piper: MLNM :MLNM Restructures Again
2005-10-27 16:10 (New York)
(MLNM - $8.71)
Market Perform Volatility: Low
MLNM Restructures Again
Thomas Wei, Senior Research Analyst 212 284-9305, thomas.a.wei@pjc.com
Rachel L. McMinn, Ph.D., Research
Analyst
415 277-1549, rachel.l.mcminn@pjc.com
Gur A. Roshwalb, M.D., Research
Analyst
212-284-9314, gur.a.roshwalb@pjc.com
KEY POINTS:
* Velcade Penetration Peaking In Labeled Indication. MLNM reported 3Q Velcade
sales of $51m, slightly below our $52m estimate, but not unexpected based
on IMS sales data available through August. 3Q sales were helped by a 3.7%
price increase effective on July 1, increasing market penetration, and
marginally by a shift in wholesaler inventory from less than one week in 2Q
to one week in 3Q. MLNM indicated increased penetration for Velcade from 2Q
to 3Q in various line of therapy for multiple myeloma (MM) based on its
market research update: front-line penetration moved from 5% to 9%, second-
line penetration moved from 30%-40% to 45%, and third-line penetration was
stable at 40-50%. These data suggest that Velcade penetration into the
second line setting may be peaking given Velcade penetration into the
third-line setting has been stable at 40-50% for several quarters.
* MLNM To Increase Velcade Sales Presence. MLNM plans to increase its Velcade
sales force by approximately 50% to about 100 sales reps/managers by year-
end. The Company has two goals in mind with this expansion:1) increase its
share of voice among the MM prescribing community, with the aim of
increasing Velcade penetration in the second-line setting; and 2) increase
the number of cycles/patient of Velcade, which is currently at 5, less than
the 6-8 cycles seen in the clinical trials. The current market research
data suggests annual Velcade sales of $230-$250m, while increasing the
average cycle per patient at current penetration rates imply annual sales
for $300-$350m for six to seven cycles. It is unclear how extensively
Velcade will ultimately be used in later lines of therapy given its side
effect profile; however, we are encouraged that the greater sales presence
will positively influence sales, as MLNM indicated that physicians with
extensive sales force contact tend to use more cycles of Velcade.
Separately, we expect additional sales growth to come from off-label use in
mantle cell lymphoma, although MLNM expects penetration there to be gradual
as physicians see additional data and work through reimbursement issues.
* An Expected Additional Restructuring Announcement. MLNM announced an
anticipated round of expense reductions that is necessary to get MLNM to
non-GAAP profitability in 2006 without the dependence on additional
partnering deals. Most of the savings will be attained through cuts in
early stage inflammation drug discovery and lower overhead through facility
consolidation. We continue to remain cautious on the achievability of this
goal, as we believe the main growth driver for profitability, Velcade, will
face pressure from off-label use of Revlimid after its approval in
myelodysplastic syndrome (MDS) in early 2006.
Price: $8.71
52 Week High: $13.52
Rating -- MarketPerform
52 Week Low: $7.63
Price Tgt -- $10.00
Price Target: $10.00
Shares Out (mil): 308.8
Market Cap. (mil): $2,689.6
Avg Daily Vol (000): 4,872
Book Value/Share: $6.92
Cash Per Share: $2.12
Debt to Total Capital: 5%
Div (ann): $0.00
Est LT EPS Growth: NM
P/E to LT EPS Growth (FY06): NA
Est Next Rep Date: 03/01/2006
Fiscal Year End: Dec
INVESTMENT RECOMMENDATION:
We rate MLNM Market Perform.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks include but are not limited to: 1) competitors to Velcade, and 2)
inability to achieve profitability target of 2006.
COMPANY DESCRIPTION:
Millennium Pharmaceuticals markets Velcade for cancer.
Important Research Disclosures
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Analyst Certification - Thomas Wei, Senior Research Analyst
The views expressed in this report, including the Key Points and Risk
sections in particular, accurately reflect my personal views about the
subject company and the subject security. I |
