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    Myriad Genetics 2005 Annual Report


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    Myriad is a biotechnology company founded on the principle that medicines are safer and more effective when they’re developed to treat disease by addressing the cause, rather than the symptom. This guiding philosophy is the reason Myriad focuses on the development and marketing of novel therapeutic and molecular diagnostic products based in the genetic foundation of human disease. As we improve our ability to determine who may be genetically predisposed to developing disease, we can apply our knowledge and experience to preventive therapies—the ultimate practice of medicine. As a predictive medicine company, Myriad is a recognized world leader, with 65% annual revenue growth over the past year. In pharmaceuticals, we are pleased to report that, in 2005, we moved several steps closer to the vision of commercializing a whole new class of medicines for HIV, cancer and Alzheimer’s disease. That horizon, which once seemed so distant, now appears close enough to reach out and touch.


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    TOUCH THE HORIZON.


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    2005 Annual Report 2005 was an excellent year for their personal risk of cancer. For each individual Myriad. We had many successes spanning all areas tested today, we estimate that there are at least ten of our business. The Company bolstered its position more who we have not reached; who are not yet Myriad Genetics as the world’s leading cancer predictive medicine aware that they can reduce their risk of cancer and company, with product sales that grew by 65% in possibly prevent cancer from ever entering their a year. This remarkable level of growth is indicative lives. This is our challenge going forward for 2006 TO OUR of the wide acceptance that predictive medicine and the coming years: to get our products to all has achieved in the care of patients with cancer or those who choose to take action in order to live SHAREHOLDERS a family history of cancer. Growth in these products longer, healthier lives. has reached the point at which we are once again increasing the capacity of our laboratory to meet We also made significant progress toward achieving new levels of demand for our products. We are our primary near-term objective on the way to also building a facility that will be outfitted with our goal of attaining a leadership position among the next generation in scientific instruments, biopharmaceutical companies—launching new robotic processors and informatics. It gives us the therapeutic products. opportunity to test advances in technology that will lead to higher capacity, more efficient systems for We initiated three clinical trials with novel cancer higher volumes of testing in the coming years. drug candidates in 2005. These are compounds that have potential to treat some of the most dev- Despite the rewarding growth experienced to date, astating diseases of our time. We are developing we believe we have just begun to reach all the MPC-6827 to address solid tumors such as those people who can and should benefit from knowing found in the lungs, breast and colon. These types


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    of cancer affect the largest number of patients blood cancers as well as refractory cancer that has This is exciting progress with a novel, first-in-class 4 overall, more than a million people each year in the progressed despite previous chemotherapy. We drug candidate, because Flurizan appears to modify United States alone. One of the greatest challenges continue to place importance on advancing our the course of Alzheimer’s disease rather than just 5 facing oncologists today is the spread of cancer earlier stage pipeline and have made new strides in provide a temporary cognitive boost, as with current beyond its site of origin, to the brain. There are this area. The progress made here gives us hope of drugs on the market. The potential to slow or halt approximately 170,000 patients each year in the entering another drug candidate or two into clinical the loss of memory and cognition experienced by United States who have brain cancer that has testing in the first half of calendar 2006. One of patients with Alzheimer’s disease bodes well for spread from a primary source tumor. There are these candidates is a compound that stops the these individuals and their loved ones. no drugs approved by the FDA to treat brain AIDS virus from assembling correctly into a mature metastases, so the need is great and immediate. virus. An immature virus can’t replicate or spread We are now testing MPC-6827, with its ability to to other cells, so the infectious cycle is broken. We cross the blood/brain barrier to a high level, in are excited about the prospects for this program patients with metastatic brain cancer. This Phase and expect to tell you much more about it over the John Henderson 1 human clinical trial is being run at the Huntsman next year. Another candidate is MPC-0920. In Chairman Cancer Institute in Salt Lake City and at MD order to provide optimal patient care, physicians Anderson Cancer Center in Houston. see a great unmet medical need for improved approaches to preventing and treating thromboem- Another of our high-potential cancer drug candidates bolism. Myriad’s pre-clinical testing in this area Peter Meldrum is MPC-2130. We are particularly interested in this suggests that new treatments could be on the horizon. President and Chief Executive Officer experimental drug due to its strong safety profile in preclinical testing. We are studying MPC-2130 in Finally, our lead therapeutic candidate, FlurizanTM, patients with advanced metastatic cancers and entered the third phase of clinical testing in 2005.


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    THE CAPACITY TO FIGHT ON THE HORIZON: CANCER BEFORE IT APPEARS 09/1994 10/1996 09/2000 11/2001 Myriad discovers BRACAnalysis test launched - COLARIS launched MELARIS launched first major gene for First predisposition product cancer (BRCA1). 2005 Annual Report THE YEAR 2005 CONTINUED A RECORD OF ACCELERATING REVENUE GROWTH, ACHIEVING A RATE OF Myriad Genetics 50% COMPOUNDED ANNUALLY, SINCE INCEPTION OF OUR PREDICTIVE MEDICINE PRODUCTS. The world’s leading cancer quarters indicate we have passed what could be when a mutation in one of the disease-causing predictive medicine company. Preventive medicine described as an “inflection point,” represented by genes is present. is the foundation of Myriad’s philosophy, structure, a quantifiable increase in the testing utilization and operation. The remarkable commercial success by patients and physicians. Although we have A new patient orientation. of our products has enabled the company to continually documented the value of genetic Naturally, this steady growth has brought with it aggressively pump resources into exciting new testing over the course of the past nine years, the some challenges that require some old-fashioned areas of research, for the treatment of a variety of body of evidence for clinical utility grew even approaches to improving patient care on the part important, common diseases. At the same time, weightier in 2005. Its efficacy is now impossible of Myriad and the nation’s network of caregivers. predictive medicine sustains and furthers the to ignore. In earlier years, physicians used our For example, the continuous growth in demand for central vision that has guided Myriad since its products primarily to determine future risk of BRACAnalysis® led to a shortage in pre-test inception: to launch a new era of medicines to treat disease and help patients take measures to reduce and post-test counseling staff. Today, thanks to a disease and, ultimately, prevent disease altogether. risk. While this has continued as an important Myriad program, there is now a growing supply of use of testing, physicians now frequently use the trained physicians and advanced practice oncology The year 2005 continued a record of accelerating test to help determine the type of therapy that nurses. Our company has assisted in the education revenue growth, achieving a rate of 65% over is selected. Physicians today are demonstrating of more than 500 new specialists—most of them our prior year. Of particular interest, the recent a clear preference for risk-reduction options oncology nursing professionals—to perform the


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    05/2002 09/2003 06/2004 06/2005 COLARIS AP launched $100 million in 100,000 women $200 million in cumulative revenues tested for breast cancer cumulative revenue predisposition 6 7 counseling required prior to testing and upon delivery of test results. Also, the knowledge is now being imparted to patients in a more memorable and efficient form. Predictive medicine is in a phase of dynamic expansion, one that demands continuous investment in both technology and infrastructure. Myriad is expanding the Salt Lake City facility, with an additional 70,000 square feet of custom designed, leased space. The space will be used to relocate offices and make room for laboratory expansion, as well as to accommodate additional drug development personnel.


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    NEW CANCER ON THE HORIZON: COMPOUNDS SHOW PROMISE 2005 Annual Report Clinical trials launched for Myriad Genetics novel cancer drug candidates in 2005. More than 10 million people in America live with cancer today. Another 1.3 million will be diagnosed during the coming year. So, in spite of the ongoing success with new treatments and therapies, the need for continuing study into new ways to control, and ultimately eradicate this disease, is more critical than ever. Myriad is proud to be in the hunt for a new generation of cancer drugs. In fact, we initiated three clinical trials with novel cancer drug candidates in 2005. These are compounds with the promise and potential to treat cancer in its most devastating forms. Despite steady progress in the treatment of primary tumors at the site of origin, cancer cells often spread to other areas of the body, a process known as metastasis. Metastasis often results in multiple brain tumors, posing a serious challenge for


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    “TREATING BRAIN TUMORS HAS PROVEN TO BE ONE OF THE GREAT CHALLENGES IN CANCER THERAPY. MPC-6827 HAS SHOWN THE POTENTIAL TO ADDRESS THIS NEED DUE TO ITS ABILITY, IN PRECLINICAL MODELS, TO CROSS THE BLOOD/BRAIN BARRIER AND ACHIEVE THERAPEUTIC LEVELS.” – Lauren E. Abrey, M.D., Neurologist and Clinical Neuro-Oncologist, Memorial Sloan-Kettering Cancer Center, New York City 8 oncologists. Traditional chemotherapy is designed cancer cells in the brain. Achieving a brain different point in the apoptotic pathway. But MPC- 9 to unleash massive toxicity in order to destroy can- penetration level of 1400% gives MPC-6827 the 2130 has another interesting characteristic. The cerous cells, often with debilitating consequences potential to treat metastatic brain tumors with far compound appears to have the ability to kill cancer for the patient. What’s more, there is no drug less systemic exposure or toxicity than current cells while leaving normal healthy cells relatively approved by the FDA for brain metastases because treatment methods. Recognizing these facts, we unharmed. Cancer cells may become resistant to most cancer drugs cannot cross the blood/brain initiated a Phase 1 trial in brain cancer in March chemotherapy through the action of efflux pumps, barrier. Myriad is developing a new investigative 2005, at the MD Anderson Cancer Center in a cellular function that actively purges drug from drug, MPC-6827, to address advanced solid Houston, Texas. “Treating brain tumors has proven the cell. Importantly, MPC-2130 was shown to tumors such as those found in the lungs, breast, to be one of the great challenges in cancer therapy,” be highly effective in cancer cell lines that are colon, and brain. MPC-6827 is not removed says Lauren E. Abrey, M.D., a board certified resistant to multiple drugs. from the cell by efflux pumps that cause multiple Neurologist and Clinical Neuro-Oncologist at drug resistance—a serious problem with other Memorial Sloan-Kettering Cancer Center in New chemotherapy drugs. York City. “MPC-6827 has shown the potential to address this need due to its ability, in preclinical This experimental drug has an additional, unique models, to cross the blood/brain barrier and quality that Myriad discovered in preclinical testing. achieve therapeutic levels.” MPC-6827 crosses the blood/brain barrier and reaches concentrations in the brain that are 14 Another high-potential drug candidate is MPC-2130. times that in the blood. This is exceedingly good As with MPC-6827, it works by driving cancer cells news when the desired outcome is to eliminate to commit “suicide” by apoptosis, although at a


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    MOVING EVER CLOSER TO NEW ON THE HORIZON: BREAKTHROUGHS, NEW DRUGS. 10/2001 12/2001 08/2002 06/2003 12/2004 01/2005 HIV viral budding/ Phase 2/3 initiated Phase 1 trial in Phase 2 initiated Phase 1 initiated in blood Phase 3 initiated maturation pathway in prostate cancer Alzheimer’s initiated in Alzheimer’s cancer. Phase 1 initiated in Alzheimer’s discovered in brain metastases 2005 Annual Report AFTER MORE THAN A DECADE IN DECLINE, THE NUMBER OF REPORTED CASES OF AIDS Myriad Genetics HAS STARTED TO RISE DURING THE PAST SEVERAL YEARS. THIS TREND REPRESENTS AN IMPORTANT EPIDEMIOLOGICAL ISSUE THAT MYRIAD IS WORKING TO SOLVE. Researching therapies that can discovery. Writing in the journal Cell, the Myriad integration/transcription, translation viral assembly, stop new, drug-resistant strains of the AIDS virus. team documented a study that showed how a budding and maturation. In order to achieve the Drug-resistant strains of the AIDS virus are a particular protein and a cellular process were dispersal of viral particles, the virus uses the cell’s significant and rapidly increasing medical problem. required for the HIV virus to “escape” from the own machinery to bud from an infected cell In fact, a recent University of California study cell. Their research identified an important human membrane. The collaboration showed that the estimated that 42% of AIDS patients would develop protein used by the virus to make its escape. By Tsg101 protein is essential for HIV1 budding. a drug-resistant form of the disease this year alone. blocking access to the protein by the virus, they Further work has identified several essential The answer, it would seem, is the development of reasoned, the virus would be trapped in the cell interactions between the virus and the human host an entirely new class of drugs, one that will keep and be prevented from infecting other cells. The that provide excellent opportunities to stop the virus every patient healthy and safe from infection. To fundamental theory behind this reasoning is that a from budding or reaching maturity. In preclinical Myriad, that looming crisis has served as a clarion call. virus is much less likely to adapt around the blocking testing to date, Myriad’s compound, MPI-49839, of the human virus than to mutate its own internal appears to do just that. During the latter part of 2001, Myriad researchers biology. The life cycle of HIV infection consists of and collaborators made a potentially significant six major events: attachment, reverse transcription,


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    10 11 Thrombin Inhibitor. Deep-vein in broad interpatient variability in anti-coagulation, thrombosis and atrial fibrillation represent two non-selectivity leading to widespread binding with large potential markets for Myriad. Deep-vein proteins and endothelial cells, and inability to affect thrombosis is a condition that can occur following thrombin-bound fibrin or surface-bound factor Xa. major surgery, such as hip replacement. At the Warfarin presents major challenges for physicians same time, the incidence of atrial fibrillation is in the form of drug interactions and dose stabilization. increasing dramatically, coincident with the coun- These limitations have prompted Myriad to search try’s rapidly aging population. For both conditions, for new anticoagulant therapies for prevention and healthcare providers commonly recommend treatment of both venous and arterial thromboem- inpatient observation for initiation of therapy, bolism. Myriad is engaged in pre-clinical testing of or for administration of anti-coagulation drugs. one such compound, MPC-0920, an orally available Traditional anticoagulants (heparin and warfarin), direct thrombin inhibitor. In preclinical testing, however, have limitations. Heparin's limitations are MPC-0920 demonstrated characteristics that may due primarily to its chemical heterogeneity, resulting offer improvements over current therapies.


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    A TREATMENT ON THE HORIZON: FOR ALZHEIMER’S “I COULD JUMP IN A CAR AND GET READY TO GO SOMEWHERE AND FORGET WHERE I WAS GOING. WHEN YOU GET LOST, YOU DON’T KNOW HOW TO GET BACK.” “SON OF A GUN. I STARTED TO REMEMBER STUFF. I’M GETTING BACK TO WHERE I WAS. I WORK ON MY MACHINERY. I COOK. I CLEAN HOUSE, TOO. YOU CAN’T EXPLAIN HOW GOOD IT FEELS. IT’S LIKE BEING BORN AGAIN.” – Norm Bessette, Rhode Island, Alzheimer’s patient enrolled in the Phase 3 clinical trial. 2005 Annual Report Myriad Genetics Phase 2 Clinical Trial with continuously through the connections between the highest plasma concentration of Flurizan FlurizanTM shows promise. Alzheimer’s disease isn’t cells. The brain of an Alzheimer’s patient shows a demonstrated a 62% reduction in decline in activities a natural, accepted part of the aging process. It is, build-up of a sticky material known as amyloid of daily living. Importantly, in addition to efficacy in fact, an insidious neurodegenerative condition plaque, that blocks the link between cells along with measures, the Phase 2 trial results showed that that affects a large percentage of our elderly the normal cognitive functions those connections Flurizan was well tolerated by these elderly patients. population, robbing them of the ability to think, support. As the condition progresses, the cells actually to remember, to live a full life. Even worse, it’s a die and are not replaced, resulting in an irreversible One of the most promising aspects of the Phase 2 potential public health time bomb. Estimates are level of Alzheimer’s Disease in which the patient clinical study of Flurizan, is the nature of the drug that, with no improvement in treatment therapies, exhibits the most profound symptoms of dementia. itself. Prior to the Flurizan study, there were no today’s 4.5 million cases will more than triple to This year, results of a Phase 2 clinical trial of drugs that could slow the underlying progression 14 million by the year 2050, burdening an already Flurizan, one of a new class of drug candidates of Alzheimer’s disease. The current classes of overburdened healthcare system. known as selective amyloid beta 42 lowering agents drugs used against Alzheimer’s only treat symptoms (SALAs), indicated significant reduction in loss of by enhancing memory for a short period. Myriad Only recently, science has begun to better function among patients with mild Alzheimer’s. In scientists believe Flurizan has the potential to understand what it believes is the cause of fact, analysis of data from 128 mild Alzheimer’s reduce the level of the toxic molecule that causes Alzheimer’s disease. In a normal brain, signals move disease patients indicated that those who achieved the disease in the first place. Early indications—at


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    12 13 least in patients with mild symptoms—are that Flurizan has a therapeutic effect of improving the decline in memory and understanding. Based on the Phase 2 results and consultation with Alzheimer’s disease experts and clinical development consultants, Myriad has already focused its Phase 3 trial on those who benefited most in the Phase 2 trial, namely, mild patients on 800 mg of Flurizan twice daily. Myriad is currently recruiting 1,600 U.S. patients for this trial. Information on participation is available through e-mail to: clinicaltrials@myriad.com, or by calling 1-800-649-7316.


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    OFFICERS AND DIRECTORS John T. Henderson, M.D. . . . . . . . . . . . . . . . Chairman of the Board President, Futurepharm, LLC Walter Gilbert, Ph.D. . . . . . . . . . . . . . . . . . . Vice Chairman of the Board Carl M. Loeb University Research Professor emeritus at Harvard University Peter D. Meldrum . . . . . . . . . . . . . . . . . . . . . President, Chief Executive Officer and Director Robert S. Attiyeh . . . . . . . . . . . . . . . . . . . . . Director Manager, Beacon Hill Properties, LLC Arthur H. Hayes Jr., M.D. . . . . . . . . . . . . . . . Director President and COO, Mediscience Associates Dennis H. Langer, M.D., J.D. . . . . . . . . . . . . Director Managing Partner, Phoenix IP Ventures 2005 Annual Report Myriad Genetics Mark H. Skolnick, Ph.D. . . . . . . . . . . . . . . . Chief Scientific Officer and Director Linda S. Wilson, Ph.D. . . . . . . . . . . . . . . . . . Director President emerita, Radcliffe College Gregory C. Critchfield, M.D. . . . . . . . . . . . . . President of Myriad Genetic Laboratories, Inc. Adrian N. Hobden, Ph.D. . . . . . . . . . . . . . . . President of Myriad Pharmaceuticals, Inc. William A. Hockett III . . . . . . . . . . . . . . . . . Executive Vice President, Corporate Communications Jerry S. Lanchbury, Ph.D. . . . . . . . . . . . . . . . Executive Vice President, Research Wayne Laslie . . . . . . . . . . . . . . . . . . . . . . . . Chief Operating Officer, Myriad Pharmaceuticals, Inc. Richard M. Marsh. . . . . . . . . . . . . . . . . . . . . Executive Vice President, General Counsel and Secretary Jay M. Moyes . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer S. George Simon . . . . . . . . . . . . . . . . . . . . . Executive Vice President, Business Development


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    MYRIAD GENETICS: 16 Selected Consolidated Financial Data FINANCIAL REPORT 17 Quarterly Financial Data 18 Management’s Discussion and Analysis of Financial Condition and Results of Operation 24 Consolidated Balance Sheets 25 Consolidated Statements of Operations 14 26 Consolidated Statements of Stockholders’ Equity and Comprehensive Loss 15 27 Consolidated Statements of Cash Flows 28 Notes to Consolidated Financial Statements 37 Report of Independent Registered Public Accounting Firm


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    SELECTED CONSOLIDATED FINANCIAL DATA Years Ended June 30, 2005 2004 2003 2002 2001 In thousands, except per share amounts Consolidated Statement of Operations Data Predictive medicine revenue $ 71,325 $ 43,294 $ 34,683 $ 26,821 $ 17,091 Research revenue 11,081 11,748 27,822 27,015 28,071 Related party research revenue — 1,606 1,816 — — Total research revenue 11,081 13,354 29,638 27,015 28,071 Total revenues 82,406 56,648 64,321 53,836 45,162 Costs and expenses: Predictive medicine cost of revenue 20,322 13,751 12,553 10,717 7,403 Research and development expense 59,243 50,697 47,589 36,295 33,818 Selling, general, and administrative expense 43,586 34,835 31,525 25,484 17,078 Total costs and expenses 123,151 99,283 91,667 72,496 58,299 2005 Annual Report Operating loss (40,745) (42,635) (27,346) (18,660) (13,137) Other income (expense): Interest income 2,798 2,025 2,900 5,385 6,851 Other (2,031) (10) 38 (214) (305) Loss before income taxes (39,978) (40,620) (24,408) (13,489) (6,591) Income taxes — — 417 500 583 Net loss $ (39,978) $ (40,620) $ (24,825) $ (13,989) $ (7,174) Basic and diluted net loss per common share $ (1.30) $ (1.49) $ (0.96) $ (0.59) $ (0.31) Myriad Genetics Basic and diluted weighted average shares outstanding 30,720 27,326 25,730 23,660 22,815 As of June 30, 2005 2004 2003 2002 2001 Consolidated Balance Sheet Data Cash, cash equivalents and marketable investment securities $ 113,843 $141,839 $126,292 $124,243 $145,955 Working capital 112,270 148,586 137,003 108,002 123,351 Total assets 158,958 188,356 182,823 157,390 172,145 Stockholders’ equity 135,673 173,276 163,486 128,869 139,561


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    QUARTERLY FINANCIAL DATA (UNAUDITED) Quarters Ended June 30, 2005 March 31, 2005 December 31, 2004 September 30, 2004 In thousands, except per share amounts Consolidated Statement of Operations Data: Predictive medicine revenue $ 20,975 $ 18,386 $ 17,535 $ 14,429 Research revenue 5,121 1,575 2,104 2,281 Total revenue 26,096 19,961 19,639 16,710 Costs and expenses: Predictive medicine cost of revenue 5,655 5,297 5,131 4,239 Research and development expense 16,025 15,540 14,546 13,132 Selling, general and administrative expense 13,158 9,834 10,638 9,956 Total costs and expenses 34,838 30,671 30,315 27,327 Operating loss (8,742) (10,710) (10,676) (10,617) Other income (expense): Interest income 755 724 687 632 Other (1,965) — (59) (7) (1,210) 724 628 625 Net loss $ (9,952) $ (9,986) $ (10,048) $ (9,992) Basic and diluted net loss per share $ (0.32) $ (0.32) $ (0.33) $ (0.33) Basic and diluted weighted average shares outstanding 30,800 30,749 30,682 30,649 16 17 Quarters Ended June 30, 2004 March 31, 2004 December 31, 2003 September 30, 2003 In thousands, except per share amounts Consolidated Statement of Operations Data: Predictive medicine revenue $ 13,085 $ 11,699 $ 10,446 $ 8,064 Research revenue 1,987 1,909 2,773 5,079 Related party research revenue — 148 929 529 Total research revenue 1,987 2,057 3,702 5,608 Total revenues 15,072 13,756 14,148 13,672 Costs and expenses: Predictive medicine cost of revenue 3,835 3,709 3,448 2,758 Research and development expense 12,004 12,390 13,329 12,974 Selling, general and administrative expense 10,154 8,821 7,752 8,108 Total costs and expenses 25,993 24,920 24,529 23,840 Operating loss (10,921) (11,164) (10,381) (10,168) Other income (expense): Interest income 456 473 527 569 Other 5 (5) — (10) 461 468 527 559 Net loss $ (10,460) $ (10,696) $ (9,854) $ (9,609) Basic and diluted net loss per share $ (0.37) $ (0.39) $ (0.36) $ (0.35) Basic and diluted weighted average shares outstanding 27,967 27,148 27,109 27,087


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    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview most difficult, subjective or complex judgments, often as a result of the need We are a leading biotechnology company focused on the development and to make estimates about the effect of matters that are inherently uncertain. marketing of novel therapeutic and molecular diagnostic products. We employ Our critical accounting policies are as follows: a number of proprietary technologies that permit us to understand the genetic • revenue recognition; basis of human disease and the role that genes and their related proteins play • allowance for doubtful accounts; and in the onset and progression of disease. We use this information to guide the • investments in privately-held companies. development of new healthcare products that treat major diseases and assess a person’s risk of disease later in life. Revenue Recognition Research revenues include revenues from research agreements, milestone We have devoted substantially all of our resources to undertaking our drug payments, and technology licensing agreements. In applying the principles of discovery and development programs, operating our predictive medicine SAB 104 to research and technology license agreements we consider the 2005 Annual Report business, and continuing our research and development efforts. We have three terms and conditions of each agreement separately to arrive at a proportional reportable operating segments: (i) research, (ii) predictive medicine, and (iii) performance methodology of recognizing revenue. Such methodologies involve drug development. See Note 8 “Segment and Related Information” in the recognizing revenue on a straight-line basis over the term of the agreement and notes to our consolidated financial statements for information regarding these based on costs incurred relative to the total estimated contract costs (cost-to- operating segments. Our revenues have consisted primarily of sales of predictive cost method). We make adjustments, if necessary, to the estimates used in medicine products and research payments. We have yet to attain profitability our cost-to-cost calculations as work progresses and we gain experience. The Myriad Genetics and, for year ended June 30, 2005, we had a net loss of $40.0 million. As of principal costs under these agreements are for personnel expenses to conduct June 30, 2005 we had an accumulated deficit of $179.2 million. research and development but also include costs for materials and other direct and indirect items necessary to complete the research under these agreements. We expect to incur losses for at least the next several years, primarily due to Actual results may vary from our estimates. Payments received on uncompleted the expansion of our drug discovery and development efforts, the initiation and long-term contracts may be greater than or less than incurred costs and continuation of human clinical trials, the launch of new predictive medicine estimated earnings and have been recorded as other receivables or deferred products, the performance of our internal research and development programs, revenues in the accompanying consolidated balance sheets. We recognize revenue and expansion of our facilities. We incurred research and development expenses from milestone payments as agreed-upon events representing the achievement of $59.2 million, $50.7 million, and $47.6 million for the years ended June of substantive steps in the development process are achieved and where the 30, 2005, 2004, and 2003, respectively. Additionally, we expect to incur sub- amount of the milestone payments approximates the value of achieving the stantial sales, marketing and other expenses in connection with building our milestone. We recognize revenue from up-front nonrefundable license fees on pharmaceutical and predictive medicine businesses. We expect that losses will a straight-line basis over the period of our continued involvement in the fluctuate from quarter to quarter and that such fluctuations may be substantial. research and development project. Critical Accounting Policies Predictive medicine revenues include revenues from the sale of predictive Critical accounting policies are those policies which are both important to the medicine products, related marketing agreements, and forensic DNA analysis portrayal of a company’s financial condition and results and require management’s fees. Predictive medicine revenue is recognized upon completion of the test or


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    analysis and communication of results. Up-front payments related to marketing income statement the grant-date fair value of stock options and other equity- agreements are recognized ratably over the life of the agreement. based compensation. We currently account for our stock-based compensation using the intrinsic method as defined in Accounting Principles Board (APB) Allowance for Doubtful Accounts Opinion No. 25 and accordingly, we have not recognized any expense for our The preparation of our financial statements requires us to make estimates and stock option plans or employee stock purchase plan in our consolidated financial assumptions that affect the reported amount of assets at the date of the financial statements as of June 30, 2005, except as discussed below. Statement 123R statements and the reported amounts of revenues and expenses during the became effective for our fiscal year beginning July 1, 2005. In anticipation of reporting period. Trade accounts receivable are comprised of amounts due adopting Statement 123R, on April 14, 2005 we announced that we had from sales of our predictive medicine products. We analyze trade accounts accelerated the vesting of unvested stock options previously awarded to receivable and consider historic experience, customer creditworthiness, facts employees and non-employee members of the board of directors under the and circumstances specific to outstanding balances, and payment term Company's 2002 and 2003 stock option plans. As a result of the acceleration changes when evaluating the adequacy of the allowance for doubtful accounts. of vesting for unvested options we do not anticipate that Statement 123R will Changes in these factors could result in material adjustments to the expense have a material impact on our financial statements at the time of adoption, but recognized for bad debt. could be material to future periods. Investments in Privately-Held Companies Results of Operations 18 We review the valuation of our investments in privately-held biotechnology and Years ended June 30, 2005 and 2004 19 pharmaceutical companies for possible impairment as changes in facts and Predictive medicine revenues for the fiscal year ended June 30, 2005 were circumstances indicate that impairment should be assessed. The amount of $71.3 million compared to $43.3 million for the prior fiscal year, an increase impairment, if any, and valuation of these investments are based on our estimates of 65%. Predictive medicine revenue is comprised primarily of sales of predictive and, in certain circumstances, the completion of independent, third-party medicine products, and also includes marketing fees and forensic DNA analysis appraisals of the investments. Inherent in these estimates and appraisals are fees. Increased sales and marketing efforts, coupled with recent publications assumptions such as the comparability of the investee to similar publicly traded concerning the clinical utility of our products, have resulted in wider acceptance companies, the value of the investee’s underlying research and development of our products by the medical community and increased revenues for the efforts, the likelihood that the investee’s current research projects will result fiscal year ended June 30, 2005. There can be no assurance that predictive in a marketable product, and the investee’s expected future cash flows. medicine revenues will continue to increase at historical rates. Accordingly, the amount recognized by us upon ultimate liquidation of these invest- ments may vary significantly from the estimated fair values at June 30, 2005. Total research revenues for the fiscal year ended June 30, 2005 were $11.1 million compared to $13.4 million for the prior fiscal year. Related party Recent Accounting Pronouncements research revenues included in total research revenues for the fiscal year ended In December 2004, the Financial Accounting Standards Board (FASB) issued June 30, 2005 and 2004 were $0 and $1.6 million, respectively. Related Statement No. 123R, Share-Based Payment. Statement 123R sets accounting party research revenue is comprised of certain research services performed for requirements for “share-based” compensation to employees, including Prolexys Pharmaceuticals, Inc., which is 49% owned by us. The agreement to employee stock purchase plans, and requires companies to recognize in the provide these research services was terminated effective January 26, 2004.


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    Research revenues are comprised of research payments received pursuant to Selling, general and administrative expenses for the fiscal year ended June 30, collaborative agreements, amortization of upfront technology license fees and 2005 were $43.6 million compared to $34.8 million for the prior fiscal year. milestone payments. This 17% decrease in total research revenue is primarily Selling, general and administrative expenses consist primarily of salaries, attributable to the successful completion of two of our research collaborations commissions and related personnel costs for sales, marketing, executive, legal, with corporate partners. Research revenue from our research collaboration finance, accounting, human resources, business development, allocated agreements is recognized using a proportional performance methodology. facilities expenses and other corporate expenses. This increase of 25% was Consequently, as these programs progress and costs increase or decrease, primarily attributable to sales and marketing commissions and expenses revenues may increase or decrease proportionately. incurred to support the 65% growth in our predictive medicine business, which resulted in an increase of $7.4 million compared to the prior fiscal year. Predictive medicine cost of revenue for the fiscal year ended June 30, 2005 General increases in costs to support growth in our predictive medicine was $20.3 million compared to $13.8 million for the prior fiscal year. This business and therapeutic development efforts resulted in an increase of 2005 Annual Report increase of 48% in predictive medicine cost of revenue is primarily due to the approximately $1.4 million to our selling, general, and administrative expense 65% increase in predictive medicine revenues for the fiscal year ended June for the fiscal year ended June 30, 2005 compared to the prior fiscal year. We 30, 2005 compared to the prior fiscal year. This increase was partially offset expect our selling, general and administrative expenses will continue to by technology improvements and efficiency gains in the operation of our fluctuate depending on the number and scope of new product launches and predictive medicine business. Our technology and efficiency improvements our drug discovery and drug development efforts. also contributed to an increase in our gross profit margin, which was 72% for Myriad Genetics the fiscal year ended June 30, 2005 compared to 68% for the prior fiscal year. Other expense for the fiscal year ended June 30, 2005 was $2.0 million There can be no assurance that predictive medicine gross profit margins will compared to $0.0 million in the prior fiscal year. Other expense generally consists continue to increase at historical rates. of losses realized from the disposition of fixed assets. For the fiscal year ended June 30, 2005 other expense also included a $2.0 million impairment charge Research and development expenses for the fiscal year ended June 30, 2005 related to our investment in a privately-held pharmaceutical company. The were $59.2 million compared to $50.7 million for the prior fiscal year. This impairment charge, as determined by our cash flow estimates and an increase of 17% was primarily due to increased costs associated with our independent, third-party appraisal, resulted from a change in the timing of ongoing clinical trials in Alzheimer’s disease and cancer, increases in our other anticipated future cash flows from the investment. drug discovery and drug development programs, and the initiation of a new research collaboration. These increases added approximately $15.7 million to Years ended June 30, 2004 and 2003 our research and development expenses for the fiscal year ended June 30, Predictive medicine revenues for the fiscal year ended June 30, 2004 were 2005 compared to the prior fiscal year. These increases were partially offset $43.3 million compared to $34.7 million for the prior fiscal year, an increase by the completion of two of our research collaborations and a prior year of 25%. Increased sales and marketing efforts, coupled with publications con- settlement of claims resulting from a dispute with a third party, which resulted cerning the clinical utility of our products have resulted in wider acceptance in decreased research and development expenses of approximately $7.2 of our products by the medical community and increased revenues for the million for the fiscal year ended June 30, 2005 compared to the prior fiscal year ended June 30, 2004. There can be no assurance that predictive fiscal year. We expect our research and development expenses to continue to medicine revenues will continue to increase at historical rates. fluctuate based on changes in our research programs and the progression of our drug development programs.


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    Total research revenues for the fiscal year ended June 30, 2004 were $13.4 development efforts. Increases in salaries and benefits, facilities costs, bad million compared to $29.6 million for the prior fiscal year. Related party debt, legal, and other costs resulted in an increase of approximately $6.4 research revenues included in total research revenues for the fiscal year ended million to our selling, general, and administrative expense for the fiscal year June 30, 2004 and 2003 were $1.6 million and $1.8 million, respectively. ended June 30, 2004 compared to the prior fiscal year. These increases were This 55% decrease in total research revenue is primarily attributable to the suc- partially offset by reduced marketing costs from our direct-to-consumer adver- cessful completion of two of our research collaborations with corporate partners. tising campaign conducted in the prior fiscal year, resulting in a decrease of approximately $3.1 million to our selling, general, and administrative expense Predictive medicine cost of revenue for the fiscal year ended June 30, 2004 for the fiscal year ended June 30, 2004 compared to the prior fiscal year. was $13.8 million compared to $12.6 million for the prior fiscal year. This increase of 10% in predictive medicine cost of revenue is primarily due to the Liquidity and Capital Resources 25% increase in predictive medicine revenues for the fiscal year ended June Cash, cash equivalents, and marketable investment securities decreased 30, 2004 compared to the prior fiscal year. This increase was partially offset $28.0 million or 20% from $141.8 million at June 30, 2004 to $113.8 by technology improvements and efficiency gains in the operation of our million at June 30, 2005. This decrease in cash, cash equivalents, and predictive medicine business. Our technology and efficiency improvements marketable investment securities is primarily attributable to capital expenditures also contributed to an increase in our gross profit margin, which was 68% for for research equipment, increased expenditures for our ongoing clinical trials, the fiscal year ended June 30, 2004 compared to 64% for the prior fiscal year. internal drug development programs and other expenditures incurred in the 20 There can be no assurance that predictive medicine gross profit margins will ordinary course of business. As a result of changes in interest rates and cash, 21 continue to increase at historical rates. cash equivalents, and marketable investment securities, interest income for the fiscal year ended June 30, 2005 was $2.8 million compared to $2.0 Research and development expenses for the fiscal year ended June 30, 2004 million for the prior fiscal year, an increase of 38%. were $50.7 million compared to $47.6 million for the prior fiscal year. This increase of 7% was primarily due to increased costs associated with our Net cash used in operating activities was $23.3 million during the fiscal year ongoing clinical trials in Alzheimer’s disease and prostate cancer, increases in ended June 30, 2005 compared to $30.9 million used in operating activities our other drug discovery and drug development programs, the settlement of during the prior fiscal year. Prepaid expenses decreased by $3.9 million claims resulting from a dispute with a third party, and increases in internally- between June 30, 2004 and June 30, 2005, primarily due to the usage of lab funded research programs. These increases added approximately $14.1 supplies previously purchased at a discount. Trade receivables increased $5.5 million to our research and development expenses for the fiscal year ended million between June 30, 2004 and June 30, 2005, primarily due to the 65% June 30, 2004 compared to the prior fiscal year. These increases were partially increase in predictive medicine sales during the same period. Accounts offset by the completion of two of our research collaborations, which resulted payable increased by $4.0 million between June 30, 2004 and June 30, in decreased research and development expenses of approximately $11.0 million 2005, primarily as a result of purchases of equipment and amounts due for the fiscal year ended June 30, 2004 compared to the prior fiscal year. in relation to our ongoing clinical trials. Accrued liabilities increased by $4.2 million between June 30, 2004 and June 30, 2005, partially as a result of the Selling, general and administrative expenses for the fiscal year ended June 30, accrual of sales commissions. 2004 were $34.8 million compared to $31.5 million for the prior fiscal year. This increase of 11% was primarily attributable to general increases in costs Our investing activities provided cash of $19.5 million during the fiscal year to support growth in our predictive medicine business and therapeutic ended June 30, 2005 and used cash of $31.2 million during the prior fiscal


  • Page 22

    year. Investing activities were comprised primarily of purchases and sales of Because of our significant long-term capital requirements, we intend to raise marketable investment securities and capital expenditures for research equipment. funds when conditions are favorable, even if we do not have an immediate need for additional capital at such time. Financing activities provided cash of $2.5 million during the fiscal year ended June 30, 2005 and provided cash of $51.3 million in the prior fiscal year. Off-Balance Sheet Arrangements During the fiscal year ended June 30, 2005 funds were received from the exer- None. cise of stock options and shares sold under our employee stock purchase plan. Contractual Obligations We believe that with our existing capital resources, we will have adequate The following table represents our consolidated contractual obligations as of funds to maintain our current and planned operations for at least the next two June 30, 2005: years, although no assurance can be given that changes will not occur that 2005 Annual Report would consume available capital resources before such time. Our future capital Less than More than requirements, cash flows, and results of operations could be affected by and Total one year 1-3 Years 4-5 Years 5 years In thousands will depend on many factors, including: Operating leases $ 73,541 $ 3,258 $ 9,185 $ 10,502 $ 50,596 • the progress of our preclinical and clinical activities; Contractual services 39,700 20,005 19,695 — — • the progress of our research and development programs; Total $ 113,241 $ 23,263 $ 28,880 $ 10,502 $ 50,596 • the progress of our drug discovery and drug development programs; Myriad Genetics • the cost of developing and launching additional predictive medicine products; Contractual services represent financial commitments for drug development • the costs of filing, prosecuting and enforcing patent claims; and clinical trial activities that can be terminated at our request. The expected • the costs associated with competing technological and market developments; timing of payment for the obligations listed above is estimated based on • the costs associated with potential litigation; current information. Actual payment timing and amounts may differ depending • the payments received under collaborative agreements and changes in col- on the timing of goods or services received or other changes. laborative research relationships; • the costs associated with potential commercialization of our discoveries, if any, Effects of Inflation including the development of manufacturing, marketing and sales capabilities; and We do not believe that inflation has had a material impact on our business, • the cost and availability of third-party financing for capital expenditures sales, or operating results during the periods presented. and administrative and legal expenses. Quantitative and Qualitative Disclosures About Market Risk On April 7, 2005, we filed a shelf registration statement on Form S-3 We maintain an investment portfolio in accordance with our Investment Policy. (Registration No. 333-123914) with the Securities and Exchange Commission The primary objectives of our Investment Policy are to preserve principal, for the sale of up to $300 million of various types of securities upon filing of maintain proper liquidity to meet operating needs, and maximize yields. a prospectus supplement with the SEC. The filing was declared effective by Our Investment Policy specifies credit quality standards for our investments the SEC on April 20, 2005. This filing includes the securities that had been and limits the amount of credit exposure to any single issue, issuer, or available for sale under our shelf registration statement on Form S-3 type of investment. (Registration No. 333-73124) filed previously on November 9, 2001.


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    Our investments consist of securities of various types and maturities of develop predictive medicine products that help assess which patients are three years or less, with a maximum average maturity of 12 months. These subject to greater risk of developing diseases and who would therefore benefit securities are classified as available-for-sale. Available-for-sale securities are from new preventive therapies; the possibility of delays in the research and recorded on the balance sheet at fair market value with unrealized gains or development necessary to select drug development candidates and delays losses reported as part of accumulated other comprehensive income/loss. in clinical trials; the risk that clinical trials may not result in marketable Gains and losses on investment security transactions are reported on the products; the risk that we may be unable to successfully finance and secure specific-identification method. Dividend and interest income are recognized regulatory approval of and market our drug candidates, or that clinical trials when earned. A decline in the market value of any available-for-sale security will be completed on the timelines we have estimated; uncertainties about our below cost that is deemed other than temporary results in a charge to earnings ability to obtain new corporate collaborations and acquire new technologies on and establishes a new cost basis for the security. satisfactory terms, if at all; the development of competing products and services; our ability to protect our proprietary technologies; patent-infringement claims; The securities held in our investment portfolio are subject to interest rate risks of new, changing and competitive technologies and regulations in the risk. Changes in interest rates affect the fair market value of the marketable United States and internationally; and other factors discussed under the heading investment securities. After a review of our marketable securities as of June “Risk Factors” contained in Item 1 of our form 10-K for the year ended 30, 2005, we have determined that, in the event of a hypothetical ten percent June 30, 2005. increase in interest rates, the resulting decrease in fair market value of our 22 marketable investment securities would be insignificant to the consolidated In light of these assumptions, risks and uncertainties, the results and events 23 financial statements as a whole. discussed in the forward-looking statements contained in this Annual Report or in any document incorporated by reference might not occur. Stockholders Certain Factors That May Affect Future Results of Operations are cautioned not to place undue reliance on the forward-looking statements, The Securities and Exchange Commission encourages companies to disclose which speak only as of the date of this Annual Report. We are not under any forward-looking information so that investors can better understand a company’s obligation, and we expressly disclaim any obligation, to update or alter any future prospects and make informed investment decisions. This Annual Report forward-looking statements, whether as a result of new information, future contains such “forward-looking statements” within the meaning of the Private events or otherwise. All subsequent forward-looking statements attributable to Securities Litigation Reform Act of 1995. the Company or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. These forward-looking statements are based on management’s current expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth or implied by the forward-looking statements. These include, but are not limited to: our inability to further identify, develop and achieve commercial success for new products and technologies; our ability to discover drugs that are safer and more efficacious than our competitors; our ability to


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    CONSOLIDATED BALANCE SHEETS As of June 30 2005 2004 In thousands, except per share amounts Assets Current assets: Cash and cash equivalents $ 49,509 $ 50,830 Marketable investment securities 64,334 91,009 Prepaid expenses 3,331 7,279 Trade accounts receivable, less allowance for doubtful accounts of $1,395 in 2005 and $1,205 in 2004 17,236 13,994 Other receivables 1,145 554 Total current assets 135,555 163,666 Equipment and leasehold improvements: 2005 Annual Report Equipment 40,160 34,212 Leasehold improvements 8,004 7,692 48,164 41,904 Less accumulated depreciation and amortization 29,698 24,565 Net equipment and leasehold improvements 18,466 17,339 Other assets 4,937 7,351 $ 158,958 $ 188,356 Myriad Genetics Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 11,897 $ 7,938 Accrued liabilities 10,136 5,933 Deferred revenue 1,252 1,209 Total current liabilities 23,285 15,080 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 30,862 shares in 2005 and 30,623 shares in 2004 309 306 Additional paid-in capital 315,147 312,453 Accumulated other comprehensive loss (534) (212) Accumulated deficit (179,249) (139,271) Total stockholders’ equity 135,673 173,276 $ 158,958 $ 188,356 See accompanying notes to consolidated financial statements.


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    CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended June 30, 2005 2004 2003 In thousands, except per share amounts Predictive medicine revenue $ 71,325 $ 43,294 $ 34,683 Research revenue 11,081 11,748 27,822 Related party research revenue — 1,606 1,816 Total research revenue 11,081 13,354 29,638 Total revenues 82,406 56,648 64,321 Costs and expenses: Predictive medicine cost of revenue 20,322 13,751 12,553 Research and development expense 59,243 50,697 47,589 Selling, general, and administrative expense 43,586 34,835 31,525 Total costs and expenses 123,151 99,283 91,667 Operating loss (40,745) (42,635) (27,346) Other income (expense): Interest income 2,798 2,025 2,900 Other (2,031) (10) 38 Loss before income taxes (39,978) (40,620) (24,408) Income taxes — — 417 Net loss $ (39,978) $ (40,620) $ (24,825) 24 Basic and diluted loss per common share $ (1.30) $ (1.49) $ (0.96) Basic and diluted weighted average shares outstanding 30,720 27,326 25,730 25 See accompanying notes to consolidated financial statements.


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    CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS Years Ended June 30, 2005, 2004, and 2003 In thousands Accumulated Other Comprehensive Comprehensive Common Stock Additional Income Accumulated Income Stockholders’ Shares Amount Paid-In Capital (Loss) Deficit (Loss) Equity 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, warrants, and employee stock purchase plan 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) 2005 Annual Report Unrealized gains on marketable investment securities: Unrealized holding gains arising during period — — — — — 370 — Less classification adjustment for gains included in net loss — — — — — 33 — 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 Issuance of common stock for cash upon exercise Myriad Genetics of options and employee stock purchase plan 144 1 1,237 — — — 1,238 Issuance of common stock for cash, net of offering costs of $55 3,400 34 50,061 — — — 50,095 Net loss — — — — (40,620) (40,620) (40,620) Unrealized losses on marketable investment securities: Unrealized holding losses arising during period — — — — — (923) — Other comprehensive loss — — — (923) — (923) (923) Comprehensive loss $ (41,543) — Balances at June 30, 2004 30,623 306 312,453 (212) (139,271) 173,276 Issuance of common stock for cash upon exercise of options and employee stock purchase plan 239 3 2,463 — — — 2,466 Acceleration of vesting of stock options — — 231 — — — 231 Net loss — — — — (39,978) (39,978) (39,978) Unrealized losses on marketable investment securities: Unrealized holding losses arising during period — — — — — (322) — Other comprehensive loss — — — (322) — (322) (322) Comprehensive loss $ (40,300) Balances at June 30, 2005 30,862 $ 309 $ 315,147 $ (534) $ (179,249) $ 135,673 See accompanying notes to consolidated financial statements.


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    CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 2005 2004 2003 In thousands Cash flows from operating activities: Net loss $ (39,978) $ (40,620) $ (24,825) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,092 5,766 5,275 Loss (gain) on disposition of assets 67 10 (5) Gain on sale of investment securities — — (33) Bad debt expense 2,244 2,020 564 Impairment charge on investments in other companies 1,964 — — Acceleration of option vesting 231 — — Changes in operating assets and liabilities: Prepaid expenses 3,948 461 (2,913) Trade receivables (5,486) (3,097) (6,248) Other receivables (591) 8,687 (9,021) Related party receivables — 150 (150) Accounts payable 3,959 (3,516) 1,992 Accrued liabilities 4,203 1,008 1,334 Related party payable — — (1,038) 26 Deferred revenue 43 (1,749) (11,472) Net cash used in operating activities (23,304) (30,880) (46,540) 27 Cash flows from investing activities: Capital expenditures (6,736) (3,883) (8,036) Increase in other assets (100) (100) (2,850) Maturities of investment securities held-to-maturity — — 4,752 Purchases of investment securities available-for-sale (44,603) (52,730) (51,784) Maturities/sales of investment securities available-for-sale 70,956 25,487 45,955 Net cash provided by (used in) investing activities 19,517 (31,226) (11,963) Cash flows from financing activities: Net proceeds from issuance of common stock 2,466 51,333 59,039 Net cash provided by financing activities 2,466 51,333 59,039 Net increase (decrease) in cash and cash equivalents (1,321) (10,773) 536 Cash and cash equivalents at beginning of year 50,830 61,603 61,067 Cash and cash equivalents at end of year $ 49,509 $ 50,830 $ 61,603 Supplemental disclosures of noncash investing and financing activities: Fair value adjustment on marketable investment securities charged to stockholders’ equity $ (322) $ (923) $ 403 See accompanying notes to consolidated financial statements.


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    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2005, 2004 AND 2003 NOTE 1: Organization and Summary of Significant Accounting Policies (e) Trade Receivables and Allowance for Doubtful Accounts (a) Organization and Business Description Trade accounts receivable are comprised of amounts due from sales of the Myriad Genetics, Inc. and subsidiaries (collectively, the Company) is a leading Company’s predictive medicine products and are recorded at the invoiced biopharmaceutical company focused on the development and marketing of amount, net of discounts and allowances. The allowance for doubtful accounts novel therapeutic and molecular diagnostic products. The Company employs a is based on the Company’s best estimate of the amount of probable losses in number of proprietary technologies that permit it to understand the genetic the Company’s existing accounts receivable, which is based on historical write- basis of human disease and the role that genes and their related proteins play off experience. Account balances are charged against the allowance after in the onset and progression of disease. The Company uses this information to all means of collection have been exhausted and the potential for recovery is guide the development of new healthcare products that treat major diseases considered remote. The Company does not have any off balance sheet credit and assess a person’s risk of disease later in life. The Company’s operations exposure related to its customers. are located in Salt Lake City, Utah. 2005 Annual Report (f) Equipment and Leasehold Improvements (b) Principles of Consolidation Equipment and leasehold improvements are stated at cost. Depreciation and The consolidated financial statements presented herein include the accounts amortization are computed using the straight line method based on the lesser of Myriad Genetics, Inc. and its wholly owned subsidiaries, Myriad Genetic of estimated useful lives of the related assets or lease terms. Equipment items Laboratories, Inc., Myriad Pharmaceuticals, Inc., and Myriad Financial, Inc. have depreciable lives from five to seven years. Leasehold improvements are All intercompany amounts have been eliminated in consolidation. depreciated over the shorter of the estimated useful lives or the associated Myriad Genetics lease terms, which range from three to fifteen years. For the years ended June (c) Cash Equivalents 30, 2005, 2004, and 2003, the Company incurred depreciation expense of Cash equivalents of $39.6 million and $39.6 million at June 30, 2005 and $5.5 million, $5.2 million, and $4.8 million, respectively. 2004, respectively, consist of highly liquid debt instruments with maturities at date of purchase of 90 days or less. As of June 30, 2005 and 2004, the book (g) Impairment of Long Lived Assets value of cash equivalents approximates fair value. The Company accounts for long lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting (d) Marketable Investment Securities for the Impairment or Disposal of Long Lived Assets. This statement requires The Company has classified its marketable investment securities as available that long lived assets be reviewed for impairment whenever events or changes for sale. Available for sale securities are recorded at fair value. Unrealized in circumstances indicate that the carrying amount of an asset may not be holding gains and losses, net of the related tax effect, on available for sale recoverable. Recoverability of assets to be held and used is measured by a securities are excluded from earnings and are reported as a separate component comparison of the carrying amount of an asset to future net cash flows expected of stockholders’ equity until realized. to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the Gains and losses on investment security transactions are reported on the amount by which the carrying amount of the asset exceeds the fair value of the specific identification method. Dividend and interest income are recognized asset. Assets to be disposed of are reported at the lower of the carrying amount when earned. A decline in the market value of any available for sale security or fair value less costs to sell. below cost that is deemed other than temporary results in a charge to earnings and establishes a new cost basis for the security.


  • Page 29

    (h) Other Assets cost method). The Company makes adjustments, if necessary, to the estimates Other assets are comprised of purchased intellectual property, investments in used in its cost-to-cost calculations as work progresses and the Company gains privately held biotechnology and pharmaceutical companies, and a purchased experience. The principal costs under these agreements are for personnel library of chemical compounds. The private biotechnology and pharmaceutical expenses to conduct research and development but also include costs for company investments are both accounted for under the cost method. materials and other direct and indirect items necessary to complete the Management reviews the valuation of these investments for possible impairment research under these agreements. Actual results may vary from our estimates. as changes in facts and circumstances indicate that impairment should Payments received on uncompleted long-term contracts may be greater than be assessed. For the year ended June 30, 2005, the valuation of these or less than incurred costs and estimated earnings and have been recorded investments was based on management’s estimates and the completion of an as other receivables or deferred revenues in the accompanying consolidated independent, third party appraisal. balance sheets. The Company recognizes revenue from milestone payments as agreed-upon events representing the achievement of substantive steps in the Based on changes to estimated cash flows compared to the prior fiscal year, development process are achieved and where the amount of the milestone the results of the independent, third-party appraisal indicated that the payments approximates the value of achieving the milestone. The Company Company had incurred an impairment loss in the fourth quarter of approximately recognizes revenue from up-front nonrefundable license fees on a straight-line $2.0 million for its investment in a privately held pharmaceutical company. basis over the period of the Company’s continued involvement in the research This impairment loss is included in other expense in the accompanying and development project. 28 consolidated statement of operations for the year ended June 30, 2005. 29 Predictive medicine revenues include revenues from the sale of predictive The amount recognized by the Company upon the ultimate liquidation of this medicine products, related marketing agreements, and forensic DNA analysis and other investments may vary significantly from the estimated fair value at fees. Predictive medicine revenue is recognized upon completion of the test June 30, 2005. The library of chemical compounds and related purchased or analysis and communication of results. Payments received in advance of intellectual property are being amortized ratably over the expected useful life predictive medicine work performed are recorded as deferred revenue. Up front of five years. payments related to marketing agreements are recognized ratably over the life of the agreement. (i) Revenue Recognition The Company applies the provisions of Securities and Exchange Commission (j) Income Taxes Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104) to all of Income taxes are recorded using the asset and liability method. Under the its revenue transactions. asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial Research revenues include revenues from research agreements, milestone pay- statement carrying amounts of existing assets and liabilities and their respective ments, and technology licensing agreements. In applying the principles of SAB tax bases and operating loss and tax credit carryforwards. Deferred tax assets 104 to research and technology license agreements the Company considers and liabilities are measured using enacted tax rates expected to apply to taxable the terms and conditions of each agreement separately to arrive at a proportional income in the years in which those temporary differences are expected to be performance methodology of recognizing revenue. Such methodologies involve recovered or settled. The effect on deferred tax assets and liabilities of a recognizing revenue on a straight-line basis over the term of the agreement and change in tax rates is recognized in income in the period that includes the based on costs incurred relative to the total estimated contract costs (cost-to- enactment date.


  • Page 30

    (k) Net Loss per Common and Common Equivalent Share (n) Stock Based Compensation Net loss per common share is computed based on the weighted average number As of June 30, 2005 the Company followed the disclosure provisions of SFAS of common shares and, as appropriate, dilutive potential common shares No. 123, Accounting for Stock Based Compensation (SFAS 123). SFAS 123 outstanding during the period. Stock options and warrants are considered to permits entities to measure compensation cost for stock based compensation be potential common shares. using the intrinsic value method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Basic loss per common share is the amount of loss for the period available to Employees (APB 25). The Company elected to continue to apply the provisions each share of common stock outstanding during the reporting period. Diluted of APB 25 and provide pro forma disclosures required by SFAS 123. As such, loss per share is the amount of loss for the period available to each share of with the exception of costs related to the acceleration of vesting of unvested common stock outstanding during the reporting period and to each share that options, stock-based employee compensation cost is not reflected in net loss, would have been outstanding assuming the issuance of common shares for all as all options granted under these plans had an exercise price equal to the 2005 Annual Report dilutive potential common shares outstanding during the period. market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had In calculating loss per common share the net loss and the weighted average com- applied the fair value recognition provisions of SFAS 123 to stock-based mon shares outstanding were the same for both the basic and diluted calculation. employee compensation: For the years ended June 30, 2005, 2004, and 2003, there were antidilutive Year ended June 30 2005 2004 2003 Myriad Genetics potential common shares of 7,394,358, 5,899,252, and 4,922,144, In thousands, except per share amounts respectively. Accordingly, these potential common shares were not included in Net loss, as reported $ 39,978 $ 40,620 $ 24,825 the computation of diluted loss per share for the years presented, but may be Add compensation expense for the acceleration of vesting dilutive to future basic and diluted earnings per share. of unvested options (231) — — Deduct total stock-based employee (l) Use of Estimates compensation expense The preparation of the consolidated financial statements requires Company determined under fair value based method for all awards, management to make a number of estimates and assumptions relating to the net of tax related effects 49,604 25,105 25,532 reported amounts of assets and liabilities and the disclosure of contingent Pro forma net loss $ 89,351 $ 65,725 $ 50,357 assets and liabilities at the date of the consolidated financial statements and Loss per share: the reported amounts of revenues and expenses during the period. Significant Basic and diluted – as reported $ 1.30 $ 1.49 $ 0.96 Basic and diluted – pro forma $ 2.91 $ 2.41 $ 1.96 items subject to such estimates and assumptions include the carrying amount of fixed assets, valuation allowances for receivables and deferred income tax assets, and the valuation of investments in privately-held companies. Actual The fair value of each option grant is estimated on the date of the grant using results could differ from those estimates. the Black Scholes option-pricing model with the following weighted average assumptions used for grants in 2005, 2004, and 2003, respectively: risk free (m) Fair Value Disclosure interest rates of 3.6%, 3.2%, and 3.0%; expected dividend yields of 0% for At June 30, 2005 and 2004, the consolidated financial statements’ carrying all years; expected lives of 6.2 years, 6.0 years, and 6.0 years; and expected amount of the Company’s financial instruments approximates fair value. volatility of 50%, 59%, and 71%.


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    In December 2004, the Financial Accounting Standards Board (FASB) issued Gross Gross Statement No. 123R, Share-Based Payment. Statement 123R sets accounting unrealized unrealized requirements for “share-based” compensation to employees, including Amortized holding holding Fair cost gains losses value employee stock purchase plans, and requires companies to recognize in the At June 30, 2005 income statement the grant-date fair value of stock options and other equity- In thousands based compensation. Statement 123R became effective for the Company on Available-for-sale: Corporate bonds and notes $ 17,000 $ 4 $ (147) $ 16,857 July 1, 2005. On April 14, 2005 the Company accelerated the vesting of Certificate of deposit 1,000 — — 1,000 unvested stock options previously awarded to employees and non-employee Federal agency issues 31,053 — (257) 30,796 members of the board of directors under the Company's 2002 and 2003 stock Tax auction securities 1,700 — — 1,700 option plans in order to avoid estimated charges of approximately $25 million Euro dollar bonds 14,115 — (134) 13,981 $ 64,868 $ 4 $ (538) $ 64,334 to future periods under the requirements of Statement 123R, as the options would have vested under their unmodified terms. Approximately 3.5 million At June 30, 2004 options were accelerated, of which 1.7 million options belong to executive In thousands officers and non-employee members of the board of directors. As a result Available-for-sale: of the acceleration of the vesting of the unvested options, the Company Corporate bonds and notes $ 24,760 $ 30 $ (67) $ 24,723 recognized an expense of approximately $231,000 on the date of acceleration. Commercial paper 3,981 1 (1) 3,981 30 As a result of the acceleration of vesting of unvested stock options, we do not Federal agency issues 21,390 4 (113) 21,281 31 Tax auction securities 29,400 — — 29,400 anticipate that Statement 123R will have a material impact on our consolidated Euro dollar bonds 11,690 6 (72) 11,624 financial statements at the time of adoption. $ 91,221 $ 41 $ (253) $ 91,009 (o) Reclassifications Certain prior year amounts have been reclassified to conform to the current Maturities of debt securities classified as available for sale are as follows at year presentation. In the accompanying consolidated balance sheet as of June June 30, 2005: 30, 2004, $26.5 million of long-term marketable investment securities were reclassified to current marketable investment securities and $33.2 million of Amortized Fair cost value cash and cash equivalents were reclassified to current marketable investment In thousands securities. As a result of these reclassifications, net cash from investing Available-for-sale: activities in the accompanying consolidated statement of cash flows decreased Due within one year $ 35,852 $ 35,627 by $29.3 million in 2004. None of the reclassifications had an impact on Due after one year through three years 29,016 28,707 $ 64,868 $ 64,334 the Company’s consolidated statements of operations or stockholders’ equity and comprehensive loss. All securities in an unrealized loss position as of June 30, 2005 are debt NOTE 2: Marketable Investment Securities securities. Debt securities in an unrealized loss position as of June 30, 2005 The amortized cost, gross unrealized holding gains, gross unrealized holding were not impaired at acquisition and the decline in fair value is due to interest losses, and fair value for available for sale securities by major security type and rate fluctuations. Debt securities available for sale in an unrealized loss class of security at June 30, 2005 and 2004 were as follows: position as of June 30, 2005 are summarized as follows:


  • Page 32

    Less than 12 months More than 12 months Total NOTE 4: Stock Based Compensation Fair Unrealized Fair Unrealized Fair Unrealized In 2003 the Company adopted the 2003 Employee, Director and Consultant value losses value losses value losses Stock Option Plan (the 2003 Plan). The Company reserved 1,300,000 shares Debt securities: Corporate bonds & notes $ 8,537 $ (49) $ 6,191 $ (98) $ 14,728 $ (147) of common stock for issuance upon the exercise of options that the Company Federal agency issues 15,946 (107) 14,850 (150) 30,796 (257) plans to grant from time to time under this plan. The 2003 Plan was amended Euro dollar bonds 8,015 (73) 5,966 (61) 13,981 (134) by board of director and stockholder approval in November 2004 to include an $ 32,498 $ (229) $ 27,007 $ (309) $ 59,505 $ (538) additional 1,400,000 shares. Furthermore, additional shares represented by NOTE 3: Leases options previously granted under the Company’s 2002 Amended and Restated The Company leases office and laboratory space under four non-cancelable Employee, Director and Consultant Stock Option Plan (the 2002 Plan) which operating leases, with terms that begin to expire in 2017. Future minimum are canceled or expire after the date of stockholder approval of the 2003 Plan 2005 Annual Report lease payments under these leases as of June 30, 2005 are as follows: without delivery of shares of stock by the Company and any shares which have been reserved but not granted under the 2002 Plan as of the date of stock- Fiscal year ending: holder approval of the Plan are available for grant under the 2003 Plan. In thousands 2006 $ 3,258 The exercise price of options granted in 2005, 2004, and 2003 was equiva- 2007 4,045 2008 5,140 lent to the fair market value of the stock at the date of grant. The number of 2009 5,219 shares, terms, and exercise period are determined by the board of directors on Myriad Genetics 2010 5,283 an option by option basis. Options generally vest ratably over four or five years Thereafter 50,596 and expire ten years from the date of grant. As of June 30, 2005, 757,258 $ 73,541 shares are reserved for future grant under the Company’s plans. Rental expense was $3.2 million in 2005, $4.0 million in 2004, and $4.9 million in 2003. A summary of activity is as follows: 2005 2004 2003 Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price Options outstanding at beginning of year 5,933,252 $ 27.28 4,956,144 $ 31.29 4,174,635 $ 34.94 Plus options granted 1,718,150 19.39 1,296,875 14.43 1,257,100 17.34 Less: Options exercised (144,701) 8.48 (44,675) 6.29 (167,903) 4.30 Options canceled or expired (142,343) 33.17 (275,092) 36.19 (307,688) 37.81 Options outstanding at end of year 7,364,358 25.70 5,933,252 27.28 4,956,144 31.29 Options exercisable at end of year 7,355,358 25.71 3,102,658 31.52 2,203,456 31.09 Weighted average fair value of options granted during the year $ 10.09 $ 8.25 $ 11.39


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    The following table summarizes information about fixed stock options outstanding at June 30, 2005: Options Outstanding Options Exercisable Weighted Average Weighted Number Remaining Weighted Number Average Outstanding at Contractual Average Exercisable at Exercise Range of Exercise Prices June 30, 2005 Life (years) Exercise Price June 30, 2005 Price $ 4.69 – 12.54 2,034,054 5.74 $ 9.50 2,034,054 $ 9.50 12.66 – 19.50 1,866,157 8.10 16.62 1,857,157 16.63 19.56 – 35.76 2,214,427 7.35 25.92 2,214,427 25.92 $ 35.91 – 93.81 1,249,720 5.65 65.20 1,249,720 65.20 7,364,358 6.81 $ 25.70 7,355,358 $ 25.71 As of June 30, 2005, 30,000 warrants previously granted to placement agents were outstanding and exercisable at a weighted average price of $40.00 per share. NOTE 5: Income Taxes The Company recorded $0, $0, and $417,000 of income tax expense in The net change in the total valuation allowance for the years ended June 30, 2005, 2004, and 2003, respectively. The difference between the expected tax 2005 and 2004 was an increase of $22.2 million and $16.5 million, 32 benefit for all periods presented and the actual tax expense is primarily attrib- respectively. Approximately $37.2 million of deferred tax assets at June 30, 33 utable to the effect of net operating losses being offset by an increase in the 2005, if recognizable in future years, will be recognized as additional paid in Company’s valuation allowance, plus the effect of foreign income taxes in 2003. capital, and the remainder will be allocated as an income tax benefit to be reported in the consolidated statement of operations. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2005 and 2004 are At June 30, 2005, the Company had total federal tax net operating loss carry- presented below: forwards of approximately $258.1 million and research and development credit carryforwards of approximately $10.1 million, which can be carried forward to 2005 2004 reduce federal income taxes. If not utilized, the tax loss and research and In thousands Deferred tax assets: development credit carryforwards expire beginning in 2007 through 2024. Net operating loss carryforwards $ 96,285 $ 84,125 Unearned revenue 467 281 The Company’s alternative minimum tax net operating losses are approximately Equipment, principally due to differences in depreciation 467 — the same as its regular tax net operating losses. The Company also has state Research and development credits 14,584 7,763 Accrued liabilities and other 3,690 1,729 net operating loss and research credit carryfowards that may be utilized in Total gross deferred tax assets 115,493 93,898 accordance with the various states’ rules and regulations. Less valuation allowance (115,493) (93,288) Net deferred tax assets — 610 Under the rules of the Tax Reform Act of 1986, the Company has undergone Deferred tax liability: Equipment, principally due to differences in depreciation — 610 changes of ownership, and consequently, the availability of the Company’s net Total gross deferred tax liability — 610 operating loss and research and experimentation credit carryforwards in any Net deferred tax liability $ — $ — one year are limited. The maximum amount of carryforwards available in a


  • Page 34

    given year is limited to the product of the Company’s value on the date of reimbursement basis. Under this agreement the Company recognized research ownership change and the federal long term tax exempt rate, plus any limited revenue of $2.3 million for the fiscal year ended June 30, 2005. carryforward not utilized in prior years. Management has not evaluated whether these rules will result in any losses or credits expiring unutilized. In March 2002, the Company entered into a three-year, $13.8 million research collaboration to identify novel drug targets for the diagnosis and NOTE 6: Employee Deferred Savings Plan and Stock Purchase Plan treatment of depression. The agreement, which was completed in February The Company has a deferred savings plan which qualifies under Section 2005, provided the collaborator with certain license rights and specified 401(k) of the Internal Revenue Code. Substantially all of the Company’s guaranteed research funding, potential milestones, and royalties to the employees are covered by the plan. The Company makes matching contribu- Company. Revenue related to the license agreement was recognized ratably tions of 50% of each employee’s contribution with the employer’s contribution over the license period and revenue related to this research collaboration was not to exceed 4% of the employee’s compensation. The Company’s contribu- recognized as research was performed on a cost-to-cost basis. Revenue from 2005 Annual Report tions to the plan were $1,175,000, $970,000, and $858,000 for the years the achievement of milestones was recognized upon achieving the milestone. ended June 30, 2005, 2004, and 2003, respectively. Under this agreement the Company recognized research revenue of $2.5 million, $4.4 million, and $6.3 million for the fiscal years ended June 30, The Company has an Employee Stock Purchase Plan (the Plan) which was 2005, 2004, and 2003, respectively. adopted and approved by the board of directors and stockholders in December 1994, under which a maximum of 400,000 shares of common stock may be Also in March 2002, the Company formed a $24 million research collaboration Myriad Genetics purchased by eligible employees. In November 2004 the board of directors to apply its high speed genomic sequencing capability and bioinformatics and stockholders approved an additional 200,000 shares which may be expertise to deliver molecular genetic information to the collaborator. The offered under the Plan. At June 30, 2005, 403,819 shares of common stock agreement, which was completed in October 2003, provided the collaborator had been purchased under the Plan. For the years ended June 30, 2005, with certain license rights. Revenue related to this research collaboration 2004, and 2003, shares purchased under the Plan were 94,553, 93,006, and was recognized on a straight-line basis. Under this contract the Company 58,851, respectively. The discount allowed to employees of approximately recognized research revenue of $0, $5.1 million, and $15.7 million for the $333,000 is included in the pro forma loss shown in note 1. fiscal years ended June 30, 2005, 2004, and 2003, respectively. NOTE 7: Collaborative Research Agreements In May 2000, the Company entered into a three-year, $22.5 million license In May 2005, the Company licensed a portion of its intellectual property related agreement and research collaboration to utilize its protein interaction to a cancer compound to an oncology drug development company. The technology. The agreement, which was completed in April 2003, provided the Company has no continuing obligations under the license. As a result of the collaborator a license to utilize the protein interaction technology in certain license agreement the Company recognized the related $2.5 million in foreign markets. Revenue related to the license agreement was recognized ratably research revenue for the fiscal year ended June 30, 2005. over the license period and revenue related to the research collaboration was recognized as research was performed on a cost-to-cost basis. Under this In June 2004, the Company entered into a five-year, $14.2 million research agreement the Company recognized research revenue of $0, $0, and $5.4 million agreement to utilize its expertise to characterize pathogen-host protein interactions. for the fiscal years ended June 30, 2005, 2004, and 2003, respectively. Revenue related to this collaboration is being recognized on a cost-plus


  • Page 35

    NOTE 8: Segment and Related Information All of the Company’s revenues were derived from research and testing per- The Company’s business units have been aggregated into three reportable formed in the United States. Additionally, all of the Company’s long lived segments: (i) research, (ii) predictive medicine, and (iii) drug development. assets are located in the United States. All of the Company’s research segment The research segment is focused on the discovery of genes related to major revenue was generated from nine, five, and six collaborators in fiscal 2005, common diseases. The predictive medicine segment provides testing to 2004, and 2003, respectively. Further, revenue from zero, zero, and one of the determine predisposition to common diseases. The drug development segment collaborators was in excess of 10% of the Company’s consolidated revenues is focused on the development of therapeutic products for the treatment and for fiscal years 2005, 2004, and 2003, respectively. prevention of major diseases. NOTE 9: Stockholder Rights Plan The accounting policies of the segments are the same as those described The Company has in place a Stockholder Rights Plan (the Plan). The Plan pro- in the summary of significant accounting policies (note 1). The Company vides registered holders of the Company’s common stock one preferred share evaluates segment performance based on loss from operations before interest purchase right for each outstanding share of the Company’s common stock. income and expense and other income and expense. Each right entitles the holder to purchase one one-hundredth of a share of a new series of junior participating preferred stock. The rights have certain Predictive Drug anti-takeover effects and allow the Company’s stockholders (other than the Research medicine development Total acquiror) to purchase common stock in the Company or in the acquiror at 34 In thousands a substantial discount. Prior to the ten days following the acquisition by a 35 Year ended June 30, 2005: Revenues $ 11,081 $ 71,325 — $ 82,406 person or group of beneficial ownership of 15% or more of the Company’s Depreciation and amortization 2,149 2,033 $ 1,910 6,092 common stock, the Board of Directors may redeem the rights in whole, but not Segment operating gain (loss) (13,752) 15,764 (42,757) (40,745) in part, at a price of $0.01 per right. Year ended June 30, 2004: Revenues 13,354 43,294 — 56,648 Depreciation and amortization 2,273 1,768 1,725 5,766 NOTE 10: Investment in Prolexys Pharmaceuticals, Inc. Segment operating gain (loss) (16,581) 2,975 (29,029) (42,635) In April 2001, the Company contributed technology to Prolexys Year ended June 30, 2003: Pharmaceuticals, Inc. (Prolexys), formerly known as Myriad Proteomics, Inc., Revenues 29,638 34,683 — 64,321 in exchange for a 49% ownership interest and investors contributed a combined Depreciation and amortization 2,287 1,912 1,076 5,275 Segment operating gain (loss) $ (2,811) $ (2,672) $ (21,863) $ (27,346) $82 million in cash in exchange for the remaining 51% ownership in Prolexys. The Company accounts for its investment in Prolexys using the equity method. 2005 2004 2003 Total operating loss for reportable Because the Company’s initial investment in Prolexys consisted of technology segments $ (40,745) $ (42,635) $ (27,346) with a carrying value of $0 on the Company’s consolidated financial Unallocated amounts: statements, and given the uncertainty of the realizability of the difference Interest income 2,798 2,025 2,900 between the $82 million carrying amount and the Company’s proportionate Other (2,031) (10) 38 Income taxes — — (417) share of the net assets of Prolexys, the Company’s initial investment in Net loss $ (39,978) $ (40,620) $ (24,825) Prolexys was recorded as $0. The Company allocated $41 million of this difference to technology which is being reduced as the related technology


  • Page 36

    amortization, including in-process research and development charges, are Summarized statement of operations information for Prolexys for the years recorded at Prolexys. At June 30, 2005, the remaining technology basis ended June 30, 2005, 2004, and 2003 is as follows: difference is estimated to be $10.7 million. The remaining $41 million of unallocated basis difference is being accreted to income, offset by 2005 2004 2003 the Company’s share of Prolexys’ losses, over the period of expected benefit In thousands (Unaudited) of 10 years. Total revenues $ 694 $ 1,108 $ 150 Other operating costs and expenses 20,539 33,560 23,155 Net loss $ (17,090) $ (26,508) $ (19,756) As part of the formation of Prolexys, the Company entered into administrative and scientific outsourcing agreements with Prolexys. The original terms of these agreements expired on December 31, 2001, but were extended until June 30, 2002 and again to June 30, 2003 at the option of Prolexys. This 2005 Annual Report agreement was terminated effective January 26, 2004. Charges to Prolexys for services incurred related to the administrative and scientific outsourcing agreements were based on actual time and expenses incurred by the Company on behalf of Prolexys. During the years ended June 30, 2005, 2004, and 2003, the Company provided $0, $1.6 million, and Myriad Genetics $2.0 million, respectively, of administrative and scientific services to Prolexys. Summarized balance sheet information as of June 30, 2005 and 2004 for Prolexys is as follows: 2005 2004 In thousands (Unaudited) Current assets $ 13,352 $ 24,230 Noncurrent assets 28,337 39,699 Current liabilities 2,305 3,307 Noncurrent liabilities 8,455 12,624 Stockholders’ equity $ 30,929 $ 47,998


  • Page 37

    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three year period ended June 30, 2005. In connection with our audits of the consolidated financial statements, we have also audited the accompanying consolidated financial statement schedule. These consolidated 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 and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Myriad 36 Genetics, Inc. and subsidiaries as of June 30, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three year 37 period ended June 30, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Myriad Genetics, Inc. and subsidiaries' internal control over financial reporting as of June 30, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated September 7, 2005 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting. Salt Lake City, Utah September 7, 2005


  • Page 38

    MARKET PRICE FOR COMMON STOCK SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS Our Common Stock began trading on the Nasdaq National Market on October Allowance for doubtful accounts: 6, 1995 under the symbol “MYGN.” The following table sets forth, for the last Years Ended June 30, 2005 2004 2003 two fiscal years, the high and low sales prices for the Common Stock, as In thousands Balance at Beginning of Period $ 1,205 $ 895 $ 505 reported by the Nasdaq National Market, during the periods indicated: Addition Charged to Cost and Expenses 2,244 2,020 564 Deductions (1) (2,054) (1,710) (174) Balance at End of Period $ 1,395 $ 1,205 $ 895 High Low Fiscal 2005: See accompanying notes to consolidated financial statements. Fourth Quarter $ 18.62 $ 15.06 (1) Represents amounts written off against the allowance. Third Quarter 26.07 18.07 Second Quarter 24.30 16.35 First Quarter $ 18.30 $ 12.11 2005 Annual Report Fiscal 2004: Fourth Quarter $ 19.50 $ 13.57 Third Quarter 18.52 12.95 Second Quarter 13.45 11.00 First Quarter $ 16.50 $ 10.88 Myriad Genetics Stockholders As of September 1, 2005, there were approximately 180 stockholders of record of our Common Stock and, according to our estimates, approximately 12,456 beneficial owners of the Common Stock. Dividends 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.


  • Page 39

    CORPORATE INFORMATION Corporate Offices Independent Registered Form 10-K 320 Wakara Way Public Accounting Firm A printed copy of the Company’s Salt Lake City, UT 84108 KPMG LLP Annual Report to the Securities and Phone: 801.584-3600 15 West South Temple Exchange Commission on Form 10-K Suite 1500 may be obtained by any shareholder Legal Counsel Salt Lake City, UT 84101 without charge upon written request to: Mintz, Levin, Cohn, Ferris, Glovsky Myriad Genetics, Inc. and Popeo, P.C. Annual Meeting Investor Relations One Financial Center The Annual Meeting of Shareholders 320 Wakara Way Boston, MA 02111 will be held at the offices of Myriad Salt Lake City, UT 84108 Genetics, Inc., 320 Wakara Way, Salt Transfer Agent and Registrar Lake City, Utah on Thursday, November Internet American Stock Transfer & Trust Company 10, 2005 at 9:00 a.m., MST. The Company’s Form 10-K can 59 Maiden Lane also be found on its website at New York, NY 10038 www.myriad.com ©2005 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 www.myriad.com


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