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

To: Biomaven who wrote (1677)	7/1/2003 2:30:00 PM
From: Czechsinthemail	Read Replies (1) \| Respond to of 3044

Another take on the deal: 10:51 ET Millennium Pharmaceuticals (MLNM): $13.79 -1.94 (-12)% The distribution and marketing deal announced yesterday afternoon between Millennium and Johnson & Johnson (JNJ) demonstrates something we have said for a long time. The drug development companies will cut deals with big pharma for the distribution of new drugs. The reason is simple: big pharma owns distribution. What this means is that the better bet on new drug development might be big pharma companies with distribution, not the drug development companies themselves. This is a very ironic situation and one many biotech investors have yet to fully grasp. We first started talking about this issue more than six months ago. However, we also thought that Millennium would cut a deal with Abbot Labs (ABT). After all, Abbott accumulated a greater than 5% stake in Millennium, which was announced (filed with SEC) on May 15, 2003. One clue that Millennium would not get the distribution deal, however, came with the May 30th filing, which showed Abbott selling more than 700,000 shares from May 21 to May 28. The inference at that time was that Abbott did not get the distribution deal. That turned out to be correct, as the deal with Johnson & Johnson shows. There is some discussion in the media today that the deal is too favorable to Ortho Biotech, the Johnson and Johnson subsidiary that signed the deal. However, this type of judgement is hard to make. We think it extremely likely that Abbott Labs was also competing for the deal, meaning that Millennium cut the best deal they could, back in the middle of May. Abbott got outbid, and that's why they started selling their shares. Now that Abbott is below the 5% threshold, they can sell all they want, without having to file with the SEC. That could mean a lot of shares - more than 14 million - if Abbot decides to sell it all. It could mean months of swimming upstream for Millennium stock - ironic for a company that just came up with the world's best treatment for certain types of cancer. What this means is that drug development companies are not the great lottery ticket investments most people hoped they would be. They are highly valued stocks with extremely high multiples. The risk side of the equation is extremely high. If the drug in development fails, the stocks fall tremendously. But when the drug fails, the reward side of the equation gets shared with the big pharma company that owns distribution. If you can get half of the reward from the big pharma while taking a lot less risk, why not just own the big pharma company? As this idea takes effect throughout the biotech industry, it may well lower the multiples on many of the drug development companies. After all, Millennium has developed the first real anti-cancer drug, yet the stock is only up 65% since the beginning of the year (six months) and is down -44% since the beginning of 2002 (18 months). Today alone, it has lost -12%. Long term believers in the company, who have taken the most risk and should have the largest reward, may not get their principal back for a long time. That's not the way it is supposed to be, but there you have it. If you own some other drug development company and are hoping for a big return when the science and the FDA approval finally come through, you should rethink things. Big pharma might get the lion's share of the reward. - Robert V. Green, Briefing.com

To: Biomaven who wrote (1677)	7/1/2003 2:55:05 PM
From: Ian@SI	Read Replies (1) \| Respond to of 3044

Peter During MLNM's conference call, one of the Q dealt with just what JNJ got the rights to, Velcade alone or all of MLNM's proteasome "stuff". The answer was, "Velcade and its analogues". When the analyst said, "Velcade and derivatives", he was quickly corrected to "Velcade and analogues". Is there some significance to the distinction???? Erik, For $15M up front, it seems to me that JNJ got the right to share in absolutely no revenue whatsoever. Rather they got the right to pay MLNM over $0.5B in milestone payments during the next 3 years (or so) with $135M coming later this year with EU approval for V used for MM. During the conference call the royalty was described as "substantial double digit". Later during the Q&A, there was a comment from MLNM along the lines of "Not much difference between royalty revenue and sharing profit"; and that royalties escalate after sales exceed certain unspecified milestones. This seems to imply that MLNM will get revenue from JNJ sales even while Velcade may not be profitable due to introductory marketing/sales costs. Seems to me that longer term or strategically, MLNM gave away very little while JNJ will in effect pay all future development costs plus give MLNM the lion's share of future revenues. FWIW, Ian

To: Biomaven who wrote (1677)	7/1/2003 8:59:02 PM
From: Miljenko Zuanic	Read Replies (1) \| Respond to of 3044

<<For a non-US deal this is about as best as could be expected.>> That is somehow my point. By retaining US right and single ex-US package (with good milestones) they hold (based on development cost sharing structure) 60% (55% with Japan) of the drug economic. I see no reason why will Ortho pay more (in percentage) in development cost than they may receive later as profit. This is marketing deal, not development sharing. The price that MLNM pay for this deal is smallest option license (15 M is not true upfront, cover of the development cost, first marketing milestone is when drug is approved) and near term milestones. In may view majority of the ~$500M in milestones is for front line(second line) and larger cancer market. << There is an awful lot of temptation for many countries to just "steal" new drugs by allowing generics/knock-offs quickly, patents notwithstanding.>> EU recently expanded data exclusivity from 6 to 8 years (in some cases 11 years), and East E. countries that are joining EU mast comply with this rule. Also, rule for generic are more restricted (more demanding), so I do not see danger that EU (except Russia, but there is also way to intervene) will not comply with patent protection. Asia (China and India as major generic manufacturers) is different story, but this country will be left out of promising new biologic drug if they continue with uncontrolled copyright philosophy. Profit from US may be (and for now is) bigger than from other countries (except few in EU and Japan). Velcade is very expensive. 2.5 mg in sterile solution cost $950 (what it may cost to produce this? Few bucks! Profit = <geze>), or ~$30K/year. Add to that one or two chemo, supportive care, MDs fee, hospital,…and it come to $60-70K. Who can afford this price in developing countries? Governments? No way! Individuals? Very few! In Croatia it is average 10 years salary! Price mush came down to acceptable level. As you can calculate, even with ½ price profit is huge, and market will expand. IMW, faster than in US. But for healthy drug price one need healthy medical benefit. MLNM is heavily banking that Velcade will be successful beyond MM and it will generate large profit in US. I somehow agree that Velcate will be effective in multiple indications, but so far can not say how competitive will be relative to other or similar drugs. This is risk that I was talking. Analog is much broad than derivative, however it does not cover all proteosome inhibitors. Miljenko PS: Doxil id from ALZA (SEQU)