Millennium Drops on Sales Outlook

The biotech company cuts its revenue forecasts for the year, sending shares down 4.5%.
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Updated from 12:09 p.m. EDT

Shares of

Millennium Pharmaceuticals

(MLNM)

stumbled Tuesday, as the biotechnology company cut its revenue forecasts for the year. The company also said its year-end loss would be on the steeper side of previous predictions.

The stock, which dropped quickly in early morning trading to as low as $12.68, recovered a little bit during the day. But it still ended down 4.5%, or 62 cents, at $13.08. JMP Securities cut its rating on the stock to market underperform from market perform.

The Cambridge, Mass.-based Millennium said its full-year pro forma net loss would be $310 million to $320 million, instead of the previously forecast $290 million to $320 million. Decreased revenue was cited as the reason for the adjustment.

Millennium said its year-end net loss would be $535 million to $570 million, including $175 million to $200 million in charges for a recently announced restructuring that involved the dismissal of 26% of the company's workforce through 2004 and the closing of some facilities.

Still, Mark J. Levin, the company's chairman, chief executive and president, affirmed on Tuesday his prediction that Millennium would turn a profit in 2006.

The company also altered its year-end revenue guidance to a range of $410 million to $420 million, down from its previous guidance of $450 million to $475 million. It attributed the revision to a slowing of sales from Integrilin, a heart-disease drug that it co-promotes with

Schering-Plough

(SGP)

, as well as to its recently signed deal with a unit of

Johnson & Johnson

(JNJ) - Get Report

to market the cancer drug Velcade.

Millennium warned that total Integrilin sales are now forecast in the range of $320 million to $330 million for the full year rather than the $365 million predicted in January. Millennium expects to recognize $190 million to $200 million of those Integrilin sales, rather than the $215 million to $220 million that it originally predicted.

Millennium executives told analysts that the reduced guidance on Integrilin reflects a softening in the market for a class of heart drugs called GP IIb-IIIa inhibitors. The company said it has 53% of the U.S. dollar share and 68% of the U.S. patient share of the market.

Integrilin is an injectable drug used for patients with "acute coronary syndrome" -- problems that can range from chest pains associated with heart disease (unstable angina) to a heart attack. The drug also can be used in procedures such as the placement of stents in arteries to improve blood flow.

"The market for this product is mature at this point," said Yaron Werber, who follows the company for SG Cowen Securities. "It's plateauing."

Werber, who rates the stock as market perform, said he remains concerned about the inventories of the drug despite the company's assurance Tuesday that wholesalers will reduce higher-than-normal levels of the drug by year-end to historical levels. "We'll have to stay tuned," said Werber, who doesn't own the stock and whose firm doesn't have an investment banking relationship with Millennium.

Analyst Christopher Raymond said fluctuating inventories represent a "cat-and-mouse game" between biotech companies and drug wholesalers, especially when a company has enacted a series of price increases.

"My guess is that we should anticipate a price increase in the near future," said Raymond, who follows the company for Robert W. Baird, and who has an outperform rating. Millennium officials said Tuesday that they don't comment on pricing strategy. The company has had six price increases on Integrilin since 1999.

Raymond said the company's price-raising history offers good news and bad news. The good news: The demand is still strong. The bad news: Sales will be weaker for the third quarter and the rest of the year.

The key to Integrilin's future growth, Raymond said, will be Millennium's ability to convince cardiologists and other physicians to use the drug earlier in a patient's treatment of certain heart diseases.

Millennium recently hired 80 more sales staff to promote the drug's earlier use, building upon an ongoing study by the Duke Clinical Research Institute. The company said Duke's research shows only about one-third of high-risk patients received Integrilin or similar drugs for unstable angina or heart attacks.

For the three months ended June 30, Millennium reported a net loss of $107.1 million, or 36 cents a share, compared with a net loss of $107.7 million, or 38 cents a share, for the same period last year. The net loss was heightened by a $65.3 million charge related to a restructuring announced in June, which included dismissing 600 employees by the end of 2004; consolidating research and development operations in Cambridge; and closing facilities in California and Great Britain.

For the three months ended June 30, the company said revenue rose 32% to $121.7 million from $91.9 million for the same period last year. Second-quarter sales included the first revenue from Velcade of $7.9 million; the drug was approved in mid-May by the U.S. Food and Drug Administration. The company is predicting $25 million to $30 million for the full year.

Velcade is the first of a new class of drugs called proteasome inhibitors, and it is being used on patients suffering from multiple myeloma -- a form of blood cancer.

Velcade's sales "looked pretty good," said Werber of SG Cowen. "It's good data. It should be a good niche product."

Raymond was more enthusiastic. "Velcade is the reason to own Millennium," he said, adding that the drug could produce annual sales of $300 million by 2005.

Velcade's effectiveness is based on patients' response rates. There have been no controlled trials demonstrating benefits such as improved survival rates. The is being used in patients who failed two prior therapies

Millennium is banking on Velcade to gain FDA acceptance for other types of cancer; the company said Velcade is being tested in more than 40 clinical trials. Analysts Werber and Raymond said the drug's expanded use will most likely come in combination with other cancer therapies.

Millennium's marketing deal with Johnson & Johnson's Ortho Biotech unit allows Millennium to keep exclusive rights for all uses of Velcade in the U.S., ceding marketing rights to Ortho internationally. The deal provides for shared global development expenses and milestone payments to Millennium for R&D on Velcade. The company said the deal is worth up to $750 million, excluding product sales and royalties.