MLNM Millennium Pharmaceuticals (MM)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the transition period from                       to                       .

Commission File Number 0-28494

MILLENNIUM PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

40 Landsdowne Street, Cambridge, Massachusetts 02139

(Address of principal executive offices) (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    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o     No   x

Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on May 2, 2008:   327,288,246

MILLENNIUM PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2008

TABLE OF CONTENTS

The following Millennium trademarks are used in this Quarterly Report on Form 10-Q: Millennium®, the Millennium “M” logo and design (registered), Millennium Pharmaceuticals™, VELCADE® (bortezomib) for Injection, and INTEGRILIN® (eptifibatide) Injection. All are covered by registrations or pending applications for registration in the U.S. Patent and Trademark Office and many other countries. DOXIL® (doxorubicin HCl liposome injection) is a trademark of Ortho Biotech Products, L.P, ReoPro® (abciximab) is a trademark of Eli Lilly & Company, Aggrastat® (tirofiban) is a trademark of Merck & Co., Inc., Thalomid® (thalidomide) and Revlimid® (lenalidomide) are trademarks of Celgene Corporation and Angiomax® (bivalirudin) is a trademark of The Medicines Company.   Other trademarks used in this Quarterly Report on Form 10-Q are the property of their respective owners.

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PART I   FINANCIAL INFORMATION

Item 1.   Condensed Consolidated Financial Statements

Millennium Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Millennium Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

Note 1:  Stock-based compensation expense is allocated in the condensed consolidated statements of operations expense lines as follows:

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Millennium Pharmaceuticals, Inc

Condensed Consolidated Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

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 and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed consolidated financial statements have been included. Interim results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, which was filed with the Securities and Exchange Commission (“SEC”) on February 29, 2008.

The information presented in the condensed consolidated financial statements and related footnotes at March 31, 2008, and for the three months ended March 31, 2008 and 2007, is unaudited and the condensed consolidated balance sheet amounts and related footnotes at December 31, 2007, have been derived from audited financial statements.

2.   Summary of Significant Accounting Policies

Cash Equivalents, Marketable Securities and Other Investments

Cash equivalents principally consist of money market funds and corporate bonds with maturities of three months or less at the date of purchase. Marketable securities primarily consist of investment-grade corporate bonds, asset-backed debt securities and U.S. government agency debt securities. Other investments represent ownership in private companies in which the Company holds less than a 20 percent ownership position and does not otherwise exercise significant influence. The Company carries such investments at cost unless significant influence can be exercised over the investee, in which case such securities are recorded using the equity method. The Company monitors these investments in private companies on a quarterly basis and determines whether any impairment in their value would require a charge to the statement of operations, based on the implied value from any recent rounds of financing completed by the investee, market prices of comparable public companies and general market conditions.  These other investments are included in other long-term assets at March 31, 2008 and December 31, 2007.

Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable securities at March 31, 2008 and December 31, 2007 are classified as “available-for-sale.” Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of stockholders’ equity. The cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities and other investments are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

During the three months ended March 31, 2008, the Company recorded realized gains on marketable securities and other investments of $3.7 million and realized losses on marketable securities of $0.4 million.  During the three months ended March 31, 2007, the Company recorded realized gains on marketable securities and other investments of $6.0 million and realized losses on marketable securities of $0.9 million.

Realized gains on marketable securities for the three months ended March 31, 2008 included a realized gain of approximately $1.2 million related to the Company’s share of proceeds from a class action proceeding against WorldCom, Inc.  The Company had previously recorded realized losses equal to the carrying value of its investment in WorldCom, Inc., as the decline in value was determined to be other-than-temporary at that time.

Realized gains on marketable securities for the three months ended March 31, 2007 included a realized gain of approximately $3.5 million related to the sale of the Company’s investment in SGX Pharmaceuticals, Inc. and a realized gain of approximately $2.3 million related to the Company’s share of proceeds from a class action proceeding against WorldCom, Inc.

Segment Information

Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”), establishes standards for the way that public business enterprises report information about operating

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

segments in their financial statements. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers.

The Company operates in one business segment, which focuses on the research, development and commercialization of therapeutic products. All of the Company’s product sales are currently related to sales of VELCADE ^® (bortezomib) for Injection. The remainder of the Company’s total revenue is related to its strategic alliances and royalties.

Revenues from Ortho Biotech Products, L.P. (“OBL”), a member of the Johnson & Johnson Family of Companies, accounted for approximately 19 percent and 15 percent of consolidated revenues for the three months ended March 31, 2008 and 2007, respectively.

Revenues from Schering-Plough Ltd. and Schering Corporation (collectively “SGP”) accounted for approximately 16 percent and 25 percent of consolidated revenues for the three months ended March 31, 2008 and 2007, respectively.

There were no other significant customers under strategic alliances and royalties for the three months ended March 31, 2008 and 2007.

Information Concerning Market and Source of Supply Concentration

The Company relies on third party contract manufacturers for the manufacturing of the active ingredient, formulation, fill/finish and packaging of VELCADE for both commercial purposes and for ongoing clinical trials. The Company has established long term supply relationships for the production of commercial supplies of VELCADE. The Company works with one manufacturer under a long term supply agreement to complete fill/finish for VELCADE. The Company is currently qualifying a second fill/finish supplier in order to mitigate its risk of VELCADE supply interruption.

The Company distributes VELCADE in the United States through a sole-source open access distribution model where the Company sells directly to an independent third party who in turn distributes to the wholesaler base. In April 2006, the Company’s distributor added a second distribution site to its network in order to improve access to the product for physicians in the western United States.

INTEGRILIN has received regulatory approvals in the United States, the countries of the European Union and a number of other countries for various indications. The Company and SGP co-promoted INTEGRILIN in the United States and shared any profits and losses through August 31, 2005. In September 2005, SGP acquired the exclusive development and commercialization rights to INTEGRILIN in the United States from the Company. In the European Union, GlaxoSmithKline plc (“GSK”) exclusively markets INTEGRILIN. The Company continues to manage the supply chain for INTEGRILIN at the expense of SGP for products sold in the SGP territories, and at the expense of GSK in the GSK territory.

The Company relies on third party contract manufacturers for the clinical and commercial production of INTEGRILIN. The Company has three approved manufacturers, two of which currently provide the Company with eptifibatide, the active pharmaceutical ingredient (“API”) necessary to make INTEGRILIN, for both clinical trials and commercial supply. Solvay, S.A., one of the current manufacturers, owns the process technology used by it and one other manufacturer for the production of the API. In June 2006, the Company received FDA approval of its own alternative process technology utilized by the second manufacturer for the production of eptifibatide. The European Medicines Agency approved the alternate process technology for eptifibatide in June 2007. The Company has two manufacturers that currently perform fill/finish services for INTEGRILIN and two packaging suppliers for INTEGRILIN for the United States. The FDA or other regulatory agencies must approve the processes or the facilities that may be used for the manufacture of the Company’s marketed products.

Inventory

Inventory consists of currently marketed products, including VELCADE and INTEGRILIN. Inventories are stated at the lower of cost (first in, first out) or market. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical.

VELCADE inventories primarily relate to raw materials used in production, work in process and finished goods inventory on hand. INTEGRILIN inventories include raw materials used in production and work in process to supply GSK and limited amounts of work in process to supply SGP.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Inventory consists of the following (in thousands):

Goodwill and Intangible Assets

Intangible assets consist of specifically identified intangible assets. Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired not allocated to specific intangible assets.

Intangible assets consist of the following (in thousands):

Amortization of intangibles is computed using the straight-line method over the useful lives of the respective assets as follows:

Amortization expense was approximately $8.5 million in each of the three months ended March 31, 2008 and 2007.  The Company expects to incur amortization expense of approximately $34.0 million for each of the next five years.

As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and indefinite lived intangible assets are not amortized, but are reviewed annually for impairment, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives and reviewed for impairment when events or changes in circumstances suggest that the assets may not be recoverable. The Company tests for goodwill impairment annually, on October 1, and whenever events or changes in circumstances suggest that the carrying amount may not be recoverable.

On October 1, 2007, the Company performed its annual goodwill impairment test and determined that no impairment existed on that date. The Company continually monitors business and market conditions to assess whether an impairment indicator exists. If the Company were to determine that an impairment indicator exists, it would be required to perform an impairment test, which might result in a material impairment charge to the statement of operations.

Goodwill as of March 31, 2008 consists of the excess purchase price over the estimated fair value of net tangible and intangible assets. The carrying value may be adjusted as a result of the continued settlement of contingent consideration arising from acquisitions. Accordingly, goodwill increased by $1.1 million and $0.8 million for the three months ended March 31, 2008 and 2007, respectively.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). The Company adopted SFAS No. 157 as of January 1, 2008 and the adoption did not have a material impact on the consolidated financial statements or results of operations of the Company.

SFAS No. 157 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements.  SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumption, SFAS No. 157 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

·                   Level 1 – Observable inputs such as quoted prices in active markets;

·                   Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

·                   Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s third-party investment custodian provides a report which classifies the Company’s holdings within its portfolio under the above valuation hierarchy assumptions.  The Company reviews any estimates and judgments applied by the custodian in determining the appropriate investment classifications.

The Company’s marketable securities were valued at March 31, 2008 by its third-party investment custodian using information provided by pricing services. Because the Company’s investment portfolio includes many fixed income securities that do not always trade on a daily basis, the pricing service applied other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, model processes were used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data.

Assets measured at fair value at March 31, 2008 are as follows:

Revenue Recognition

The Company recognizes revenue from the sale of its products, strategic alliances and royalties. The Company’s revenue arrangements with multiple elements are divided 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. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Net product sales

The Company records product sales of VELCADE when delivery has occurred, title has transferred, collection is reasonably assured and the Company has no further obligations. Allowances are recorded as a reduction to product sales for discounts, product

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

returns and governmental and contractual adjustments at the time of sale. Costs incurred by the Company for shipping and handling are recorded in cost of sales.

Revenue under strategic alliances

The Company recognizes revenue under strategic alliances from nonrefundable license payments, milestone payments, reimbursement of research and development costs and reimbursement of manufacturing-related costs. Nonrefundable upfront fees for which no further performance obligations exist are recognized as revenue on the earlier of when payments are received or collection is assured.

Nonrefundable upfront licensing fees and guaranteed, time-based payments that require continuing involvement in the form of research and development, manufacturing or other commercialization efforts by the Company are recognized as revenue:

·                   ratably over the development period if development risk is significant;

·                   ratably over the manufacturing period or estimated product useful life if development risk has been substantially eliminated; or

·                   based upon the level of research services performed during the period of the research contract.

Milestone payments are recognized as revenue when the performance obligations, as defined in the contract, are achieved. Performance obligations typically consist of significant milestones in the development life cycle of the related technology or product candidate, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by regulatory agencies.

Reimbursements of research and development costs are recognized as revenue as the related costs are incurred.

Royalties

Royalties are recognized as revenue when earned. Royalties may include:

·                   royalties earned on sales of INTEGRILIN in the United States and other territories around the world, as provided by SGP;

·                   royalties, or distribution fees, earned on international sales of VELCADE, as provided by OBL;

·                   royalties earned on sales of INTEGRILIN in Europe, as provided by GSK; and

·                   other royalties.

Advertising and Promotional Expenses

Advertising and promotional expenses are expensed as incurred. During the three months ended March 31, 2008 and 2007, advertising and promotional expenses were $7.3 million and $6.7 million, respectively.

Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed using the weighted-average number of common shares outstanding during the period, excluding restricted stock that has been issued but is not yet vested. Diluted earnings (loss) per share is based upon the weighted average number of common shares outstanding during the period, plus additional weighted average common equivalent shares outstanding during the period when the effect is not anti-dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method), the assumed conversion of convertible notes and the vesting of unvested restricted shares of common stock. Common equivalent shares from options, warrants, unvested restricted shares and the assumed conversion of convertible notes that were not included in the calculation of diluted shares because the effect would have been anti-dilutive were 25.4 million and 36.6 million at March 31, 2008 and 2007, respectively.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

Basic and diluted earnings (loss) per common share were determined as follows (in thousands, except per share amounts):

Comprehensive Income (Loss)

Comprehensive income (loss) comprises net income (loss), changes in unrealized gains and losses on marketable securities and cumulative foreign currency translation adjustments. The following table displays comprehensive income (loss) (in thousands):

The components of accumulated other comprehensive income were as follows (in thousands):

Stock-Based Compensation Expense

SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS 123R”), requires the recognition of the fair value of stock-based compensation in the Company’s statements of operations. Stock-based compensation expense primarily relates to stock options, restricted stock and stock issued under the Company’s employee stock purchase plans.  The Company recognized stock-based compensation expense of $5.5 million and $5.4 million during the three months ended March 31, 2008 and 2007, respectively.

Accounting Pronouncements

In December 2007, the FASB issued EITF Issue 07-1, “Accounting for Collaborative Arrangements” (“EITF 07-1”). EITF 07-1 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. Further, EITF 07-1 clarified the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” EITF 07-1 will be effective for the Company beginning on January 1, 2009. The Company is currently evaluating the effect EITF 07-1 will have on its consolidated financial position and results of operations.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

3.   Restructuring

2006 Resource Alignment

In October 2006, the Company announced a program to further align resources with its current corporate priorities of advancing VELCADE and accelerating the clinical and preclinical pipeline by lowering investment in discovery and supporting areas. As part of its program, the Company reduced in-house research and development technologies and headcount in areas where the work could be outsourced.

The Company recorded net restructuring credits of approximately $0.1 million during the three months ended March 31, 2008, under the 2006 restructuring program, primarily related to a gain on the sale of previously impaired assets offset by the net present value adjustment for facilities charged to restructuring in prior years and employee termination benefits as a result of headcount reductions.  The Company recorded restructuring charges of approximately $5.0 million during the three months ended March 31, 2007, under the 2006 restructuring program, primarily for facilities-related costs associated with vacated buildings and employee termination benefits as a result of headcount reductions.

The following table displays the restructuring activity and liability balances (in thousands):

  2005 Strategic Refinement

In October 2005, the Company announced its 2005 restructuring plan in support of a refined business strategy focused on advancing key growth assets, including VELCADE, advancing the Company’s clinical pipeline and building a leading oncology-focused discovery organization. In connection with the strategic refinement, the Company substantially reduced its effort in inflammation discovery and reduced overall headcount, including eliminating positions in INTEGRILIN sales and marketing, inflammation discovery and various other business support groups.

The Company recorded restructuring charges of approximately $0.1 million and $0.2 million during the three months ended March 31, 2008 and 2007, respectively, under the 2005 restructuring plan, primarily related to the net present value adjustment for facilities charged to restructuring in prior years.

The following table displays the restructuring activity and liability balances (in thousands):

2003 Restructuring Plan

In December 2002 and June 2003, the Company realigned its resources to become a commercially-focused biopharmaceutical company. The Company discontinued specified discovery research efforts, reduced overall headcount, primarily in its discovery group, and consolidated its research and development facilities.

The Company recorded net restructuring credits of approximately $2.9 million during the three months ended March 31, 2008, under the Company’s 2003 restructuring plan, primarily related to the earlier than anticipated sublease of one of its facilities and the sublease extension of another facility, both charged to restructuring in prior years.  The Company recorded restructuring charges of approximately $0.4 million during the three months ended March 31, 2007, under the Company’s 2003 restructuring plan, primarily related to the net present value adjustment for facilities charged to restructuring in prior years.

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Millennium Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

The following table displays the restructuring activity and liability balances (in thousands):

  The Company accounts for its restructuring charges in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred, except for one-time termination benefits that meet specified requirements. Costs of termination benefits relate to severance packages, out-placement services and career counseling for employees affected by the restructuring.

In accordance with SFAS No. 146, the Company’s facilities related expenses and liabilities in all restructuring plans include estimates of the remaining rental obligations, net of estimated sublease income, for facilities the Company no longer occupies. The Company reviews its estimates and assumptions on a regular basis, until the outcome is finalized, and makes whatever modifications are necessary, based on the Company’s best judgment, to reflect any changed circumstances.

In connection with its 2006 decision to abandon certain facilities in 2007 under the 2006 restructuring program, the Company shortened the useful lives of the leasehold improvements at these facilities in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” During the three months ended March 31, 2008 and 2007, the Company recorded additional depreciation expense of approximately $0.1 million and $2.8 million, respectively, in research and development expense related to its decision.

The projected timing of payments of the remaining restructuring liabilities under all of the Company’s restructuring initiatives at March 31, 2008 is approximately $19.9 million due through March 31, 2009 and $21.3 million thereafter through 2014. The actual amount and timing of the payment of the remaining accrued liability is dependent upon the ultimate terms of any potential subleases or lease restructuring.

4.  Convertible Debt

The Company had the following convertible notes outstanding at March 31, 2008 and December 31, 2007:

The Company’s 2.25% convertible senior notes due November 15, 2011 (the “2.25%” notes) are convertible into the Company’s common stock based upon a conversion rate of 64.6465 shares of common stock per $1,000 principal amount of the 2.25% notes, which was equal to the initial conversion price of approximately $15.47 per share of stock, subject to adjustment. The 2.25% notes are convertible only in the following circumstances: (1) if the closing price of the common stock exceeds 120% of the conversion price within a specified period, (2) if specified distributions to holders of the common stock are made or specified corporate transactions occur, (3) if the average trading price per $1,000 principal amount is less than 98% of the product of the closing price of common stock and the then applicable conversion rate within a specified period or (4) during the last three months prior to the maturity date of the notes, unless previously repurchased by the Company under certain circumstances. The 2.25% notes are subordinated in right of payment to all existing and future secured debt of the Company.

Under the terms of the 2.25% notes, the Company is required to make semi-annual interest payments on the outstanding principal balance on May 15 and November 15 of each year. All required interest payments to date have been made.

5.  Stock Plans

SFAS 123R requires the recognition of the fair value of stock-based compensation in the Company’s statements of operations. Stock-based compensation expense primarily relates to stock options, restricted stock and stock issued under the Company’s employee stock purchase plans.

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Notes to Condensed Consolidated Financial Statements (continued)

The following table summarizes the weighted-average assumptions the Company used in its fair value calculations at the date of grant:

The Company has never declared cash dividends on any of its capital stock and does not expect to do so in the foreseeable future.

The following table presents the combined option activity of the Company’s stock plans for the three months ended March 31, 2008:

As of March 31, 2008, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to approximately $14.5 million, including estimated forfeitures, which will be recognized over the weighed-average remaining requisite service period of approximately one and one half years.

A summary of the status of nonvested shares of restricted stock and restricted stock units as of March 31, 2008, and changes during the three months then ended, is presented below:

As of March 31, 2008 the total remaining unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units amounted to approximately $23.2 million, including estimated forfeitures, which will be recognized over the weighted-average remaining requisite service period of approximately one and one half years.

6. Subsequent Event

On April 10, 2008, the Company entered into an Agreement and Plan of Merger with Takeda Pharmaceutical Company Limited, a corporation organized under the laws of Japan, or TPC, Takeda America Holdings, Inc., a New York corporation and wholly-owned subsidiary of TPC, or Parent, and Mahogany Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent, or Merger Sub.  Pursuant to the merger agreement, upon the terms and subject to the conditions thereof, Merger Sub commenced a tender offer on April 11, 2008 to acquire all of the outstanding shares of the Company’s common stock at a purchase price of $25.00 per share, net to the holder in cash, subject to any required withholding of taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 11, 2008, and the related Letter of Transmittal, each as amended or supplemented from time to time.

                The initial offering period for the tender offer expired at 12:00 midnight, New York City time, at the end of Thursday, May 8, 2008.  According to the depositary for the tender offer, as of the expiration of the initial offering period, 300,871,367 shares of the Company’s common stock had been tendered, representing approximately 91.9% of the Company’s outstanding shares of common stock (of which 26,917,513 shares, or approximately 8.2% of the Company’s outstanding shares, were tendered under guaranteed delivery procedures).  Merger Sub has accepted for payment all shares of the Company’s common stock that were validly tendered and not withdrawn during the initial offering period, and payment for such shares has been or will be made promptly, in accordance with the terms of the tender offer.  The Company has been advised that shares validly tendered in satisfaction of guaranteed delivery procedures will also be accepted for payment and promptly paid for.  Pursuant to the merger agreement, promptly upon acceptance for payment of, and payment for, the tendered shares of the Company’s common stock in the tender offer, Merger Sub has the right to designate a number of individuals to the Company’s board of directors.

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Notes to Condensed Consolidated Financial Statements (continued)

                Merger Sub has commenced a subsequent offering period to acquire all of the remaining untendered shares.  This subsequent offering period will expire at 12:00 midnight, New York City time, at the end of May 13, 2008, unless extended. During this subsequent offering period, holders of shares of the Company’s common stock who did not previously tender their shares in the offer may do so and Merger Sub will promptly purchase any shares properly tendered as such shares are tendered for the same consideration, without interest, paid in the tender offer. Procedures for tendering shares during the subsequent offer period are the same as during the initial offering period with two exceptions: (1) shares cannot be delivered by using the guaranteed delivery procedure, and (2) pursuant to applicable law, shares tendered during the subsequent offer period may not be withdrawn. Merger Sub reserves the right to further extend the subsequent offering period in accordance with applicable law and the terms of the merger agreement.

After expiration of the subsequent offering period, TPC intends to complete its acquisition of the Company on or about May 14, 2008, by means of a merger under Delaware law. As a result of its purchase of shares in the tender offer, Merger Sub has sufficient voting power to approve the merger without the affirmative vote of any other stockholder of the Company. As a result of such merger, the Company will become an indirect wholly-owned subsidiary of TPC, and each share of the Company’s outstanding common stock will be cancelled and (except for shares held by the Company, TPC, wholly-owned subsidiaries of Takeda or the Company, or by holders who properly exercise their appraisal rights under Delaware law) will be converted into the right to receive the same consideration, without interest, received by holders who tendered shares in the tender offer.  Following the effective time of the merger, the Company’s common stock will cease to be traded on Nasdaq.

In the Offer to Purchase, Parent and Merger Sub stated that they would need approximately $8.8 billion to purchase all of the Company’s outstanding shares of common stock pursuant to the tender offer, to cash out certain employee options, restricted stock and restricted stock units, to fund amounts that may become payable under the Company’s outstanding convertible notes, and to consummate the merger, plus related fees and expenses. Parent and Merger Sub also stated in the Offer to Purchase that, to the extent necessary, TPC would provide them with sufficient funds through cash on hand to purchase all shares properly tendered in the tender offer and would provide funding for the merger. The tender offer was not conditioned upon Parent’s, Merger Sub’s or TPC’s ability to finance the purchase of shares pursuant to the tender offer.  Pursuant to the merger agreement, TPC has unconditionally guaranteed the full and complete performance by Parent and Merger Sub of their respective obligations under the merger agreement.

On April 10, 2008, a purported shareholder class action lawsuit was filed by a single plaintiff against the Company and each of its directors, as well as Parent and Merger Sub, in Superior Court for Middlesex County, Massachusetts.  The action, captioned Eleanor Turberg v. Millennium Pharmaceuticals, Inc. et al. (Case No. 08-1466, Superior Court, Middlesex County, MA), is brought by Eleanor Turberg, who claims to be an individual Millennium stockholder, on her own behalf, and seeks certification as a class action on behalf of all Millennium stockholders except the defendants and any person, firm, trust, corporation or other entity related to or affiliated with any defendants.  The complaint alleges, among other things, that the defendants breached fiduciary duties of loyalty, due care, independence, good faith and fair dealing, and/or aided and abetted the breach of fiduciary duties, owed to our stockholders in connection with the transactions contemplated by the Merger Agreement.  The complaint seeks, among other things, an order:

·                   enjoining the defendants from proceeding with the proposed acquisition of shares of our common stock by Takeda,

·                   rescinding, to the extent already implemented, the proposed acquisition of shares of our common stock by Takeda,

·                   awarding the plaintiff and the purported class damages and

·                   awarding plaintiff the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees.

On May 5, 2008, the court heard the plaintiff’s motion for a preliminary injunction enjoining the acceptance of tendered shares by Takeda.  Following the hearing, the court denied the plaintiff’s motion.

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Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our management’s discussion and analysis of our financial condition and results of our operations contains forward-looking statements, including statements about our growth and future operating results, discovery and development of products, strategic alliances and intellectual property. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words “expect,” “anticipate,” “intend,” “plan,” “believe,” “may,” “will” and similar expressions to help identify forward-looking statements.

Actual results may differ from those indicated by such forward-looking statements as a result of various important factors, including, without limitation, those factors discussed in this annual report under the heading “Risk Factors.”

Overview

We are an innovation-driven biopharmaceutical company focused on discovering, developing and commercializing medicines to improve the lives of patients with cancer, inflammatory bowel diseases and other inflammatory diseases. We currently commercialize VELCADE, the global market leader for the treatment of patients with multiple myeloma who have received at least one prior therapy and the United States market leader for the treatment of mantle cell lymphoma, or MCL, patients who have received at least one prior therapy. We are also awaiting a decision from the Food and Drug Administration, or FDA, with respect to our supplementary new drug application, or sNDA, to market VELCADE for patients with newly diagnosed multiple myeloma. We have a development pipeline of clinical and preclinical product candidates in our therapeutic focus areas of cancer and inflammatory diseases and we have an oncology-focused drug discovery organization. Strategic business relationships are a key component of our business to maximize the global potential of our products and product candidates.

In January 2007, we began, with Ortho Biotech Inc., or OBI, to jointly promote VELCADE for a two year time period in the United States. We believe this collaboration, with the well-established OBI oncology sales force, is helping us to realize the full potential of VELCADE in the U.S. market. In May 2007, the FDA granted marketing approval to OBI for the combination therapy of VELCADE/DOXIL ^® (pegylated liposomal doxorubicin) in multiple myeloma patients who have received at least one prior therapy.

Our business strategy is to build a portfolio of new medicines based on our understanding of genomics and protein homeostasis, which is a set of particular molecular pathways that affect the establishment and progression of diseases. These molecular pathways include the related effects of proteins on cellular performance, reproduction and death. We plan to develop and commercialize many of our products on our own, but expect to seek development and commercial collaborators when favorable terms are available or when we otherwise believe that doing so would be advantageous to us.

In the near term, we expect to focus our commercial activities in cancer where we plan to build on our commercial and regulatory experience with VELCADE. We also are working to obtain approval to market VELCADE in the United States and, through Ortho Biotech Products, L.P., or OBL, a member of The Johnson & Johnson Family of Companies and an affiliate of OBI, outside of the United States for the treatment of multiple myeloma in newly diagnosed, or front-line, patients and for the treatment of additional types of cancers. We believe, if approved, these additional uses of VELCADE will lead to a significant expansion of our cancer business.

In the area of inflammatory disease, we are advancing novel product candidates in clinical development as potential treatments for serious and widely prevalent conditions. For example, MLN0002 is a highly selective gut-targeted immune therapy being studied in inflammatory bowel diseases. We expect to initiate pivotal trials with MLN0002 in patients with moderate to severe ulcerative colitis and Crohn’s disease in late 2008 or early 2009. If we successfully complete these trials and are successful in obtaining FDA approval, we believe MLN0002 could be available to patients as early as 2012.  In the long term, we expect to bring new products to market on a regular basis from our pipeline of discovery and development-stage programs. We also expect to continue to evaluate opportunities to in-license and acquire molecules from other companies in order to supplement our pipeline.

On April 10, 2008, we entered into an Agreement and Plan of Merger with Takeda America Holdings, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, and Mahogany Acquisition Corp., a wholly-owned subsidiary of Takeda America Holdings, Inc., which we refer to as Merger Sub.  We refer to Takeda America Holdings, Inc., Takeda Pharmaceutical Company Limited and Merger Sub collectively as Takeda and we refer to the Agreement and Plan of Merger as the Merger Agreement.  Pursuant to the Merger Agreement, Merger Sub has completed a cash tender offer for all of our outstanding common stock at a purchase price of $25.00 per share.

The tender offer expired at midnight at the end of May 8, 2008, after which Merger Sub accepted and paid for all shares validly tendered and not withdrawn at the time, representing approximately 83.7% of our outstanding common stock (excluding 26,917,513 shares, or approximately 8.2% of our outstanding shares, tendered under guaranteed delivery procedures), and announced a three business day subsequent offering period.   We expect that the subsequent offering period will be followed by the merger of Merger Sub into Millennium on or shortly after May 14, 2008 under the short-form merger procedures provided by Delaware law.

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VELCADE® (bortezomib) for Injection

In May 2003, the FDA granted us approval to market VELCADE for the treatment of multiple myeloma patients who have received at least two prior therapies and have demonstrated disease progression on their most recent therapy, commonly referred to as third-line and beyond. In March 2005, the FDA granted us approval for the treatment of patients with multiple myeloma who have received at least one prior therapy, commonly referred to as relapsed, or second-line multiple myeloma.

In late 2007, we announced positive results from the large, randomized, Phase III VISTA trial in patients with newly diagnosed multiple myeloma who are not eligible for stem cell transplantation. In this trial, the therapy of VELCADE, melphalan and prednisone demonstrated a highly statistically significant improvement, compared with melphalan and prednisone alone across all efficacy endpoints. In December 2007, we filed a sNDA, for use of VELCADE in patients with newly diagnosed multiple myeloma. The filing was granted priority review by the FDA. The FDA decision date is scheduled to occur by June 20, 2008.

Outside of the United States, VELCADE is approved by the European Commission as a monotherapy for multiple myeloma patients who have received at least one prior therapy and who have already undergone or are unsuitable for bone marrow transplantation. Regulatory authorities in a number of other countries, including countries within Latin America, South-East Asia and Japan have also approved VELCADE. The product is now approved in more than 85 countries. In December 2007, OBL submitted a variation to its Marketing Authorization to the European Medicines Evaluation Agency, or EMEA, for use of VELCADE for the treatment of newly diagnosed multiple myeloma. We expect the EMEA’s decision on the submission by the end of 2008.

In December 2006, the FDA granted approval of VELCADE for the treatment of patients with MCL who have received at least one prior therapy, commonly referred to as relapsed, or second-line MCL.

Our Alliances

Ortho Biotech Collaborations

In June 2003, we entered into an agreement with OBL to collaborate on the commercialization of VELCADE and with Johnson & Johnson Pharmaceutical Research & Development, L.L.C., or JJPRD, for the continued clinical development of VELCADE. OBL and its affiliate, Janssen-Cilag, are commercializing VELCADE outside of the United States, and Janssen Pharmaceutical K.K. is responsible for Japan. We receive distribution fees from OBL and its affiliates from sales of VELCADE outside of the United States. We record these distribution fees as royalties. We manage the supply chain for VELCADE at the expense of OBL for products sold in the OBL territories. We retain a limited option to co-promote VELCADE with OBL at a future date in specified European countries.

We are engaged with JJPRD in an extensive global program for further clinical development of VELCADE with the purpose of maximizing the commercial potential of VELCADE. This program is investigating the potential of VELCADE to treat multiple forms of tumors, including continued clinical development of VELCADE for multiple myeloma and non-Hodgkin’s lymphoma, or NHL. JJPRD is currently responsible for 45% of the joint development costs. We are responsible for the remaining 55% of the joint development costs. We are eligible to receive payments from JJPRD or OBL for achieving clinical development milestones, regulatory milestones outside of the United States or agreed-upon sales levels of VELCADE outside of the United States.

In October 2006, we entered into a two-year agreement with OBI to jointly promote VELCADE in the U.S. Under the terms of the agreement, in the first quarter of 2007, OBI began jointly promoting VELCADE with us to U.S.-based physicians. Under this agreement, we pay the cost of a portion of the OBI sales effort dedicated to VELCADE and a commission if sales associated with the increased effort exceed specified targets. Both parties are able to terminate the agreement under certain circumstances and subject to fees. We continue to be responsible for commercialization, manufacturing and distribution of VELCADE in the U.S.

INTEGRILIN® (eptifibatide) Injection

Through August 31, 2005, we co-promoted INTEGRILIN in the United States in collaboration with Schering-Plough Ltd. and Schering Corporation, together referred to as SGP, and shared profits and losses. Since September 1, 2005, SGP has marketed INTEGRILIN in the United States and specified other areas outside of the European Union. GlaxoSmithKline plc, or GSK, markets INTEGRILIN in the European Union under a license from us.

SGP Collaboration

In April 1995, COR Therapeutics, Inc., or COR, entered into a collaboration agreement with SGP to jointly develop and commercialize INTEGRILIN on a worldwide basis. We acquired COR in February 2002. Under our original collaboration agreement with SGP, we generally shared any profits or losses from INTEGRILIN sales in the United States included in co-promotion revenue

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with SGP and we granted SGP an exclusive license to market INTEGRILIN outside the United States and the European Union in exchange for royalty obligations.

On September 1, 2005, SGP obtained the exclusive U.S. development and commercialization rights for INTEGRILIN products from us and paid us a nonrefundable upfront payment of approximately $35.5 million. In addition, we are entitled to receive royalties on net product sales of INTEGRILIN in the United States from SGP for so long as SGP is engaged in the commercialization and sale of an INTEGRILIN product in the United States, with the potential of receiving royalties beyond the 2014 patent expiration date. Minimum royalty payments for 2006 and 2007 were approximately $85.4 million. There are no guaranteed minimum royalty payments for 2008 or future years. We also receive royalties on net product sales by SGP in SGP’s territory outside of the United States. SGP’s obligation to pay us royalties in other countries expires on a country by country basis upon the later of fifteen years from the first commercial use of an INTEGRILIN product in such country and the expiration of the last to expire patent covering such INTEGRILIN product. We continue to manage the supply chain for INTEGRILIN at the expense of SGP for products sold in the SGP territories including the U.S. We receive payments as a result of managing the supply chain and record those payments as strategic alliance revenue.

GSK License Agreement

In June 2004, we reacquired the rights to market INTEGRILIN in Europe from SGP and concurrently entered into a license agreement granting GSK exclusive marketing rights to INTEGRILIN in Europe. In January 2005, the transition of the INTEGRILIN marketing authorizations for the European Union from SGP to GSK was completed, and GSK began selling INTEGRILIN in the countries of the European Union. GSK also markets INTEGRILIN in other European countries where it has received approval of the transfer from SGP to GSK of the relevant marketing authorizations. Under the terms of the agreement, we have received license fees and are entitled to future royalties from GSK on INTEGRILIN sales in Europe subject to the achievement of specified objectives. We manage the supply chain for INTEGRILIN at the expense of GSK for products sold in the GSK territories. We receive payments as a result of managing the supply chain and record those payments as strategic alliance revenue.

sanofi-aventis Small Molecule Inflammatory Disease Collaboration

In June 2000, we entered into a broad agreement in the field of inflammatory disease with Aventis, now sanofi-aventis, which includes joint discovery, development and commercialization of small molecule drugs for the treatment of specified inflammatory diseases. This agreement covers certain of our development programs in the inflammatory disease area and provides us with potential access to sanofi-aventis’ large promotional infrastructure in connection with the commercialization of jointly developed products. The discovery phase of this collaboration has concluded. One development program, MLN6095, continues under the agreement.

As provided in the original agreement, in North America, we have agreed to share the responsibility for and cost of developing, manufacturing and marketing products arising from the alliance. Outside of North America, sanofi-aventis is responsible for and bears the cost of developing, manufacturing and marketing products arising from the alliance. sanofi-aventis is required to pay us a royalty on product sales outside of North America.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, intangible assets, goodwill, restructuring and stock-based compensation expense. We base our estimates on historical experience and on various other factors that we believe are appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in this report, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.

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.

An analysis of the amount of, and change in, these allowances is as follows (in thousands):

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.

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 have experienced, and expect, that wholesalers will not stock significant inventory due to the product’s cost, expense to store and just-in-time distribution model and as a result, returns have been, and we expect will continue to be low. 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.

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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. We did not make any adjustments to our return estimate during the three months ended March 31, 2008.

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 sales at the time the return estimate is changed. For example, an increase in our returns as a percentage of gross sales for the three months ended March 31, 2008 of 0.50% would have resulted in a $0.5 million decrease in 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. Rebate reserves relate to our reimbursement arrangements with state Medicaid programs. We determine our rebate 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, taking into consideration price increases, as well as current and expected product sales to federally and state funded healthcare providers. Historically, these adjustments have not been material.

Revenue under strategic alliances

We recognize nonrefundable upfront licensing fees and guaranteed, time-based payments that, in either case, require continuing involvement in the form of research and development, manufacturing or other commercialization efforts by us as strategic alliance revenue:

·                            ratably over the development period if development risk is significant;

·                            ratably over the manufacturing period or estimated product useful life if development risk has been substantially eliminated; or

·                            based upon the level of research services performed during the period of the research contract.

When the period of deferral cannot be specifically identified from the contract, management estimates the period based upon other critical factors contained within the contract. We continually review these estimates, which could result in a change in the deferral period and might impact the timing and the amount of revenue recognized.

Milestone payments are recognized as strategic alliance revenue when the substantive performance obligations, as defined in the contract, are achieved. Performance obligations typically consist of significant milestones in the development life cycle of the related product candidate, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by regulatory agencies. Reimbursements of research and development costs are recognized as strategic alliance revenue as the related costs are incurred.

Royalties

We are entitled to receive royalty payments under license agreements with a number of third parties that sell products based on technology we have developed or to which we have rights. These license agreements provide for the payment of royalties to us based on sales of the licensed product and we record royalty revenues based on estimates of sales from interim data provided by licensees.

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Under certain of our license agreements, the royalty structure is tiered based upon annual sales and resets at the beginning of each annual period. For all of our royalty arrangements, we perform an analysis of historical royalties we have been paid, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual royalty revenues and estimated royalty revenues are adjusted for in the period which they become known, typically the following quarter. These adjustments have not been, and we do not expect them to be, significant. To the extent we do not have sufficient ability to accurately estimate royalty revenue, we record royalties on a cash basis

Inventory

Inventory consists of currently marketed products. VELCADE inventories primarily represent raw materials used in production, work in process and finished goods inventory on hand, valued at cost. INTEGRILIN inventories include raw materials used in production and work in process, valued at cost, to supply GSK and limited amounts of work in process, valued at cost, to supply SGP. We review inventories periodically for slow-moving or obsolete status based on sales activity, both projected and historical. Our current sales projections provide for full utilization of the inventory balance. If product sales levels differ from projections or a launch of a new product is delayed, inventory may not be fully utilized and could be subject to impairment, at which point we would adjust inventory to its net realizable value.

Intangible Assets

We have acquired significant intangible assets that we value and record. Those assets that do not yet have regulatory approval and for which there are no alternative uses are expensed as acquired in-process research and development, and those that are specifically identified and have alternative future uses are capitalized. We use a discounted cash flow model to value intangible assets at acquisition. The discounted cash flow model requires assumptions about the timing and amount of future cash inflows and outflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. We review intangible assets for impairment using an undiscounted net cash flows approach when impairment indicators arise. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, we would write down the intangible asset to the discounted cash flow value. Where we cannot identify cash flows for an individual asset, our review is applied at the lowest group level for which cash flows are identifiable.

Goodwill

On October 1, 2007, we performed our annual goodwill impairment test and determined that no impairment existed on that date. We continually monitor business and market conditions to assess whether an impairment indicator exists. If we were to determine that an impairment indicator exists, we would be required to perform an impairment test, which could result in a material impairment charge to our statement of operations.

Restructuring

In accordance with Statement of Financial Accounting Standard, or SFAS, No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” our facilities related expenses and liabilities under all of our restructuring plans included estimates of the remaining rental obligations, net of estimated sublease income, for facilities we no longer occupy. We review our estimates and assumptions on a regular basis until the outcome is finalized, and make whatever modifications we believe necessary, based on our best judgment, to reflect any changed circumstances. It is possible that such estimates could change in the future resulting in additional adjustments, and the effect of any such adjustments could be material.

Stock-Based Compensation Expense

SFAS No. 123 (revised 2004), “Share Based Payment,” or SFAS 123R, requires the recognition of the fair value of stock-based compensation expense in our operations, and accordingly the SFAS 123R fair value method has had and will continue to have a significant impact on our results of operations, although it will have no impact on our overall financial position. Option valuation models require the input of highly subjective assumptions, including stock price volatility and expected term of an option. In determining our volatility, we have considered implied volatilities of currently traded options to provide an estimate of volatility based upon current trading activity in addition to our historical volatility. After considering other such factors as our stage of development, the length of time we have been public and the impact of having a marketed product, we believe a blended volatility rate based upon historical performance, as well as the implied volatilities of currently traded options, best reflects the expected volatility of our stock going forward. Changes in market price directly affect volatility and could cause stock-based compensation expense to vary significantly in future reporting periods.

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We use historical data to estimate option exercise and employee termination behavior, adjusted for known trends, to arrive at the estimated expected life of an option. We update these assumptions on a quarterly basis to reflect recent historical data. Additionally, we are required to estimate forfeiture rates to approximate the number of shares that will vest in a period to which the fair value is applied. We will continually monitor employee exercise behavior and may further adjust the estimated term and forfeiture rates in future periods. Increasing the estimated life would result in an increase in the fair value to be recognized over the requisite service period, generally the vesting period. Estimated forfeitures will be adjusted to actual forfeitures upon the vest date of the cancelled options as a cumulative adjustment on a quarterly basis. Doing so could cause future expenses to vary at each reporting period.

In March 2006, we revised our annual merit compensation program to include the availability of both stock options and restricted stock to certain employees. In March 2007, we extended the choice of stock options or restricted stock to all employees through the annual merit compensation program. Additionally, in March 2007, we implemented performance based vesting for a portion of executive officer restricted stock awards. A significant portion of the annual equity awards to all executive officers will vest only upon achievement of predefined performance objectives. In May 2007, we issued restricted stock units to members of the Board of Directors as partial compensation for their board member service. For the three months ended March 31, 2008 and 2007, we recognized total stock-based compensation expense under SFAS 123R of $5.5 million and $5.4 million, respectively. As of March 31, 2008, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to approximately $14.5 million, including estimated forfeitures, which will be recognized over the weighted-average remaining requisite service periods of approximately one and one half years. As of March 31, 2008, the total remaining unrecognized compensation cost related to nonvested restricted stock awards and restricted stock units amounted to approximately $23.2 million, including estimated forfeitures, which will be recognized over the weighted-average remaining requisite service periods of approximately one and one half years.

Accounting Pronouncements

In December 2007, the FASB issued EITF Issue 07-1, “Accounting for Collaborative Arrangements,” or EITF 07-1. EITF 07-1 requires collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. Further, EITF 07-1 clarified the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to EITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).” EITF 07-1 will be effective for us beginning on January 1, 2009. We are currently evaluating the effect of EITF 07-1 on our consolidated financial statements.

Subsequent Event

On April 10, 2008, we entered into an Agreement and Plan of Merger with Takeda Pharmaceutical Company Limited, a corporation organized under the laws of Japan, or TPC, Takeda America Holdings, Inc., a New York corporation and wholly-owned subsidiary of TPC, or Parent, and Mahogany Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent, or Merger Sub.  Pursuant to the merger agreement, upon the terms and subject to the conditions thereof, Merger Sub commenced a tender offer on April 11, 2008 to acquire all of the outstanding shares of our common stock at a purchase price of $25.00 per share, net to the holder in cash, subject to any required withholding of taxes, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated April 11, 2008, and the related Letter of Transmittal, each as amended or supplemented from time to time.

The initial offering period for the tender offer expired at 12:00 midnight, New York City time, at the end of Thursday, May 8, 2008.  According to the depositary for the tender offer, as of the expiration of the initial offering period, 300,871,367 shares of our common stock had been tendered, representing approximately 91.9% of our outstanding shares of common stock (of which 26,917,513 shares, or approximately 8.2% of our outstanding shares, were tendered under guaranteed delivery procedures).  Merger Sub has accepted for payment all shares of our common stock that were validly tendered and not withdrawn during the initial offering period, and payment for such shares has been or will be made promptly, in accordance with the terms of the tender offer.  We have been advised that shares validly tendered in satisfaction of guaranteed delivery procedures will also be accepted for payment and promptly paid for.  Pursuant to the merger agreement, promptly upon acceptance for payment of, and payment for, the tendered shares of our common stock in the tender offer, Merger Sub has the right to designate a number of individuals to our board of directors.

Merger Sub has commenced a subsequent offering period to acquire all of the remaining untendered shares.  This subsequent offering period will expire at 12:00 midnight, New York City time, at the end of May 13, 2008, unless extended. During this subsequent offering period, holders of shares of our common stock who did not previously tender their shares in the offer may do so and Merger Sub will promptly purchase any shares properly tendered as such shares are tendered for the same consideration, without interest, paid in the tender offer. Procedures for tendering shares during the subsequent offer period are the same as during the initial offering period with two exceptions: (1) shares cannot be delivered by using the guaranteed delivery procedure, and (2) pursuant to applicable law, shares tendered during the subsequent offer period may not be withdrawn. Merger Sub reserves the right to further extend the subsequent offering period in accordance with applicable law and the terms of the merger agreement.

After expiration of the subsequent offering period, TPC intends to complete its acquisition of Millennium on or about May 14, 2008, by means of a merger under Delaware law. As a result of its purchase of shares in the tender offer, Merger Sub has sufficient voting power to approve the merger without the affirmative vote of any other Millennium stockholder. As a result of such merger, we will become an indirect wholly-owned subsidiary of TPC, and each share of our outstanding common stock will be cancelled and (except for shares held by us, TPC, wholly-owned subsidiaries of Takeda or us, or by holders who properly exercise their appraisal rights under Delaware law) will be converted into the right to receive the same consideration, without interest, received by holders who tendered shares in the tender offer.  Following the effective time of the merger, our common stock will cease to be traded on Nasdaq.

In the Offer to Purchase, Parent and Merger Sub stated that they would need approximately $8.8 billion to purchase all of our outstanding shares of common stock pursuant to the tender offer, to cash out certain employee options, restricted stock and restricted stock units, to fund amounts that may become payable under our outstanding convertible notes, and to consummate the merger, plus related fees and expenses. Parent and Merger Sub also stated in the Offer to Purchase that, to the extent necessary, TPC would provide them with sufficient funds through cash on hand to purchase all shares properly tendered in the tender offer and would provide funding for the merger. The tender offer was not conditioned upon Parent’s, Merger Sub’s or TPC’s ability to finance the purchase of shares pursuant to the tender offer.  Pursuant to the merger agreement, TPC has unconditionally guaranteed the full and complete performance by Parent and Merger Sub of their respective obligations under the merger agreement.

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