinical for both treatment and prevention. about Alzheimer’s disease and reduce the level of the toxic molecule trial in the UK and Canada to test Alzheimer’s disease is bad enough Myriad’s work in that area? that causes Alzheimer’s in the first our hypothesis. We are enrolling for the patient, but it affects more Alzheime’s disease is a neurodegener- place, and we are testing the hypoth- people in the study who already than the person with the disease. ative condition affecting nearly esis in human clinical trials. We have a mild or moderate form of Family members and primary half of those over 85, with an hope to show a therapeutic effect Alzheimer’s disease. We will give caregivers have to watch a person estimated 4.5 million cases in the of reducing or stopping the decline them MPC-7869 or placebo, follow they love degenerate mentally. We United States alone. A molecule in memory and understanding among them for a year, and we will admin- have the studies to show that this called Aß42 initiates the process patients who already have the ister a battery of highly sensitive compound is safe for human use; that leads to Alzheimer’s disease. disease. Maybe the drug can actually cognitive tests at several different now we are working with clinical We are developing a compound reverse the course and reestablish times, to determine if there was any investigators to determine whether called MPC-7869 designed to reduce some of the lost function. Imagine— improvement over the time period. it is effective against Alzheimer’s the blood and brain levels of this for the first time, there is the disease. We anticipate the further molecule. This is an entirely new possibility of a compound that is development of MPC-7869 with approach to treating the disease. impacting the underlying disease, great excitement and hope to have it not just treating symptoms. That is on the market as soon as possible to extraordinary. help treat and prevent one of the great afflictions of the elderly.


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    C R E AT I N G new OPTIONS After initial prostate cancer therapy, options to prevent metastasis are very limited. Flurizan™ may provide a welcome new choice. Models used for illustrative purposes only


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    After prostate cancer surgery–hormone therapy or watchful waiting? Experts Are Divided and Men Want Better Options begun to multiply and move to local tissues or bone. There is no approved drug to treat this stage of cancer. The best available approach C HICAGO—Tony Richards was 65 years old and he was having is starving the cancer of androgen hormones needed for growth. But trouble urinating. His doctor diagnosed early stage prostate it is not pleasant, the therapy comes with daunting side effects such as cancer, which was enlarging the gland and constricting the tube nausea and vomiting, hot flashes, anemia, lethargy, osteoporosis, that carries urine. On the positive side, the cancer was confined to the swollen and tender breasts and erectile dysfunction. prostate and hadn’t yet spread. After discussing the options with his Not only are there side effects to consider, but significant controversy doctor, including radiation seeds and cryoablation, he decided on surrounds the appropriate timing of treatment for those men with surgery to remove the prostate. That was ten years ago. metastatic disease. Recent data suggest a survival benefit from early “I thought I had beat the cancer, but it’s back,” says Richards. “My hormonal therapy. However, even if early therapy prolongs life, eventu- problem now is that the cancer may be spreading. My PSA level has ally all men with metastatic prostate cancer progress and develop come up a few points and there just isn’t a good option. My doctor prostate cancer that does not respond to hormone therapy. No peer- recommends hormone therapy but the side effects of the treatment reviewed publication has shown that the treatment with any therapy are onerous.” at this stage of disease prolongs survival. Recent studies show that surgical removal of the prostate can cut a Physicians agree that a better option is desperately needed. There is a man’s risk of dying from the disease during the following six years in strong demand for a safe drug that stops the metastasis of the cancer. half. But the cancer can still recur, as it does in approximately 40% of In this population of mostly older men, preventing the spread of the patients over a ten year period. This metastatic spreading cancer comes cancer for ten or fifteen years is essentially as good as a cure. from prostate cancer cells that have remained dormant for years then This story is a fictionalized composite drawn from news accounts of patients with prostate cancer. prostatecancer At M iad, we ae doin somet in aout i Without good alternative drugs for Myriad’s prostate cancer drug candi- Flurizan has now completed Phase I for the trial include time to metastases this early stage of prostate cancer and date, Flurizan (R-flurbiprofen) does and Phase IIa human clinical trials. and effect on Prostate Specific Antigen with the serious side effects and not inhibit cyclooxygenase like the No drug-related serious adverse events (PSA) levels. We hope that this drug controversy surrounding the only NSAIDs and thus eliminates the side were reported during the trials. will provide a safe, effective alternative available treatment, hormone therapy, effects of that class of drugs. Flurizan to hormone therapy for men who have The current Phase IIb/III clinical trial is prostate cancer care is in dire need of has an established and growing safety had surgery, radiation or cryoablation designed to demonstrate the efficacy of attention from drug makers. This is profile. In animal models, Flurizan was for their prostate cancer. By extending Flurizan in prostate cancer patients where Myriad comes in. as effective as NSAIDs in reducing the the time to metastases, the drug may and is being conducted at approxi- incidence of prostate cancer and in prevent death from prostate cancer, The medical literature tells us that mately 65 sites in the United States. preventing metastatic disease. For extending quality lifetime for a large long-term users of (NSAIDs) have The study calls for approximately 400 example, when given to a mouse that population of men around the world. a 70% lower risk of prostate cancer. prostate cancer patients, and is develops cancer in a very similar way But these users can also get serious, designed to evaluate systemic disease to which humans develop prostate and sometimes fatal stomach and progression of prostate cancer. In this cancer, Flurizan reduced the incidence intestinal ulceration and bleeding study, patients are assigned to one of of metastatic prostate cancer by 85%, 5  from these drugs. three arms (two different doses of and it also reduced primary incidence Flurizan or placebo), and are followed of prostate cancer by 64%. for three years. The clinical endpoints D. Edwad A. Swabb SENIOR VICE PRESIDENT AND HEAD OF DRUG DEVELOPMENT for MYRIAD PHARMACEUTICALS, INC. Dr. Edward A. Swabb talks about is predisposed to develop prostate Myriad’s work in developing cancer, there were two significant Flurizan,™ for prostate cancer. findings. First, the incidence of primary tumors decreased, and Would you give us some background second, there was a significant about prostate cancer and Myriad’s reduction in incidence of metastasis, work in that area? or spreading of cancer to other We are in the process of testing a parts of the body. progression of the disease. This the compound is in reducing metas- promising compound, Flurizan. compound has the potential to be tasis. But we don’t have to wait to We know that this compound is The results look good in disease used safely for long-term treatment, collect data on the safety of the relatively safe in humans, and we models, but how can this drug much like the way we treat high compound. We are accumulating an know that it has shown great help men? blood pressure. That is how we hope important safety experience as this promise in animal studies. Flurizan could be a “paradigm- to shift the paradigm. If the disease study progresses. This compound shifting” approach to treating is slowed sufficiently, patients will no also is showing promise in our Flurizan is so promising because it prostate cancer. If you don’t get longer die of prostate cancer. research for prevention of prostate can be safely taken for long periods every cancer cell out after the initial cancer. Both the treatment and of time and it isn’t toxic like What do you find most exciting treatment, such as with surgery or prevention of prostate cancer are chemotherapy or invasive like about this program? radiation therapy, there is a good long-term and therapies have to be surgery, which are other options in chance there will be a recurrence of One of the most exciting aspects is developed with that in mind. When prostate cancer therapy. The drug cancer. It often metastasizes, or something that is not widely recog- people are taking a drug for a long doesn’t kill cells like traditional shows up in different parts of the nized. Long studies have to be period, it has to be safe and well chemotherapy, it slows down the body, and it becomes much harder to conducted to ensure that drugs are tolerated. We get closer every day to growth and spread of the cancer to cure a patient. A shift to a potential safe and effective. Our current showing that this compound is safe other parts of the body. In studies maintenance therapy like Flurizan is clinical trial is a comprehensive for long-term human use. with the drug in a strain of mice that important because patients would study—390 men treated for 3 years. then have the option of a relatively At the end of the study, we hope to safe, long-term therapy that slows have great data about how effective


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    PURSUING nove D IRECTIONS How can we stop the AIDS virus from developing resistance to drugs? Make a drug like MPI-49839 that prevents the virus from using human host proteins. Models used for illustrative purposes only


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    AIDS is on the rise again It has been twenty years since scientists identified the The Best Drugs Are Less Effective first case of AIDS. A growing number of people are being infected with a form of HIV that is resistant to treatment with available medications. Within the next S AN FRANCISCO—In the 1990’s, revolutionary new anti-retro- two years, an estimated 42 percent of new HIV cases in San Francisco viral drugs allowed HIV-infected people to live longer. Since then, will have strains of the virus that are drug-resistant. the drugs have become popular and viral resistance has developed. Patients must change their regimen to stay in control. Many have now Researchers say the finding raises concerns about the effectiveness of changed drugs so frequently that none of the 15 drugs available are HIV drugs and reveals an urgent need to develop new classes of drugs effective anymore. to treat people infected with the virus. Health officials saw the signs and warned that AIDS-after declining The study, which appeared in The Journal of the American Medical for a decade-could make a comeback in this country. Association, found 27.4% of newly infected patients from the San Francisco area had a form of HIV that was resistant to at least one This past August, new figures showed that the predictions were right– of the three major classes of drugs used to treat HIV in 2000-2001. AIDS diagnoses increased for the first time in 10 years. Researchers say the emergence of drug-resistant HIV may be especially Many Americans felt that AIDS was under control here, and compla- troublesome in areas where HIV drugs are widely used, such as cency appears to be one of the main reasons that new HIV infections San Francisco, New York City, and other American or European cities. have been creeping up lately, especially among gay men in large cities. Worse still is the development of resistance among infected individuals. Last year, 42,136 new AIDS cases were diagnosed in the United States, A recent study of 2,000 people with AIDS found that two thirds had up 2.2 percent from the previous year. The number of gay and bisexual rising levels of virus in their blood despite strict adherence to drug men infected with HIV, the virus that causes AIDS, was up for the third regimens. By extrapolation of this data, 50% of the people under care year in a row after a decade of declining numbers. for HIV/AIDS today in the United States have resistant virus. This story is a composite drawn from several recent news accounts about the epidemiology of AIDS. hiv/aids At M iad, we ae doin somet in aout i Viral resistance is one of the most patient’s normal cellular protein the human cell’s machinery through measure of infection, is reduced in pressing issues in AIDS treatment. recycling apparatus into an escape virus/human protein interactions a linear fashion with increasing How can we counter the virus’ special pod out of the cell, where it can to bud from a cell membrane. Myriad concentration of MPI-49839, to the talent of mutating into treatment- mature into an infectious virus and and its collaborators discovered a point where the virus was virtually resistant forms? One promising infect other cells. MPI-49839 could set of interactions used by the virus undetectable (essentially zero). Myriad strategy is to prevent the virus from be used to augment or replace current to take over the human cell, and devel- is in the final stages of preparing data becoming infectious and escaping the HIV therapies. oped a compound that prevents this supporting an Investigational New cell in the first place. Myriad’s essential interaction from taking place. Drug submission to the FDA for MPI- The life cycle of HIV infection consists compound, MPI-49839 does just that, 49839 to allow the initiation of human of 6 major events: attachment, reverse- MPI-49839 has been tested against by preventing the virus from turning a clinical trials. transcription, integration/transcription, HIV infected cells and found to be translation, viral assembly, budding highly effective in preventing budding 7 and maturation. In order to disperse from the cells. Viral load, an important  viral particles, the virus corrupts D. Ga Mathe DIRECTOR OF PRECLINICAL ADME/TOXICOLOGY for MYRIAD PHARMACEUTICALS, INC. Dr. Gary Mather talks about Although they have been effective new and exciting because it prevents proteins. Myriad was able to identify Myriad’s work in developing the therapies, the virus mutates and the virus from leaving the host a human protein that is essential to compound MPI-49839 a treatment develops a resistance to the drugs cell and infecting other cells. This the virus, and from there we identi- for HIV/AIDS. over time. MPI-49839 is a promising provides the increasing numbers fied a compound that inhibits the compound because it inhibits a of drug-resistant individuals a new activity of that protein. Would you give some background protein in the human host cell rather option in their treatment. This new about MPI-49839 and Myriad’s Now that we have a compound that than the virus. Since we aren’t mechanism of action may also work in the area of HIV/AIDs is working in the laboratory, we targeting the viral protein, the virus benefit the patient by increasing research? know we have the potential to offer doesn’t have a chance to circumvent the clearance of infected cells from We first identified MPI-49839 as a HIV/AIDs patients a therapy in the the drug by mutating. the body. potential drug from our study of near future that could replace current viral-human protein interactions, and How could MPI-49839 actually help What do you find most exciting therapies or provide an additional we are now developing it as a new individuals with the virus? about your work? option as the current drugs meet therapy for treating HIV-positive A virus functions by getting into host We are really doing groundbreaking with resistance. individuals. Current therapies include cells and taking over the normal work here. The path was cleared protease inhibitors and reverse- machinery of that cell. After the virus for this work by some pioneering transcriptase inhibitors These drugs has redirected the host machinery for research that was done in our protein inhibit proteins of viral origin. replication, it escapes the cell where interaction group. We studied a it matures, becomes infectious and number of the molecular mechanisms invades other cells. MPI-49839 is underlying the lifecycle of the HIV virus and its interaction with human


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    PREDICTIVE even ive M E DIC I N E Predictive medicine provides the information required to reduce the risk of disease. BRACAnalysis® can help prevent breast cancer and save lives. Models used for illustrative purposes only


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    Breast cancer is not her destiny Aunt Ellen had been tested and found to carry a mutation in her L OS ANGELES—Marcy Levine was 28 when her mother died of breast cancer. By that still tender age she had already seen her BRCA1 gene. She felt empowered by the information and had written grandmother die of breast cancer and her mother’s older sister to encourage all of the other women in the family to be tested. If any die of ovarian cancer. She thought of breast cancer as the family curse of the women had the same mutation she had inherited, they could and was convinced that she would fight breast cancer one day herself. reduce their risk of disease. And if they were lucky enough in the genetic lottery, to not have inherited the mutation, they had no more Levine considered what it would be like to live without her own risk of breast cancer or ovarian cancer than anyone else. Levine was breasts. She was trying to get used to the idea that she may need to impressed. Her risk of breast cancer was either the same as everyone have them removed. She had discussed the surgery, called prophylactic else if she did not have a mutation or very high if she did have one. mastectomy, with her physician, and had studied the medical literature Her life or death might be in the difference between the two. And to learn as much as possible. Levine learned that the procedure was now the surgery had become unthinkable without the test. If she had highly effective in preventing breast cancer. On the other hand, there no mutation, it would be unnecessary. was no certainty that she would actually ever get breast cancer. Her family history of breast cancer and ovarian cancer made it more likely, After reviewing the pros and cons of predictive medicine testing with but it was still not certain. her physician, she went forward. Levine’s outlook changed after receiving a letter from her aunt about Levine had finally won a lottery. She was negative—there was no her own experience. Her mother’s younger sister, Ellen, was shaken mutation. A flood of relief followed and was only temporarily inter- badly by the tragic death of her sibling. She searched the internet and rupted by a caution from the doctor about her remaining risk of talked with doctors, trying anything she could to find options that 10% over her lifetime, the same as everyone else. For Marcy Levine, might lower her risk of dying from the disease. Her search turned up it was as if the family curse had been lifted, giving her a fresh new several mentions of a test of the breast cancer-causing genes, BRCA1 perspective on her life and those of her children. and BRCA2. The test could determine whether or not an inherited This story is a fictionalized composite, drawn from news accounts of patients with breast cancer. mutation was present. If there was such a mutation, it would explain the family’s predisposition for breast and ovarian cancer. breastcancer At M iad, we ae doin somet in aout i Myriad scientists discovered the available in any setting for detecting We have taken the same no-shortcuts BRCA1 and BRCA2 genes. We then mutations in the breast and ovarian approach with colon cancer and designed a test that was, to our knowl- cancer genes. This high quality, melanoma skin cancer predictive edge, the most sophisticated medical resource intensive approach was the medicine. Our Colaris® and Colaris laboratory analysis ever produced. It only appropriate solution to Myriad AP™ products are essential in making required sequencing DNA, in a Genetics. Any shortcuts would be a hereditary colon cancer diagnosis massively parallel process, and the unacceptable. The response from and providing appropriate care. management of enormous amounts of the cancer and genetics community Melaris,® for hereditary melanoma data. A large team of bioinformatics has been gratifying. Myriad’s skin cancer, provides disease risk infor- specialists and programmers was set to BRACAnalysis® test has now produced mation for informed decision making. work on the challenge. We built a 27 consecutive quarters of revenue We are working on adding prostate specialized sales force of approximately growth with an annual compound rate cancer, diabetes, depression and others 9 100 individuals with expertise in of 30%. We are proud of the contribu- to the list. There is tremendous  genetics and cancer, offering cancer tion the knowledge we provide has untapped potential to diagnose and care physicians the most accurate test made to women around the world at prevent genetic-based disease, and risk of breast or ovarian cancer. Myriad is doing something about it. D. Bian Wad SENIOR VICE PRESIDENT OF OPERATIONS AND LABORATORY DIRECTOR for MYRIAD GENETIC LABORATORIES, INC. Dr. Brian Ward talks about the the risk for getting breast cancer is clinical work that Myriad has been very high, as much as 87 percent doing in breast cancer. over a lifetime. Families in which this mutation has been passed along When you have identified medical condition, and their family Could you give us some background may have multiple cases of breast an abnormal gene, what do you history. In general, people in clinical about breast cancer and Myriad’s and ovarian cancer across the do next? medicine take a great deal of pride work in the area? generations. Genetics is family medicine, and we in reviewing patient cases because The results of our predictive medicine we understand the personal impact What kind of work is done in your offer an important clinical tool to tests help individuals reduce their of our work. I also personally enjoy laboratories? support the individual and the family risk of developing certain kinds of being involved in an emerging in determining and reducing their cancer. Our most recognized work is Myriad analyzes the genetic and technology—no one else in the disease risks. People with abnormal in breast and ovarian cancer. We clinical data of individuals who come world is doing this kind of exacting genes and a family history of cancer know that about 10 percent of all from families with a high risk of clinical work. We have the most have important choices to make. In breast cancer is caused by a mutation cancer. We use a highly sophisticated automated laboratory in the world, this situation, they must look in either of two genes. We refer to laboratory process to look for and our accuracy is unparalleled. carefully at aggressive treatments these genes as BRCA1 and BRCA2, abnormal changes in DNA. Most of I have the privilege of introducing and prevention strategies. The results and they were discovered here at our results are straightforward— new technologies that provide people of our tests give them information Myriad Genetics. If one parent has a positive or negative. But we also with meaningful data to help them that better prepares them for making mutation in one of these genes, his or have challenging cases where some with the challenges of cancer and its these decisions. The decisions can be her child has a 50/50 chance of of the data is difficult to interpret. treatment. made knowledgeably, with confidence, inheriting it. With such a mutation, We look at the pattern of how the when they have the accurate test disease goes through the family, then results that we provide. we do mathematical modeling in the family to help us further analyze risk. What do you find most exciting When appropriate, we use a combi- about your work? nation of methods to reach a As geneticists we understand that our conclusion that is appropriate for scientific work is based on data that the individual. we receive about individuals, their


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    Selected Consolidated financial data The following table sets forth our consolidated financial data as of and for tions for the years ended June 30, 2003, 2002, and 2001 and the report thereon each of the five years ended June 30, 2003. The selected consolidated finan- are included elsewhere in this Annual Report on Form 10-K. The information cial data as of and for each of the five years ended June 30, 2003 have been below should be read in conjunction with the audited consolidated financial derived from our consolidated financial statements. Consolidated balance statements (and notes thereon) and “Management’s Discussion and Analysis sheets as June 30, 2003 and 2002, as well as consolidated statements of opera- of Financial Condition and Results of Operations,” included in Item 7. Years Ended June 30, 2003 2002 2001 2000 1999 In thousands, except per share amounts Consolidated Statement of Operations Data Predictive medicine revenue $ 34,683 $ 26,821 $ 17,091 $ 8,793 $ 5,220 Research revenue 27,822 27,015 28,071 25,220 20,093 Related party research revenue 1,816 — — — — Total research revenue 29,638 27,015 28,071 25,220 20,093 Total revenues 64,321 53,836 45,162 34,013 25,313 Costs and expenses: Predictive medicine cost of revenue 12,553 10,717 7,403 3,986 3,066 Research and development expense 47,589 36,295 33,818 28,099 23,452 Selling, general and administrative expense 31,525 25,484 17,078 13,475 11,106 Total costs and expenses 91,667 72,496 58,299 45,560 37,624 Operating loss (27,346) (18,660) (13,137) (11,547) (12,311) Other income (expense): Interest income 2,900 5,385 6,851 3,208 2,349 Interest expense — — — — (6) Other 38 (214) (305) (383) (27) Loss before income taxes (24,408) (13,489) (6,591) (8,722) (9,995) Income taxes 417 500 583 — — Net loss $ (24,825) $ (13,989) $ (7,174) $ (8,722) $ (9,995) Basic and diluted net loss per share $ (0.96) $ (0.59) $ (0.31) $ (0.43) $ (0.53) Basic and diluted weighted average shares outstanding 25,730 23,660 22,815 20,220 18,782 As of June 30, 2003 2002 2001 2000 1999 10 Consolidated Balance Sheet Data  Cash, cash equivalents and marketable investment securities $126,292 $124,243 $145,955 $ 88,656 $ 38,926 Working capital 83,486 56,834 104,615 57,263 8,348 Total assets 182,823 157,390 172,145 106,375 53,551 Stockholders’ equity 163,486 128,869 139,562 77,707 48,216 Myriad Genetics, Inc. and Subsidiaries


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    Quarterly Financial Data (Unaudited) June 30, March 31, December 31, September 30, Quarters Ended, 2003 2003 2002 2002 In thousands, except per share amounts Consolidated Statement of Operations Data Predictive medicine revenue $ 9,354 $ 9,314 $ 8,151 $ 7,864 Research revenue 5,971 6,432 8,406 7,015 Related party research revenue 380 342 462 632 Total research revenue 6,351 6,774 8,868 7,647 Total revenues 15,705 16,088 17,019 15,511 Costs and expenses: Predictive medicine cost of revenue 3,277 3,361 2,995 2,921 Research and development expense 13,372 11,053 12,218 10,946 Selling, general and administrative expense 6,729 7,785 9,295 7,716 Total costs and expenses 23,378 22,199 24,508 21,583 Operating loss (7,673) (6,111) (7,489) (6,072) Other income (expense): Interest income 631 701 725 842 Other 3 1 (5) 39 Loss before income taxes (7,039) (5,409) (6,769) (5,191) Income taxes 42 125 125 125 Net loss $ (7,081) $ (5,534) $ (6,894) $ (5,316) Basic and diluted net loss per share $ (0.26) $ (0.20) $ (0.27) $ (0.22) Basic and diluted weighted average shares outstanding 27,041 27,012 25,081 23,827 June 30, March 31, December 31, September 30, Quarters Ended, 2002 2002 2001 2001 In thousands, except per share amounts Consolidated Statement of Operations Data Predictive medicine revenue $ 7,680 $ 7,255 $ 6,368 $ 5,517 Research revenue 6,432 5,803 7,107 7,673 Related party research revenue — — — — Total research revenue 6,432 5,803 7,107 7,673 Total revenues 14,112 13,058 13,475 13,190 Costs and expenses: 11  Predictive medicine cost of revenue 3,031 2,848 2,565 2,272 Research and development expense 10,681 8,740 8,612 8,261 Selling, general and administrative expense 7,868 5,912 6,081 5,624 Total costs and expenses 21,580 17,500 17,258 16,157 Operating loss (7,468) (4,442) (3,783) (2,967) Other income (expense): Interest income 959 1,077 1,419 1,931 Other (214) (6) 29 (24) Loss before income taxes (6,723) (3,371) (2,335) (1,060) Income taxes 125 125 125 125 Net loss $ (6,848) $ (3,496) $ (2,460) $ (1,185) Basic and diluted net loss per share $ (0.29) $ (0.15) $ (0.10) $ (0.05) Basic and diluted weighted average shares outstanding 23,791 23,763 23,608 23,483 Myriad Genetics, Inc. and Subsidiaries


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    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview following the guidance in Statement of Position 81-1, Accounting for We are a leading biopharmaceutical company focused on the development Performance of Construction-Type and Certain Production-Type Contracts, of novel therapeutic products and the development and marketing of predic- as well as other proportional performance methodologies as considered appro- tive medicine products. We employ a number of proprietary technologies that priate. Percent complete is estimated based on costs incurred relative to total permit us to identify genes, their related proteins and the biological pathways estimated contract costs. We make adjustments, if necessary, to the estimates they form. We use this information to better understand the role proteins play used in the percentage-of-completion method of accounting as work progresses in the onset and progression of human disease. and we gain experience. Our estimates of total contract costs include assump- We believe that the future of medicine lies in the creation of new classes tions, such as estimated research hours to complete, materials costs, and other of drugs that prevent disease from occurring or progressing and that treat direct and indirect costs. Actual results may vary significantly from our the cause, not just the symptoms, of disease. In addition, we believe that estimates. Revenues related to up-front payments and technology license advances in the emerging field of predictive medicine will improve our ability fees when continuing involvement or research services are required of us are to determine which patients are subject to a greater risk of developing these recognized over the period of performance. diseases and who therefore should receive these new preventive medicines. Predictive medicine revenues include revenues from the sale of predictive Myriad researchers have made important discoveries in the fields of cancer, medicine products and related marketing agreements. Predictive medicine Alzheimer’s disease, viral diseases such as HIV, depression, and obesity. These revenue is recognized upon completion of the test and communication of discoveries point to novel disease pathways that may pave the way for the results. Up-front payments related to marketing agreements are recognized development of new drugs. Flurizan™ (MPC-7869), our lead therapeutic candi- ratably over the life of the agreement. date for the treatment of prostate cancer, is currently in a large, multi-center Allowance for Doubtful Accounts human clinical trial. We are also conducting a Phase I human clinical trial The preparation of our financial statements requires us to make estimates and for the evaluation of MPC-7869 for the treatment of Alzheimer’s disease. The assumptions that affect the reported amount of assets at the date of the finan- Phase I study will evaluate the safety of MPC-7869 in healthy older volunteers cial statements and the reported amounts of revenues and expenses during the and is being conducted at the Mayo Clinic and the University of California, reporting period. Trade accounts receivable are comprised of amounts due San Diego. We recently initiated a Phase II human clinical study in Europe and from sales of our predictive medicine products. We analyze trade accounts Canada to assess the efficacy of MPC-7869 in patients with mild to moderate receivable and consider historic experience, customer creditworthiness, facts Alzheimer’s disease. We intend to independently develop and, subject to regula- and circumstances specific to outstanding balances, and payment term changes tory approval, market our therapeutic products, particularly in the area of when evaluating the adequacy of the allowance for doubtful accounts. Changes cancer, viral disease, and Alzheimer’s disease. in these factors could result in material adjustments to the expense recognized We also have developed and commercialized a number of innovative predic- for bad debt. tive medicine products; including BRACAnalysis®, which assesses a woman’s risk of developing breast and ovarian cancer, COLARIS® and COLARIS AP™, Investments in Privately-Held Companies which determine a person’s risk of developing colon cancer, and MELARIS®, We review the valuation of our investments in privately-held biotechnology which assesses a person’s risk of developing malignant melanoma, a deadly and pharmaceutical companies for possible impairment as changes in facts form of skin cancer. In the United States we market these products using our and circumstances indicate that impairment should be assessed. The amount own 100 person internal sales force. We have complemented our internal sales of impairment, if any, and valuation of these investments are based on our and marketing efforts through a marketing collaboration with Laboratory estimates and, in certain circumstances, the completion of independent, third- Corporation of America Holdings to sell our products to primary care physi- party appraisals of the investments. Inherent in these estimates and appraisals 12  cians. Revenues from these proprietary products were $34.7 million for the are assumptions such as the comparability of the investee to similar publicly year ended June 30, 2003. traded companies, the value of the investee’s underlying research and devel- We have devoted substantially all of our resources to undertaking our drug opment efforts, the likelihood that the investee’s current research projects will discovery and development programs, operating our predictive medicine result in a marketable product, and the investee’s expected future cash flows. business, and continuing our research and development efforts. Our revenues Accordingly, the amount recognized by us upon ultimate liquidation of these have consisted primarily of sales of predictive medicine products, research investments may vary significantly from the estimated fair values at June 30, 2003. payments, upfront fees, and milestone payments. We have yet to attain profitability and, for the year ended June 30, 2003, we had a net loss of $24.8 Recent Accounting Pronouncements million. As of June 30, 2003 we had an accumulated deficit of $98.7 million. In November 2002, the Financial Accounting Standards Board (FASB) issued We expect to incur losses for at least the next several years, primarily due Interpretation No. 45 (FIN 45), Guarantor’s Accounting and Disclosure to the expansion of our drug discovery and development efforts, the initiation Requirements for Guarantees, Including Indirect Guarantees of Indebtedness and continuing conduct of human clinical trials, the launch of new predic- of Others. FIN 45 clarifies and expands existing disclosure requirements for tive medicine products, the continuation of our internal research and guarantees, including loan guarantees. The provisions of FIN 45 are effec- development programs, and expansion of our facilities. Additionally, we expect tive for financial statements issued after December 15, 2002. The adoption of to incur substantial sales, marketing and other expenses in connection with FIN 45 did not have a material impact on our business, results of opera- building our pharmaceutical and predictive medicine businesses. We expect tions, financial position, or liquidity. that losses will fluctuate from quarter to quarter and that such fluctuations In January 2003, the FASB issued Interpretation No. 46, Consolidation may be substantial. of Variable Interest Entities. This interpretation establishes new guidelines for consolidating entities in which a parent company may not have majority voting Critical Accounting Policies control, but bears residual economic risks or is entitled to receive a majority Critical accounting policies are those policies which are both important to the of the entity’s residual returns, or both. As a result, certain subsidiaries that portrayal of a company’s financial condition and results and require manage- were previously not consolidated under the provisions of Accounting Research ment’s most difficult, subjective or complex judgments, often as a result of the Bulletin No. 51 may now require consolidation with the parent company. This need to make estimates about the effect of matters that are inherently uncer- interpretation applies in the first year or interim period beginning after June tain. Our critical accounting policies are as follows: 15, 2003, to variable interest entities in which an enterprise holds a variable • revenue recognition; interest that it acquired before February 1, 2003. We are currently evalu- • allowance for doubtful accounts; and ating this interpretation but do not expect that it will have a material effect • investments in privately-held companies. on our business, results of operations, financial position, or liquidity. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement Revenue Recognition 133 on Derivative Instruments and Hedging Activities. This Statement amends We apply the provisions of Securities and Exchange Commission (SEC) Staff and clarifies financial accounting and reporting for derivative instruments, Accounting Bulletin No. 101, Revenue Recognition (SAB 101) to all our including certain derivative instruments embedded in other contracts (collec- revenue transactions. In applying the principles of SAB 101 to our research tively referred to as derivatives) and for hedging activities under SFAS No. 133, and technology licensing agreements we consider the terms and conditions Accounting for Derivative Instruments and Hedging Activities. This statement of each agreement separately to arrive at a proportional performance method- is effective for contracts entered into or modified after June 30, 2003. We are ology of recognizing revenue. Such methodologies involve recognizing revenue currently evaluating this statement but do not expect that it will have a material in accordance with the percentage-of-completion method of accounting and effect on our business, results of operations, financial position, or liquidity. Myriad Genetics, Inc. and Subsidiaries


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    In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Years Ended June 30, 2002 and 2001 Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS Predictive medicine revenue for our fiscal year ended June 30, 2002 was $26.8 150). SFAS 150 establishes standards for how an issuer classifies and measures million, an increase of 57% or $9.7 million over the prior fiscal year. Predictive certain financial instruments with characteristics of both liabilities and equity. medicine revenue is comprised of sales of predictive medicine products and It requires that an issuer classify a financial instrument that is within its scope marketing fees from our predictive medicine product marketing partners. as a liability (or an asset in some circumstances). Many of those instruments Increased sales and marketing efforts and wider acceptance of our products were previously classified as equity. SFAS 150 is effective for financial instru- by the medical community have resulted in increased revenues for the fiscal ments entered into or modified after May 31, 2003, and otherwise is effective year ended June 30, 2002. However, there can be no assurance that predictive at the beginning of the first interim period beginning after June 15, 2003. medicine revenues will continue to increase at historical rates. We are currently evaluating this statement but do not expect that it will have Research revenue for our fiscal year ended June 30, 2002 was $27.0 million a material effect on our business, results of operations, financial position, or compared to $28.1 million for the fiscal year ended June 30, 2001. Research liquidity. revenue is comprised of research payments received pursuant to collaborative agreements, amortization of license fees and milestone payments. This decrease Results of Operations of 4% in research revenue is primarily attributable to greater emphasis on our Years ended June 30, 2003 and 2002 internal research and drug development programs, performing research for Predictive medicine revenue for our fiscal year ended June 30, 2003 was $34.7 Myriad Proteomics, and the successful completion of the Bayer and TMRI million compared to $26.8 million for the prior fiscal year, an increase of 29%. collaborations in December 2001. Partially offsetting the overall decrease in Predictive medicine revenue is comprised of sales of predictive medicine research revenue were revenues from our new collaborations with Abbott products and marketing fees from our predictive medicine product marketing Laboratories and DuPont, both entered into in March 2002. Research revenue partners. Increased sales and marketing efforts and wider acceptance of our from our research collaboration agreements is generally recognized as related products by the medical community have resulted in increased revenues for costs are incurred. Consequently, as these programs progress and costs increase the year ended June 30, 2003. However, there can be no assurance that predic- or decrease, revenues increase or decrease proportionately. tive medicine revenue will continue to increase at historical rates. Research and development expenses for the fiscal year ended June 30, 2002 Total research revenue for our fiscal year ended June 30, 2003 was $29.6 were $36.3 million compared to $33.8 million for the prior fiscal year. The million compared to $27.0 million for the prior fiscal year. Related party increase of 7% was primarily due to increased costs associated with our research revenue included in total research revenue for the fiscal year ended ongoing clinical trial for Flurizan™ and increased research spending for our June 30, 2003 was $1.8 million. Related party research revenue is comprised ongoing drug discovery efforts in Myriad Pharmaceuticals. Research and devel- of certain scientific outsourcing services performed for Myriad Proteomics, opment expenses were partially offset by reimbursement for research we Inc., which is 49% owned by us. Research revenue is comprised of research performed for Myriad Proteomics as part of a scientific outsourcing agree- payments received pursuant to collaborative agreements, amortization of ment. For the fiscal year ended June 30, 2002, research and development upfront fees and milestone payments. This increase of 10% in total research expenses were reduced by $5.5 million as a result of these scientific outsourcing revenue is primarily attributable to revenue recognized from our DuPont services. and Abbott Laboratories collaborations, including a $1 million milestone Selling, general and administrative expenses for the fiscal year ended June recognized and received from Abbott Laboratories for the discovery of a gene 30, 2002 were $25.5 million compared to $17.1 million for the prior fiscal involved in depression. Research revenue from our research collaboration year. Selling, general and administrative expenses consist primarily of salaries, agreements is generally recognized as related costs are incurred. Consequently, commissions and related personnel costs for sales, marketing, executive, legal, 13  as these programs progress and costs increase or decrease, revenues increase finance, accounting, human resources, information technology, and business or decrease proportionately. development personnel, allocated facilities expenses and other corporate Predictive medicine cost of revenue for our fiscal year ended June 30, 2003 expenses. The increase of 49% was primarily attributable to increases in was $12.6 million compared to $10.7 million for the prior fiscal year. This our sales force from 75 to 106 sales representatives, the launch of two new increase of 17% in predictive medicine cost of revenue is primarily due to predictive medicine products, and marketing costs related to our direct-to- the 29% increase in predictive medicine revenue for the fiscal year ended June consumer campaign to support our predictive medicine business. We expect 30, 2003 compared to prior fiscal year. Gross margin percent for the fiscal year this larger sales force and related marketing efforts to enable us to increase ended June 30, 2003 was 64% compared to 60% for the prior fiscal year. This awareness of our predictive medicine business. We expect our selling, general increase in gross margin percent resulted from technology improvements and administrative expenses will continue to fluctuate dependent on the and gains in efficiencies in the operations of our predictive medicine business. number and scope of new product launches and our drug discovery and devel- Research and development expenses for our fiscal year ended June 30, 2003 opment efforts. were $47.6 million compared to $36.3 million for the prior fiscal year. This Cash, cash equivalents, and marketable investment securities decreased increase of 31% was primarily due to increased costs associated with our $21.7 million or 15% from $146.0 million at June 30, 2001 to $124.2 million ongoing clinical trials in prostate cancer and Alzheimer’s disease, other drug at June 30, 2002. This decrease in cash, cash equivalents, and marketable development programs, and increased research efforts associated with our investment securities is primarily attributable to increased expenditures for Dupont and Abbott Laboratories collaborations. our internal drug development programs and other expenditures incurred in Selling, general and administrative expenses for our fiscal year ended June the ordinary course of business. As a result of the our decreased cash position 30, 2003 were $31.5 million compared to $25.5 million for the prior fiscal and declining interest rates, interest income for the fiscal year ended June year. Selling, general and administrative expenses consist primarily of salaries, 30, 2002 was $5.4 million compared to $6.9 million for the fiscal year ended commissions and related personnel costs for sales, marketing, executive, legal, June 30, 2001, a decrease of 22%. finance, accounting, human resources and business development personnel, allocated facilities expenses and other corporate expenses. This increase of Liquidity and Capital Resources 24% was attributable to marketing costs related to our direct-to-consumer Net cash used in operating activities was $46.5 million during the fiscal year campaign and general increases in personnel and costs related to the support ended June 30, 2003 compared to $16.3 million used in operating activities of our predictive medicine business and drug development efforts. We expect during the prior fiscal year. Trade receivables increased $6.1 million between our selling, general and administrative expenses will continue to fluctuate June 30, 2002 and June 30, 2003, primarily due to the 29% increase in predic- depending on the number and scope of new product launches and our drug tive medicine sales during the same period. Other receivables increased $9.0 discovery and drug development efforts. million between June 30, 2002 and June 30, 2003, primarily due to amounts Cash, cash equivalents, and marketable investment securities increased $2.1 receivable from DuPont for research performed under our research collabo- million or 2% from $124.2 million at June 30, 2002 to $126.3 million at June ration agreement. Prepaid expenses increased $2.9 million between June 30, 30, 2003. This increase in cash, cash equivalents, and marketable invest- 2002 and June 30, 2003 due to advance payments to purchase lab supplies at ment securities is primarily attributable to the public offering of $57.1 million a discount. Accounts payable increased by $2.0 million between June 30, 2002 (net proceeds) of our common stock in November 2002. This increase was and June 30, 2003, primarily as a result of purchases of equipment and lab mostly offset by capital expenditures for research equipment, leasehold supplies. Accrued liabilities increased by $1.3 million between June 30, 2002 improvements for our new research facilities, increased expenditures for our and June 30, 2003 primarily due to payroll and royalty accruals. Related party internal drug development programs and other expenditures incurred in the ordinary course of business. As a result of declining interest rates, interest income for our fiscal year ended June 30, 2003 was $2.9 million compared to $5.4 million for the prior fiscal year, a decrease of 46%. Myriad Genetics, Inc. and Subsidiaries


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    payables decreased $1.0 million between June 30, 2002 and June 30, 2003 investment security transactions are reported on the specific-identification due to payments made for equipment purchased from Myriad Proteomics. method. Dividend and interest income are recognized when earned. A decline Deferred revenue, representing the difference in collaborative payments in the market value of any available-for-sale or held-to-maturity security below received and research revenue recognized, decreased by $11.5 million between cost that is deemed other than temporary results in a charge to earnings and June 30, 2002 and June 30, 2003. establishes a new cost basis for the security. Premiums and discounts are Our investing activities used cash of $12.0 million during the fiscal year amortized or accreted over the life of the related held-to-maturity security as ended June 30, 2003 and provided cash of $38.1 million during the prior fiscal an adjustment to yield using the effective-interest method. year. Investing activities were comprised primarily of changes to marketable The securities held in our investment portfolio are subject to interest rate investment securities and capital expenditures for research equipment. Other risk. Changes in interest rates affect the fair market value of the marketable assets increased $2.9 million between June 30, 2002 and June 30, 2003 due investment securities. After a review of our marketable securities as of June to the acquisition of intellectual property and a library of chemical compounds. 30, 2003, we have determined that in the event of a hypothetical ten percent During the fiscal year ended June 30, 2003, we shifted a portion of our invest- increase in interest rates, the resulting decrease in fair market value of our ments from marketable investment securities to cash and cash equivalents due marketable investment securities would be insignificant to the consolidated to changes in interest rates. financial statements as a whole. Financing activities provided $59.0 million during the fiscal year ended June 30, 2003 and provided cash of $3.4 million in the prior fiscal year. On Certain Factors That May Affect Future Results of Operations November 26, 2002, we received $57.1 million in net proceeds from an under- The Securities and Exchange Commission encourages companies to disclose written offering of 3 million shares of our common stock pursuant to our forward-looking information so that investors can better understand a outstanding shelf registration statement on Form S-3 (Registration No. 333- company’s future prospects and make informed investment decisions. This 73124). Morgan Stanley & Co. Incorporated served as the sole underwriter Annual Report contains such “forward-looking statements” within the of the offering. Following the offering we have approximately $193 million meaning of the Private Securities Litigation Reform Act of 1995. These state- of securities available for sale under the shelf registration statement. During ments may be made directly in this Annual Report, and they may also be made the fiscal year ended June 30, 2003 additional funds were received from the a part of this Annual Report by reference to other documents filed with the exercise of stock options and warrants. Securities and Exchange Commission, which is known as “incorporation by We believe that with our existing capital resources, we will have adequate reference.” funds to maintain our current and planned operations for at least the next two Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” years, although no assurance can be given that changes will not occur that “intends,” “plans,” “believes” and words and terms of similar substance used would consume available capital resources before such time. Our future capital in connection with any discussion of future operating or financial performance, requirements will be substantial and will depend on many factors, including: identify forward-looking statements. All forward-looking statements are • the progress of our preclinical and clinical activities; management’s present expectations of future events and are subject to a • the progress of our research and development programs; number of risks and uncertainties that could cause actual results to differ • the progress of our drug discovery and drug development programs; materially from those described in the forward-looking statements. These risks • the cost of developing and launching additional predictive medicine products; and uncertainties include, among other things: our inability to further identify, • the costs of filing, prosecuting and enforcing patent claims; develop and achieve commercial success for new products and technologies, • the costs associated with competing technological and market developments; the possibility of delays in the research and development necessary to select • the payments received under collaborative agreements and changes in collab- drug development candidates and delays in clinical trials; the risk that clinical orative research relationships; trials may not result in marketable products; the risk that we may be unable • the costs associated with potential commercialization of our discoveries, if to successfully finance and secure regulatory approval of and market our drug any, including the development of manufacturing, marketing and sales candidates; our dependence upon pharmaceutical and biotechnology collab- capabilities; and orations; the levels and timing of payments under our collaborative agreements; • the cost and availability of third-party financing for capital expenditures and uncertainties about our ability to obtain new corporate collaborations and 14  administrative and legal expenses. acquire new technologies on satisfactory terms, if at all; the development of competing systems; our ability to protect our proprietary technologies; patent- Because of our significant long-term capital requirements, we intend to raise infringement claims; risks of new, changing and competitive technologies and funds when conditions are favorable, even if we do not have an immediate regulations in the United States and internationally. Please also see the discus- need for additional capital at such time. sion of risks and uncertainties under “Risk Factors” in Item 1 of this Report. In light of these assumptions, risks and uncertainties, the results and events Effects of Inflation discussed in the forward-looking statements contained in this Annual Report We do not believe that inflation has had a material impact on our business, or in any document incorporated by reference might not occur. Stockholders sales, or operating results during the periods presented. 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 Quantitative and Qualitative Disclosures About Market Risk incorporated by reference in this Annual Report. We are not under any oblig- We maintain an investment portfolio in accordance with our Investment Policy. ation, and we expressly disclaim any obligation, to update or alter any The primary objectives of our Investment Policy are to preserve principal, forward-looking statements, whether as a result of new information, future maintain proper liquidity to meet operating needs and maximize yields. Our events or otherwise. All subsequent forward-looking statements attributable Investment Policy specifies credit quality standards for our investments and limits to the Company or to any person acting on its behalf are expressly qualified in the amount of credit exposure to any single issue, issuer or type of investment. their entirety by the cautionary statements contained or referred to in this section. Our investments consist of securities of various types and maturities of three years or less, with a maximum average maturity of 12 months. These securities are classified either as available-for-sale or held-to-maturity. Available-for-sale securities are recorded on the balance sheet at fair market value with unreal- ized 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 Myriad Genetics, Inc. and Subsidiaries


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    Consolidated Balance Sheets June 30, 2003 2002 In thousands, except per share amounts Assets Current assets: Cash and cash equivalents $ 61,603 $ 61,067 Marketable investment securities 11,172 12,008 Prepaid expenses 7,740 4,827 Trade accounts receivable, less allowance for doubtful accounts of $895 in 2003 and $505 in 2002 12,917 7,233 Other receivables 9,241 220 Related party receivables 150 — Total current assets 102,823 85,355 Equipment and leasehold improvements: Equipment 31,826 26,409 Leasehold improvements 7,531 5,384 39,357 31,793 Less accumulated depreciation and amortization 20,675 16,360 Net equipment and leasehold improvements 18,682 15,433 Long-term marketable investment securities 53,517 51,168 Other assets 7,801 5,434 $ 182,823 $ 157,390 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 11,454 $ 9,462 Related party payable — 1,038 Accrued liabilities 4,925 3,591 Deferred revenue 2,958 14,430 Total current liabilities 19,337 28,521 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value. Authorized 5,000 shares; no shares issued and outstanding — — Common stock, $0.01 par value. Authorized 60,000 shares; issued and outstanding 27,079 shares in 2003 and 23,817 shares in 2002 271 238 Additional paid-in capital 261,155 202,149 15  Accumulated other comprehensive income 711 308 Accumulated deficit (98,651) (73,826) Total stockholders’ equity 163,486 128,869 $ 182,823 $ 157,390 See accompanying notes to consolidated financial statements. Myriad Genetics, Inc. and Subsidiaries


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    Consolidated Statements of Operations Years ended June 30, 2003 2002 2001 In thousands, except per share amounts Predictive medicine revenue $ 34,683 $ 26,821 $ 17,091 Research revenue 27,822 27,015 28,071 Related party research revenue 1,816 — — Total research revenue 29,638 27,015 28,071 Total revenues 64,321 53,836 45,162 Costs and expenses: Predictive medicine cost of revenue 12,553 10,717 7,403 Research and development expense 47,589 36,295 33,818 Selling, general, and administrative expense 31,525 25,484 17,078 Total costs and expenses 91,667 72,496 58,299 Operating loss (27,346) (18,660) (13,137) Other income (expense): Interest income 2,900 5,385 6,851 Other 38 (214) (305) Loss before income taxes (24,408) (13,489) (6,591) Income taxes 417 500 583 Net loss $ (24,825) $ (13,989) $ (7,174) Basic and diluted loss per common share $ (0.96) $ (0.59) $ (0.31) Basic and diluted weighted average shares outstanding 25,730 23,660 22,815 See accompanying notes to consolidated financial statements. 16  Myriad Genetics, Inc. and Subsidiaries


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    Consolidated Statements of Stockholders’ Equity and Comprehensive Loss Years ended June 30, 2003, 2002, and 2001 In thousands Accumulated Other Additional Comprehensive Comprehensive Common Stock Paid-In Income Accumulated Income Stockholders’ Shares Amount Capital (Loss) Deficit (Loss) Equity Balances at June 30, 2000 21,866 $ 219 $ 130,235 $ (85) $ (52,663) $ 77,706 Issuance of common stock for cash upon exercise of options and warrants 811 8 4,961 — — — 4,969 Issuance of common stock for cash, net of offering costs 765 7 63,604 — — — 63,611 Net loss — — — — (7,174) (7,174) (7,174) Unrealized gains (losses) on marketable investment securities: Unrealized holding gains arising during year — — — — — 449 — Less classification adjustment for losses included in net loss — — — — — — — Other comprehensive income — — — 449 — 449 449 Comprehensive loss — — — — — $ (6,725) — Balances at June 30, 2001 23,442 234 198,800 364 (59,837) 139,561 Issuance of common stock for cash 375 4 3,349 — — — 3,353 Net loss — — — — (13,989) (13,989) (13,989) Unrealized gains (losses) on marketable investment securities: Unrealized holding losses arising during period — — — — — (64) — Less classification adjustment for gains included in net loss — — — — — 8 — Other comprehensive loss — — — (56) — (56) (56) Comprehensive loss — — — — — $ (14,045) — Balances at June 30, 2002 23,817 238 202,149 308 (73,826) 128,869 Issuance of common stock for cash upon exercise of options and warrants 262 3 1,895 — — — 1,898 Issuance of common stock for cash, net of offering costs of $159 3,000 30 57,111 — — — 57,141 Net loss — — — — (24,825) (24,825) (24,825) Unrealized gains (losses) on marketable investment securities: Unrealized holding gains arising during period — — — — — 370 — Less classification adjustment for gains included in net loss — — — — — 33 — 17  Other comprehensive income — — — 403 — 403 403 Comprehensive loss — — — — — $ (24,422) — Balances at June 30, 2003 27,079 $ 271 $ 261,155 $ 711 $ (98,651) $ 163,486 See accompanying notes to consolidated financial statements. Myriad Genetics, Inc. and Subsidiaries


  • Page 20

    Consolidated Statements of Cash Flows Years ended June 30, 2003 2002 2001 In thousands Cash Flows from Operating Activities Net loss $ (24,825) $ (13,989) $ (7,174) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,275 4,496 3,729 Loss (gain) on disposition/impairment of assets (5) 222 305 Gain on sale of investment securities (33) (8) — Bad debt expense 390 250 110 Changes in operating assets: Prepaid expenses (2,913) (608) (1,540) Trade receivables (6,074) (3,849) (1,392) Other receivables (9,021) 95 84 Related party receivables (150) 1,811 (1,812) Other assets — (670) — Accounts payable 1,992 (196) 5,395 Accrued liabilities 1,334 509 (1,823) Related party payable (1,038) 1,038 — Deferred revenue (11,472) (5,413) 343 Net cash used in operating activities (46,540) (16,312) (3,775) Cash Flows from Investing Activities Capital expenditures (8,036) (6,853) (5,255) Investments in other companies — (2,482) (2,700) Proceeds from sale of investments in other companies — 630 — Increase in other assets (2,850) — — Purchases of investment securities held-to-maturity — (8,514) (119,683) Maturities of investment securities held-to-maturity 4,752 14,123 126,611 Purchases of investment securities available-for-sale (51,784) (81,243) (129,652) Maturities/sales of investment securities available-for-sale 45,955 122,428 45,595 Net cash provided by (used in) investing activities (11,963) 38,089 (85,084) Cash Flows from Financing Activities Net proceeds from issuance of common stock 59,039 3,353 68,581 Net cash provided by financing activities 59,039 3,353 68,581 18 Net increase (decrease) in cash and cash equivalents 536 25,130 (20,278)  Cash and cash equivalents at beginning of year 61,067 35,937 56,215 Cash and cash equivalents at end of year $ 61,603 $ 61,067 $ 35,937 Supplemental Disclosures of Noncash Investing and Financing Activities Fair value adjustment on marketable investment securities charged to stockholders’ equity $ 403 $ (56) $ 449 See accompanying notes to consolidated financial statements. Myriad Genetics, Inc. and Subsidiaries


  • Page 21

    Notes to Consolidated Financial Statements June 30, 2003, 2002, and 2001 NOTE 1 Summary of Significant Accounting Policies panying consolidated balance sheets. Revenues related to up-front payments and technology license fees when continuing involvement or research services (a) Organization and Business Description are required of us are recognized over the period of performance. Myriad Genetics, Inc. and subsidiaries (collectively, the Company) is a leading Predictive medicine revenues include revenues from the sale of predictive biopharmaceutical company focused on the development of novel therapeutic medicine products and related marketing agreements. Predictive medicine products and the development and marketing of predictive medicine products. revenue is recognized upon completion of the test and communication of The Company employs a number of proprietary technologies that permit it to results. Payments received in advance of predictive medicine work performed identify genes, their related proteins, and the biological pathways they form. are recorded as deferred revenue. Up-front payments related to marketing The Company uses this information to understand the role they play in the agreements are recognized ratably over the life of the agreement. onset and progression of major human disease. The Company’s operations are located in Salt Lake City, Utah. (h) Net Loss per Common and Common Equivalent Share Net loss per common share is computed based on the weighted average number (b) Principles of Consolidation of common shares and, as appropriate, dilutive potential common shares The consolidated financial statements presented herein include the accounts outstanding during the period. Stock options and warrants are considered of Myriad Genetics, Inc. and its wholly owned subsidiaries, Myriad Genetic to be potential common shares. Laboratories, Inc., Myriad Pharmaceuticals, Inc., and Myriad Financial, Inc. Basic loss per common share is the amount of loss for the period avail- All intercompany amounts have been eliminated in consolidation. able to each share of common stock outstanding during the reporting period. (c) Cash Equivalents Diluted loss per share is the amount of loss for the period available to each Cash equivalents of $48.6 million and $48.1 million at June 30, 2003 and share of common stock outstanding during the reporting period and to each 2002, respectively, consist of short-term securities. The Company considers share that would have been outstanding assuming the issuance of common all highly liquid debt instruments with maturities at date of purchase of 90 shares for all dilutive potential common shares outstanding during the period. days or less to be cash equivalents. 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 (d) Equipment and Leasehold Improvements calculation. Equipment and leasehold improvements are stated at cost. Depreciation and For the years ended June 30, 2003, 2002, and 2001, there were antidilu- amortization are computed using the straight-line method based on the lesser tive potential common shares of 4,922,144, 4,176,135, and 4,121,061, of estimated useful lives of the related assets or lease terms. Equipment items respectively. Accordingly, these potential common shares were not included in have depreciable lives from five to seven years. Leasehold improvements are the computation of diluted loss per share for the years presented, but may depreciated over the associated lease terms, which range from three to ten years. be dilutive to future basic and diluted earnings per share. (e) Impairment of Long-Lived Assets (i) Use of Estimates The Company accounts for long-lived assets in accordance with the provisions Management of the Company has made a number of estimates and assump- of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting tions relating to the reporting of assets and liabilities and the disclosure of for the Impairment or Disposal of Long-Lived Assets. This Statement requires contingent assets and liabilities at the date of the consolidated financial state- that long-lived assets be reviewed for impairment whenever events or changes ments and the reported amounts of revenues and expenses during the reporting in circumstances indicate that the carrying amount of an asset may not be period. Actual results could differ from these estimates. 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 (j) Marketable Investment Securities 19  expected to be generated by the asset. If the carrying amount of an asset The Company accounts for marketable investment securities by grouping them exceeds its estimated future cash flows, an impairment charge is recognized into one of two categories: held-to-maturity or available-for-sale. Held-to- by the amount by which the carrying amount of the asset exceeds the fair value maturity securities are those securities that the Company has the ability and of the asset. Assets to be disposed of are reported at the lower of the carrying intent to hold until maturity. All other securities are classified as available- amount or fair value less costs to sell. for-sale. Held-to-maturity securities are recorded at amortized cost, adjusted for the (f) Income Taxes amortization or accretion of premiums or discounts. Available-for-sale securi- Income taxes are recorded using the asset and liability method. Under the asset ties are recorded at fair value. Unrealized holding gains and losses, net of and liability method, deferred tax assets and liabilities are recognized for the the related tax effect, on available-for-sale securities are excluded from earnings future tax consequences attributable to differences between the financial state- and are reported as a separate component of stockholders’ equity until realized. ment carrying amounts of existing assets and liabilities and their respective Gains and losses on investment security transactions are reported on the tax bases and operating loss and tax credit carryforwards. Deferred tax assets specific-identification method. Dividend and interest income are recognized and liabilities are measured using enacted tax rates expected to apply to taxable when earned. A decline in the market value of any available-for-sale or held- income in the years in which those temporary differences are expected to be to-maturity security below cost that is deemed other than temporary results recovered or settled. The effect on deferred tax assets and liabilities of a change in a charge to earnings and establishes a new cost basis for the security. in tax rates is recognized in income in the period that includes the enact- Premiums and discounts are amortized or accreted over the life of the related ment date. held-to-maturity security as an adjustment to yield using the effective-interest (g) Revenue Recognition method. The Company applies the provisions of Securities and Exchange Commission (k) Fair Value Disclosure Staff Accounting Bulletin No. 101, Revenue Recognition (SAB 101) to all of At June 30, 2003, the consolidated financial statements’ carrying amount of its revenue transactions. the Company’s financial instruments approximates fair value. Research revenues include revenues from research and technology licensing agreements. In applying the principles of SAB 101 to research and technology (l) Stock-Based Compensation license agreements the Company considers the terms and conditions of each The Company has adopted the disclosure provisions of SFAS No. 123, agreement separately to arrive at a proportional performance methodology of Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 permits recognizing revenue. Such methodologies involve recognizing revenue in accor- entities to adopt a fair-value based method of accounting for stock options or dance with the percentage-of-completion method of accounting and following similar equity instruments. However, it also allows an entity to continue the guidance in Statement of Position 81-1, Accounting for Performance of measuring compensation cost for stock-based compensation using the intrinsic- Construction-Type and Certain Production-Type Contracts, as well as other value method of accounting prescribed by Accounting Principles Board (APB) proportional methodologies as considered appropriate. Percent complete is Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). The estimated based on costs incurred relative to total estimated contract costs. Company has elected to continue to apply the provisions of APB 25 and The Company makes adjustments, if necessary, to the estimates used in the provide pro forma disclosures required by SFAS 123. As such, no stock-based percentage-of-completion method of accounting as work progresses and the employee compensation cost is reflected in net loss, as all options granted under Company gains experience. Our estimates of total contract costs include these plans had an exercise price equal to the market value of the underlying assumptions, such as estimated research hours to complete, material costs, and common stock on the date of grant. other direct and indirect costs. Actual results may vary significantly from our estimates. 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 accom- Myriad Genetics, Inc. and Subsidiaries


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    The following table illustrates the effect on net loss and loss per share if the NOTE 2 Marketable Investment Securities Company had applied the fair value recognition provisions of SFAS 123 to The amortized cost, gross unrealized holding gains, gross unrealized holding stock-based employee compensation. losses, and fair value for available-for-sale and held-to-maturity securities by major security type and class of security at June 30, 2003 and 2002 were as Years ended June 30, 2003 2002 2001 follows: In thousands, except per share amounts Net loss, as reported $ 24,825 $ 13,989 $ 7,174 Gross Gross Unrealized Unrealized Deduct: Total stock-based employee Amortized Holding Holding Fair compensation expense determined Cost Gains Losses Value under fair value based method for all In thousands awards, net of tax related effects 25,532 21,078 12,227 At June 30, 2003: Pro forma net loss $ 50,357 35,067 19,401 Available-for-sale: Loss per share: Corporate bonds and notes $ 43,336 $ 596 $ (17) $ 43,915 Basic and diluted–as reported $ 0.96 $ 0.59 $ 0.31 Federal agency issues 10,699 20 (1) 10,718 Basic and diluted–pro forma $ 1.96 $ 1.48 $ 0.85 Tax auction securities 2,500 — — 2,500 Euro dollar bonds 7,443 113 — 7,556 The fair value of each option grant is estimated on the date of the grant $ 63,978 $ 729 $ (18) $ 64,689 using the Black-Scholes option-pricing model with the following weighted At June 30, 2002: average assumptions used for grants in 2003, 2002, and 2001, respectively: Held-to-maturity: risk-free interest rates of 3.0%, 4.3%, and 5.2%, expected dividend yields U.S. government obligations $ 2,543 $ 4 $ — $ 2,547 of 0% for all years; expected lives of 6.0 years, 6.0 years, and 6.3 years, and Corporate bonds and notes 2,209 22 — 2,231 expected volatility of 72%, 82%, and 93%, respectively. $ 4,752 $ 26 $ — $ 4,778 Available-for-sale: (m) Other Assets Corporate bonds and notes $ 51,852 $ 372 $ (79) $ 52,145 Other assets are comprised of purchased intellectual property, investments Euro dollar bonds 6,264 23 (8) 6,279 in privately held biotechnology and pharmaceutical companies, and a $ 58,116 $ 395 $ (87) $ 58,424 purchased library of chemical compounds. The private biotechnology and pharmaceutical company investments are both accounted for under the cost Maturities of debt securities classified as available-for-sale are as follows at method. Management reviews the valuation of both investments for possible June 30, 2003: impairment as changes in facts and circumstances indicate that impairment should be assessed. For the year ended June 30, 2003, the valuation of these Amortized Fair investments were based on management’s estimates and the completion of Cost Value an independent, third-party appraisal. Accordingly, the amount recognized by In thousands the Company upon the ultimate liquidation of this investment may vary signif- Available-for-sale: icantly from the estimated fair value at June 30, 2003. The library of chemical Due within one year $ 11,053 $ 11,172 compounds and related purchased intellectual property are being amortized Due after one year through three years 51,925 52,517 ratably over the expected useful life of five years. Due after three years through five years 1,000 1,000 (n) Trade Receivables and Allowance for Doubtful Accounts $ 63,978 $ 64,689 Trade accounts receivable are comprised of amounts due from sales of our predictive medicine products and are recorded at the invoiced amount, net NOTE 3 Leases 20 of discounts and allowances. The allowance for doubtful accounts is based on The Company leases office and laboratory space and equipment under two  noncancelable operating leases. Future minimum lease payments under these the Company’s best estimate of the amount of probable losses in the Company’s existing accounts receivable, which is based on historical write- leases as of June 30, 2003 are as follows: off experience. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is Fiscal year ending: considered remote. The Company does not have any off-balance-sheet credit In thousands exposure related to its customers. 2004 $ 3,934 2005 3,019 2006 3,019 2007 2,313 2008 2,078 Thereafter 12,027 $ 26,390 Rental expense was $4.9 million in 2003, $4.6 million in 2002, and $4.4 million in 2001. Myriad Genetics, Inc. and Subsidiaries


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    NOTE 4 Stock-Based Compensation Prior to 1992, the Company granted nonqualified stock options to directors, employees, and other key individuals providing services to the Company. In 1992, the Company adopted the “1992 Employee, Director, and Consultant Fixed Stock Option Plan” (subsequently renamed the 2002 Amended and Restated Employee, Director and Consultant Stock Option Plan) and has reserved 8,000,000 shares of common stock for issuance upon the exercise of options that the Company plans to grant from time to time under this plan. The exercise price of options granted in 2003, 2002, and 2001 was 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 30, 2003, 726,848 shares are reserved for future grant under the 2002 plan. A summary of activity is as follows: 2003 2002 2001 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 4,110,635 $ 34.94 4,055,561 $ 34.03 3,826,748 $ 16.48 Plus options granted 1,257,100 17.34 825,764 39.00 1,299,784 71.03 Less: Options exercised (167,903) 4.30 (344,073) 7.40 (805,528) 6.36 Options canceled or expired (307,688) 37.81 (426,617) 56.34 (265,443) 46.17 Options outstanding at end of year 4,892,144 $ 31.29 4,110,635 $ 34.94 4,055,561 $ 34.03 Options exercisable at end of year 2,203,456 31.09 1,526,064 25.45 1,039,248 14.14 Weighted average fair value of options granted during the year $ 11.39 $ 28.23 $ 56.35 The following table summarizes information about fixed stock options outstanding at June 30, 2003: Options Outstanding Options Exercisable Number Weighted Number Outstanding Average Weighted Exercisable Weighted at Remaining Average at Average June 30, Contractual Exercise June 30, Exercise Range of Exercise Prices 2003 Life Price 2003 Price $ 3.50–10.74 1,413,369 6.75 $ 7.77 744,589 $ 6.30 11.97–25.06 1,618,798 7.33 21.40 632,198 19.53 25.36–70.00 1,305,615 8.09 49.38 518,805 52.93 $ 70.13–93.81 554,362 7.42 $ 77.56 307,864 $ 77.96 4,892,144 2,203,456 As of June 30, 2003, 30,000 warrants previously granted to placement agents were outstanding at a weighted average price of $40.00 per share. NOTE 5 Income Taxes Under the rules of the Tax Reform Act of 1986, the Company has undergone 21 The Company recorded $417,000, $500,000, and $583,000 of foreign income  changes of ownership, and consequently, the availability of the Company’s net tax expense in 2003, 2002, and 2001, respectively. The difference between the operating loss and research and experimentation credit carryforwards in expected tax benefit for all periods presented and the actual tax expense is any one year are limited. The maximum amount of carryforwards available primarily attributable to the effect of net operating losses being offset by an in a given year is limited to the product of the Company’s value on the date of increase in the Company’s valuation allowance, plus the effect of foreign ownership change and the federal long-term tax-exempt rate, plus any limited income taxes in 2003, 2002, and 2001. carryforward not utilized in prior years. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2003 and 2002 are NOTE 6 Employee Deferred Savings Plan and Stock Purchase Plan presented below: The Company has a deferred savings plan which qualifies under Section 401(k) of the Internal Revenue Code. Substantially all of the Company’s employees 2003 2002 are covered by the plan. The Company makes matching contributions of 50% In thousands of each employee’s contribution with the employer’s contribution not to exceed Deferred tax assets: 4% of the employee’s compensation. The Company’s contributions to the plan Net operating loss carryforwards $ 67,928 $ 54,265 were $858,000, $704,000, and $531,000 for the years ended June 30, 2003, Unearned revenue 1,104 5,383 2002, and 2001, respectively. Research and development credits 6,455 3,853 The Company has an Employee Stock Purchase Plan (the Plan) which Accrued liabilities and other 1,589 1,104 was adopted and approved by the board of directors and stockholders in Capital loss carryforwards — 34 December 1994, under which a maximum of 400,000 shares of common stock Total gross deferred tax assets 77,076 64,639 may be purchased by eligible employees. At June 30, 2003, 216,260 shares of Less valuation allowance (76,813) (63,718) common stock had been purchased under the Plan. Because the discount Net deferred tax assets 263 921 allowed to employees under the Plan approximates the Company’s cost to issue Deferred tax liability: equity instruments, the Plan is not deemed to be compensatory and, therefore, Equipment, principally due to is excluded from the pro forma loss shown in note 1. differences in depreciation 263 921 Total gross deferred tax liability 263 921 NOTE 7 Collaborative Research Agreements Net deferred tax liability $ — $ — In March 2002, the Company formed a drug discovery collaboration to identify novel drug targets for the diagnosis and treatment of depression. The The net change in the total valuation allowance for the years ended June agreement provides the collaborator with license rights and specifies an upfront 30, 2003 and 2002 was an increase of $13.1 and $9.6 million, respectively. payment to the Company, plus guaranteed research funding, potential Approximately $36.7 million of deferred tax assets at June 30, 2003, if recog- milestones and royalties. Revenue related to the license agreement is being nizable in future years, will be recognized as additional paid-in capital, and recognized ratably over the service period and revenue related to this research the remainder will be allocated as an income tax benefit to be reported in collaboration is being recognized as the research is performed on a percent- the consolidated statement of operations. complete basis. At June 30, 2003, the Company had total tax net operating losses of approximately $182.1 million and total research and development credit carry- forwards of approximately $6.5 million, which can be carried forward to reduce federal income taxes. If not utilized, the tax loss and research and devel- opment credit carryforwards expire beginning in 2007 through 2023. Myriad Genetics, Inc. and Subsidiaries


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    Also in March 2002, the Company formed a research collaboration All of the Company’s revenues were derived from research and testing whereby the Company will apply its high-speed genomic sequencing capability performed in the United States. Additionally, all of the Company’s long- and bioinformatics expertise to deliver molecular genetic information to the lived assets are located in the United States. All of the Company’s research collaborator. Revenue related to this research collaboration is being recog- segment revenue was generated from six, seven, and six collaborators in fiscal nized on a straight-line basis, which is considered the most appropriate 2003, 2002, and 2001, respectively. Further, revenue from one, two, and proportional performance method. two of the collaborators was in excess of 10% of the Company’s consolidated In May 2000, the Company entered into a license agreement and research revenues for fiscal years 2003, 2002, and 2001, respectively. collaboration to utilize the Company’s protein interaction technology (ProNet®). Under the agreement, the licensee will receive a license to utilize NOTE 9 Investment in Myriad Proteomics, Inc. ProNet® and receive support and related upgrades from the Company on a In April 2001, the Company contributed technology to Myriad Proteomics, when-and-if-available basis over the support period. The Company received Inc. (Proteomics) in exchange for a 49% ownership interest and investors $22.5 million from this collaboration, which was completed in April 2003. contributed a combined $82 million in cash in exchange for the remaining Revenue related to the license agreement was recognized ratably over the 51% ownership in Proteomics. service period and revenue related to the research collaboration was recog- The Company accounts for its investment in Proteomics using the equity nized as the costs of the contract were incurred on a percent-complete basis. method. Because the Company’s initial investment in Proteomics consisted In August 1999, and as expanded in December 2000, the Company entered of technology with a carrying value of $0 on the Company’s consolidated finan- into a two-year collaboration to perform research related to crop genomics. cial statements, and given the uncertainty of the realizability of the difference The Company received $33.5 million from this collaboration, which was between the $82 million carrying amount and the Company’s proportionate completed in December 2001. Revenue related to this research collabora- share of the net assets of Proteomics, the Company’s initial investment in tion was recognized as the research was performed on a percent-complete basis. Proteomics was recorded as $0. The Company allocated $41 million of this In September 1995, the Company entered into a collaborative research and difference to technology and this amount is being reduced as the related license agreement to perform various research for a pharmaceutical company. technology charges, including in-process research and development, are This agreement was expanded in 1997 and 1998. Under the agreement, as incurred at Proteomics. At June 30, 2003, the remaining technology basis expanded, the Company received $38.7 million through December 2001 when difference is estimated to be $14 million. The remaining $41 million of unallo- the project was completed. Revenue related to this project was recognized as cated basis difference is being accreted to income, offset by the Company’s the research was performed on a percent-complete basis. share of Proteomics’ losses, over the period of expected benefit of 15 years. Under some agreements the Company may license to the collaborator As part of the formation of Proteomics, the Company entered into admin- certain rights to therapeutic applications. The Company is entitled to receive istrative and scientific outsourcing agreements with Proteomics. The original royalties from sales of therapeutic products made by its collaborators. Because terms of these agreements expired on December 31, 2001, but were extended the Company has granted therapeutic rights to some of its collaborative until June 30, 2002 and again to June 30, 2003 at the option of Proteomics. licensees, the success of the programs is partially dependent upon the efforts Charges to Proteomics for services incurred related to the administrative of the licensees. and scientific outsourcing agreements are based on actual time and expenses Each of the above agreements may be terminated early. If any of the incurred by the Company on behalf of Proteomics. During the years ended licensees terminate the above agreements, such termination may have a June 30, 2003 and 2002, the Company provided $2.0 million and $6.3 million, material adverse effect on the Company’s operations. respectively, of administrative and scientific services to Proteomics. As of June 30, 2003, the Company has received all but $150,000 of payments from NOTE 8 Segment and Related Information Proteomics for these outsourcing services, which are shown as related party The Company has two reportable segments: (i) research and (ii) predictive receivables in the accompanying consolidated balance sheets. medicine. The research segment is focused on the discovery of genes and Summarized balance sheet information as of June 30, 2003 and 2002 for proteins related to major common diseases, the discovery of their related Proteomics is as follows: biological pathways, and the development of therapeutic products for the treat- 22  ment and prevention of major diseases. The predictive medicine segment 2003 2002 provides testing to determine predisposition to common diseases. In thousands (unaudited) The accounting policies of the segments are the same as those described Current assets $ 37,785 $ 50,703 in the summary of significant accounting policies (note 1). The Company evalu- Noncurrent assets 58,897 62,301 ates segment performance based on loss from operations before interest income Current liabilities 2,821 2,783 and expense and other income and expense. The Company’s assets are not Noncurrent liabilities 19,169 18,575 identifiable by segment. Stockholders’ equity $ 74,692 $ 91,647 Predictive Summarized statement of operations information for Proteomics for the Research Medicine Total years ended June 30, 2003, 2002, and 2001 is as follows: In thousands Year ended June 30, 2003: 2003 2002 2001 Revenues $ 29,638 $ 34,683 $ 64,321 In thousands (unaudited) Depreciation and amortization 3,363 1,912 5,275 Total revenues $ 150 $ — $ — Segment operating loss 24,674 2,672 27,346 In-process research and development — — 46,316 Year ended June 30, 2002: Other operating costs and expenses 23,155 28,478 3,068 Revenues 27,015 26,821 53,836 Net loss $ 19,756 $ 24,288 $ 48,205 Depreciation and amortization 2,894 1,602 4,496 Segment operating loss 14,244 4,416 18,660 Year ended June 30, 2001: Revenues 28,071 17,091 45,162 Depreciation and amortization 2,598 1,131 3,729 Segment operating loss 7,461 5,676 13,137 2003 2002 2001 Total operating loss for reportable segments $ (27,346) $ (18,660) $ (13,137) Unallocated amounts: Interest income 2,900 5,385 6,851 Other 38 (214) (305) Income taxes (417) (500) (583) Net loss $ (24,825) $ (13,989) $ (7,174) Myriad Genetics, Inc. and Subsidiaries


  • Page 25

    Independent Auditors’ Report The Board of Directors and Stockholders Myriad Genetics, Inc.: We have audited the accompanying consolidated balance sheets of Myriad Genetics, Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consol- idated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30, 2003. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule. These consol- idated financial statements and financial statement schedule 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason- able basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Myriad Genetics, Inc. and subsidiaries as of June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Salt Lake City, Utah August 25, 2003 Market Price of Common Stock Our Common Stock began trading on the Nasdaq National Market on October 6, 1995 under the symbol “MYGN”. The following table sets forth, for the last two fiscal years, the high and low sales prices for the Common Stock, as reported by the Nasdaq National Market, during the periods indicated: 23  High Low Fiscal 2003: Fourth Quarter $ 18.40 $ 10.01 Third Quarter $ 16.32 $ 8.43 Second Quarter $ 21.64 $ 13.37 First Quarter $ 26.20 $ 12.44 Fiscal 2002: Fourth Quarter $ 35.00 $ 16.30 Third Quarter $ 53.20 $ 30.11 Second Quarter $ 63.64 $ 28.70 First Quarter $ 62.50 $ 24.75 As of September 1, 2003, there were approximately 180 stockholders of record of our Common Stock and, according to our estimates, approximately 11,900 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. Myriad Genetics, Inc. and Subsidiaries


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    Officers and Directors HUGH A. D’ANDRADE DALE A. STRINGFELLOW, PH.D. WILLIAM A. HOCKETT, III Chairman of the Board Director Vice President, Former Vice Chairman, Chairman, Collateral Therapeutics, Inc. Corporate Communications Schering-Plough Corporation LINDA S. WILSON, PH.D. JERRY S. LANCHBURY, PH.D. WALTER GILBERT, PH.D. Director Senior Vice President, Vice Chairman of the Board Research President Emerita, Carl M. Loeb University Professor, Radcliffe College Harvard University RICHARD M. MARSH Vice President, GREGORY C. CRITCHFIELD, M.D. General Counsel and Secretary PETER D. MELDRUM President, President and CEO, Myriad Genetic Laboratories, Inc. Director JAY M. MOYES Chief Financial Officer, ADRIAN N. HOBDEN, PH.D. Vice President of Finance ARTHUR H. HAYES, JR., M.D. President, Director Myriad Pharmaceuticals, Inc. S. GEORGE SIMON President, MediScience Associates Vice President, Business Development MARK H. SKOLNICK, PH.D. Chief Scientific Officer, Director Corporate Information Corporate Office Independent Auditors Form 10-K 320 Wakara Way KPMG LLP A printed copy of the Company’s Annual Report Salt Lake City, UT 84108 15 West South Temple to the Securities and Exchange Commission on Phone: 801.584.3600 Suite 1500 Form 10-K may be obtained by any shareholder 24  Fax: 801.584.3640 Salt Lake City, UT 84101 without charge upon written request to: Myriad Genetics, Inc. Legal Counsel Annual Meeting Investor Relations Mintz, Levin, Cohn, Ferris, The Annual Meeting of Shareholders 320 Wakara Way Glovsky and Popeo, P.C. will be held at the offices of Salt Lake City, UT 84108 One Financial Center Myriad Genetics, Inc., Boston, MA 02111 320 Wakara Way, Salt Lake City, Utah, Internet on Wednesday, November 12, 2003, The Company’s Form 10-K can also be found on Transfer Agent and Registrar at 9:00 a.m. its website at www.myriad.com American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 Myriad Genetics, Inc. and Subsidiaries


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    ©2003 Myriad Genetics, Inc. All rights reserved. Myriad, the graphical logo design, BRACAnalysis, COLARIS, COLARIS AP, MELARIS, and Flurizan are either trademarks or registered trademarks of Myriad Genetics, Inc. in the United States and/or other countries. All other products and company names mentioned herein are properties of their respective owners.


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    Myriad Genetics, Inc., 320 Wakara Way, Salt Lake City, Utah 84108


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