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Like Corzine, Millennium Aims to Buy Its Way to the Top

Profits remain a long way off even if the biotech firm does pull off its ambitious M&A agenda.

Who needs profits when you're creating "the biopharmaceutical company of the future"?

That's the



message these days. Some think the company is asking investors to take a lot on faith, considering its hefty $10.7 billion market cap.

The Run-up
Tracking Millennium's rise

For one thing, Millennium's drug development pipeline isn't strong enough to carry the company to its goal of profits by 2004, according to Steve Holtzman, Millennium's chief business officer. And while Holtzman said he anticipates that the

Food and Drug Administration

will approve Millennium's first drug -- Campath, a leukemia treatment in development with

Ilex Oncology


-- by early next year, neither that drug nor the seven or so earlier in the development maze is expected to be a big seller. Campath is due to be reviewed by an FDA advisory panel on Dec. 14.

So Millennium plans to acquire companies or products with its $1.45 billion cash pile in an effort to reach profitability by 2004, says Holtzman. "Our pipeline is too early, so we have an aggressive acquisition and in-licensing strategy," Holtzman said in an interview after speaking at the

Robertson Stephens Medical Conference

in New York this week.

That worries some investors who say the goal of profits is based on a lot of unknowns. "They could buy their way into profits," says Jim Fiore, who heads the

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Life Science Group

, a Greenwich, Conn., biotech fund that holds some Millennium. But, says Fiore, "their market cap is high, and if they stumble, that's going to get killed. Not stumbling in the next four years is going to be a pretty neat trick."

Mass Customization

Holtzman told investors not to expect profits in the near term as the company invests in what many believe is going to be the future of the drug industry: personalized medicines that are tailored to a specific genetic makeup.

While no drug has yet been developed along those lines, some have come close. For instance,



breast cancer drug Herceptin is aimed at patients with certain genetic variations. Many more such drugs are in development.

Back to Earth?
Millennium's bumpy 2000

Millennium, which has alliances to develop such drugs with more than a dozen companies including




Bristol-Myers Squibb

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and more, aims to be on the forefront of that risky endeavor. And it raised $767 million from investors in the last few months by touting those prospects.

"This year and for the next few years, we are going into an investment mode," Holtzman told a standing-room-only crowd at one of the nation's top biotech investing forums. "Some people call it a loss."

In reaching to be the next-generation drug company, Millennium is bucking a trend that's one of the key selling points for the risky biotech industry these days: the prospect of profits. Of the nation's 400 or so publicly traded biotech companies, more than 30 could be profitable by next year, double what's expected this year, analysts forecast.



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, both Millennium and

Human Genome Sciences


were early movers into compiling giant genome databases for big pharmaceutical companies to use to find new drugs.

Then Millennium and HGS both eventually decided they also wanted to be drug rather than data companies, unlike their rivals, since drugs generate higher profits. But while both have drugs in their pipelines, most are still years from the market.

Such blue-sky prospects have been the subject of much debate among investors, as reflected in Millennium's volatile stock price, which has swung from $20 to $90 in the last year. Thursday, the stock was off $1.69, or 3%, at $48.94 amid a sizable tech selloff. And market values for both Millennium and HGS are much higher than for other biotech companies with drugs either on the market or in late-stage development, such as


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Still, some give the company the benefit of the doubt, saying that if anyone can make drugs from genes, it will be Millennium and HGS, even though much remains to be proved. "The idea is to do the development on their own, rather than rely on alliances with pharma companies," says Matthew Murray, fund manager for

Alliance Capital's

biotech fund.

But there's a disparity among investors who say profits should trump a speculative future. Given the risk that genomics may not turn out the cornucopia of new drugs that many people are expecting, some say profit would be a more useful goal. And that's going to require some M&A activity for Millennium.

While Millennium's revenue is growing (it generated $183 million in 1999 and is forecast to bring in $210 million in 2000), the stock currently trades well above the average 29 times 2001 revenue for similar genomics companies, according to

Prudential Vector

, which rates the stock a hold.

"Given that it is unknown what products the company might acquire and what their future revenue-generating potential might be, we believe that there is sufficient risk to justify a hold rating," said analyst Rob Toth in a recent note to investors.