Millennium Pharma (MLNM.O): More Cautious After Survey; Lowering PT to $9 (1 Rating) 24-Apr-07 10:16 am
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From: Morgan Stanley Research
Sent: Monday, April 23, 2007 10:53 PM
Subject: Millennium Pharma (MLNM.O): More Cautious After Survey; Lowering PT to $9
MORGAN STANLEY RESEARCH
MILLENNIUM PHARMA (MLNM.O): MORE CAUTIOUS AFTER SURVEY; LOWERING PT TO $9 - April 24, 2007 GMT (14 pgs/ 98 kb)
Sapna Srivastava, Ph.D. +1 (1)212 761 4097 Morgan Stanley & Co. Incorporated
Steven Harr, M.D. +1 (1)212 761 3805
Vandita Lakhani +1 (1)212 761 3809
David Friedman, M.D. +1 (1)212 761 6235
What's Changed
Price Target: $10.00 to $9.00
Conclusion: We are increasingly cautious on MLNM and would take profits at current levels, as we view sustainable Velcade growth as unlikely. 1) Our survey shows that increase in duration of therapy could provide incremental growth for Velcade over the next few quarters, after which weakness driven by market share loss could become evident. Longer-term growth seems dependent on a significant increase in combination use with Celgene's drugs, which we view as unlikely at this point. Our analysis indicates a value of $5 if combination therapy does not take hold. 2) Strategic alliance revenues are likely to keep falling, further pressuring growth. 3) Second-generation proteasome inhibitors are emerging, which could pose a longer-term competitive risk and reduce the strategic value of Velcade.
What's New: In conjunction with our survey: "Myeloma Survey Positive for CELG; Concerning for MLNM," published concurrently, we have updated our thesis on Millennium, which is largely dependent on Velcade. We also updated our market model for Velcade (to reflect trends observed in the survey) and for variables like strategic alliance revenues, which are trending down.
Implications: We see a challenging 2008 as Velcade struggles, data from competitors mature, and the strategic alliance revenues come down. However, we are not downgrading the stock as we see a floor to its valuation based on the potential of a strategic exit, and as there is likely some Velcade growth remaining. We could get more aggressive on our negative stance as we approach the Velcade plateau and/or get better visibility on competitors. We would revisit our thesis if there are signs of sustainable market share increase for Velcade or if there is a transforming partnership.
Stock Rating: Equal-weight-V
Industry View: In-Line
ModelWare EPS estimate: (Dec 2006) USD (0.01); (Dec 2007) USD (0.05); (Dec 2008) USD 0.04; (Dec 2009) USD 0.10
Consensus EPS estimate: (Dec 2006) USD 0.11; (Dec 2007) USD 0.05; (Dec 2008) USD 0.17; (Dec 2009) USD 0.27
Share Price: USD 12.01 (Apr 23, 2007)
Target Price: USD 9.00
Market Cap (mm): USD 3,808 |
