Susquehanna on MLNM's Velcade Data at Kos
Millennium Pharmaceuticals, Inc. (MLNM: $10.51, Neutral)
Velcade Shows Impressive Results in Front-Line MM; but Growth Acceleration Predicated on Larger Data Sets and Label Expansion
As previewed in our June 22, 2007 note, Millennium Pharmaceuticals presented data on the use of Velcade in multiple myeloma from a number of clinical trials at the International Myeloma Workshop (IMW) on Kos Island, Greece. We believe the main takeaway from the event was the demonstration that Velcade, in combination with different drugs, demonstrated impressive efficacy in treatment-naïve multiple myeloma patients (complete response and survival rates were among the highest observed to date, albeit in small patient populations, and roughly on par with Revlimid). Nevertheless, we continue to believe Velcade's safety issues ( e.g., ~40% peripheral neuropathy) and IV dosing should take a back seat to Revlimid (oral). Until larger data sets begin to paint a clearer picture as to the potential impact of Velcade in the front-line and combination setting with Revlimid (very early data release at IMW), as well as in different indications outside of multiple myeloma, we believe shares should trade within a tight range.
HIGHLIGHTS
* Strong complete response (CR) and survival in front-line MM. Several Phase II Velcade combination studies in the front-line setting were presented at IMW, including: Velcade plus melphalen and prednisone (VMP) in patients ineligible for stem cell transplant; Velcade plus adiamycin and dexamethasone (VcAD) prior to stem cell transplantation; and Velcade plus Doxil and dexamethasone (VDD) prior to stem cell transplantation. Specifically, three-year survival of 85% was demonstrated by the VMP combination with a complete response rate of 43% (see Figure 1 for full data). VcAD and VDD combinations also demonstrated efficacy as a treatment prior to stem cell transplantation. In the VcAD trial, two-year survival was 95%. Positive Factor
* Will impressive front-line results translate into growth? The aforementioned data are among the best reported in multiple myeloma, and are on par with the survival results for Revlimid. However, while we believe these results may help to reinforce Velcade's current use in the front-line setting (~10% off label), we believe growth acceleration will be driven by larger data sets in this setting, as well as in combination with Revlimid and in indications outside of multiple myeloma, but we would handicap that growth vs. the convenience of oral dosing and perhaps a better safety profile of Revlimid. Neutral Factor
* Continued strength in the relapsed/refractory setting. One of the more interesting data points released yesterday was the combination of Velcade, cyclophosphomide, and prednisone (VCP) in the relapsed/refractory setting. The study showed an impressive overall response rate of 93% (54% CRs), and 100% one-year survival. We believe responses on this order are rarely seen in the relapsed/refractory setting. However, we caution investors as to extrapolating these data to the broad MM population as patient numbers were small (n=13). Nevertheless, if the results are replicated in larger studies, we would expect this combination to play a significant role in MM treatment. Positive Factor
* Velcade + Revlimid data unconvincing, but still early. Data from combination studies of Velcade, Revlimid, and dexamethasone were less than impressive. In the front-line setting, MM patients (n=15) showed a 20% CR and a 100% overall response. As this is a dose escalating trial that has yet to reach a maximum tolerated dose, the low CR rate may be attributable to an ineffective dose being administered to some patients. As such, response rates may improve with time. Neutral Factor
* Valuation. We value Millennium on both a DCF and a sum-of-the-parts basis. On a DCF basis, we project 2013 EPS to be $1.18. Discounting back six periods at 20% and using a 30x multiple, we get a value of $9.85. Adding net cash per share of $1.50, we arrive at approximately $11.50. On a sum-of-the-parts basis, we see approximately $3.30 of value per share attributable to Velcade's current indications in multiple myeloma and mantle cell lymphoma. An additional $2 per share comes from Integrilin and Velcade-based royalties. Velcade as a potential treatment for non-Hodgkin's lymphoma and other cancer indications represents an additional $1 per share in value. We value Millennium's pipeline at approximately $0.70 per share. With an additional $1.50 cash per share, we see Millennium valued at approximately $8-$9 per share. We see fair value of Millennium at $8-$12 per share based on these metrics.
CONTRA CASE
Velcade receives market approval in a broader range of non-Hodgkin's lymphomas. Millennium's pipeline drug candidates demonstrate substantial effects in their respective indications and progress more quickly toward approval (upside). A continuing deterioration of Velcade sales as Revlimid dominates the MM marketplace, coupled with pipeline failures, pushes MLNM below our base case scenario.
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