Millennium Pharmaceuticals is a biopharmaceutical company that develops treatments for cancer and inflammatory diseases such as arthritis and multiple sclerosis. Millennium generates approximately 45% of its revenue through the direct sale of Velcade, a treatment for patients with multiple myeloma, a form of bone marrow cancer.. The remainder of its revenue comes from royalties associated with third party sales of Velcade and its other drug Integrillin.
As a smaller pharmaceutical company, Millennium partners with other companies that have established sales forces to market and sell many of its drugs, which then pay Millennium a royalty. 55% of Millenium's revenue came from such agreements in 2006. This arrangement has the advantage of avoiding having to build out costly sales forces, but partner companies may not always prioritize selling Millenium's drugs as highly as the they proritize their own. Millennium also lacks its own drug manufacturing facilities and is wholly dependent on third parties to make its drugs, leaving the company potentially vulnerable to supply disruptions.
Millennium Pharmaceuticals was founded in 1993. Revenue was flat from 2004-2006. The company has yet to make a profit, but losses have decreased in each of the last 5 years. In 2006, its operating loss was $44 million, up from a loss of $252 million in 2004. This is due partially to a trend of decreased Research and Development costs caused by a focus on advancing a few “key growth assets” as opposed a diverse pipeline.
|Source: MLNM 10-K||2004||2005||2006|
|Total Revenue ($M)||448.2||558.3||486.8|
|Operating Loss ($M)||(252.3)||(198.2)||(44.0)|
|Research and Development ($M)||402.6||342.2||318.2|
Millennium has only one business segment, but it is important to draw distinctions between their sources of revenue.
|Source: MLNM 10-K||Product Sales||Co-Promotion||Strategic Alliances||Royalties||Total|
|2005 Revenue ($M)||192.1||123.5||204.5||38.2||558.3|
|2006 Revenue ($M)||220.5||-||131.7||134.7||486.8|
Immature pipeline increases development risk - Other than Velcade and Integrilin, Millennium’s future revenue streams – are dependent on its pipeline of nine product candidates. Of these nine products, six are in preclinical or Phase I trials, meaning that they are in the earliest stages of their development. While these trials are a risky process for any pharmaceutical company, Millennium’s risk is increased due to the uncharted nature of its research. The company notes in its filings that the scientific community has a limited understanding of several of the diseases that the company's pipline drugs target. This lack of knowledge about the target for at least 4 of their 9 pipeline products increases the risk that development of these potential sources of revenue will be unsuccessful.
The lack of manufacturing facilities creates dependence on third-party companies - Millennium Pharmaceuticals has no commercial manufacturing facilities, and as such is dependent on third parties to manufacture their drugs. This manufacturing capability is critical in the production of approved products Velcade and Integrilin, as well as the production of materials for preclinical testing. Reliance on a third party for such capabilities increases risk by increasing the likelihood that one party does not meeting regulatory compliance or breaches the agreement based on its own business priorities. Millennium looks to minimize this risk through the use of more than one contractor (two undisclosed contractors for Velcade, and Solvay and Lonza for the production of Integrilin). In 2007, Solvay raised concerns its confidential manufacturing products may have been shared by Millennium. If proven, this fact may allow Solvay to monopolize Millennium's manufacture of Integrilin.
MLNM sales are subject to its partners' marketing priorities - Millennium relies heavily on strategic alliances to sell both Velcade and Integrilin. Outside the United States, for example, Velcade is marketed by Ortho Biotech Products, and Millennium even began jointly marketing Velcade with Ortho inside the U.S. in 2007. Integrilin, on the other hand, is marketed solely by SGP in the United States, and GlaxoSmithKline (GSK) has sales rights in Europe. In 2007, the minimum royalty payment from SGP was $85.4 million, but company will have no guaranteed royalties beginning in 2008.
As a specialty pharmaceutical company, Millennium primarily faces competition from companies that are developing or producing similar products, on a product-for-product basis. Thus, it is most useful first consider Millennium’s competition for its two major sources of revenue.
Velcade, Millennium’s primary source of revenue (over 45% of its annual cash flow), is a therapeutic treatment for patients with multiple myeloma, or a type of bone marrow cancer that can damage one’s immune system. Categorically, Velcade is considered a “proteasome inhibitor,” and it competes with other drugs that perform the same function. Celgene's Revlimid is approved for patients with similar blood disorders, and Thalomid is approved for treatment of newly diagnosed multiple myeloma. Several other therapies are currently in late stage development, and may be competitive in the near future. Currently, Velcade holds a 50% market share in the second and third-treatments of myeloma patients, but only a 10% share in newly diagnosed patients.
Integrilin, a product that generates over 25% of Millennium’s revenue through royalty payments, is an injected blood thinner for use in patients with cardiovascular disease. The market for therapeutic drugs for cardiac diseases is large and competitive, but two drugs very similar to Integrilin are FDA-approved: ReoPro, produced by Johnson & Johnson, and Aggrastat, which is produced outside the United States by Merck (MRK), and inside the U.S. by Medicure, Inc.
|Millennium Pharmaceuticals||Celgene (CELG)||JOHNSON & JOHNSON (JNJ)||Merck (MRK)||MEDICURE (MCU)|
|FY 2006 Total Revenue ($M)||486.8||811.6||53,324||22,636||5.9 ($Canadian)|
|FY 2006 Net Income ($M)||(44.0)||174.7||11,053||4,434||(32.1) ($Canadian)|
|FY 2006 Research and Development ($M)||318.2||258.6||7,125||4,783||23.3 ($Canadian)|