Wednesday, March 15, 2006

Millennium Faces A Bumpy Ride

We're putting one trick pony biotech Millennium Pharmaceuticals (MLNM) under review.

MLNM is setting off fireworks with its star drug Velcade. Velcade sales skyrocketed 34% in 2005 after the multiple myeloma treatment got the go ahead to become an earlier part of a patient's recovery cycle. Multiple myeloma occurs when there is a malignant proliferation of plasma cells inside the bone marrow and tumors form. Today, MLNM has 2 drugs in the pipeline (one for relapsed leukemia and another one for ulcerative colitus), but we're not crossing our fingers just yet. We don't think analysts are, either. Over 16 analysts follow the stock -- we count 15 holds, 3 sells, and only one buy.

That's because MLNM is high risk. In order to pump up sales of Veclade, MLNM has begun to expand its sales force. As Velcade already has close to 50% market share (in the über-competitive cancer category), we're not exactly sure how much room for growth Velcade has. We'd like to see Velcade get approval for at least 2 more indications (it's currently awaiting data on lung cancer and lymphoma use). MLNM has no other choice, really -- right now, Velcade competes with Celgene's Thalomid/Revlimid (CELG) and Genentech's Rituxan (DNA). Millennium's a kitten facing two Doberman Pinchers, in other words.

As it stands, we're not expecting MLNM to show positive EBITDA anytime soon -- maybe not until 2008, or in our worst case scenario, 2009. Right now, our hope is with MLNM CEO Deborah Dunshire, who cut her teeth at Novartis (NVS), where she played a pivotal role in Gleevec's launch. MLNM's board is forking over some heavy dough to have Dunshire at the helm: as it stands, she's taking home almost $2M a year. Given the challenging landscape MLNM currently finds itself in, we find this compensation schedule a bit disconcerting.

At least MLNM's balance sheet is in decent health; Millennium boasts an .08 debt/equity ratio and it has over $2 a share in cash -- that should give shareholders some much needed comfort. Because one thing is for sure: 2006 will be a bumpy year for Millennium. To survive, MLNM will have to find outside partners and possibly acquire other products and/or companies.

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