MACK : Merrimack Pharmaceuticals Stock Analysis and Research Report

2017-10-23 - by Asif, Contributing Analyst

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Merrimack Pharmaceuticals is a biopharmaceutical company based in Cambridge, Massachusetts that is outthinking cancer to ensure that patients and their families live fulfilling lives. Merrimack's mission is to transform cancer care through the smart design and development of targeted solutions based on a deep understanding of cancer pathways and biological markers. All its product candidates, including three in clinical studies and several others in preclinical development, fit into its strategy of (1) understanding the biological problems the company is trying to solve, (2) designing specific solutions and (3) developing those solutions for biomarker-selected patients. This three-pronged strategy seeks to ensure optimal patient outcomes.

On April 3, 2017, Merrimack Pharmaceuticals announced that the company commenced operating as a refocused research and clinical development company in connection with the completion of Merrimack's previously announced transaction, or the asset sale, with Ipsen S.A., or Ipsen. Pursuant to the Asset Purchase and Sale Agreement, dated as of January 7, 2017, or the asset sale agreement, between it and Ipsen, Ipsen acquired its right, title and interest in the non-cash assets, equipment, inventory, contracts and intellectual property primarily related to or used in its business operations and activities involving or relating to developing, manufacturing and commercializing ONIVYDE, its first commercial product, and MM-436, or the commercial business. the company received $575.0 million in cash, subject to a working capital adjustment, and are eligible to receive up to $450.0 million in additional regulatory approval-based milestone payments. The working capital adjustment is currently estimated as a $2.2 million receivable expected to be received in the third quarter of 2017. The company also retained the right to receive net milestone payments of up to $33.0 million that may become payable pursuant to the license and collaboration agreement with Baxalta Incorporated, Baxalta US Inc. and Baxalta GmbH, collectively Baxalta, which the company refer to as the Baxalta agreement, for the ex-U.S. development and commercialization of ONIVYDE. As of June 30, 2017, all historical transactions impacting the condensed consolidated statements of operations and comprehensive income (loss) related to the asset sale have been reclassified under discontinued operations.

With the completion of the asset sale, the company is prioritizing three clinical-stage programs:

  • MM-121 (seribantumab), a fully human monoclonal antibody that binds to the ErbB3 (HER3) receptor and targets heregulin positive cancers. The company is currently conducting the Phase 2 randomized SHERLOC clinical trial evaluating MM-121 in heregulin positive non-small cell lung cancer patients in combination with docetaxel or pemetrexed and plans to initiate the Phase 2 randomized SHERBOC clinical trial in 2017 in heregulin positive, hormone receptor positive, ErbB2 (HER2) negative, metastatic breast cancer patients;
  • MM-141 (istiratumab), a fully human bispecific tetravalent monoclonal antibody designed to block tumor survival signals by targeting receptor complexes containing the insulin-like growth factor 1, or IGF-1, receptor and ErbB3 (HER3) cell surface receptors. The company is currently conducting the Phase 2 randomized CARRIE clinical trial evaluating MM-141 in previously untreated metastatic pancreatic cancer patients with high levels of free IGF-1 in combination with nab-paclitaxel and gemcitabine; and
  • MM-310, an antibody-directed nanotherapeutic, or ADN, that contains a novel prodrug of the highly potent chemotherapy docetaxel and targets the ephrin receptor A2, or EphA2, receptor, which is highly expressed in most solid tumor types. MM-310 was designed to improve the therapeutic window of docetaxel in major oncology indications, such as prostate, ovarian, bladder, gastric, pancreatic and lung cancers. The company initiated a Phase 1 clinical trial to evaluate safety and preliminary activity of MM-310 in the first quarter of 2017.

In addition to Merrimack's clinical-stage programs, the company has several product candidates in preclinical development and a discovery effort advancing additional candidate medicines.

On January 8, 2017, the company announced a planned reduction in its headcount by approximately 30% in connection with the closing of the asset sale and the completion of its strategic pipeline review, and upon the closing of the asset sale the company had approximately 80 employees.

Merrimack Pharmaceuticals has devoted substantially all of its resources to its drug discovery and development efforts, including advancing its systems biology approach, conducting clinical trials for its product candidates, protecting its intellectual property and providing general and administrative support for these operations. The company currently have no products approved for sale and all of its revenue to date has been collaboration revenue and through sales of ONIVYDE and, to date, the company has financed its operations primarily through private placements of its convertible preferred stock, collaborations, public offerings of its securities, secured debt financings, sales of ONIVYDE and the asset sale of ONIVYDE.

As of June 30, 2017, the company had unrestricted cash and cash equivalents and marketable securities of $135.5 million. The company believe that at its currently forecasted spending rates, its existing financial resources, together with the net milestone payments the company expect to receive under the Baxalta agreement, assuming certain milestones under such agreement are met, will be sufficient to fund its planned operations into the second half of 2019.

Merrimack Pharmaceuticals has never been profitable and, as of June 30, 2017, the company had an accumulated deficit of $472.9 million. Merrimack's loss from continuing operations before income tax expense was $59.9 million and $89.1 million for the three and six months ended June 30, 2017, respectively. Its loss from continuing operations was $51.6 million and $89.3 million for the three and six months ended June 30, 2016, respectively. The company expect to continue to incur significant expenses and operating losses for at least the next several years. The company expect to continue to incur significant research and development expenses in connection with its ongoing activities, particularly as the company continue the research, development and clinical trials of its product candidates, including multiple simultaneous clinical trials for certain product candidates. Until such time, if ever, as the company can generate sufficient product revenues, the company expect to finance its cash needs through a combination of equity offerings, debt financings, collaborations, licensing arrangements and other marketing and distribution arrangements. The company also could engage in discussions with third parties regarding partnerships, joint ventures, combinations or divestitures of one or more of its businesses as the company seek to further the development of its research programs, improve its cash position and maximize stockholder value. There can be no assurance as to the timing, terms or consummation of any financing, collaboration, licensing arrangement or other marketing and distribution arrangement, partnership, joint venture, combination or divestiture. The company may be unable to raise capital when needed or on attractive terms, which would force it to delay, limit, reduce or terminate its research and development programs. The company will need to generate significant revenues to achieve profitability, and the company may never do so.

Strategic Partnerships, Licenses and Collaborations

Ipsen

Pursuant to the asset sale agreement, Merrimack Pharmaceuticals is eligible to receive up to $450.0 million in additional regulatory approval-based milestone payments. Merrimack Pharmaceuticals is o retained the right to receive net milestone payments that may become payable pursuant to the Baxalta agreement for the ex-U.S. development and commercialization of ONIVYDE for up to $33.0 million.

In connection with the asset sale, Merrimack Pharmaceuticals entered into a transition services agreement with Ipsen, pursuant to which the company and Ipsen provide certain services to each other for a period of 24 months, including Ipsen’s agreement to manufacture MM-310 and to perform certain quality related services in accordance with a manufacturing services agreement. Additionally, the company entered into a sublease agreement with Ipsen under which Ipsen is subleasing approximately 70,237 square feet of its leased space in Cambridge, Massachusetts through the end of its lease term on June 30, 2019.

Baxalta

On September 23, 2014, Merrimack Pharmaceuticals entered into the Baxalta agreement for the development and commercialization of ONIVYDE outside of the United States and Taiwan, or the licensed territory. In connection with Baxter International Inc.’s separation of the Baxalta business, the Baxalta agreement was assigned to Baxalta during the second quarter of 2015. As part of the Baxalta agreement, the company granted Baxalta an exclusive, royalty-bearing right and license under its patent rights and know-how to develop and commercialize ONIVYDE in the licensed territory.

On April 3, 2017, the Baxalta agreement was assigned to Ipsen in connection with the completion of the sale of the commercial business. Merrimack Pharmaceuticals retained the right to receive net milestone payments that may become payable pursuant to the Baxalta agreement for the ex-U.S. development and commercialization of ONIVYDE for up to $33.0 million, which is comprised of potential payments of $18.0 million from the sale of ONIVYDE in two additional major European countries, $5.0 million related to the sale of ONIVYDE in the first major non-European, non-Asian country and $10.0 million for the first patient dosed in a pivotal clinical trial in an indication other than pancreatic cancer.

On April 3, 2017, in connection with the asset sale, all agreements related to Merrimack's collaboration with Baxalta and any associated obligations, including its agreement related to commercial supply of ONIVYDE, were assigned to Ipsen.

Actavis

In November 2013, Merrimack Pharmaceuticals entered into a development, license and supply agreement with Watson Laboratories, Inc., or Actavis, which the company refer to as the Actavis agreement, pursuant to which the company agreed to develop, manufacture and exclusively supply the bulk form of doxorubicin hydrochloride (HCl) liposome injection to Actavis. On April 3, 2017, in connection with the completion of the asset sale, the Actavis agreement was assigned to Ipsen.

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