Millennium, facing profit goal, weighs cost cutting
By Mark Hollmer
Boston Business Journal
Updated: 8:00 p.m. ET Sept. 25, 2005
CAMBRIDGE -- Millennium Pharmaceuticals Inc. looks to be the second major Bay State biotechnology company poised for a significant restructuring in coming weeks.
Speculation and rumor continue to suggest that Millennium is on the verge of another reorganization beyond the 2003 initiative that refocused the company on three product areas and eliminated 600 jobs. This comes two weeks after Biogen Idec (Nasdaq: BIIB) set plans to lay off 650 employees globally and sell off assets in a bid to reinvigorate its drug development and overall business strategy, following the voluntary withdrawal of its multiple sclerosis drug Tysabri over safety concerns.
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Deborah Dunshire, the company's new president and CEO, would not comment specifically on what Millennium (Nasdaq: MLNM) will undertake as it accelerates its push to become a viable commercial drug company. But she said, "Millennium is a company in transition" with more changes on the way beyond her official arrival as its new leader last month.
"Since I came on board, I asked for a complete review of everything we are doing to make sure we are doing all of the right things at the right (pace)," said Dunshire, the former head of Novartis Pharmaceutical Corp.'s North American oncology operations. That effort, she said, will be joined with the company's ongoing review of its overall strategic plan, and the outcome will be presented to analysts Nov. 2.
Some analysts say they would not be surprised by significant restructuring. They said they would welcome layoffs, especially in light of Millennium's plans to reach pro forma operating profitability sometime in 2006. Millennium lost $252.3 million in 2004, despite substantial reduction of red ink and better product sales. Losses in the first six months of 2005 surpassed $80 million, a moderate improvement over 2004. Millennium has about $589.6 million in cash and equivalents as of June 30. The company employs about 1,250 people, most of whom are based in Cambridge.
"It would not shock me if they decided to cut further," said Christopher Raymond, an analyst with Robert W. Baird Co. in Chicago. "They have drawn a pretty strong line in the sand to achieve profitability next year and ... the sales trajectory for (blood cancer drug) Velcade hasn't been as strong or as steep as we originally had hoped." Raymond said that Millennium's signature drug Velcade presented "billion-dollar" potential when sales began in mid-2003. But he noted its sales jumped from $60 million during the last six months of 2003 to $143 million last year. He projects slower projected sales growth of about $200 million in 2005.
"What you usually like to see is something stronger than that," he said.
Jim Reddoch, an analyst with Arlington, Va.-based Friedman, Billings, Ramsey & Co., said that investors would welcome further restructuring and job cuts at Millennium.
"It would be perceived well," he said, "because there is a disproportionate amount of spending at Millennium on the research and development side of the business and that's preventing a company that has a decent revenue stream from being able to turn profitable."
Research spending may offer one clue. The company spent a little over $511 million on research and development in 2002, reducing that to about $488 million in 2003 and $403 million in 2004, Raymond said. His firm anticipates the company will spend $355 million in that area this year, and would need to reduce that further to $275 million in 2006 to achieve profitability, which he said could make more job cuts unavoidable.
Millennium has already undertaken a number of significant changes since Dunshire replaced founder Mark Levin. The company has narrowed its drug development focus to cancer and inflammation, leaving behind cardiovascular disease.
In July, Millennium announced it would give up co-promotion rights to its cardiovascular drug Integrilin with Schering Plough Corp. (NYSE: SGP), settling instead on royalty payments of about $85 million annually that could go higher if sales grow dramatically.
The company also has its first proprietary compound in years ready to reach human clinical trials by the end of 2005 -- an Aurora kinase inhibitor designed to treat cancer. Millennium has three cancer compounds and four inflammation treatments in development.
That's significant because Millennium bought the companies that developed Velcade and Integrilin as part of a switch to become a drug-development company, departing from its original focus 12 years ago as a gene research company that licensed technology to third parties.
And Dunshire is focused on boosting Velcade sales even more, with plans to hire at least 30 new people to expand its existing 70-person sales force.
All of these factors will help Millennium continue to focus on reaching pro forma profitability in 2006, Dunshire added.
"We have an ability as an organization to really look to growth in the future," she said.
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