So Far, Millennium Is Missing Its Milestones


By David Shook How things have changed for Millennium Pharmaceutical (MLNM), a company widely recognized as the strongest bridge between the fast-paced gene-mining industry that emerged in 2000 and the traditional pharmaceutical business that often spends a decade developing a new drug. The biotech sector took a beating in the first quarter -- and mighty Millennium was right in the middle of the pummeling. Lately it has been trying to explain weaker-than-expected quarterly results. The company has stuck with its goal of getting an impressive array of 12 drugs into clinical trials by Dec. 31. But now that looks questionable.

Just last year, Millennium stock split twice, eventually reaching a record-high $90 a share in November. But those days are gone for the Cambridge (Mass.) biotech bellwether. On Apr. 18, the company reported an earnings-per-share loss of 16 cents rather than the consensus estimate of a negative 13 cents -- the first time Millennium has disappointed Wall Street in several years. The slightly higher-than-anticipated loss came from research-and-development spending that exceeded expectations and $50 million in total revenue for the quarter -- $3 million less than analysts had hoped for.

WATCH AND WAIT. Investors yawned at the less-than-stellar first-quarter results. Millennium's stock has barely budged from around $34 since the news. But with so much clinical work to be done with so many drug candidates, Millennium could disappoint investors again later in the year.

Until the biotech company offers more evidence that its pipeline can produce the blockbuster drugs it has been promising, wise investors may want to watch and wait. "Most late preclinical projects are not as close to the clinic as investors might have expected," says Banc of America analyst James Reddoch. "Investors may be growing impatient with Millennium's product-development pipeline."

Kevin Star, Millennium's chief financial officer, says the stock accurately reflects the company's future worth. "When you look at the valuation of Millennium, it has little to do with multiples on today's revenue, but has to do with our potential to generate on a repeated basis the new blockbusters in personalized medicine over the next decade," Star said during an online analysts' conference on Apr. 18.

"Our goal in reaching that $100 billion [market cap] is really fueled by this enormous pipeline we have that's entering into the clinical stages of development," he said. "So, when you look at our market cap today of $6 billion to $7 billion, it's actually quite a bargain compared to where we're going to be as we start hitting our goals."

COUPS APLENTY. With such confidence emanating from a top exec, you might think Millennium's financial results were poised to rival that of Merck (MRK) or Pfizer (PFE). Those companies are the bedrock of the hugely profitable drug industry. And they're among the few giants with market caps well above $100 billion. Each had roughly $7 billion in first-quarter drug sales. Now compare that to Millennium's $50 million in revenues -- roughly 7% that of the big dogs. That's a long way from a $100 billion capitalization.

True, Millennium is the king of the biotech dealmakers. It has $2 billion in funding lined up from some of the biggest names in the business. And the company of 1,400 employees was founded by extremely bright minds in the science departments at Harvard University and Massachusetts Institute of Technology.

They swept several of the biggest pharmaceutical companies off their feet in 2000 with their strategy of discovering drugs through computer automation that hunts for genes thought to play a role in disease. Using high-powered software and robotics that comb through and chart thousands of molecular interactions that may lead to disease, Millennium has put at least six drugs in clinical trials in two years and signed Bayer (BAYZY), Pfizer, and Abbott Labs (ABT) as development partners.

HOW MUCH LONGER? French pharmaceutical giant Aventis believes so strongly in Millennium's science that it merged its inflammatory-drug development program with Millennium and promised to split the profits 50-50 from any drugs created through that partnership. "They've shown that if one company can use genomics to produce dozens of drugs, they can be the one," says analyst Carolyn Pratt of Needham & Co. in Boston.

The question for investors is: How many years and how much money it will take to hit those targets? The risk is that it will take longer cost more than Millennium predicts.

The company is learning how to harness whiz-bang genomics-based discoveries and turn them into real drugs. While it's effective at the biology or drug-discovery end, the big pharmaceutical companies are still better at the chemistry and development end, Banc of America's Reddoch says. Millennium is discovering how hard that second half of drug development can be. It's one feat to find a gene that turns off a cancer-causing protein. It's another to make a safe human drug by altering that gene.

A DEPARTURE. Already the company is struggling to meet its self-imposed deadlines. In 2000, it promised to place several drug candidates developed internally into clinical human trials. None reached the clinic by the end of 2000. Then Millennium projected a 2001 net loss, excluding interest income, of $100 million to $125 million. That's a wide range. By the end of the first quarter, the company acknowledged the loss would be closer to $125 million.

Millennium admits it might have to rejigger its "stretch goals" even further. The core goal remains having 12 products in clinical human testing from "a combination of our pipeline, our partners, and M&A," says Investor Relations Chief Gina Brazier. That's a departure from original goals that all 12 products would originate solely in-house. But if Millennium can deliver on its predictions for 2001, its stock may have a different story to tell. Shook covers biotechnology issues for BusinessWeek Online. Follow The Biotech Beat every week, only on BW Online


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