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Merrimack (MACK) Q4 Loss Lower than Expected, Revenues Top

Zacks Equity Research

Merrimack Pharmaceuticals, Inc. MACK reported a loss of 21 cents per share in the fourth quarter of 2016, a penny narrower than the Zacks Consensus Estimate of a loss of 22 cents. The company reported a loss of 41 cents in the year-ago quarter.

Quarterly revenues came in at $61.2 million, up from $21.4 million reported in the year-ago quarter and surpassed the Zacks Consensus Estimate of $47.7 million.

Merrimack’s shares gained 3.1% following the release of its fourth-quarter results.

We note that the shares of Merrimack have tumbled 54.9% in the last 12 months. The fall in the share price was much steeper than the 1.1% decline witnessed by the Zacks classified Medical Biomed/Genetics market.

Quarter in Detail

Merrimack’s top line comprises revenues generated by its only marketed product, Onivyde, and license and collaboration fees.

Onivyde sales in the reported quarter amounted to $15.7 million, up 9% sequentially, primarily driven by an increase in the number of new patients on therapy, as well as longer treatment duration. Shipment of the drug from specialty distributors to individual accounts and facilities grew 18% sequentially.

License and collaboration revenues came in at $44.1 million, an increase of $31.7 million sequentially.

Research and development and selling, general and administrative expenses were $79.2 million, up 58%.

Pipeline Update

In Jan 2017, the company entered into a definitive asset purchase and sale agreement to vend Onivyde to Ipsen for $1 billion. $33 million as net milestone payments were retained by Merrimack in pursuant to the license and collaboration agreement with Shire plc SHPG. Per the agreement, the sale will include commercialization rights in the U.S. and Merrimack’s licensing agreement with Shire. Ipsen will also purchase Merrimack’s generic version of Doxil.

A special meeting of the company’s stockholders is scheduled on March 30 to consider and vote on the asset sale. Merrimack expects to complete the asset sale shortly after approval of the same at the meeting. Consequently, Merrimack now focuses its resources on the development of its three pipeline candidates – MM-121, MM-141 and MM-310.

MM-121 is being evaluated for the treatment of non-small cell lung cancer trial in an ongoing trial. The candidate will also be evaluated in a more focused proof-of-concept study with top-line data expected by the end of 2018. The company also plans to evaluate the candidate in a phase II clinical study in HER2 negative hormone receptor and heregulin positive breast cancer patients in 2017.

MM-141, a monoclonal antibody, targets both the HER3 and the IGF-1 receptors. The company is evaluating the drug in pancreatic cancer patients with increased levels of the IGF-1 biomarker and has retooled the ongoing phase II study into a proof-of-concept trial and anticipates top-line data in 2018.

MM-310, an antibody directed nanoliposome (AND) is expected to enter the clinic in the first quarter of 2017 and the company expects to report the recommended phase to dose in 2018.


Merrimack expects $575 million upfront cash payment from Ipsen upon the closing of the asset sale and up to $450 million as milestone payments. The company intends to use these proceeds to declare and pay a special cash dividend of at least $200million to stockholders and use an additional $195.1 million to redeem its senior secured notes due in 2022.

The cash infusion from these steps along with potential cash inflows arising from the restructuring plan undertaken in Jan 2017 should be sufficient to fund its operations into the second half of 2019. The company plans to invest $175 million from the proceeds of the sale to develop its streamlined oncology pipeline.

Merrimack Pharmaceuticals, Inc. Price and EPS Surprise

Merrimack Pharmaceuticals, Inc. Price and EPS Surprise | Merrimack Pharmaceuticals, Inc. Quote

Our Take

Merrimack’s fourth-quarter results were ho-hum as the main focus is currently on the impending sale of Onivyde to Ipsen. The influx of cash from the sale is a definite positive, given the company’s cash-crunched position and huge debt. The cash received from Ipsen will be used to pay down the huge debt and return value to shareholders in the form of dividends.

On the flip side, Merrimack is back to being a development-stage biopharmaceutical company. Although Onivyde’s launch was disappointing, it was the only marketed drug in Merrimack’s portfolio.

Trouble started brewing for the company in Oct 2016 when the CEO of the company, Robert Mulroy resigned. Concurrently, Merrimack undertook a restructuring initiative to focus R&D on a set of oncology products as well as to strengthen its cash runway for the next two years. As part of this move, the company has reduced its headcount by 22%.

Thus, successful development of other candidates in its pipeline is critical for Merrimack’s growth prospects henceforth. Given the transition mode Merrimack is in, we expect investors to remain focused on the further updates provided by the company on its pipeline candidates.

Zacks Rank & Key Picks

Merrimack Pharma carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the health care sector include Celgene Corp. CELG and Sunesis Pharmaceuticals, Inc. SNSS. Each of these stock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Celgene’s earnings estimates increased from $6.52 to $6.60 for 2017 and from $8.15 to $8.16 for 2018 over the last 60 days. The company posted a positive earnings surprise in three of the four trailing quarters with an average beat of 5.08%.

Sunesis’ loss estimates narrowed from $2.57 to $2.44 for 2016 and from $2.16 to $1.97 for 2017 over the last 60 days. The company posted a positive earnings surprise in three of the four trailing quarters with an average beat of 0.54%.

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