MILLENNIUM PHARMACEUTICALS (MLNM)-HOLD/SPECULATIVE (2S)
[Citibank - Yaron Werber]
In the Q4:05, Millennium’s Velcade generated $52 million in sales (flat q/q). Based on our analysis of IMS Health hospital sales data, we believe that Q1 2006 sales are tracking at approximately $52 million, well below our estimate of $57 million and consensus estimate of $56 million. Thus, we believe that Millennium is the top candidate to posting a weak quarter.
Millennium has noted that sales are expected to be flat in the first 2 quarters of the year. This is because the impact of the expanded sales force is not expected to be felt until the second half. However, we believe that Velcade’s sales have been kept flat due to the opening of Celgene’s Revlimid’s Expanded Access Program (EAP) in the fall. This program has enrolled several hundred relapsed/refractory multiple myeloma patients in 80 sites in North America to receive Revlimid free of charge.
For 2006, management has guided that Velcade revenues will be in a range of $225-$250 million (+17-30% y/y). In our view, Millennium’s outlook for Velcade growth (11-24% organically given a 5.9% price increase on January 1st) could prove aggressive, particularly with an impending Revlimid launch in the third quarter. While the company guided to Velcade sales of $225-$250 million in ’06, we model $223 million.
We are also concerned that the 5.9% price increase at the start of the year could effectively erase any profit margin to physicians over the first half of the year in the current ASP+6% reimbursement environment. This could create a bias against Velcade at a time when Revlimid could be potentially launched into the market.
Thus, we maintain our cautious outlook since the burden now rests with Millennium to deliver on its Velcade guidance. Whereas management believes that efforts to increase market share by increasing the sales force by 50%, focusing on the need to dose Velcade over >8 cycles to achieve a survival benefit (given that the current average dose is 5 cycles), and expanding use of the drug in several new indications (lymphoma, NSCLC and front-line MM) would be enough to drive sales, we remain concerned that Revlimid could stifle the growth of this product in multiple myeloma and note that Velcade’s data in NSCLC has been equivocal.
MLNM EARNINGS DATA
Q1E Q1E Q4A q/q Q1A y/y FY 2006 FY 2006
Cons. Citi 2005 Citi 2005 Citi Cons. Citi
Strategic alliance rev. NA 17.5 44.2 -60% 36.1 -52% NA 90.0
Velcade 56.4 56.7 52.4 8% 44.8 27% 239.4 223.8
Revenues 118.7 108.3 122.3 -11% 123.7 -12% 493.1 455.1
Expenses 130.1 143.5 154.3 -7% 160.9 -11% 508.0 545.5
EPS (GAAP) (0.11) (0.13) (0.14) 7% (0.12) -8% ( 0.32) (0.33)
EPS (Pro Forma) (0.03) (0.04) (0.07) 43% (0.09) 56% 0.00 0.01
EPS Range (pro forma)(0.06)-0.01 NA NA NA NA NA (0.06)-0.03 NA
Source: Fact Set, First Call, Company Reports, and Citigroup Investment Research |
