Myriad Genetics ( MYGN) said Monday that it will stop development of its experimental Alzheimer's disease drug Flurizan due to the failure of a pivotal phase III study.

The Flurizan study, which enrolled patients with mild to moderate Alzheimer's, did not achieve statistical significance on either of its two primary endpoints -- cognition or activities of daily living, the company said.

While disappointing, the negative outcome from the Flurizan study was not unexpected, given the relatively poor results coming out of the drug's phase II study. In fact, many investors are likely to welcome Flurizan's demise because shelving the drug will reduce Myriad's expenses and boost profits from the company's genetics testing business.

Myriad shares were up 15 cents, or 0.3%, at $47.85 in premarket trading Monday.

"The discontinuation of Flurizan will reduce our pharmaceutical development spend substantially and should enable Myriad to achieve profitability next year," said CEO Peter Meldrum, referring to the fiscal year ending June 30, 2009.

Myriad says it spent $60 million on Flurizan's development already and will spend another $8 million to wrap up the clinical work. But Myriad was able to recoup these costs in May when it signed away European rights for Flurizan to Danish drug maker Lundbeck. As part of that agreement, Lundbeck paid Myriad $100 million.

Consensus estimate calls for Myriad to lose 52 cents a share on $234 million in revenue the 2008 fiscal year ending today. Next year, the company is expected to earn 35 cents on revenue of $315 million.

Myriad's molecular diagnostics tests assess a patients' risk of developing cancer. The most successful of its tests measures a woman's risk of developing breast or ovarian cancer based on the detection of mutations in two key cancer-related genes.

Analyst Geoffrey Meacham of JPM Research said in a research report he wasn't surprised by Myriad's announcement.

" We would expect to see significant support for the stock due to investor interest in the predictive medicines diagnostic business," which is growing revenue at 51% in the current fiscal year, the analyst said. "Furthermore, we no longer see a short thesis at this point, and the 30% short interest on the basis of Flurizan is likely to dissolve."

Meacham reiterated his overweight rating on Myriad's shares.
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