Millennium Pharmaceuticals upgraded
Morgan Stanley sees Velcade drug's sales going strong
By Susan Lerner, CBS.MarketWatch.com
Last Update: 11:54 AM ET Aug. 22, 2003
[Harr was never a big supporter of Millennium. On May 14 when the stock price was 14,50 his target price was 9-10 USD. The share price bottomed on August 6 after the Q2-results were published at 11,50. So, he was right about the direction but not about the magnitude of the movement.
Now he has changed his mind without seeing his target price reached. Let's hope - as longs - that he also this time is right about the direction].
NEW YORK (CBS.MW) -- Steven Harr calls Velcade the key to Millennium Pharmaceuticals' growth outlook -- for the short, medium and long term -- so the Morgan Stanley analyst likes what he's hearing about sales of the recently launched anti-cancer drug.
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Harr upgraded shares of the Cambridge, Mass.-based biopharmaceutical company (MLNM: news, chart, profile) to "equal-weight" from "underweight" on Friday, seeing upside to the stock over the next three to six months as the first sales numbers for Velcade, approved to treat a form of blood cancer known as multiple myeloma, are reported.
Millennium's shares rallied, rising 75 cents, or 5.9 percent, to $13.53 in recent action.
"Initial physician feedback and IMS data are strong for Velcade, and we believe sales over the next several quarters may exceed management's guidance and Street expectations," Harr told clients. The drug was launched May 20.
Harr noted that feedback on the use of the drug from large oncology centers has been "consistently positive," with its early efficacy and toxicity profiles at least meeting expectations.
Against that backdrop, he lifted his 2003 sales estimate for Velcade to $40 million from $31 million and his 2004 estimate to $130 million from $121 million. Harr left unchanged his peak sales estimate of $600 million.
Additionally, he said, there may be increasing off-label use in non-Hodgkin's lymphoma and solid tumors. The analyst expects further clarity on Velcade's potential for these indications later this year.
"While we remain cautious on the outcome of the solid tumor trials, Millennium's 'shotgun' development approach in a large number of indications increases the chance that Velcade will at least show some hints of efficacy in one or more solid tumor indication," Harr said.
Reason for caution
Despite his enthusiasm over Velcade's early sales and its potential, Harr held back from a putting a more aggressive "overweight" rating on the shares because he said that Millennium's valuation was high and that several risks remain.
"While the company has recently addressed some its cash burn and balance sheet issues, we would wait for further clarity on Velcade's potential in solid tumors or a lower stock price before getting more aggressive with the stock," he said.
The company, he said, plans to make its intentions in sold tumors clear by year-end. A positive signal in these large-market tumors could lead to upside in the stock.
Alternatively, however, a complete lack of any signal regarding solid tumors could push the stock back to the $8 to $10 range, according to Harr.
He's also concerned about several long-term issues, including slowing Integrilin growth; restructuring uncertainty, and an increasing dependence on Velcade's success in solid tumors.
Harr believes sales of Integrilin, used to treat severe cardiovascular disease, will continue to face competitive pressure from Angiomax and drug-eluting stents.
And following a recent company visit, Harr said it was clear that the rest of Millennium's pipeline won't be ready to contribute meaningfully to the bottom line until at least 2008/2009.
"To drive profitability growth for the first several years after breaking even in 2006, Velcade must exceed the Street's current expectations and likely needs an eventual label in a solid tumor to do this.
"Otherwise, Millennium runs the risk of multiple years of modest profitability before the pipeline potentially begins to show fruits in the latter part of this decade," he said. |
