And here is GS's take today:
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Millennium is on track to transition from a research driven company to a company with
two marketed products and a broad pipeline. Management plans to shift more speculative
research expenses to market driven development expenses. As most of its corporate
partnerships reach completion in 2003, the research devoted to collaborative projects
should decline. We view MLNM as attractive for long−term investors based on the
momentum from the launch of Velcade, good cash position, and a growing pipeline.
However, the lack of earnings may increase the volatility of Millennium shares.
Millennium shares have significantly outperformed the market, appreciating 125% year to
date versus 19% for S&P 500 and 42% for the AMEX Biotech Index.
1. REITERATED GOAL OF PROFITABILITY IN 2006
During the analyst meeting yesterday, management reiterated the goal of achieving
profitability in 2006 without relying on additional FDA approvals of new products and
indications. Management indicated that the ongoing restructuring should result in
$225−250MM in charges, including $175MM−200MM in 2003. Approximately 1/3 of
the charges will be non−cash and the other 2/3 cash. By focusing the R&D programs,
management expects to reduce R&D expenses by 20%. SG&A expenses, however, are
expected to increase about 10−20% post−restructuring due to increased marketing and
sales efforts on Velcade and Integrilin. The company expects to have over $800MM in
cash at the end of 2003, which should be sufficient to support operations until
profitability.
2. AGGRESSIVE MARKETING PROGRAM TO GROW INTEGRILIN
Sales growth for Integrilin has primarily been achieved by gaining market share versus
Merck’s Aggrastat and Eli Lilly/Johnson & Johnson’s Reopro. In August 2003, Integrilin
achieved over 70% patient share in the GP IIb/IIIa inhibitor market. At the analyst meeting
Millennium Pharmaceuticals, Inc. October 17, 2003
management reiterated its goal of $500MM in Integrilin sales by 2005, driving earlier use of
Integrilin in the treatment of acute coronary syndrome (ACS) and expanding the use in the
catheterization lab.
In the U.S., approximately 1.3MM patients present with symptoms of ACS and 0.9MM patients
undergo diagnostic catheterization each year. The early use of Integrilin soon after presentation
represents a $1B potential. Millennium is conducting the CRUSADE registry in order to improved
adherence to the ACC/AHA guidelines on GP IIb/IIIa inhibitors. To date, the trial has enrolled
over 70,000 patients. Based on the analysis of 49,378 patients, early use of GP IIb/IIIa inhibitors
resulted in 43% reduction (p\<0.0001) of in−hospital mortality. The sales force has been
expanded to promote Integrilin, including the CRUSADE data to high admitting office−based
cardiologists, emergency physicians, and decision makers in the coronary care units and other
locations. From Q2/02−Q1/03, the number of hospitals in the top 10% of overall adherence to
the ACC/AHA guidelines increased by 16%. Millennium is plans to start a prospectively designed
trial on early use in 2004.
Of the 750,000 patients that undergo percutaneous coronary interventions (PCI) in the U.S. each
year, only 41% are treated with GP IIb/IIIa inhibitors. Millennium is conducting additional trials
in order to increase the use of Integrilin for PCI. The studies are designed to differentiate
Integrilin from competitive products, such as Angiomax and heparin, and to support the use of
stents. The PROTECT trial is enrolling high−risk PCI patients to Integrilin plus heparin/low
molecular weight heparin versus Angiomax alone. The EVENT trial is a registry of outcomes of
patients treated with bare metal/drug eluting stents with or without Integrilin.
3. VELCADE LAUNCH AHEAD OF EXPECTATIONS
Millennium received FDA approval of Velcade for refractory/relapsed multiple myeloma on May
13, 2003. Due to the faster than expected adoption, management raised 2003 guidance from
$25−30MM to over $50MM on October 15, 2003. Management noted that physicians have been
quick to adopt Velcade due to the lack of alternative treatment for multiple myeloma patients that
have failed multiple therapies. On September 26, 2003, Millennium was notified by the Center
for Medicare and Medicaid Services (CMS) that Velcade received pass−through status for
Medicare reimbursement effective October 1, 2003. Starting on January 1, 2004, and retroactive
to the effective date, Velcade will be reimbursed under the hospital outpatient prospective
payment system.
In January 2003, Millennium filed a marketing application for Velcade in Europe. Approval is
expected in early 2004. The company will continue regulatory interaction in Europe until
marketing approval, which should occur in H1/04. Thereafter, the regulatory responsibility will be
transferred to its partner, Johnson & Johnson (JNJ). JNJ will be responsible for
commercialization outside of the United States and pay royalties to Millennium. We speculate that
the royalty rate is at least 20% initially. The royalty rate increases with higher sales levels. JNJ has
approximately 300 sales representatives to promote Eprex for anemia and other cancer products
in Europe.
4. STUDIES TO EXPAND THE APPLICATIONS OF VELCADE OPPORTUNITY
a. APEX trial on track. Millennium has enrolled over 600 patients in a multi−center Phase III
(APEX) trial of Velcade. The study includes 600 patients with advanced multiple myeloma who
have relapsed or are refractory after 1−3 prior therapies. They will be treated with Velcade or
high−dose dexamethane for 38 weeks. Patients who progress while on high−dose dexamethane
will be allowed to switch to open label Velcade therapy. The primary endpoint is time−to−tumor
progression (TTP), which may include (1) a 25% increase in serum/urine M−protein relative to
baseline in nonresponders or relative to nadir in patients with confirmed responses, (2) appearance
of a new bony lesion, or (3) new hypercalcemia. TTP for dexamethane alone is expected to be 6
to 9 months in the patient population being studied. Secondary endpoints include clinical benefit,
quality of life, survival, and response rate (both tumor and M−protein levels). Results should be
available in 2004.
b. Velcade in solid tumors. Millennium is conducting Phase II trials of Velcade for non−small cell
lung cancer (NSCLC) and colorectal cancer. In the NSCLC trial, patients will be treated with
Goldman Sachs Global Equity Research 2
Millennium Pharmaceuticals, Inc. October 17, 2003
Velcade alone or in combination with docetaxel. Patients with colorectal cancer will be treated
with Velcade and irinotecan or Velcade alone. Additional trials are ongoing in ovarian, renal cell,
breast, pancreatic and prostate cancers. In H2/03, Millennium expects to make go/no−go
decisions on 2 solid tumor cancers. Data from Phase I and II trials of Velcade in solid tumors will
be presented at ASCO in May 2004.
c. Velcade in hematological cancers. In July 2003, Millennium initiated a Phase II trial of Velcade
monotherapy in 152 mantle cell lymphoma patients who have failed one or two prior therapies.
Primary endpoints include time to progression, response rate, duration of response and overall
survival. Millennium presented positive Phase I data in May 2003. In 11 patients with mantle cell
lymphoma, four had partial responses (including two with major partial responses) and two had
stable disease. Millennium is also performing a Phase II study of Velcade in combination with
Rituxan for non− Hodgkin’s lymphoma. Data are expected in 2004. There are about 300,000
cases of non−Hodgkin’s lymphoma and 55,000 new cases per year in the US. While Rituxan and
chemotherapy are standard of care, Velcade could have a place as a therapy for refractory patients
which represents over $300MM potential.
5. UPDATE ON EARLY STAGE PIPELINE
a. MLN2704. On October 9, 2003, Millennium initiated a Phase I/II trial to determine the
biological activity of MLN2704 in prostate cancer. MLN2704 is a monoclonal antibody
conjugated to chemotherapeutic agent.
b. MLN−518. Phase I trials are ongoing in acute myeloid leukemia (AML). Millennium expects to
have data available internally in H2/03 and make a go/no−go decision on Phase II trials.
MLN−518 is a receptor tyrosine kinase inhibitor.
c. MLN1202. On October 14, 2003, Millennium initiated a Phase II trial of MLN1202 in
rheumatoid arthritis. MLN1202 is a humanized monoclonal antibody that binds to the CCR2
chemokine receptor on monocytes, macrophages and T− cells.
6. Q3 RESULTS: LOSS OF $0.10, $0.17 BETTER ON MILESTONE FEE
Millennium’s Q3 loss of $0.10 was $0.17 better than our estimate, mainly due to a milestone fee
from JNJ. Worldwide sales of Integrilin and Velcade were slightly higher than our forecasts.
Expenses were lower than expected.
a. INTEGRILIN: Worldwide Integrilin sales of $79MM were $2MM above our estimate of
$77MM. The reported sales included domestic sales of approximately $72MM and international
sales of approximately $6MM. Management estimated that inventory levels were lower than the
1.3−1.4 months seen at yearend 2002. The ’normal’ inventory range is 1.0−1.5 months. There
was a 5.2% price increase on 9/29/03.
b. VELCADE: Velcade sales of $23MM were $3MM higher than our estimate of $20MM. On
October 7, we raised our Q3/03 Velcade sales forecasts to $8 million from $20 million. Initial
demand has been strong as patients with relapsed, refractory multiple myeloma do not have any
other treatment options. Management indicated that there is minimal inventory at wholesalers.
c. STRATEGIC ALLIANCE REVENUES: Revenues from corporate partners were $74MM,
$25MM higher than our estimate due to a milestone payment from JNJ after Millennium
completed enrolling 612 patients in the Phase III APEX trial of Velcade in multiple myeloma.
d. OTHER INCOME: Net other income of $6MM was $1MM lower than our estimate due to
higher than expected interest expense.
e. EXPENSES: R&D and SG&A expenses were $17MM and $8MM below our estimates,
respectively. Gross margin of 83% was 60 basis points higher than our forecast.
7. REVISED 2003 AND 2004 LOSS ESTIMATE BASED ON LOWER EXPENSES
Based on the outperformance in Q3/03, we have raised our 2003 worldwide Integrilin sales
Goldman Sachs Global Equity Research 3
Millennium Pharmaceuticals, Inc. October 17, 2003
forecast to $339MM (+ 12% from 2002) from $336MM and our Velcade forecast to $57MM
from $54MM. We maintain our forecast for gross margins of 83%. However, due to the
restructuring of the R&D programs starting in Q2/03, we have reduced our 2003 estimate to
$506MM from $540MM. We also lowered our SG&A expenses to $176MM from $194MM.
The net effect was a $0.18 revision to our 2003 loss estimate to $0.82 from $1.00.
For 2004, we maintain our forecast for Velcade sales of $190MM (+233% from 2003), and
worldwide Integrilin sales of $338MM (flat with 2003), and gross margin of 83%. We lowered
R&D expenses to $422MM from $501MM and our SG&A expenses to $177MM from
$210MM. The net effect was a $0.11 revision to our 2004 loss estimate to $0.50 from $0.61.
Changes to our 2003 and 2004 quarterly estimates are as follows:
Old New Change
====== ====== =======
Q1/03A (0.34) (0.34) 0.00
Q2/03A (0.07) (0.07) 0.00
Q3/03A (0.10) (0.10) 0.00
Q4/03E (0.32) (0.30) 0.02
2003E (1.00) (0.82) 0.18
Q1/04E (0.24) (0.23) 0.01
Q2/04E (0.20) (0.05) 0.15
Q3/04E (0.17) (0.14) 0.03
Q4/04E 0.00 (0.09) (0.09)
2004E (0.61) (0.50) 0.11>
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