From GS 10/16:
MLNM reported a Q3 loss of $0.31 excluding extra items, $0.01 worse than
our estimate and $0.04 worse than consensus, reflecting lower interest
income. Integrilin sales were above our estimate due to higher wholesaler
inventory in the US. Management lowered expectations to what we view as
achievable levels, including corporate revenues and milestone fees.
Therefore, we have revised our 2002 loss estimate to $0.95 from $0.79
and 2003 loss estimate to $0.82 from $0.75. The shares should be under
pressure near term due to the revision as well as the release of results on
a competing product to Integrilin, in 11/02. For long term investors we
maintain our Market Outperformer rating based on an expanding pipeline,
including Velcade in Phase III trials. MLNM shares are trading at a price to
net cash ratio of 2.2X, which is at the low end of the historical range for
emerging biotech companies. The risks to our long-term view include
failure in product development, decreased sales of Integrilin and continued
investor aversion to high-risk stocks.
RECOMMENDATION: WE CONTINUE TO RATE MARKET
OUTPERFORMER based on an increasingly visible pipeline, Integrilin
sales growth of over 15% per year for the next few years and relatively
attractive valuation based on price to net cash of 2.2X, which is at
historically low levels. We have also attempted to value Millennium based
on the value of Integrilin. Assuming peak sales of $500MM, 50% profit
split with Schering Plough and 5X sales (historical biotech range is 3-10X)
the implied value for Integrilin is $1.25B. Taken together with the current
market capitalization of $2.8B, net cash (excluding convertible debt) of
$1.0B at year end, the implied value of the pipeline and additional alliance
revenues is about $550MM, which we view as attractive. The low valuation
reflects negative investor sentiment towards high-risk stocks, lack of major
catalysts in the near-term, and recent negative results from a Phase II trials
of MLN-02 in Crohn’s disease and MLN-977 in asthma. We believe that
Millennium management lowered expectations on revenues and losses to
a realistic level yesterday, including disclosure on decreased corporate
revenues (due to a shift to product focused from research based corporate
partnerships), elimination of a $10MM milestone payment fee from
Schering Plough, and the interruption of Integrilin supply in Europe at
Schering Plough (minor earnings impact). We expect news flow to turn
positive in the next few months with presentation of positive clinical results
on Velcade and Integrilin as well as the start of Phase I trials on 2-3 new
products by year-end. The release of Phase III data on Angiomax, a
potential competitor to Integrilin, in November 2002 may cause volatility to
Millennium stock even though the impact on Integrilin sales should not be
significant.
1. Q3 RESULTS: LOSS OF $0.31, $0.01 WORSE THAN OUR ESTIMATES ON LOWER
INTEREST INCOME
Key items to note from the Q3 report are as follows:
Q3A Q3E Comment
US Integrilin $72.2MM $68.1MM Wholesaler inventory
$6-7MM above normal
Int’l Integrilin $4.7MM $5.8MM Manufacturing problem for
Europe at Schering Plough
Net interest income $11.9MM $25.2MM Lower interest rate,
Loss/write down on securities
Source: Company reports and Goldman Sachs Research estimates
2. INTEGRILIN ON TRACK FOR CONTINUED GROWTH: In Q3/02, Integrilin reached
60% patient share and 48% dollar share among IIb/IIIa inhibitors.
Integrilin is approved for angioplasty and acute coronary syndrome (ACS).
The market potential in angioplasty and ACS is $150MM and $500MM,
respectively. Growth drivers include increased penetration in ACS and
expansion into indications beyond ACS. Millennium is conducting the CRUSADE
trial in order to increase compliance with the American College of
Cardiology (ACC)/ American Heart Association (AHA) guidelines on ACS. The
trials will include 60,000 patients at 600 hospitals. We expect an update
on 25,000 patients at the AHA meeting in November. To expand the
indications for Integrilin, Millennium plans to initiate Phase III trials
in H2/02 of Integrilin in coronary artery bypass surgery (CABERNET) and for
heart attacks in combination with TNKase (ADVANCE-MI). The additional
indications could double the eligible population for Integrilin treatment.
The imminent launch of drug-coated stents might also increase stenting
procedures and exaggerate the low cost of Integrilin relative to other
IIb/IIIa inhibitors. Results from the REPLACE 2 study comparing Angiomax
plus provisional IIb/IIIa versus Heparin plus IIb/IIIa therapy in
angioplasty are expected in November. We expect limited impact on
Integrilin unless there is dramatically better efficacy with Angiomax,
which is unlikely.
3. REVISED 2002 AND 2003 ESTIMATE
We have revised our 2002 loss estimate of $0.95 from $0.79 due to a
reduction of corporate partner revenue by $44MM to $210MM. Our 2003 loss
estimate has also been revised to $0.82 from $0.75 based on lower corporate
partner revenues (by $81MM to $253MM) and removal of a $10MM milestone
payment from Schering Plough, Millennium’s partner on Integrilin.
Millennium is eligible for the $10MM milestone fee upon European approval
of Integrilin for angioplasty. In Q2/02, the European regulatory agency
added the data from ESPRIT, the Phase III trial of Integrilin on
angioplasty, to the ’Product Characteristics’ section of the European
package insert. However, the indication was not expanded to cover
angioplasty. Therefore, Millennium will not be eligible for the milestone
fee.
We maintain our Integrilin sales forecasts of $300MM in 2002 (+30% over
2001) and $372MM in 2003 (+24% from 2002).
4. STRONG CASH POSITION
As of 9/30/02, Millennium had $1,820MM in cash and $683MM in outstanding
convertible debt. We expect Millennium to have $1.7B in cash at yearend
2002. In April 2002, Millennium amended the terms of the 5.0% and 4.5%
convertible debt previously issued by COR Therapeutics to allow for bond
holders to require Millennium to buy back the notes for cash in April 2003.
The $300MM in 5% notes can be sold to Millennium for $1,095 in cash for
every $1,000 in principal on 4/29/03. The $300MM in 4.5% notes can be sold
to Millennium for $1,085 in cash for every $1,000 in principal on 4/29/03.
Millennium may satisfy the commitments through equity or cash. With $1.7B
in cash and our estimate of less than $250MM in burn rate per year,
Millennium should be able to meet the commitments.
5. MILESTONES FOR H2/02:
-Initiate bypass study of Integrilin
-Initiate ADVANCE-MI study of Integrilin in heart attacks
*Initiate Phase III trials of Velcade in multiple myeloma
*Initiate Phase II trials of Velcade in solid tumors
-Initiate Phase II trials of immunoconjugate MLN-591 in cancer
-Initiate Phase I trials on 2-3 new products
*Phase II results of MLN-977 asthma (negative)
*Phase II results of MLN-02 in Crohn’s disease (negative)
* completed
PIPELINE UPDATE
1) In June 2002, Millennium initiated a Phase III trial of Velcade (fka MLN
341). The trial will enroll approximately 600 patients with advanced
multiple myeloma who have failed one to three prior therapies. Patients
will be treated with Velcade or high-dose dexamethasone (DEX) for 38-39
weeks. Patients that do not respond to DEX will be allowed to switch to
Velcade therapy. The primary endpoint is time-to-tumor progression (TTP).
TTP for DEX alone is six to nine months. The trial is designed to detect
30% improvement over an estimated TTP of 12 months for DEX. Secondary
endpoints include clinical benefit, quality of life, survival, and response
rate (both tumor and M-protein levels). We expect the study to complete in
2004. In June 2002, the FDA granted fast-track status to Velcade.
Millennium plans to submit a rolling application for approval, assuming
favorable Phase III data.
2) Millennium is also conducting Phase I and II trials of Velcade in
several solid tumors, including, ovarian, pancreatic, lung, breast, and
colon, as well as in chronic lymphocytic leukemia (CLL). Phase II results
on CLL are expected in the first half of 2003. Phase II trials in solid
tumors are expected to start in 2002
3) In September 2002, Millennium and its partner, Genentech, announced
negative Phase II results of MLN-02 in Crohn’s disease (CD). The trial did
not achieve statistical significance in its primary endpoint in reduction
of disease severity but there was a benefit in inducing remission. MLN-02
is also in a Phase II trial for ulcerative colitis (UC). Results are
expected in H1/03. The company will analyze the data further before a final
decision on further development. Millennium may elect to perform further
Phase II trials. If so, it will be responsible for funding and performing
the studies.
4) MLN591 is a monoclonal antibody to prostate specific membrane antigen
(PSMA) which is expressed on the surface of essentially all prostate cancer
cells. Radiolabeled MLN591 is in Phase I trials to treat prostate cancer.
Potential applications in other solid tumors are being explored. In
addition Phase I trials on MLN2704 (DM1), an immunoconjugate of MLN591,
should begin in H2/02. Millennium in-licensed the antibody from BZL
Biologics in April 2001.
5) MLN-518, a small molecule inhibitor of the Flt-3 receptor tyrosine
kinase (RTK). Approximately 30% of patients with acute myeloid leukemia
(AML), a blood cancer, have a FLT-3 gene mutation which may be involved in
the growth and survival of the AML cells. In the first quarter 2002,
Millennium started an open label Phase I trial of MLN-518 to treat AML in 5
states in the United States. Approximately 40 patients with relapsed AML
within 12 months of consolidated therapy or newly diagnosed AML who are not
candidates for conventional remission-induction chemotherapy will be
enrolled.
6) MLN-576, an oral inhibitor of topoisomerases I and II, is in Phase I
trials to treat refractory solid tumors. Topoisomerases I and II are
enzymes responsible for maintaining the proper DNA configuration so that
DNA replication can occur. Inhibition of these enzymes can lead to
apoptosis, or cell death. Millennium in-licensed MLN-576 from Xenova.
7) MLN-519 is an oral proteasome inhibitor in Phase I studies to treat
stroke in collaboration with PAION. The restoration of blood flow is after
a stroke can lead to an inflammatory response which in turn can result in
significant tissue destruction. MLN519 may be able to reduce tissue damage
if used within 2 hours after a stroke by blocking the activation of
inflammatory molecules.
8) MLN-01 is a humanized monoclonal antibody against Beta-2 integrins,
which are adhesion molecules involved in the recruitment of white cells to
inflammatory sites. In collaboration with XOMA, Phase IIa clinical trials
are ongoing to reduce tissue damage after stroke.
9) MLN-4760 is in Phase I trials to treat obesity. The compound is the
first small molecule against a genomic target for metabolic disease from
Millennium and the first to enter clinical trials from its agreement with
Abbott. MLN-4760 inhibits carboxypeptidase, an enzyme believed to play a
role in diet-induced obesity and insulin sensitivity.
10) In July 2002, Millennium discontinued development of MLN-977, an oral
inhibitor of 5-lipoxygenase, to treat asthma. The decision was a result of
elevated liver enzymes from the recently completed Phase II trial.
Millennium will seek a partner to continue development of an inhaled form
of MLN-977. Taisho, Millennium’s partner for oral MLN-977 will not be
involved in the inhaled formulation. |
