Here’s the entire text of the prepared remarks from Millennium Pharmaceuticals’ (ticker: MLNM) Q3 2005 conference call. The Q&A is here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Kyle Kuvalanka, Director Investor and Corporate Communications
Dr. Deborah Dunsire, President, CEO
Marsha Fanucci, CFO, SVP Corporate Strategy
Dr. Bob Tepper, President, Research and Development
David Witzke, Banc of America Securities
Sapna Srivastava, Morgan Stanley
May-Kin Ho, Goldman Sachs
Geoff Meacham, JP Morgan
Bret Holley, CIBC World Markets
Chris Raymond, Robert Baird
Han Li, SunTrust
Maneesh Jain, Thomas Weisel Partners
Phil Nadeau, SG Cowen
Alex Hittle, A.G. Edwards
Rachel McMinn, Piper Jaffray
Ladies and gentlemen, Thank you for holding. Welcome to the Millennium Pharmaceuticals Third Quarter 2005 Conference Call. At this time all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the Company’s request. At this time I would like to introduce your host for today’s call, Kyle Kuvalanka, Director Investor and Corporate Communications at Millennium Pharmaceuticals. Please go ahead.
Kyle Kuvalanka, Director, Investor and Corporate Communications
Good morning, everyone, and welcome to Millennium’s conference call to discuss the financial results for the third quarter of 2005 and the strategy refinement and restructuring we announced yesterday. With me today are Dr. Deborah Dunsire, our President and Chief Executive Officer, Marsha Fanucci, Chief Financial Officer and Senior Vice President of Corporate Strategy, Dr. Bob Tepper, President of Research and Development, Dr. Nancy Simonian, Senior Vice President of Clinical Research and Regulatory and Medical Affairs, and Lisa Adler, Vice President of Global Corporate Affairs. Deborah Dunsire will open with a review of our refined strategy and corporate restructuring. Marsha Fanucci will then review the highlights of our financial results and update you on our financial guidance. Bob Tepper will provide an update on research and development activities. We will then take your questions.
Before we begin, though, let me remind you that when we discuss our growth, science, products and prospects our point of reference is how we as a Company think, expect or believe the future will look based on information as we know it today. No one can predict the future and there are risks that could cause the Company’s actual results to differ materially from these statements. You can review a list and description of these risks in the reports we file with the SEC. During this call we will be referring to non-GAAP net loss and non-GAAP profitability. These financial measures are not prepared in accordance with Generally Accepted Accounting Principles.
A description of the differences between these non-GAAP financial measures and the most directly comparable GAAP measures is included in the press release we issued yesterday and a discussion of why we believe these measures are useful to investors and of the additional purposes for which management uses these measures is included in the Form 8-K we furnished to the SEC last evening. The press release and the Form 8-K are also available on the Investor Section of our Web site. And with that said, let me now turn the call over to Deborah.
Deborah Dunsire, President, CEO
Good morning, everyone, and thank you for joining us today. It’s been a very eventful quarter at Millennium. On the financial front we delivered 35% growth in Velcade sales in the U.S. and reduced operating expenses 16% relative to the third quarter of last year. In addition, we took significant steps to support our transition to a commercially focused operating company. Since joining Millennium a few months ago, I’ve been working very closely with the management team to carefully evaluate all our programs, our strengths and capabilities, and with that to define the right strategy to leverage these assets, to deliver profitability and preserve our ability to grow.
The Millennium portfolio contains a wealth of assets from its discovery and development organizations. However, given our revenue profile as well as our commitment to building shareholder value, we do recognize the need to focus. We cannot continue to work on all fronts. Yesterday we announced our refined strategy based on this review. Importantly, the foundation of this Company has not changed. We remain focused on discovering, developing, and commercializing valuable medicines to improve outcomes for patients. We’ll continue to leverage proven capabilities in key areas than enable Millennium to deliver on this. With Velcade, we’ve already demonstrated our ability to accelerate full development, approval, and market uptake with a novel therapy and we intend to repeat that success with additional novel drugs.
In addition, we now have four molecules from our own discovery engine in early clinical development, demonstrating that rare capacity to innovate. Key points of differentiation and discovery include our approach in transnational medicine, our highly integrated R&D organization, a deep understanding of disease mechanisms and pathways, as well as our leading expertise in biomarkers. What has changed is a narrowed focus within that foundation. We’ve narrowed to two areas in clinical development, inflammation and oncology, and to one area in discovery, that will be oncology. In clinical development, we have the opportunity to push forward seven exciting molecules within our pipeline. These have the potential to generate significant value for Millennium as we develop and market the molecules on our own or in collaboration.
In terms of discovery, we had to make the tough decision to focus on one area given the financial constraints of the Company and our desire to be competitive at a leadership level wherever we participate. Oncology was the natural area for to us focus in. We have built considerable scientific strength as well as advanced tools and technologies to generate both large and small molecules in oncology. Our oncology team has already produced a strong discovery pipeline, which we can aggressively push forward, and in oncology, we can best leverage our biomarker and personalized medicine technology to achieve a competitive position. Our number one priority in driving our focused strategy forward is to grow revenues and target our investments. Those key priorities are firstly growing Velcade. We are the market leader in multiple myeloma in the relapse setting, but Velcade has tremendous ability to grow both within this indication and in the new uses in front line myeloma and following indications.
Secondly, we’re focused on accelerating the development of our clinical pipeline of seven novel oncology and inflammation molecules. Third, strengthening our oncology discovery organization in order to ensure our ability to compete at the leadership level. And then fourth, engaging in strategic business relationships that enable to us move forward and capture the full value of our pipeline by sharing R&D risk and cost and also enabling us to commercialize globally. In order to achieve this, we’ve rebalanced our investments, in particular we’re expanding the oncology commercial organization including a 50% increase in our oncology sales force and increases in our medical affairs group. We’re significantly reducing overall discovery spending by rescoping inflammation discovery so that it can support the advancement of our clinical pipeline.
Our announcement yesterday builds on the restructuring of our relationship with Schering-Plough and around Integrilin and the natural conclusion of the research phase of our very successful and productive small molecule inflammation collaboration with sanofi-aventis. Millennium and sanofi-aventis will continue to co-develop several molecules, which are part of the development and commercial collaboration. These molecules include our CCR1 inhibitors, 3897 and 701, and a new IKK beta inhibitor, 415, which currently in pre-clinical development. All of these molecules originated from our own discovery organization and are a testament to Millennium’s strength in innovative research. As part of our refined strategy, we have taken and will continue to take a series of steps, which together are expected to reduce operating expenses by 30% in full-year 2006 compared to full-year 2004. We are reducing the overall size of our Company from 1500 people, as we ended 2004, to approximately 1100 people by the end of 2005. That’s being done by carefully managing attrition, eliminating Integrilin sales and marketing positions, which we announced back in July, and reducing the number of positions in inflammation discovery and in our business support groups.
In addition, we’re further consolidating the Company’s Cambridge-based facility. And importantly, we’re going to continue to realize operating efficiencies through strong fiscal discipline and aggressive management of expenses. From a financial perspective these actions have firmly positioned Millennium to achieve our goal of non-GAAP profitability in 2006 through organic growth and still be able to drive the business in the long-term. As Marsha will discuss in a moment, we are in a very positive financial position with a strong third quarter behind us. I’m excited by the prospects in front of us as we work to realize the potential of Velcade, advance our clinical pipeline of novel molecules in inflammation and oncology, and very importantly, continue to position the Company to create value for our shareholders long-term. Let me now turn the call over to Marsha for a review of this quarter’s financial results.
Marsha Fanucci, CFO, SVP Corporate Strategy
Thank you, Deborah. Millennium had another strong quarter showing our ability to deliver on our financial goals of growing revenue and managing expenses. Our non-GAAP net loss was reduced substantially to $6.5 million compared to $55 million for the third quarter of 2004. Revenues were up driven by U.S. net product sales of Velcade and from the Company’s strategic alliances including several one-time payments from collaborators. R&D expenses were down as a result of reductions in discovery spending and a relative decrease in development investment in Integrilin and Velcade. These results, along with the strategy refinement and restructuring that Deborah just walked you through, allow to us revise our non-GAAP net loss guidance originally announced in January of this year, from under $100 million to the range of 85 million to $95 million. Let me provide some additional perspective on these results. First, starting with Velcade.
Our results this quarter continue to show the product is performing well with sales for the quarter of $51 million, an increase of 35% over the third quarter in 2004, and a 16% sequential increase over last quarter. This quarter-over-quarter growth was driven by an increase in end user demand coupled with a 3.7% price increase effective July 1st.
Based on our quarterly survey conducted in September with 75 U.S. oncologists who treat significant numbers of multiple myeloma patients, the increase in end user demand is attributed to increased penetration in the front and second line setting while we maintained our share in third line and beyond. We also continued to see modest commercial use in mantel cell and follicular lymphomas. As a reminder, Millennium only promotes Velcade for its approved indication of patients with multiple myeloma who have received at least one prior therapy. Going into the fourth quarter we’re not expecting to see as large an increase in net product sales as we did in the third quarter. Let me turn now to Integrilin.
Effective September 1st our relationship with Schering-Plough around the U.S. development and commercialization of Integrilin was restructured from a co-promotion to a royalty arrangement. As a recap, under the new relationship structure, Millennium received a $35.5 million up-front payment, which will be amortized over several calendar years. We will also receive significant royalties on sales in the U.S. over the product’s lifetime, extending beyond patent expiry in 2014. This new relationship is financially at least equivalent to our previous 50/50 co-promotion agreement with Schering-Plough with the added benefit for potential upside given the structure of the royalty. We have also increased the near-term certainty of the revenue from the product as the result of a guaranteed royalty payment of $85 million in both 2006 and 2007. Due to the new relationship structure, our P&L this quarter included some changes and one-time transactions. I’m going to review these at a high level today but plan to go through them in more detail at our analyst and investor day on November 2nd.
Effective September 1st we will no longer report co-promotion revenue. For the first two months of the quarter co-promotion revenue was $33 million. Also effective September 1st, we began reporting a separate line item for royalty revenue. Going forward, this line item may include royalties received for Integrilin sales in the U.S. and ex-U.S., for Velcade ex-U.S. sales and any royalties earned on their other alliances. For September, royalties were $12.5 million. We recorded a one-time sale of Integrilin inventory to Schering-Plough per the new relationship in the amount of $71 million. This sale was recorded in revenue under strategic alliances and was largely offset by an expense in the cost of sales line. Revenue under strategic alliances was $105 million for the quarter. This result included the sale of inventory just mentioned and several one-time payments from collaborators including milestone payments and expense reimbursement totaling approximately $10 million.
As you think about this line item going forward it will be comprised primarily of reimbursements from our alliances with Johnson & Johnson and sanofi-aventis as well as reimbursement form Schering-Plough for Integrilin cost of sales in the United States. Regarding our expenses, we saw reductions totaling 16% in combined R&D and SG&A this quarter compared to the third quarter in 2004. For R&D, investment was reduced 19% over the third quarter last year to $81 million as a result of reduced spending in discovery and in development for Velcade, given the higher level of spend in 2004 for preparation of the SNDA filing for Velcade in the multiple myeloma second-line treatment setting. SG&A declined to $41 million for the quarter, a 12% reduction over the third quarter of 2004. This decrease was due to the accelerated impact of savings from the new relationship structure with Integrilin. Our GAAP net loss for the quarter was $74 million compared to 63 million in the third quarter of 2004. Included in the third quarter 2005 results were $59 million in restructuring charges. These charges include $31 million relating to revised sublease assumptions for facilities vacated as a part of our 2003 restructuring, and a $28 million charge from our 2005 strategic refinement. Let me remind you in that in June 2003 we announced a restructuring initiative that included the concentration of our research and development operations into a single location in Cambridge, Mass. with phase-out of operations in San Francisco and Cambridge, U.K. During 2003 and 2004 we recorded restructuring charges related to the ongoing lease obligations for these buildings we vacated.
Significant judgments and assumptions were made as part of the original estimate and were validated through consultations with independent third parties. As a result of a soft real estate market we have adjusted our original estimates related to the expected time to sublease certain of these properties. We expect the restructuring charges resulting from the refined strategy Deborah described earlier this morning to be in the range of 75 to $85 million consisting primarily of facilities cost and employee termination benefits. Approximately one-fourth of this charge is non-cash. The majority of this charge will be spread largely over 2005 and 2006 including the $28 million recognized in the third quarter of 2005. Under both the 2003 and 2005 strategy refinement we will continue to monitor these real estate assumptions. It’s possible that we will have to adjust these estimates again resulting in additional restructuring charges. Our original estimate for the total restructuring charges was $250 million with approximately one-third of this charge being non-cash. Our revised estimate of our combined restructuring efforts now brings us to the range of 350 to $385 million, of which $292 million has been recorded. The majority of the remaining charges of approximately 60 to $90 million will be recorded through the remainder of 2005 and 2006.
We clearly had a solid quarter financially on all fronts. As a result we’re updating our non-GAAP net loss guidance to 85 to $95 million for the year from under $100 million as originally stated at the start of 2005. I do want to provide a moderating perspective on our results this quarter. As I mentioned today, Velcade sales are not expected to increase in the fourth quarter at the same rate as seen in this quarter. In addition, we received several payments from our collaborators, which we do not expect to be repeated next quarter. That being said, we are narrowing our guidance for Velcade sales to between 190 to $195 million, the upper end of our original guidance range. Due to the restructuring charges I mentioned earlier, we’re increasing our 2005 GAAP net loss to the range of 200 to $215 million. The original guidance was a GAAP net loss of $155 million. Finally, we’re increasing our cash guidance to greater than $600 million compared with previous guidance of greater than 500 million. This increase reflects the cash payments received from Schering-Plough as a result of the new relationship structure with Integrilin including the up-front payment of $35.5 million, and $50 million received for the inventory sale on September 1st. I’ll now turn the call over to Bob for an R&D review.
Bob Tepper, President, Research and Development
Thanks, Marsha. Today I want to review at a very high level the molecules in the pipeline and some of the advancements this quarter. First let me focus on inflammation. We continue to advance five novel molecules in our inflammation pipeline. MLN02, an alpha4beta7 gut-specific leukocyte targeting antibody, MLN1202, an antibody to the chemokine CCR2 receptor, as well as three novel molecules that are a result of our successful small molecule inflammation research collaboration with sanofi-aventis, all of which were discovered here at Millennium. These molecules include the small molecule CCR1 inhibitors, MLN3897 and 3701, and the small molecule IKK beta inhibitor, MLN0415, which is expected to enter the clinic next year. With MLN1202 this quarter we initiated two additional Phase to a proof of concept studies to determine safety, tolerability and biological activity in relapsing and remitting multiple sclerosis as well as in atherosclerosis. These studies are part of our strategy to test MLN1202 broadly in several inflammatory diseases including rheumatoid arthritis. In oncology we continue to move forward our proprietary molecules MLN518, our receptor tyrosine kinase inhibitor, MLN2704, our anti-PSMA antibody, and MLN8054, a small molecule aurora kinase inhibitor, which also originated from the Millennium discovery engine. This quarter for MLN518 we initiated a Phase I/II trial in combination with cytarabine and daunorubicin in acute myelogenous leukemia frontline patients. This study builds on the successful trial we completed in 2004 in which MLN518 showed anti-leukemic activity as a single agent in relapsed AML patients. We will talk about our strategy and results today with all of these molecules next week at our analyst meeting. Together with our partner, Johnson & Johnson, we continue to develop Velcade in a number of promising areas including frontline multiple myeloma, non-Hodgkin’s lymphoma and non-small cell lung cancer. Currently more than 100 trials are ongoing, both company-sponsored as well as investigator initiated and cooperative group-sponsored trials.
Data will be presented at ASH in December for Velcade including the updated survival data from our Phase III APEX trial in relapsed multiple myeloma patients and data from investigator-initiated studies in the frontline multiple myeloma setting. In total, more than 50 abstracts on Velcade were accepted at ASH including six oral presentations. So clearly there’s a lot of enthusiasm around Velcade at this upcoming conference. I’ll now turn the call back over to Deborah for closing remarks.
Deborah Dunsire, President, CEO
Thanks, Bob. Today we have announced an important step in the evolution of Millennium. It’s never easy to announce a restructuring, but these actions are critical to the Company’s continued success. The actions position us well to grow revenue, continue to support research and development innovation, and achieve our long-term goal of delivering innovative therapeutics that change the outcomes for patients and deliver return to shareholders. I want to thank everyone at Millennium for their hard work and dedication. Millennium wouldn’t be where it is today without all the important contributions made by these outstanding individuals. We look forward to walking you through additional details of this refined strategy and restructuring next week at our analyst and investor day. I hope we get to see you all there. We’ll now open the call for questions.
- The Q&A from this call is here.
- A list of full conference call transcripts available on the Seeking Alpha Network.
- The complete list of biotech stocks (and links to articles about them) covered by The Biotech Stock Blog.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!