gs: Millennium Pharmaceuticals, Inc. (MLNM):
Strong 2Q2006 helped by solid Velcade
performance
7/27/06
52-Week Range US$11-8
YTD Price Change -1.13%
Market Cap US$3.0bn
Current Yield —
Long Term Growth Rate
EPS Growth Estimate NA
What"s changed
Millennium reported strong 2Q2006 EPS of $0.01 (ex. ESOs),
$0.05 and $0.03 better
than GS and consensus estimates, respectively, driven by strong Velcade sales ($59 mn
vs. GS and consensus est. of $56 mn and $57 mn, respectively), higher royalties, and
lower operating expenses. Velcade sales exceeded expectations because of sales force
expansion, higher market shares, especially in 2nd-line multiple myeloma, and longer
treatment duration. Despite strong 2Q2006, Millennium shares traded lower partly due to
concerns over increasing competition from Revlimid in multiple myeloma and
uncertainties surrounding its potential strategic transaction.
Implications
We retained our 2006 full year EPS estimate of $0.03 (ex-ESO) and ($0.11) (incl. ESO).
We also kept our 2007 and 2008 EPS estimate unchanged at $0.07 (ex-ESO) and ($0.08)
(incl. ESO) in 2007, and $0.09 (ex-ESO) and ($0.06) (incl. ESO) in 2008. Main
adjustments to our earnings forecasts include reduction in strategic alliance revenues
estimates, which was offset by similar amount of reduction in COGS to reflect the direct
purchase of raw materials for Integrilin by Schering-Plough.
Valuation
We believe Millenium shares are attractively valued based on our intrinsic value analysis. We
estimate Millenium?s intrinsic value to be $2.3 bn or $7.50/share by summing the following 3
components: (1) Velcade ? assuming peak sales of $300 mn and 5X sales, the value is $1.5 bn. (2)
Integrilin ? assuming peak sales of $350 mn and 30% royalties, the value at 5X sales is $0.5 bn. (3)
Net cash of about $0.3 bn at the end of 2006. At the current share price of around $9.55, the implied
value of the new indications of Velcade and 6 other products in Phase 1 or 2 trials is about
$2.00/share, which we view as relatively attractive. Our 12-month target price of $12 is derived by
multiplying the probability adjusted pipeline value of $10 by an adjustment factor of 1.2. The
premium adjustment reflects a broad technology platform and speculation on M&A.
Key risks
Risks to our estimates and target price include slower than expected Velcade sales, development
failures of key programs, higher expenses, and dependence on corporate partners. |
