[Millennium logo]
FOIA CONFIDENTIAL TREATMENT REQUEST
-----------------------------------
THE ENTITY REQUESTING CONFIDENTIAL TREATMENT IS
MILLENNIUM PHARMACEUTICALS, INC.
40 LANDSDOWNE STREET
CAMBRIDGE, MA 02139
ATTENTION: JOEL S. GOLDBERG
VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER
January 11, 2008
BY ELECTRONIC SUBMISSION
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E., Mail Stop 6010
Washington, D.C. 20549
Attention: Mr. Jim B. Rosenberg
Senior Assistant Chief Accountant
Re: Millennium Pharmaceuticals, Inc.
Form 10-K for the fiscal year ended December 31, 2006
FILE NO. 000-28494
Ladies and Gentlemen:
We are submitting this letter in response to comments contained in a letter
dated December 20, 2007 (the "Letter") from Jim B. Rosenberg, Senior Assistant
Chief Accountant, of the Securities and Exchange Commission to Marsha H.
Fanucci, Senior Vice President and Chief Financial Officer of Millennium
Pharmaceuticals, Inc. ("the Company"). These comments, and our responses to
these comments, are set forth below and are keyed to the sequential numbering of
the comments in the Letter and to the headings used in the Letter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
REVENUE, PAGE 43
COMMENT 1. You disclose that your accruals for rebates, chargebacks, and other
discounts were immaterial at December 31, 2006. However the reserve amounts
disclosed on page 49 appear to be material to your net loss for 2006. We believe
that your disclosure related to estimates of items that reduce gross revenue
could be improved to include a roll forward of the accrual for each estimate for
each period presented. Please revise your disclosure to include the following:
United States Securities and Exchange Commission
January 11, 2008
Page 2
o Beginning balance,
o Current provision related to sales made in current period,
o Current provision related to sales made in prior periods,
o Actual returns or credits in current period related to sales made in current
period,
o Actual returns or credits in current period related to sales made in
prior periods, and
o Ending balance.
RESPONSE: We have noted the Staff's comments and below is our proposed
disclosure related to estimates of items that reduce gross revenue to be
included in Management's Discussion and Analysis of Financial Condition and
Results of Operations in our Form 10-K for the year ended December 31, 2007.
Please note that amounts related to 2007 will be determined and disclosed upon
completion of our year end activities, and any significant changes in the
allowances will be discussed, as appropriate in our Form 10-K for the year ended
December 31, 2007.
REVENUE
We recognize revenue from the sale of our products, our strategic
alliances, as well as royalties and distribution fees based on net sales of
licensed products. We divide our revenue arrangements with multiple elements
into separate units of accounting if specified criteria are met, including
whether the delivered element has stand-alone value to the customer and whether
there is objective and reliable evidence of the fair value of the undelivered
items. We allocate the consideration we receive among the separate units based
on their respective fair values, and we apply the applicable revenue recognition
criteria to each of the separate units. We classify advance payments received in
excess of amounts earned as deferred revenue until earned.
NET PRODUCT SALES
We recognize revenue from the sale of VELCADE in the United States when
delivery has occurred and title has transferred. During the fourth quarter of
2004, we began distributing VELCADE through a sole-source open access
distribution model in which we sell directly to an independent third party who
in turn distributes to the wholesaler base. In April 2006, our sole-source
distributor added a second distribution site to its network in order to improve
access to the product for physicians in the western United States. Under our
agreement with our sole-source distributor, inventory levels are contractually
limited to no more than three weeks. VELCADE product inventory levels held by
the sole-source distributor have historically been below this limit at the end
of each quarter. We expect future inventory levels to be within our desired
range of one to two weeks of inventory in the distribution channel.
We record allowances as a reduction to product sales for discounts, product
returns and governmental and contractual adjustments at the time of sale.
Calculating these gross - to - net sales adjustments involves estimates and
judgments based primarily on sales or invoice data and historical experience.
United States Securities and Exchange Commission
January 11, 2008
Page 3
An analysis of the amount of, and change in, these allowances is as follows
(in thousands):
RULE 83 CONFIDENTIAL TREATMENT REQUEST BY MILLENNIUM PHARMACEUTICALS, INC.
REQUEST #1
Governmental
and
contractual
Discounts Returns adjustments Total
Beginning balance, January 1, 2005 $ [**] $ [**] $ [**] $ [**]
Current provisions relating to
sales in current period [**] [**] [**] [**]
Adjustments relating to prior [**] [**] [**] [**]
years
Payments/credits relating to
sales in current period [**] [**] [**] [**]
Payments/credits relating to
sales in prior period [**] [**] [**] [**]
------ ------ ------ ------
Balance at December 31, 2005 [**] [**] [**] [**]
------ ------ ------ ------
Current provisions relating to
sales in current period [**] [**] [**] [**]
Adjustments relating to prior
years [**] [**] [**] [**]
Payments/credits relating to
sales in current period [**] [**] [**] [**]
Payments/credits relating to
sales in prior period [**] [**] [**] [**]
------ ------ ------ ------
Balance at December 31, 2006 [**] [**] [**] [**]
------ ------ ------ ------
Current provisions relating to
sales in current period [**] [**] [**] [**]
Adjustments relating to prior [**] [**] [**] [**]
years
Payments/credits relating to
sales in current period [**] [**] [**] [**]
Payments/credits relating to
sales in prior period [**] [**] [**] [**]
------ ------ ------ ------
Balance at December 31, 2007 $ [**] $ [**] [**] $ [**]
------ ------ ------ ------
DISCOUNTS
We offer a 2% prompt payment discount to our sole-source distributor as an
incentive to remit payment in accordance with the stated terms of the invoice.
Because our customer typically takes advantage of the prompt payment discount,
we accrue 100% of the prompt payment discount, based on the gross amount of each
invoice, at the time of sale. We adjust the accrual quarterly to reflect actual
experience. Historically, these adjustments have not been material.
MILLENNIUM PHARMACEUTICALS, INC. RESPECTFULLY REQUESTS THAT THE MARKED
INFORMATION ON THIS PAGE BE TREATED AS CONFIDENTIAL INFORMATION AND THAT THE
COMMISSION PROVIDE TIMELY NOTICE TO JOEL S. GOLDBERG, MILLENNIUM
PHARMACEUTICALS, INC., 40 LANDSDOWNE STREET, CAMBRIDGE, MA 02139 (617) 761-6886
BEFORE IT PERMITS ANY DISCLOSURE OF THE MARKED INFORMATION ON THIS PAGE.
United States Securities and Exchange Commission
January 11, 2008
Page 4
RETURNS
We estimate VELCADE product returns based on historical return patterns.
Under our current methodology, we track actual returns by individual production
lots. Returns on closed lots (i.e., lots no longer eligible for credits under
our returned goods policy) are analyzed to determine historical returns
experience. Returns on open lots (i.e., lots still eligible for credits under
our returned goods policy) are monitored and compared with historical return
trends and rates. Historical rates of return are adjusted for known or expected
changes in the marketplace.
We consider several factors in our estimation process, including our
internal sales forecasts and inventory levels in the distribution channel. We
expect VELCADE returns to be, and returns have been low, and we expect, and have
experienced, that wholesalers will not stock significant inventory due to the
product's cost, expense to store and just in time distribution model. When
considering the level of inventory in the distribution channel, we determine
whether an adjustment to the sales return reserve is appropriate. For example,
if levels of inventory in the distribution channel increase and we believe sales
returns will be larger than expected, we adjust the sales return reserve, taking
into account historical experience, our returned goods policy and the shelf life
of our product, which ranges from 18 to 24 months. We have reduced and may, from
time to time in the future, reduce our product returns estimate. Doing so
results in increased product revenue at the time the return estimate is reduced.
For example, since the launch of VELCADE in 2003, we have estimated our returns
based upon historical trends in the pharmaceutical industry for similar products
and our historical return patterns as they became available. In 2006, we reduced
our return estimate based on lower than previously anticipated returns as our
first commercial lots reached expiration during the second half of 2005. These
adjustments to our estimates were not material to product sales in any quarter
or on an annual basis for 2006. If circumstances change or conditions become
more competitive in the market for therapeutic products that address the
approved indications for VELCADE, we may take actions to increase our product
return estimates. Doing so would result in an incremental reduction of product
revenue at the time the return estimate is changed. For example, an increase in
our returns as a percentage of gross sales for the year ended December 31, 2007
of 0.50% would have resulted in a $X.X million decrease to net product sales.
GOVERNMENTAL AND CONTRACTUAL ADJUSTMENTS
Governmental and contractual adjustment reserves relate to chargebacks and
rebates. Chargeback reserves represent our estimated obligations resulting from
the difference between the wholesaler price and the lower pricing as mandated by
statute to eligible federally funded healthcare providers, and in rare
instances, lower contractual pricing to certain other classes of trade. We
determine our chargeback estimates based on our historical chargeback data.
Chargebacks are generally invoiced and paid monthly in arrears, so that our
accrual consists of an estimate of the amount to be expected for the current
month's product sales for which actual adjustments have not been billed, plus an
accrual based upon the amount of inventory in the distribution channel. Rebates
reserves relate to our reimbursement arrangements with state Medicaid programs.
We determine our rebates estimates based on our historical experience regarding
rebates, outstanding claims and payments under state Medicaid programs. Rebate
amounts generally are invoiced and paid quarterly in arrears, so that our
accrual consists of an estimate of the rebates that will be paid on the current
quarter's product sales, plus an accrual for unprocessed and unpaid rebates from
prior periods. Governmental and contractual adjustment reserve accruals are
recorded in the same period the related revenue is recognized resulting in a
reduction to product revenue and the establishment of a liability. We adjust the
accrual rate quarterly to reflect actual experience. Historically, these
adjustments have not been material.
United States Securities and Exchange Commission
January 11, 2008
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCKHOLDERS' EQUITY
STOCK OPTION PLANS, PAGE 85
COMMENT 2. You disclose that "Upon adoption of SFAS 123R, the Company validated
its estimates and assumptions with an independent third party having the
relevant expertise in valuation methodologies." Also you disclose on page 45
that "We engage independent valuation experts who review our critical
assumptions for significant acquisitions of intangibles" and on page 46 that "We
validated our estimates and assumptions with independent third parties having
relevant expertise in the real estate market." While you are not required to
make these references, when you do, you must also disclose the name of the
independent valuation firm. If you include or incorporate by reference this
disclosure into a 1933 Securities Act filing, you will also need to include the
consent of the independent actuary/valuation firm.
RESPONSE: We have noted the Staff's comments and in the future if we refer to an
independent valuation firm, we will disclose the name of the firm. Further, to
the extent in the future, we incorporate by reference our Form 10-K for the year
ended December 31, 2006, we acknowledge the obligation to either amend such Form
10-K to remove the references to independent third parties or obtain the written
consent of any such experts.
* * * * *
We appreciate your assistance with our disclosure and compliance. We
acknowledge that:
o the Company is responsible for the adequacy and accuracy of the disclosure
in the filing;
o staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing;
and
o the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
Our plan is to file our Form 10-K for the year ended December 31, 2007 on or
before February 29, 2008. To the extent the Staff has comments or questions on
our proposed disclosure it would be helpful to us to receive those comments as
soon as possible.
For the Staff's convenience, we are delivering copies of this letter directly to
Dana Hartz, Staff Accountant and Don Abbott, Review Accountant.
If you have any questions about this letter, please contact the undersigned at
(617) 679-7269. Thank you very much for your assistance.
Sincerely,
/s/ MARSHA H. FANUCCI/JSG
Marsha H. Fanucci
Senior Vice President and Chief Financial Officer
cc: Dana Hartz, Staff Accountant
Don Abbott, Review Accountant
Office of Freedom of Information and Privacy Act Operations
Securities and Exchange Commission
100 F Street, N.E.
Mail Stop 5100
Washington, D.C. 20549