Millennium Pharmaceuticals (Nasdaq: MLNM). Here's a company with slight revenue claiming it will develop many novel drugs for deadly diseases by using new technology. Right. Sure. And so far, you can still say, "Right. Sure." Aside from acquiring products to sell, Millennium is still only in research and trial mode. However, it finally may be closer to putting something great on the market: a cancer drug.


A cancer drug called Velcade

Last Wednesday, Millennium announced that by early 2003, it will file a New Drug Application (NDA) with the Food and Drug Administration (FDA) for its cancer drug, Velcade. This news sent the stock Flying Ahead Desperately (FAD).


Velcade's phase II trials were just completed for multiple myeloma, a rare but lethal bone marrow cancer that, worldwide, afflicts 74,000 people annually. Millennium's new drug works by, in effect, making cancer cells commit suicide. The drug is in trials for other cancers as well, with the ultimate hope that it'll work on solid tumor cancers, including breast, prostate, lung, pancreatic, and many other common cancers. Velcade is in phase I and phase II trials for patients with solid tumors.


In the multiple myeloma phase II trial results released on Monday, 59% of 202 patients experienced a response to Velcade or achieved "stable disease." Thirty-five percent achieved partial remission or at least showed a minimal response by strict measures. Complete remission was achieved by 4% of patients. These trial results are very good for a cancer drug, especially with a cancer that lacks viable treatments.


Based on the early promise of Velcade, the FDA granted the drug fast-track status last June. Fast-track status is sometimes granted to promising drugs that treat serious diseases and serve unmet medical needs. The purpose of fast-track designation is to get life-lengthening drugs on the market as quickly and safely as possible; the FDA reviews fast-track drugs before those that treat less-serious diseases. Additionally, some fast-track drugs are submitted for approval before standard phase III trials are completed. In fact, Millennium is submitting Velcade after only phase II trials.


Is Millennium desperate?

Some people have misread (in my opinion) this attempt at early approval as an act of desperation on Millennium's part.


Last week, wrote:

[Millennium's] strategy to seek approval for Velcade based on phase II data comes as a bit of a surprise, given that it recently started a larger phase III trial. One fund manager, with no position in Millennium, says the news can be read in one of two ways: The company met with the FDA to discuss the phase II results and the agency liked what it saw and encouraged the company to file sooner rather than later. The other scenario has the whiff of desperation, says this fund manager. Millennium, feeling under pressure due to its moribound stock price, has decided to gamble by filing early, even though it increases the risk that the FDA turns the drug away until more data, likely from the ongoing phase III trial, are collected.

At first glance, either scenario -- strong data or being desperate to file -- sound plausible, especially now, when we're all jaded by management scandal. But in truth, filing for early approval should not come as a surprise because fast-tracked drugs are hoped to, and even somewhat expected to, be filed for approval as soon as possible. As soon as there's enough information to warrant filing for approval, it is in everyone's best interest to submit a fast-track drug. Without phase III trial results, how does this work? Unlike less important drugs, fast-track drugs can be evaluated and approved (or not approved) by the FDA on a rolling basis, meaning even while trials are still underway. This is a great strength behind fast-track status.


So, this news should not come as a surprise, nor should it raise suspicious eyebrows.


Millennium is continuing Velcade's phase III trials while it seeks early approval. If the FDA says it needs more data before approving Velcade, well, the phase III trials are underway. So, in the long run, there's only potential upside in filing for early approval: The drug could be approved sooner and get to patients who otherwise only have months to live. In fact, by filing for approval now, Velcade could become available an entire year sooner than otherwise possible, helping thousands more cancer patients.


What's the downside to filing for approval now? If the FDA says, "No, we need phase III data," the stock will likely decline in the near-term. That seems a risk worth taking, given the rewards.


Sitting wealthy

Further weakening the's suggestion that Millennium may be desperate is the fact that the company is sitting on $1.3 billion in net cash, or about $4.50 in cash per share. With $96 million in revenue last quarter, Millennium burned through $99 million in 90 days, mainly by spending $140 million on research and development. Even at that burn rate (which should decline), the company has more than three years of cash.


Overall, Millennium wouldn't buy a drug (as it did with Velcade) that has been in development for years, and then gamble something big by filing for approval before it felt confident. There's no need.


The 9-year-old biotech hopeful makes up 10% of our portfolio's value. At $10 per share, Millennium's enterprise value is $1.6 billion, or about 5.3 times sales (but don't forget the cash burn). Clearly, many investors believe in its potential. We're among them. We know this potential is highly-speculative and far from certain, but we're hopeful. Velcade may be the most promising drug in the pipeline. Before the end of next year, it could be approved for its first indication. We bought more Millennium in September at $11.65.


Jeff Fischer is a senior analyst for The Motley Fool. He owns shares of Millennium. All the stocks he owns are disclosed online. Motley Fool investment analysts bring their best investment ideas to you every month in The Motley Fool Select. Enjoy your 30-day free trial today!


Rule Breaker Portfolio Returns as of 12/09/02 Market Close:

            RB        S&P     S&P 500
            Port      500      DA*    Nasdaq
Week       -7.64%    -4.55%    --     -7.92%
Month      -3.31%    -4.73%    --     -7.55%
Year -21.62% -22.31% -- -29.90%
using IRR** since 8/4/94*** 21.09% 8.30% 10.92% 7.98%
10/20/98*** 2.11% -6.84% -3.81% -8.72%

*Dividends added. Or, danger ahead. Whatever.

**Compound Annual Growth Rate using Internal Rate of Return. This performance measure is more meaningful than total return because we began adding cash occasionally in July 2001. In a total return calculation, or ((Current Value - All Cash Deposited)/All Cash Deposited), cash added would show up as returns. And that wouldn't be cricket!

***What's this? The Rule Breaker Portoflio's precursor, the Fool Portfolio, was born Aug. 4, 1994. In a 10/20/98 column, David Gardner announced the name change of the Fool Portfolio to the Rule Breaker Portfolio. Here we provide returns as if the RB Port started on either date. Remember, don't mimic any online portfolio. Most individual investors should restrict any positions as risky as these to under 20% of their portfolio -- and could have a happy long investing life with zero.