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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3177038
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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640 MEMORIAL DRIVE, CAMBRIDGE, MA 02139
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No __
Number of shares of Common Stock, $.001 par value per share, outstanding as of
May 10, 1999 was 35,776,682.
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MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets 3
March 31, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the three months
ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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Millennium Pharmaceuticals, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
(in thousands, except par value and shares) 1999 1998
-----------------------------------
(Unaudited) (Note)
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ASSETS
Current assets:
Cash and cash equivalents $ 84,923 $ 138,284
Marketable securities 138,049 52,680
Due from strategic partners 3,323 6,660
Prepaid expenses and other current assets 7,048 5,033
--------------------------------
Total current assets 233,343 202,657
Property and equipment, net 40,698 38,170
Restricted cash and other assets 11,232 11,416
Intangible asset, net 5,035 5,711
--------------------------------
Total assets $ 290,308 $ 257,954
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,878 $ 6,918
Accrued expenses 7,353 6,186
Deferred revenue 6,316 2,501
Current portion of capital lease obligations 8,227 8,657
--------------------------------
Total current liabilities 30,774 24,262
Capital lease obligations, net of current portion 25,970 24,827
Minority interest 15,254 2,503
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized:
none issued -- --
Common Stock, $0.001 par value: 100,000,000 shares authorized:
35,622,319 shares in 1999 and 34,923,204 shares in 1998 issued and
outstanding 36 35
Additional paid-in capital 306,185 296,370
Deferred compensation (751) (957)
Notes receivable from officers (68) (87)
Other comprehensive income (loss) (136) 29
Accumulated deficit (86,956) (89,028)
--------------------------------
Total stockholders' equity 218,310 206,362
--------------------------------
Total liabilities and stockholders' equity $ 290,308 $ 257,954
================================
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Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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Millennium Pharmaceuticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
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THREE MONTHS ENDED MARCH 31, 1999 1998
(in thousands, except per share and share data)
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Revenue under strategic alliances $ 40,992 $ 21,043
Costs and expenses:
Research and development 35,433 22,429
General and administrative 7,126 5,911
Amortization of intangible asset 676 675
--------------------------------------
43,235 29,015
--------------------------------------
Loss from operations (2,243) (7,972)
Interest income 2,759 1,447
Interest expense (697) (645)
Minority interest 2,253 2,744
--------------------------------------
Net income (loss) $ 2,072 $ (4,426)
======================================
Unrealized loss on marketable securities (165) (38)
Comprehensive income (loss) $ 1,907 $ (4,464)
======================================
Basic net income (loss) per share $ 0.06 $ (0.15)
Shares used in computing basic net income (loss)
per share 35,315,034 29,262,189
Diluted net income (loss) per share $ 0.05 $ (0.15)
Shares used in computing diluted net income
(loss) per share 38,193,493 29,262,189
======================================
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See notes to condensed consolidated financial statements.
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Millennium Pharmaceuticals, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED MARCH 31, 1999 1998
(in thousands)
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CASH PROVIDED BY (USED IN) OPERATIONS $ 13,037 $ (6,748)
INVESTING ACTIVITIES
Purchase of property and equipment (3,778) (3,512)
Sale of marketable securities 15,500 15,395
Purchase of marketable securities (101,034) (24,039)
--------------------------------
Net cash used in investing activities (89,312) (12,156)
FINANCING ACTIVITIES
Proceeds from sale of subsidiary stock 15,000 --
Net proceeds from employee stock purchases 9,817 1,498
Repurchase of Common Stock (1) (3)
Payments of capital lease obligations (1,902) (1,532)
--------------------------------
Net cash provided by (used in) financing activities 22,914 (37)
--------------------------------
Decrease in cash and cash equivalents (53,361) (18,941)
Cash and cash equivalents at beginning of period 138,284 69,236
--------------------------------
Cash and cash equivalents at end of period $ 84,923 $ 50,295
================================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 2,615 $ 1,949
================================
</TABLE>
See notes to condensed consolidated financial statements.
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MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(unaudited)
1- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 which was filed with the
Securities Exchange Commission on March 24, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
beginning after June 15, 1999. The Company believes the adoption of this new
accounting standard will not have a significant effect to its financial
statements as the Company's investment policies prohibit the use of derivatives.
2 - STRATEGIC ALLIANCE
On February 22, 1999, the Company announced the formation of a
strategic alliance in the diagnostic field between its wholly-owned subsidiary,
Millennium Predictive Medicine, Inc. ("MPMx") and Becton, Dickinson and Company
("Becton Dickinson"). The five-year, genomics-based research collaboration will
focus on several areas of oncology.
Under the alliance, MPMx has agreed to undertake a research program to
identify genetic markers and related assays that may be used to develop
diagnostic products for several types of cancer. Becton Dickinson has agreed to
manufacture and market any products that result, and MPMx will receive a royalty
based upon gross profits from related product sales.
On March 31, 1999, Becton Dickinson made an equity investment in MPMx
of $15 million, representing approximately an 11% voting interest in MPMx, and
paid a $3 million licensing fee to MPMx. Becton Dickinson has agreed to pay MPMx
up to $51.5 million in research funding and additional annual license fees, over
the five-year term. Becton Dickinson has agreed to pay milestones and royalties
to MPMx in connection with the commercialization and sale of any products
developed through the alliance.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors are set forth under the caption "Factors That May
Affect Results" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, which "Factors That May Affect Results" discussion is
expressly incorporated by reference herein.
Overview
Millennium Pharmaceuticals, Inc. ("Millennium" or the "Company"), was
founded in 1993 and is applying a comprehensive integrated science and
technology platform which incorporates large-scale genetics, genomics, high
throughput screening, and informatics. We apply this technology platform
primarily in discovering and developing proprietary therapeutic and diagnostic
human healthcare products and services. As used herein, the terms "the Company"
and "Millennium" include the Company's subsidiaries where appropriate in the
context.
Results of Operations
Quarters Ended March 31, 1999 and March 31, 1998
Revenue under strategic alliances increased to $40.9 million for the
three months ended March 31, 1999 (the "1999 Quarterly Period") from $21.0
million for the three months ended March 31, 1998 (the "1998 Quarterly Period").
The increase in revenue in the 1999 Quarterly Period is due primarily to revenue
from research funding and license fees under the Company's alliances with Bayer
AG ("Bayer") and Becton, Dickinson and Company ("Becton Dickinson"). Neither of
these alliances was in place during the 1998 Quarterly Period.
Research and development expenses increased to $35.4 million for the
1999 Quarterly Period from $22.4 million for the 1998 Quarterly Period. The
increase was primarily attributable to increased personnel expenses, facilities
expenses, increases in spending for laboratory supplies and external
collaborations, and increased equipment depreciation. We expect research and
development expenses to continue to increase as personnel are added and as
research and development activities are expanded to accommodate our existing
strategic alliances and additional commitments that we may undertake in the
future.
General and administrative expenses increased to $7.1 million for the
1999 Quarterly Period from $5.9 million for the 1998 Quarterly Period. The
increase was attributable primarily
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to increased personnel expenses as the Company has hired additional management,
business development, and administrative personnel. We expect that general and
administrative expenses will continue to increase as Millennium continues to
grow.
The Company's total operating expenses increased to $43.2 million for
the 1999 Quarterly Period from $29.0 million for the 1998 Quarterly Period, for
the reasons discussed above with respect to the increase in research and
development and general and administrative expenses.
Interest income was $2.8 million for the 1999 Quarterly Period and $1.4
million for the 1998 Quarterly Period. The increase resulted from an increase in
the Company's average balance of cash, cash equivalents and marketable
securities. Interest expense increased to $.7 million for the 1999 Quarterly
Period from $.6 million for the 1998 Quarterly Period due to increased capital
lease obligations.
Minority interest represents the minority shareholder interest of Eli
Lilly and Company ("Lilly") in the net income or loss for the 1999 and 1998
Quarterly Periods of the Company's majority-owned subsidiary, Millennium
BioTherapeutics, Inc. ("MBio") as well as the minority shareholder interest of
Becton Dickinson in the net income or loss for the 1999 Quarterly Period of the
Company's majority-owned subsidiary, MPMx.
Liquidity and Capital Resources
Since inception, the Company has recognized approximately $327.2
million of revenue under strategic alliances. As of March 31, 1999, the Company
had approximately $223.0 million in cash, cash equivalents and marketable
securities. This excludes $9.8 million of interest-bearing marketable securities
classified as restricted cash and other assets on the balance sheet which serve
as collateral for the Company's letters of credit.
During the three months ended March 31, 1999, $13 million of cash was
provided by the Company's operations, we purchased $3.8 million of property and
equipment, and used cash of $1.9 million to pay capital lease obligations. In
addition, during the three months ended March 31, 1999, the Company acquired
equipment under capital leases of $2.6 million and received proceeds from
employee stock purchases of $9.8 million.
The Company believes that existing cash and marketable securities and
anticipated cash payments from its strategic alliances will be sufficient to
support the Company's operations for the foreseeable future.
Year 2000
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. Any computer program
that has date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. It is possible that
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this incorrect recognition of dates could cause system failures or
miscalculations of data. If these errors were to occur in Millennium systems,
they could cause us to be unable to process data and engage in normal business
activities.
Millennium has determined that we have Year 2000 exposure in the following
areas: (i) software and hardware embedded in our laboratory equipment and used
in our research and development programs, (ii) computer software and hardware
used in our business and facilities operations and (iii) computer systems used
by vendors and suppliers with whom we do business. In addition, we have Year
2000 exposure with respect to internally developed informatics application
software that is used by Millennium and certain alliance partners who have
access to our technology platform.
Millennium has a Year 2000 task force that is evaluating our internal computer
programs, systems and equipment and overseeing our Year 2000 efforts. We are
using both internal and external resources to identify potential issues, costs
and solutions to address Year 2000 concerns. For this effort, we are using
procedures outlined in the Government Accounting Office's Y2K Guide. We have
completed a preliminary inventory of our informatics applications, and we are
conducting an in-depth assessment of this inventory. In addition, we have
inventoried a substantial amount of software and hardware embedded in our
laboratory and facilities equipment as part of our effort to determine Year 2000
compliance. We are also making inquiries of our important suppliers and vendors
to assess their Year 2000 readiness. We have inventoried software used in our
business operations as well. We intend to identify critical systems and
equipment on which to focus our inquiries and testing.
To date, we have identified aspects of our computer hardware, network
infrastructure and business systems that are not Year 2000 compliant. We have
obtained and begun to implement vendor recommendations for correcting these
deficiencies. We have also identified aspects of internally developed software
applications that are not Year 2000 compliant and have begun testing and
corrective programs in this area. We expect to complete testing and remediation
for critical computer hardware, network infrastructure, business systems and
internally developed software applications by the end of the third quarter of
1999.
We completed an initial inventory and preliminary risk assessment of critical
laboratory and facilities equipment and systems during first quarter of 1999. We
have obtained and are reviewing vendor provided documentation for these items.
We expect to complete testing and any remediation of critical laboratory and
facilities equipment by the end of the year.
There can be no assurance that we will not find problems that will require us to
incur substantial costs to correct or will disrupt our business. Should such
problems occur, they could have a material adverse effect on our business,
financial position or results of operations. At the current time, we expect to
be able to correct the problems of which we are aware in a reasonable and timely
manner. We are not experiencing and do not anticipate any forward-looking
problems.
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We do not currently have contingency plans for all critical aspects of our
systems and operations in the event that we or any of our important suppliers or
vendors are not able to become Year 2000 compliant. We expect to develop
contingency plans for critical areas if we determine that we or any important
vendors or suppliers are not likely to become Year 2000 compliant.
We have not incurred material remediation costs to date and we do not currently
expect that the aggregate cost of our efforts will be material to our operations
or financial position taken as a whole. However, it is possible that remediation
costs will be greater than we anticipate and that such costs could have a
material adverse effect on our financial position or results of operations. Our
alliance partners or collaborators may also experience disruption as a result of
the Year 2000 issue. If our alliance partners and collaborators experience
disruption, it is possible that our alliances with these partners could be
adversely affected, which could have a material adverse effect on our financial
position and results of operations.
There can be no assurance that we will identify all Year 2000 compliance
problems as a result of our efforts or that we will be able to correct
compliance problems that are identified in a timely manner. If we are unable, in
a timely manner, to identify and correct compliance problems in critical systems
and equipment, our business, financial position and results of operations could
be adversely affected.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this
report.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by the
Company during the last quarter:
1. Current Report on Form 8-K filed with the Securities and
Exchange Commission on March 11, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: May 12, 1999 By: /s/ Kevin P. Starr
------- ------------------------------------------
Kevin P. Starr
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
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Exhibit
No. Description
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27.1 Financial Data Schedule for the quarter ended March 31, 1999
99.1 Pages 45 through 59 of the Company's Annual Report of Form
10-K for the year ended December 31, 1998, as filed with the
Securities Exchange Commission (which are deemed filed except to
the extent that portions are not expressly incorporated by reference
herein).
</TABLE>
+ Confidential treatment requested with respect to certain portions
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 84,923
<SECURITIES> 138,049
<RECEIVABLES> 3,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 233,343
<PP&E> 69,094
<DEPRECIATION> (28,396)
<TOTAL-ASSETS> 290,308
<CURRENT-LIABILITIES> 30,774
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> 218,274
<TOTAL-LIABILITY-AND-EQUITY> 290,308
<SALES> 0
<TOTAL-REVENUES> 40,992
<CGS> 0
<TOTAL-COSTS> 43,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 697
<INCOME-PRETAX> 2,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,072
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
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Exhibit 99.1
FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For this
purpose, any statements contained in this Annual Report that are not statements
of historical fact may be considered to be forward-looking statements. Although
this is not a complete list, we use the words "believes," "anticipates,"
"plans," "expects," "intends," and similar expressions to identify
forward-looking statements. There are a number of important factors that could
cause our actual results to differ materially from those that are indicated by
forward-looking statements. Those factors include, without limitation, those
listed below and elsewhere in this Annual Report on Form 10-K.
UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES; RISKS RELATED TO PRODUCT
DEVELOPMENT. To date, we have not developed or commercialized any products or
services based on our genomics and related technologies. Millennium's lead
programs and development focus have been primarily directed to disease that may
be linked to several or many genes, working in combination. The scientific and
medical communities have a limited understanding relating to the role of genes
in these diseases. Relatively few products and services based on gene
discoveries have been developed and commercialized. Our technological approach
to gene identification and target validation may not consistently enable
Millennium to successfully identify and characterize genes that predispose
individuals to diseases.
Any therapeutic, diagnostic or pharmacogenomic products and services based on
gene discoveries that Millennium or any of our current and future strategic
partners may develop in
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the future will require significant research, development, testing and
regulatory approvals prior to commercialization. Development of these products
and services will be subject to the risks of failure that accompany the
development of products and services based on new technologies. These risks
include the possibilities that any products or services based on these
technologies will be found to be ineffective, unreliable or unsafe, or otherwise
fail to receive necessary regulatory approvals; that products or services, if
safe and effective, will be difficult to manufacture on a large scale or will be
uneconomical to market; that proprietary rights of third parties will preclude
us or our strategic partners from marketing products or services; and that third
parties will market superior or equivalent products or services.
Accordingly, even if Millennium is successful in identifying genes associated
with specific diseases, there can be no assurance that our gene discoveries will
lead to the development of therapeutic and diagnostic products capable of
addressing these diseases. The failure to successfully commercialize products
based on Millennium-discovered genes would have a material adverse effect on our
business, financial condition and operating results.
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES; UNCERTAINTY OF
ADDITIONAL FUNDING. To date, substantially all of our revenues have resulted
from payments from strategic partners. We have not yet generated any therapeutic
or diagnostic products or services that have entered preclinical studies. We
have not generated any revenue from therapeutic or diagnostic product sales. We
anticipate that it will be a number of years, if ever, before we will recognize
revenue from therapeutic or diagnostic product sales or royalties.
As of December 31, 1998, Millennium had an accumulated deficit of approximately
$89 million including a non-recurring charge of $83.8 million in 1997 for
acquired in-process research and development related to the acquisition of
ChemGenics. We may incur losses for at least the next several years, or may show
periods of profitability and periods of losses. Losses may increase as we
expand our infrastructure, research and development, and commercialization
activities. To achieve sustained profitability, Millennium, alone or with
others, must successfully develop therapeutic, diagnostic and pharmacogenomic
products or services, conduct clinical trials, obtain required regulatory
approvals and successfully manufacture, market and sell such therapeutic or
diagnostic products or services. The time required to reach commercial revenue
and profitability is highly uncertain. Millennium may not be able to achieve any
such revenue and profitability on a sustained basis, if at all.
Our approach of applying a comprehensive platform of genomics and related
technologies in the discovery of life-science based products and services has
required that Millennium establish a substantial scientific infrastructure.
Millennium has consumed substantial amounts of cash to date and expects capital
and operating expenditures to increase over the next several years as we expand
our infrastructure, research and development, and commercialization activities.
We believe that existing cash and investment securities and anticipated cash
flow from existing strategic alliances will be sufficient to support our
operations for the foreseeable future. Our actual future capital requirements,
however, will depend on many factors, including progress of our development and
discovery programs, the number and breadth of these programs, costs
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associated with acquisition of products and other opportunities, achievement of
milestones under strategic alliance arrangements, our ability to establish and
maintain additional strategic alliance and licensing arrangements, and the
progress of the development efforts of our strategic partners. Other factors
that may affect our future capital requirements include the level of our
activities relating to commercialization rights it has retained in its strategic
alliance arrangements, competing technological and market developments, costs
associated with acquiring rights to technologies developed outside Millennium,
costs associated with facility expansion, costs associated with collection of
patient information and DNA samples, costs involved in enforcing patent claims
and other intellectual property rights and the costs and timing of regulatory
approvals.
We expect that Millennium will require significant additional financing in the
future, which we may seek to raise through public or private equity offerings,
debt financings or additional strategic alliance and licensing arrangements.
Such additional financing may not be available when needed, or may not be
available on terms that are favorable to Millennium or our stockholders. To the
extent we raise additional capital by issuing equity securities, ownership
dilution to stockholders will result. To the extent that we raise additional
funds through strategic alliance and licensing arrangements, we may be required
to relinquish rights to certain of our technologies or product candidates, or to
grant licenses on terms that are unfavorable, either of which could have a
material adverse effect on our business, financial condition and results of
operations. In the event that adequate funds are not available, our business
would be adversely affected.
RELIANCE ON STRATEGIC PARTNERS. Millennium's strategy for development and
commercialization of therapeutic, diagnostic and pharmacogenomic products and
services based upon our gene discoveries depends upon the formation of various
strategic alliances. We may not be able to establish additional strategic
alliance or licensing arrangements necessary to develop and commercialize
products and services based upon our discovery and development programs. Any
such arrangements or licenses may not be on terms favorable to us. Moreover, any
current or future strategic alliances or licensing arrangements ultimately may
not be successful.
In certain of our strategic alliances, we are dependent on our partners for the
development, regulatory approval, and commercialization of therapeutic,
diagnostic and pharmacogenomic products and services based on the results of
these collaborative programs. The agreements with these strategic partners allow
them significant discretion in electing whether to pursue any of these
activities. We cannot control the amount and timing of resources our strategic
partners devote to our discovery and development programs or to the potential
products or services which may result from these programs.
If any of our strategic partners were to breach or terminate its agreement with
us or otherwise fail to conduct its collaborative activities successfully in a
timely manner, our discovery and development programs, including the preclinical
or clinical development or commercialization of products or services, would be
delayed or terminated. Any such delay or termination could have a material
adverse effect on our business, financial condition and results of operations.
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We rely on our strategic partners for strategic alliances in support of our
discovery and development programs. We could be required to devote additional
internal resources to our product and service development, or scale back or
terminate certain development programs or seek alternative collaborative
partners, if funding from one or more of our collaborative programs were reduced
or terminated.
Disputes may arise in the future with respect to the ownership of rights to any
technology developed with strategic partners. These and other possible
disagreements between strategic partners and Millennium could lead to delays in
the collaborative research, development or commercialization of certain products
and services, or could require or result in litigation or arbitration, which
could be time consuming and expensive. Such disagreements could have a material
adverse effect on our business, financial condition and results of operations.
Recently there have been a significant number of consolidations among
pharmaceutical companies. Any such consolidation involving a company with which
Millennium is collaborating could result in the diminution or termination of, or
delays in, the development or commercialization of products or research programs
under one or more of our strategic alliances.
In each of our strategic alliances, we generally agree not to conduct certain
research and development, independently or with any commercial third party, that
is in the same field as the research and development conducted under the
alliance agreement. Consequently, these arrangements may have the effect of
limiting the areas of research and development we may pursue, either alone or
with others. Our strategic partners, however, may develop, either alone or with
others, products and services that are similar to or competitive with the
products and services that are the subject of our collaborations with such
partners. Competing products and services, either developed by a strategic
partner or to which the strategic partner has rights, may result in the partner
withdrawing financial and related support for our product and service
candidates, which could have a material adverse effect on Millennium's business,
financial condition and results of operations.
All of our strategic alliance agreements are subject to termination under
various circumstances. Each strategic partner has the right to terminate its
agreement with Millennium (while maintaining rights and licenses to certain
Company discoveries) should we fail to meet certain performance criteria
specified in the relevant strategic alliance agreement. Certain of our strategic
alliance agreements provide that, upon expiration of a specified period after
commencement of the agreement, our strategic partner has the right to terminate
the agreement on short notice without cause. We may not be able to successfully
negotiate a continuation of such agreements, if we seek to do so. The
termination or non-renewal of any strategic alliance could have a material
adverse effect on our financial condition and results of operations.
RISKS ASSOCIATED WITH ESTABLISHMENT OF SUBSIDIARIES. Millennium has adopted a
strategy of establishing business divisions and subsidiaries in order to pursue
multiple business opportunities and increase our capabilities and involvement in
the later stages of drug discovery and development. In 1997, we organized three
subsidiaries, MBio, MPMx and MInfo. During 1998, we combined MPMx and MInfo. We
do not hold all of the equity in MBio and, if the
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alliance between MPMx and Becton Dickinson receives clearance under the
Hart-Scott-Rodino Antitrust Improvements Act, we will not hold all of the equity
of MPMx. We anticipate that there could be additional minority stockholders in
both subsidiaries in the future.
Millennium has sought to develop both informal and formal relationships between
and among subsidiaries and divisions to provide each unit within the overall
group with access to the assets and capabilities of the overall group that are
relevant to the business of the particular unit. However, conflicts could arise
in the future between or among Millennium and its divisions and subsidiaries
with respect to, among other things, future business opportunities and the
sharing of rights, technologies, facilities, administrative services or other
resources.
Certain officers and directors of Millennium, including Mark Levin, Chief
Executive Officer and Chairman of the Board of Directors, and Steven Holtzman,
Chief Business Officer, currently serve as directors of each of the
subsidiaries. Mr. Levin also serves as the President of MBio. Our present
executive officers and managers may assume other positions within Millennium's
current or future subsidiaries, causing them to be unavailable to serve the
parent company or to reduce the amount of time they devote to its affairs.
Furthermore, members of the Board of Directors of Millennium and the officers of
Millennium who are also affiliated with one or more of the subsidiaries will be
required to consider not only the short-term and long-term impact of operating
decisions on the parent company, but also the impact of such decisions on the
subsidiaries. In some cases, the impact of such decisions could be
disadvantageous to Millennium or to any or all of the subsidiaries. Conflicts
may arise among the parent company and its subsidiaries and/or the minority
stockholders of such subsidiaries, which could have a material adverse effect on
our business, financial condition or results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS. As part of our business strategy, we may
acquire assets and businesses relating or complementary to our operations and
business. Such acquisitions could include companies, specific technology, or
in-licensed products that are in later stages of development than those in our
current programs. Any acquisitions we may make will be accompanied by the risks
commonly encountered in acquisitions of companies or products. Such risks
include, among other things, potential exposure to unknown liabilities of
acquired companies or to acquisition costs and expenses exceeding amounts
anticipated for such purposes, the difficulty and expense of assimilating the
operations, acquired technology and personnel of the acquired businesses, the
potential disruption of our ongoing business, diversion of management time and
attention, and the potential failure to achieve anticipated financial, operating
and strategic benefits from such acquisitions.
In order to finance any such acquisition, it may be necessary for Millennium to
raise additional funds through public or private financing. Such financing, if
available at all, may be on terms which are not favorable to us, and, in the
case of equity financings, may result in dilution to Millennium stockholders.
There can be no assurance that we would be successful in overcoming these risks
or any other problems encountered in connection with any such acquisitions. If
Millennium is unsuccessful
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in doing so, our business, financial condition and results of operations could
be materially and adversely affected.
EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH. We have significantly increased
the scale of our operations to support the expansion of our disease research
programs and our strategic alliances, including expansion due to the acquisition
of ChemGenics in 1997, the organization during 1997 of subsidiaries, the
initiation of a major strategic alliance with Monsanto in October 1997 and the
initiation of an alliance with Bayer in November 1998. This expansion has
included the hiring of a significant number of additional personnel. As of March
1, 1999, Millennium and its subsidiaries had approximately 730 full-time
employees, an increase of 210 employees since March 1, 1998. We plan to hire up
to approximately 200 new employees by the end of 1999. In addition to hiring new
employees, our growth has required and will continue to require the acquisition
of significant amounts of additional equipment, including software and
informatics resources, and the leasing of additional facilities.
Our growth has resulted in an increase in responsibilities placed upon
management and has placed added pressures on our operational and financial
systems. Our ability to manage such growth effectively will depend upon our
ability to broaden our management team and to attract, hire and retain skilled
employees. Our success will also depend on the ability of our officers and key
employees to continue to implement and improve our operational, management
information and financial control systems and to expand, train and manage our
employee base. If we are unable to manage growth effectively, such inability
could have a material adverse effect on our business, financial condition and
operating results.
INTENSE SCIENTIFIC AND COMMERCIAL COMPETITION. The fields of genomics and
pharmaceuticals are highly competitive. Millennium's competitors in the genomics
area include, among others, public companies such as Genome Therapeutics
Corporation, Human Genome Sciences, Inc., Incyte Pharmaceuticals, Inc., Myriad
Genetics, Inc. and Sequana Therapeutics, Inc., as well as private companies and
major pharmaceutical companies. Universities and other research institutions,
including those receiving funding from the federally funded Human Genome
Project, also compete with Millennium. A number of entities are attempting to
rapidly identify and patent randomly sequenced genes and gene fragments,
typically without specific knowledge of the function of such genes or gene
fragments. In addition, certain other entities are pursing a gene
identification, characterization and product development strategy based on
positional cloning and other genomics technologies.
Many of the organizations competing against Millennium have greater capital
resources, research and development staffs and facilities, and greater
experience in drug discovery and development, obtaining regulatory approvals and
product manufacturing and greater marketing capabilities than us. Our
competitors may discover, characterize or develop therapeutic or diagnostic
products or services for important genes in advance of Millennium or may make
discoveries which render non-competitive or obsolete the products or services
that Millennium or our strategic alliance partners may seek to develop, any of
which could have a material adverse effect on any related Millennium disease
research program. We expect competition to intensify in genomics research as
technical advances in the field are made and become more widely known.
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Generally, our strategic alliance agreements do not restrict the strategic
partner from pursuing competing development efforts. Any product candidate of
Millennium, therefore, may be subject to competition with a potential product
under development by a strategic partner.
PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS. Millennium's commercial
success will depend in part on obtaining patent protection on gene discoveries
and on products, methods and services based on such discoveries. As of March 1,
1999, Millennium and its subsidiaries own, or are the exclusive licensee under,
more than 500 pending U.S. and international patent applications and 25 issued
U.S. patents.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including Millennium, are generally uncertain and involve complex
legal and factual questions. Patent law relating to the scope of claims in the
technology fields in which Millennium operates is still evolving, and the extent
of protection for our discoveries is therefore uncertain. We may not be issued
patents in respect of the patent applications that we file relating to our
technology pending patent applications will result in issued patents. Millennium
may not develop additional proprietary technologies that are patentable, and any
patents issued to either Millennium or our strategic partners may not provide a
basis for commercially viable products. Any issued patents may not provide us
with any competitive advantages or may not be challenged by third parties.
The patents of others may adversely affect our ability to do business. For
example, others may independently develop similar or alternative technologies,
duplicate any of our technologies, or design around the patented technologies we
develop. In addition, others may discover uses for genes, proteins and small
molecules other than those uses covered in our patents and patent applications,
and these other uses may be separately patentable. It is possible, therefore,
that we could be excluded from selling a product for which we have a composition
of matter claim if another party were to hold a patent covering the use of a
product of that same composition. It is also possible that Millennium could
incur substantial costs in litigation if we are required to defend ourselves in
patent suits brought by third parties, or if we initiate litigation against
others.
Millennium has applied for patent protection for novel, full-length genes,
partial gene sequences of novel genes and novel uses for known genes identified
through its research programs. There has been and continues to be uncertainty
regarding the patentability of partial gene sequences and full-length genes
absent functional data and the scope of patent protection available for
full-length genes and partial gene sequences. Based on recent technological
advances in gene sequencing technology, a number of groups other than Millennium
are attempting to rapidly identify gene sequences, whose functions have not been
characterized. Washington University (in conjunction with Merck & Co., Inc.) and
The Institute for Genomic Research (in collaboration with the National Center
for Biological Information) have made certain gene sequences available in
publicly accessible databases. It is possible that these and other similar
disclosures could adversely affect our ability to obtain patent protection for
full-length genes claimed in subsequent patent applications. We routinely
conducts searches of publicly available databases to determine whether other
parties have previously identified gene sequences corresponding to the various
partial gene sequences and full-length genes that Millennium has
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discovered. To the extent any patents issue to other parties on such gene
sequences, the risk increases that Millennium's or Millennium's partners'
potential products and processes may give rise to claims of patent infringement.
Others may have filed and in the future are likely to file patent applications
covering inventions that are similar or identical to inventions that we have
made. Any such patent applications covered have priority over patent
applications filed by Millennium. We believe that certain of our patent
applications cover genes that may also be claimed in patent applications filed
by other parties. Interference proceedings before the United States Patent and
Trademark Office may be necessary to establish which party was the first to
discover a particular gene.
Our potential products and services may conflict with patents that have been or
may be granted to competitors, universities or others. As the biotechnology and
biopharmaceutical industries expand and more patents are issued, the risk
increases that our potential products and services may give rise to claims that
they infringe the patents of others. Other parties could bring legal actions
against Millennium or our strategic partner claiming damages and seeking to
enjoin clinical testing, manufacturing and marketing of the affected products
and services. If any such actions are successful, in addition to any potential
liability for damages, We or our strategic partner could be required to obtain a
license in order to continue to manufacture or market the affected products and
processes. We cannot assure that we or our strategic partners would prevail in
any such action or that any license required under any such patent would be made
available on commercially acceptable terms, if at all. We believe that there
will continue to be significant litigation in the industry regarding patent and
other intellectual property rights. If Millennium becomes involved in such
litigation, it could consume a substantial portion of the our managerial and
financial resources.
There is substantial uncertainty concerning whether human clinical data will be
required for issuance of patents for human therapeutics. If such data is
required, our ability to obtain patent protection could be delayed or otherwise
adversely affected. Although the USPTO issued new utility guidelines in July
1995 that address the requirements for demonstrating utility for biotechnology
inventions, particularly for inventions relating to human therapeutics, utility
will be determined on a case-by-case basis. Moreover, we cannot assure that the
USPTO's position will not change with respect to what is required to establish
utility for biotechnology inventions.
Millennium relies upon trade secret protection for its confidential and
proprietary information. We believe that we have developed proprietary
technology for use in gene discovery and characterization, including proprietary
genetic marker sets, proprietary software (including proprietary software for
the capture, storage and analysis of DNA and protein sequence data) and an
integrated informatics system. We have not sought patent protection for many of
these technologies. In addition, Millennium has developed databases of
proprietary gene sequences and biological information, which are updated on an
ongoing basis. We have taken security measures to protect our data and we
continue to explore ways to further enhance data security. We cannot assure,
however, that such measures will provide adequate protection for our trade
secrets or other proprietary information. While we require employees, academic
collaborators and consultants to enter into confidentiality agreements, we
cannot assure that proprietary
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information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose such technology, or that we can
meaningfully protect our trade secrets.
Millennium's academic collaborators have certain rights to publish data and
information in which we have rights. While we believe that the limitations on
publication of data developed by its collaborators pursuant to its collaboration
agreements will be sufficient to permit Millennium to apply for patent
protection, there is considerable pressure on academic institutions to publish
discoveries. We cannot assure that such publication would not affect our ability
to obtain patent protection for some inventions in which we may have an
interest.
Millennium is a party to various license agreements that give us rights to use
certain technologies in our research and development processes. We cannot assure
that we will be able to continue to license such technology on commercially
reasonable terms, if at all. Our failure to maintain rights to such technology
could have a material adverse effect on our business, financial condition and
results of operations.
IMPACT OF THE YEAR 2000
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. Any computer program
that has date-sensitive software may recognize a date using "00" as the year
1900 rather than the Year 2000. It is possible that this incorrect recognition
of dates could cause system failures or miscalculations of data. If these errors
were to occur in Millennium systems, they could cause us to be unable to process
data and engage in normal business activities.
Millennium has determined that we have Year 2000 exposure in the following
areas: (i) software and hardware embedded in our laboratory equipment and used
in our research and development programs, (ii) computer software and hardware
used in our business and facilities operations and (iii) computer systems used
by vendors and suppliers with whom we do business. In addition, we have Year
2000 exposure with respect to internally developed informatics application
software that is used by Millennium and certain alliance partners who have
access to our technology platform.
Millennium has a Year 2000 task force that is evaluating our internal computer
programs, systems and equipment and overseeing our Year 2000 efforts. We are
using both internal and external resources to identify potential issues, costs
and solutions to address Year 2000 concerns. For this effort, we are using
procedures outlined in the Government Accounting Office's Y2K Guide. We have
completed a preliminary inventory of our informatics applications, and we are
conducting an in-depth assessment of this inventory. In addition, we have
inventoried a substantial amount of software and hardware embedded in our
laboratory and facilities equipment as part of our effort to determine Year 2000
compliance. We are also making inquiries of our important suppliers and vendors
to assess their Year 2000 readiness. We have inventoried software used in our
business operations as well. We intend to identify critical systems and
equipment on which to focus our inquiries and testing.
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To date, we have identified aspects of our computer hardware, network
infrastructure and business systems that are not Year 2000 compliant. We have
obtained and begun to implement vendor recommendations for correcting these
deficiencies. We have also identified aspects of internally developed software
applications that are not Year 2000 compliant and have begun testing and
corrective programs in this area. In addition, we expect to complete an
inventory and assessment of critical laboratory and facilities equipment and
systems by the end of the first quarter of 1999. We expect to complete testing
and remediation for critical computer hardware, network infrastructure, business
systems and internally developed software applications by the end of the third
quarter of 1999. We expect to complete testing and any remediation of critical
laboratory and facilities equipment by the end of the year. We are not
experiencing and do not anticipate any forward-looking problems.
At the current time, we expect to be able to correct the problems of which we
are aware in a reasonable and timely manner. As we have not completed our
evaluation of all of our critical systems, software or equipment, there can be
no assurance that we will not find problems that will require us to incur
substantial costs to correct or will disrupt our business. Should such problems
occur, they could have a material adverse effect on our business, financial
position or results of operations.
We do not currently have contingency plans for all critical aspects of our
systems and operations in the event that we or any of our important suppliers or
vendors are not able to become Year 2000 compliant. We expect to develop
contingency plans for critical areas if we determine that we or any important
vendors or suppliers are not likely to become Year 2000 compliant.
We have not incurred material remediation costs to date and we do not currently
expect that the aggregate cost of our efforts will be material to our operations
or financial position taken as a whole. However, it is possible that remediation
costs will be greater than we anticipate and that such costs could have a
material adverse effect on our financial position or results of operations. Our
alliance partners or collaborators may also experience disruption as a result of
the Year 2000 issue. If our alliance partners and collaborators experience
disruption, it is possible that our alliances with these partners could be
adversely affected, which could have a material adverse effect on our financial
position and results of operations.
There can be no assurance that we will identify all Year 2000 compliance
problems as a result of our efforts or that we will be able to correct
compliance problems that are identified in a timely manner. If we are unable, in
a timely manner, to identify and correct compliance problems in critical systems
and equipment, our business, financial position and results of operations could
be adversely affected.
UNCERTAINTY OF GOVERNMENT REGULATORY APPROVALS. The FDA, FTC and comparable
agencies in foreign countries impose substantial requirements upon the
manufacturing and marketing of human therapeutic, diagnostic and vaccine
products and services such as those proposed to be developed by Millennium or
its strategic alliance partners. Failure to comply with applicable regulations
or to obtain the necessary marketing clearances or approvals will significantly
impair Millennium's ability to market its products and services. The process of
obtaining FDA and
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other required regulatory approvals is lengthy and expensive. The time required
for FDA and other clearances or approvals is uncertain and typically takes a
number of years, depending on the complexity and novelty of the product. We
and/or our strategic alliance partners may encounter significant delays or
excessive costs in our efforts to secure necessary clearances, approvals or
licenses.
Because certain of the products likely to result from the our research and
development programs involve the application of new technologies and may be
based on a new therapeutic approach, such products may be subject to substantial
additional review by various governmental regulatory authorities. As a result,
regulatory approvals may be obtained more slowly than for products using more
conventional technologies. For example, proposals to conduct clinical research
involving gene therapy at institutions supported by the National Institutes of
Health ("NIH") must be approved by the Recombinant DNA Advisory Committee
("RAC") and the NIH. In addition, the U.S. Government has recently established a
working group to assess whether additional regulations in the area of genetic
testing may be appropriate, which could result in further regulation.
There can be no assurance that FDA or other clearances or approvals will be
obtained in a timely manner, if at all. Any delay in obtaining, or the failure
to obtain, such clearances or approvals could materially adversely affect our
ability to generate product or service or royalty revenues. Furthermore, such
clearances or approvals may include significant limitations on indications for
use for which the product or service may be marketed. Even if FDA or other
clearances or approvals are obtained, the marketing and manufacturing of
diagnostic and therapeutic products are subject to continuing FDA and other
regulatory review. Later discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on the product or
manufacturer, including, suspension, revocation, or withdrawal of product
approvals or clearances and/or withdrawal of the product from the market.
Violations of the Act or regulatory requirements at any time during the product
development process, approval process, or after approval may result agency
enforcement actions, including voluntary or mandatory recall, seizure of
products, fines, injunctions and/or civil or criminal penalties. Any such agency
action could have a material adverse effect on Millennium.
Millennium cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. Any such requirements could delay or
prevent regulatory approval or clearance of products under development. Any such
requirements could have a material adverse effect on Millennium's business,
financial condition, results of operations, and ability to market its products.
Our research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive materials. Millennium is subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by federal, state and local laws and
regulations, the risk of accidental contamination or injury from these materials
cannot be
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completely eliminated. In the event of such an accident, Millennium could be
held liable for any damages that result and any liability could exceed our
resources.
UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING. The grant of
regulatory approval for the commercial sale of any of our potential products
will depend in part on us and/or our strategic alliance partner successfully
conducting extensive preclinical and clinical testing to demonstrate the
product's safety and efficacy in humans. We have limited experience in
conducting preclinical and clinical development activities. Neither Millennium
nor any strategic alliance partner has submitted an IND to the FDA for any
product candidate based upon our discoveries.
The results of preclinical studies by Millennium and/or our strategic alliance
partners may be inconclusive and may not be indicative of results that will be
obtained in human clinical trials. In addition, results attained in early human
clinical trials relating to the products under development may not be indicative
of results that will be obtained in later clinical trials. As results of
particular preclinical studies and clinical trials are received, we and/or our
strategic alliance partners may abandon projects which we might otherwise have
believed to be promising.
We may not be permitted to undertake and complete human clinical trials of any
of our potential products, either in the U.S. or elsewhere. If such trials are
permitted. The products under development covered have undesirable side effect
or other characteristics that may prevent them from being approved or limit
their commercial use if approved. Clinical testing is very expensive, and we
and/or our strategic alliance partners will have to devote substantial resources
for the payment of clinical trial expenses.
In certain circumstances we may rely, in part, on our strategic alliance
partners, academic institutions and on clinical research organizations to
conduct and monitor certain clinical trials. Such entities may not conduct the
clinical trials successfully. Furthermore, we will have less control over such
trials than if Millennium were the sole sponsor. As a result, these trials may
not begin or be completed as planned. Failure to begin or complete any of our
planned clinical trials could have a material adverse effect on our business,
financial condition or results of operations.
ABSENCE OF SALES AND MARKETING EXPERIENCE; LIMITED MANUFACTURING CAPABILITY.
Although Millennium plans to rely significantly on strategic alliance partners
for the marketing and distribution of its products and services once developed,
we may market and sell certain of our products and services directly and may
engage in certain other marketing activities in collaboration with our strategic
alliance partners. During 1999, we intend to consider joint development, merger,
or acquisition opportunities that could provide Millennium with access to
products on the market or in later stages of commercial development than those
represented within our current programs. We have no experience in sales,
marketing or distribution. We do not expect to establish a direct sales
capability until such time as we have one or more products or services in
development which are approaching marketing approval.
To the extent Millennium enters into marketing or distribution arrangements with
strategic alliance partners, any revenues we receive will depend upon the
efforts of third parties. Any
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third party may not market our products and services successfully any
third-party collaboration may not be on terms favorable to us. If any marketing
partner did not market a product or service successfully, our business and
financial results would suffer. If our plan to rely on strategic alliance
partners for significant aspects of marketing and selling our products were
unsuccessful for any reason, Millennium would need to recruit and train a
marketing and sales force which would require us to incur significant additional
costs.
Millennium may not be able to attract and build a sufficient marketing staff or
sales force, the cost of establishing such a marketing staff or sales force may
not be justifiable in light of any product or service revenues, and our direct
sales and marketing efforts would be successful. In addition, if Millennium
succeeds in bringing one or more products or services to market, we may compete
with other companies that currently have extensive and well-funded marketing and
sales operations. Our marketing and sales efforts may not enable us to compete
successfully against such other companies.
Millennium does not have commercial-scale facilities to manufacture any products
under development in accordance with current Good Manufacturing Practices
("GMP") requirements prescribed by the FDA. We expect to be dependent on third
party manufacturers or collaborative partners for our clinical trials and
commercial production of products. In the event that we were unable to obtain
contract manufacturing, we may not be able to commercialize our products. Where
third-party arrangements are established, we expect to depend upon these third
parties to manage our clinical trials and meet our production needs in a timely
manner. Any such third parties we depend on may not perform. Any failures by
third parties could delay clinical trial development or the submission of
products for regulatory approval, impair our ability to commercialize products
as planned and deliver products on a timely basis, or otherwise harm our
competitive position, all of which could have a material adverse effect on our
business, financial condition or result or operation.
If we determined to develop our own manufacturing capabilities, we would need to
recruit qualified personnel and build or lease the requisite facilities and
equipment. We do not have any experience in manufacturing on a commercial scale
and do not have manufacturing facilities or equipment. We may not be able to
successfully develop our own manufacturing capabilities in a cost-effective or
timely manner. In addition, the manufacture of any potential Millennium products
regulated by the FDA and comparable agencies in foreign countries. Our delay in
complying, or our failure to comply with these agencies' manufacturing
requirements could materially adversely affect the marketing of our products and
our business, financial condition and results of operations.
AVAILABILITY OF, AND COMPETITION FOR, FAMILY RESOURCES. Our gene identification
strategy includes genetic studies of families and populations prone to
particular diseases. These studies are based upon statistical analyses of
disease inheritance patterns and require the collection of large numbers of DNA
samples from affected individuals, their families and other suitable
populations. We are dependent upon collaborations with a number of academic
centers for the identification of donor populations and the collection and
supply of the DNA samples used in its human disease gene research programs. The
availability of DNA samples from large, family-
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based or other suitable populations is therefore critical to our ability to
discover the genes responsible for human diseases through human genetic
approaches. The competition for these resources is intense and certain of our
competitors have obtained rights to significantly more family resources than we
have obtained. We may not be able to obtain access to DNA samples necessary to
support our human gene discovery programs and any material lack of availability
of such DNA samples would have an adverse effect on our business.
ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS. We are highly
dependent on the principal members of our management and scientific staff, none
of whom is bound by a long-term employment agreement. The loss of services of
any of these personnel could impede significantly the achievement of our
development objectives and could have a material adverse effect on our business,
financial condition and operating results. Furthermore, recruiting and retaining
qualified scientific personnel to perform research and development work in the
future will also be critical to our success. There is intense competition among
pharmaceutical and health care companies, universities and nonprofit research
institutions for experienced scientists, and there can be no assurance that we
will be able to attract and retain personnel on acceptable terms.
In addition, we rely on our scientific advisors to assist us in formulating our
discovery and developing strategy. All of the scientific advisors are employed
by employers other than Millennium and have commitments to other entities that
may limit their availability to us. Some of our scientific advisors also consult
for companies that may be competitors of Millennium.
DEPENDENCE ON RESEARCH COLLABORATORS AND SCIENTIFIC ADVISORS. We have
relationships with collaborators at academic and other institutions who conduct
research at our request. Such collaborators are not Millennium employees. All of
Millennium's consultants are employed by employers other than us and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to Millennium. As a result, we have limited control
over their activities and, except as otherwise required by our collaboration and
consulting agreements, can expect only limited amounts of their time to be
dedicated to our activities. Our ability to discover genes involved in human
disease and commercialize products based on those discoveries may depend in part
on continued collaborations with researchers at academic and other institutions.
We may not be able to negotiate additional acceptable collaborations with
collaborators at academic and other institutions and our existing collaborations
may not be successful.
Our research collaborators and scientific advisors sign agreements which provide
for confidentiality of Millennium's proprietary information and results of
studies. There can be no assurance, however, that we will be able to maintain
the confidentiality of our technology and other confidential information in
connection with every collaboration, and any unauthorized dissemination of our
confidential information could have an adverse effect on our business.
UNCERTAINTY OF THERAPEUTIC AND DIAGNOSTIC PRICING, REIMBURSEMENT AND RELATED
MATTERS. Millennium's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third party payors to contain or reduce the
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costs of health care through various means. For example, in certain foreign
markets pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect that there will continue to
be a number of federal and state proposals to implement similar government
control. In addition, increasing emphasis on managed care in the United States
will continue to put pressure on the pricing of therapeutic, diagnostic and
pharmacogenomic products and services. Cost control initiatives could decrease
the price that we or any of our strategic partners receives for any therapeutic,
diagnostic and pharmacogenomic products or services in the future and have a
material adverse effect on our business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a material
adverse effect on our strategic partners, Millennium's ability to commercialize
our products and to realize royalties may be adversely affected.
The ability of Millennium and any strategic partner to commercialize
therapeutic, diagnostic and pharmacogenomic products and services may depend in
part on the extent to which reimbursement for the products and services will be
available from government and health administration authorities, private health
insurers and other third party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products and services. Third
party payors, including Medicare, increasingly are challenging the prices
charged for medical products and services. Government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic and diagnostic
products and services and by refusing in some cases to provide coverage for uses
of approved products for disease indications for which the FDA has not granted
labeling approval. Any third party insurance coverage may not be available to
patients for any products and services discovered and developed by Millennium or
our strategic partners. If adequate coverage and reimbursement levels are not
provided by government and other third party payors for our products and
services, the market acceptance of these products and services may be reduced,
which may have a material adverse effect on our business, financial condition
and results of operations.
PRODUCT LIABILITY EXPOSURE. Clinical trials, manufacturing, marketing and sale
of any of Millennium's or our strategic partners' potential therapeutic products
may expose Millennium to liability claims from the use of such therapeutic
products. We currently do not carry product liability insurance. There can be no
assurance that we or our strategic partners will be able to obtain such
insurance or, if obtained, that sufficient coverage can be acquired at a
reasonable cost. An inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of therapeutic products
developed by Millennium or our strategic partners. A product liability claim or
recall could have a material adverse effect on the business or financial
condition of Millennium. While under certain circumstances we are entitled to be
indemnified against losses by its strategic partners, there can be no assurance
that this indemnification would be available or adequate should any such claim
arise.
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