In October, Millennium Pharmaceuticals officials said they would spend $635 million in stock to acquire its Cambridge, Massachusetts, neighbor LeukoSite. The size of the deal, which valued LeukoSite at a premium of 49 percent to the market, made Wall Street shudder, and anxious investors shaved some $800 million off Millennium's market cap in less than 24 hours. Speaking at a Massachusetts biotechnology investment conference only days after the announcement, Millennium's chief business officer, Steven Holtzman, was unfazed by the Street's negative response. "It doesn't bother us at all," he told a packed conference room. "This is just a small bump along the way of our strategy to build the biopharmaceutical company of the future."

Mr. Holtzman's confidence is not unfounded. The Rhodes Scholar in philosophy-turned-biotech deal maker has steered Millennium through a handful of record-setting alliances with major drug makers and watched the rising, albeit modest, revenues lift the six-year-old company into biotech's top tier. He believes the LeukoSite deal represents the first step in the final phase of Millennium's evolution from a technology-driven company in the pharmaceuticals research business to a fully integrated pharmaceuticals company.

Millennium is a leader in the booming field of genomics, a science that aims to identify genes involved in the causes and pathways of diseases. While the goal of finding disease-related genes is shared by hundreds of other biotech firms, research organizations, and biomedical scientists, Millennium's approach is anything but commonplace.

Through an aggressive partnership strategy with drug makers, the company has rewritten the book on what it takes to be ranked among the biotech elite. What's more, it got bigger and better faster than its rivals by reinvesting its alliance capital into its research engine and industrializing the process of drug discovery. Now, with the LeukoSite purchase, a recent $350 million convertible debt offering, and a hefty market cap, the company is poised to move from research into product development. "We never intended to be just a research company," Mr. Holtzman says. "This is the time for investment in building a massive product pipeline."

Millennium was founded in 1993 with the realization that genomics was going to revolutionize medicine. Researchers now had the ability to find genes, including those involved in a myriad of human diseases. It would also deliver legions of novel disease "targets," around which new drugs could be designed and developed. Studies have indicated that of the thousands of medicines on the market today, only 417 different receptors, enzymes, and ion channels in the human body are the genetic targets for their therapeutic actions. Genomics, by contrast, is likely to yield 5,000 to 10,000 different targets.

As drug companies became eager to acquire new targets, Millennium emerged as a major contender. The company's early deals revolved around finding suspect genes via high-throughput genetic sequencing and supplying them to its partners for the development of small-molecule drugs. But Millennium knew genes weren't enough. Soon the human genome would be completely mapped out, and Millennium would have to move downstream. It added capabilities and collaborations in target validation, the process of determining which of the thousands of detected targets deserve to be put into full-blown drug development programs.

The company has forged about two dozen alliances and collaborations to date, worth $1.3 billion in partnership revenues over the next several years. But the savvy Millennium deal makers wrote contracts that allowed it to retain rights to many discoveries made in the funded research programs, fueling its own internal drug programs. In a record-setting deal in late 1998, for instance, the German life-sciences and health care group Bayer agreed to pay up to $465 million over five years for 225 targets and a 14 percent stake in Millennium. But Millennium arranged to get back rights to some 90 percent of the targets generated after Bayer made its picks. "It wouldn't be out of the question in the next few years to have five, six, or even ten [investigational new drugs] filed at once for compounds fueled by Millennium's discovery machine," says Rob Toth, vice president of Prudential Vector Healthcare, a San Francisco-based analyst firm. "That's unheard of in biotech."

Despite Wall Street's initial reaction to the LeukoSite deal, Millennium's move into product development is being well received. Bullish investors have bid up its stock on Nasdaq from just over $24 per share at the start of 1999 to more than $200 per share early this year. "No one thinks about things the way they do," says says Mike King, vice president and senior biotechnology analyst with Banc Boston Robertson Stephens. "They have already created a new model in biotech."

Judy Stringer is associate editor of Mass High Tech, the Journal of New England Technology. Write to letters@redherring.com.

Millennium

CEO: Mark LevinLOCATION: Cambridge, MAPHONE: 617/679-7000URL: www.mlnm.comOWNERSHIP: Public (Nasdaq: MLNM)FOUNDED: 1993EMPLOYEES: 1,000PRODUCT: Biopharmaceuticals, genomicsPARTNERS: Bayer, Bristol-Myers Squibb, American Home Products, Becton Dickinson, Eli Lilly, MonsantoCOMPETITORS: Incyte Pharmaceuticals, Human Genome SciencesREVENUES: 1999 $183.7MMARKET VALUE: $8.7BINVESTORS: Bayer, Lomard Odren, T. Rowe Price