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Biotech / Medical : Millennium Pharmaceuticals, Inc. (MLNM) -- Ignore unavailable to you. Want to Upgrade?

To: dalroi who wrote (1474)	4/16/2003 9:12:31 AM
From: quidditch	Respond to of 3044

After UBS W downgrades MLNM to neutral this morning, here is GS's view (maintaining IL rating). PDUFA date for V is 7/21/03: Goldman Sachs Global Equity Research MLNM reported Q1 loss of $0.34, excluding extra items, $0.04 worse than our and consensus estimates on lower revenues from partners. Integrilin sales of $89MM were $3MM higher than our forecast due to higher wholesaler inventory. We maintain our 2003 loss estimate of $1.04. Based on lower expense trends, we have revised our 2004 loss estimate to $0.72 from $0.75. We maintain our In−Line stock rating based on steady cash flow from Integrilin, potential launch of Velcade in H2/03, increased visibility of the pipeline and attractive valuation (value of current product plus net cash approximates $6.50/share) . Key events in 2003 are: (1) establishing a corporate partner for Velcade in Q2/03, (2) FDA approval of Velcade in H2/03 and (3) Phase II data Velcade in solid tumor H2/03. Risks to our rating include lower revenues and pipeline failures. Our coverage view remains Neutral. RECOMMENDATION: WE CONTINUE TO RATE THE SHARES IN−LINE based on potential launch of Velcade in H2/03, an increasingly visible pipeline, steady Integrilin sales growth of over 12% per year for the next few yearsand relatively attractive valuation based on price to net cash of 2.4X, which is at historically low levels.We have also attempted to value Millennium based on the value of Integrilin and net cash. Assuming peak sales of $500MM, 50% profit split with Schering Plough and 5X sales (historical biotech range is 3−10X) the implied value for Integrilin is$1.2B. Taken together with cash (excluding convertible debt of $680MM) of $0.7B at year end 2003, the implied intrinsic value is $1.9B or $6.50/share. Therefore, the implied pipeline value approximates $0.7B or $2.50/share which we view asattractive. The pipeline includesone product filed with the FDA (Velcade), 10 additional compoundsin clinical trialsand another 2−3 additional clinical candidatesto be added in 2003. The low valuation reflectsnegative investor sentiment towards high−risk stocks, concerns about delays in the FDA review of Velcade, skepticism about expense control as well as the put of $654MM in convertible debt to the company in April 2003. We believe that Millennium management isfoucus ed on reducing expensesand shifting the focusto commercialization. At itscurrent valuation, we believe that Millennium is attractive for long−term oriented investors. Potential catalysts in 2003 include, 1) an FDA decision on Velcade, 2) a potential alliance on Velcade in Q2/03 and 3) Phase II data on Velcade for solid tumors in H2/03. Full details 1. Q1 RESULTS: LOSS OF $0.34, $0.04 WORSE ON LOWER COLLABORATIVE REVENUE a. INTEGRILIN: Integrilin sales of $89MM were $3MM above our estimate of $86MM. The reported sales included domestic sales of $84MM (versus our estimate of $82MM) and international sales of $5MM (versus our estimates of $4MM). Management estimated Millennium Pharmaceuticals, Inc. April 16, 2003 that inventory levels have increased from 1.4 months at yearend 2002 to 1.9 months in March 2003. b. COLLABORATIVE REVENUES: Revenues from corporate partners were $31MM, $21MM below our estimate due to negative quarterly fluctuations and the scheduled completion of the Monsanto R&D agreement. c. EXPENSES: R&D expenses of $127MM was $5MM below our estimate and SG&A of $35MM was $6MM below our forecast due to tight cost control. 2. MAINTAIN 2003 LOSS ESTIMATE OF $1.04, REVISED 2004 LOSS ESTIMATE We maintain our 2003 Integrilin forecast of $365MM (+ 20% from 2002) based on domestic sales of $348MM (+ 23% yr/yr) and international sales of $18MM (− 12% yr/yr). We expect Millennium to recognize $214MM in copromotional revenues from Integrilin. We expect the collaboration with Aventis and Bayer to conclude in the next 6 months, which partially accounted for our reduction of our estimate on collaborative revenue by $13MM to $234MM. Based on lower expense trends, we have reduced our R&D estimate by $12MM to $527MM (+ 3% yr/yr) and SG&A estimate by $10MM to $194MM (+ 27% yr/yr). The net impact was neutral to our 2003 loss estimate of $1.04. However, our Q2, Q3 and Q4 loss estimates for 2003 have been revised as follows: Old New ==== ==== Q2/03 ($0.28) ($0.32) Q3/03 ($0.29) ($0.27) Q4/03 ($0.17) ($0.11) For 2004, we maintain our domestic Integrilin sales forecast of $398MM (+ 14% from 2003) but have lowered our international sale forecast by $9MM to $18MM (+2% yr/yr). Our forecast for Velcade sales remains $88MM based on FDA approval in Q3/03. We have also lowered our estimate for contract revenue to $259MM (+ 11% yr/yr) from $273MM. We have also reduced our forecasts for R&D expenses by $21MM to $510MM (−3% yr/yr) and SG&A expenses by $8MM to $211MM (+9 % yr/yr). The net impact was a $0.03 revision to our 2004 loss estimate to $0.72 from $0.75. 3. INTEGRILIN SALES ON−TRACK FOR CONTINUED GROWTH In Q1/03, Integrilin reached 64% patient share and over 50% dollar share among IIb/IIIa inhibitors versus 63% and 49% in Q4/02, respectively. The market shares are probably near peak levels among IIb/IIIa blockers. Recent positive data on Angiomax from The Medicines Company may threaten the growth of IIb/IIIa inhibitors. Millennium expects to drive sales by, 1) promoting earlier use as indicated by data from the ongoing CRUSADE trial which demonstrated the clinical benefit of the use of Integrilin in Acute Coronary Syndrome (ACS). At the American College of Cardiology (ACC) in March 2003, Millennium presented data showing a 44% mortality benefit in patients who received a IIb/IIIa inhibitor within the first 24 hours of admission to the hospital, 2) increase the number of sales representatives, and 3) continue to expand applications via clinical development. 4. VELCADE ON TRACK FOR 2003 APPROVAL In March 2003, both the FDA and the EMEA accepted Millennium’s marketing application on Velcade to treat relapsed and refractory multiple myeloma. Based on a PDUFA date of 7/21/03 by which the FDA should decide on the approvability of Velcade, we expect potential product launch in late 2003/early 2004. The sales potential for multiple myeloma approximates $200MM. Enrollment in the Phase III trial of Velcade in multiple myeloma is expected to complete by yearend. The potential could rise to $500MM if Velcade can be used for other cancers. At ASCO in May 2003, we expect preliminary safety data on the use of Velcade in combination with chemotherapy and data on the activity of Velcade in mantle cell lymphoma. Millennium is conducting Phase II trials of Velcade in both lung cancer and colorectal cancer. Most of the domestic sales representatives for Velcade in multiple myeloma are being trained. Millennium expects to complete a marketing agreement for Velcade in Q2/03.