Is the selling in

Millennium Pharmaceuticals


finally over?

Maybe no other company exemplifies more clearly the severe (some would say indiscriminate) punishment inflicted upon the biotech sector this year. Millennium has a revenue-generating heart drug on the market. It has aviable and growing research pipeline, including a promising cancer drug in late-stage trials. It has just under $2 billion in cash and a management team that gets high marks for trustworthiness.

Yet in the past two months, Millennium shares have plummeted 40%,compared to a 23% drop in the broader American Stock Exchange BiotechnologyIndex. On July 11, the company actually dipped below $10 per share, closingat $9.33. It's moved up since then, closing Tuesday at $11.09.

There hasn't been any bad news to precipitate Millennium's selloff. Infact, the last major development from the company,

results from its experimental cancer drug,Velcade (formerly MLN-341), at the annual meeting of the American Societyof Clinical Oncology -- was darned good. And on Tuesday, the companyreported a smaller-than-expected second-quarter pro forma loss of 16 centsper share, three cents better than Wall Street expectations.

So if the fundamentals look solid, why have investors treatedMillennium with the kind of disdain you'd expect afforded to Ken Lay at an


employee alumni dinner?


It's because the Cambridge, Mass.-based firm is still a work in progress thatwill have to prove itself further before it gains the confidence of veryskeptical institutional buyers, biotech experts say. It's saddled with the"genomics" label (a naughty word in biotech these days), despite the factthat acquisitions have brought welcome diversification. And even at asub-$10 stock price, the company still had a lofty market cap of $3billion -- this for a company that won't likely eke out a profit until2005.

"To the extent that a biotech story like Millennium is longer-term isthe extent to which it will be less attractive to investors," says JonAschoff, biotech analyst at Friedman, Billings, Ramsey & Co., who rates thecompany accumulate. His firm doesn't do banking for the company.

Millennium is a genomics company at its core, formed with the goal ofturning genetic information into new drugs. This is the strategy that putthe company on the map in the first place, and helped it ride high atop thebiotech bubble of 1999 and 2000. But the genomics mania was silenced lastyear, as investors realized that this scientific breakthrough didn'tnecessarily translate into faster, or more profitable, drug discoveries.Millennium shares lost 60% of their value in 2001.

To this day, Millennium only has one drug from its internal (read:genomics) research efforts in a human clinical trial -- an experimentalmetabolic drug in early, Phase I testing as a possible treatment forobesity. The company has another seven experimental drugs in testing fornine different disease indications, but these drugs came from acquisitions.

"Millennium hasn't done much with its internal drug pipeline, sothere's not much for investors to grab onto," says Rob Toth, fund managerwith EGM Capital, who's long Millennium. "This bolsters the negativeperception that all its technology is just a cash drain that won't alter adrug's chance of meeting efficacy endpoints. But I think we'll see anacceleration of internal drug candidates pushed into clinical testingmoving forward."

When Millennium acquired

Cor Therapeutics

last year, it gained control of Integrilin, a blood-thinning drug used primarily in heartdisease patients undergoing angioplasty. Second-quarter sales reached $77.7 million, up 16% compared to the comparable quarter last year, and thecompany reiterated previous guidance for 30% sales growth this year to $300million. (Millennium splits Integrilin evenly with marketing partner



, so it will record $150 million in Integrilin revenue.)

With $146 million in total Integrilin sales for the first six monthsthis year, Millennium should be able to meet its 2002 target, but companycritics say the drug doesn't necessarily have the oomph to generate muchexcitement. In fact, while growing now, Integrilin sales could startslowing soon because medical trends and reimbursement issues could forcedoctors to wean patients off the drug.

Second-quarter revenue totaled $91.9 million, a bit lighter than WallStreet expectations, but which nonetheless puts it on track to meet itsrevenue goal of $400 million for 2002, according to the company. But on itsconference call, company executives did acknowledge that the choppy marketconditions have made it more difficult to close some anticipatedrevenue-generating collaborations with potential drug partners.


Millennium has $1.2 billion in net cash on its books, which subtractsabout $700 million in convertible debt. At its current stock price andshare count, this means Millennium trades at just over 2.5 times its netcash value. Is that cheap? Fairly priced? It depends on whom you ask, itseems.

One hedge fund manager with no position in Millennium says thecompany is probably fairly valued at around $10 because he's unimpressedwith Integrilin and doesn't think much of the company's pipeline other thanVelcade. And with a $3 billion market value already, it will take ablockbuster drug, or two, for the company to reach profitability.

But another fund manager, Jim Fiore of the Life Sciences Group, saysMillennium's large cash position, its revenue-generating drug and a fullpipeline makes it one of his favorite biotech holdings.

"The gold is there. I guess the only question for investors is whetherthey can afford to wait before they pick it up," he says.