Merrimack PharmaceuticalsMerrimack Pharmaceuticals Inc (NASDAQ:MACK) announced its third quarter 2016 financial results. Merrimack will host a live conference call and webcast today, Wednesday, November 9 at 4:30 p.m., Eastern time, to provide an update on Merrimack’s progress as well as a summary of these results.

ONIVYDE® (irinotecan liposome injection) Update

ONIVYDE updates include:

  • Receipt by Shire plc of European Marketing Authorization for ONIVYDE for the treatment of patients with metastatic adenocarcinoma of the pancreas following gemcitabine-based therapy;
  • Establishment of an initial tolerable dose for ONIVYDE in combination with 5-FU/LV and oxaliplatin in an ongoing study evaluating its use in patients with previously untreated metastatic pancreatic cancer;
  • Issuance by the Centers for Medicare & Medicaid Services (CMS) of a unique, permanent J-code for ONIVYDE, which will streamline the billing and reimbursement process for healthcare providers. The new J-code, J9205 (Injection, irinotecan liposome, 1mg), will become effective for dates of service beginning January 1, 2017 and supersedes all other temporary codes;
  • Shipments of ONIVYDE from specialty distributors to individual accounts and facilities, a measure of product demand, grew 18% in the third quarter of 2016 as compared to shipments in the second quarter of 2016; and
  • Recognition of $16.8 million of gross product revenues, or $14.5 million of net product revenues, from U.S. commercial sales of ONIVYDE for the third quarter of 2016. This is compared to $14.8 million of gross product revenues, or $12.9 million of net product revenues for the second quarter of 2016, which represents an increase in net product revenues of 13% over the prior quarter.

Key Recent Events

Merrimack’s key recent events include:

  • Acceptance for review of an Abbreviated New Drug Application (ANDA) filed by Actavis LLC for generic doxorubicin hydrochloride (HCl) liposome injection (DOXIL®). This is the first product developed by Merrimack under a development, license and supply agreement with Actavis pursuant to which Merrimack is responsible for the development and commercial supply of bulk drug product. If the product is approved, Merrimack is eligible to receive a percentage share of net profits in the mid-twenties on future sales of doxorubicin HCl liposome injection in the United States.
  • Announcement on October 3, 2016, of a 22% reduction in headcount as part of a major corporate restructuring with the objective of prioritizing its research and development on a focused set of systems biology-derived oncology products and strengthening its financial runway. On this same date, Merrimack also announced the resignation of Robert Mulroy, its former President and Chief Executive Officer.
  • Initiation, in connection with the corporate restructuring, of a strategic review of the company’s pipeline, including the clinical and financial prioritization of its programs. This review may result in amendments to Merrimack’s ongoing clinical trials and other changes to its programs. The company expects to complete this review by the end of 2016. In the absence of clinical trial amendments, Merrimack believes that the data readouts of trials for its lead product candidates, including potentially MM-302, MM-121 and ONIVYDE in front-line metastatic pancreatic cancer, will likely extend beyond its prior guidance.  As part of this strategic review, the company will continue to assess these data timelines and the potential impact of any such clinical trial amendments, and will report these findings by year end.

Third Quarter 2016 Financial Results

The following summarizes Merrimack’s financial results from the quarter ended September 30, 2016:

  • Product revenues from the commercial sale of ONIVYDE, net of discounts, allowances and reserves, were $14.5 million for the third quarter of 2016, compared to $12.9 million for the second quarter of 2016. This represents an increase of $1.6 million, or 13%, over the prior quarter;
  • License and collaboration revenues were $12.4 million for the third quarter of 2016, compared to $19.3 million for the second quarter of 2016. This represents a decrease of $6.9 million from the prior quarter. The majority of this decrease was related to a $10.0 millionsubstantive milestone achieved during the second quarter of 2016 offset by increased revenue that was recognized under the proportional performance revenue recognition model;
  • Aggregate research and development and selling, general and administrative expenses were $50.1 million for the third quarter of 2016, compared to $61.7 million for the second quarter of 2016. This represents a decrease of $11.6 million, or 19%. The majority of this decrease was related to a $10.0 million milestone owed to PharmaEngine in the second quarter of 2016;
  • Restructuring expenses were $0.8 million for the third quarter of 2016 and were related to Merrimack implementing a 22% reduction in headcount as part of a major corporate restructuring with the objective of prioritizing its research and development on a focused set of systems biology-derived oncology products and strengthening its financing runway;
  • Interest expense was $6.9 million for the third quarter of 2016, compared to $21.1 million for the second quarter of 2016. This $14.2 million decrease was primarily due to a $14.6 million one-time, non-cash loss related to the conversion of an aggregate principal amount of $64.2 million of Merrimack’s convertible notes in April 2016; and
  • Net loss attributable to Merrimack for the third quarter of 2016 was $30.1 million, or $0.23 per share, compared to a net loss attributable to Merrimack of $50.8 million, or $0.40 per share, for the second quarter of 2016.

Financial Outlook

In an effort to provide further insight into the expected timing of upcoming research and development and regulatory milestones, Merrimack provides the following schedule:

1 Sale means the earlier of first commercial sale or receipt of pricing/reimbursement approval.

  • In addition to the above milestones, future potential research and development and regulatory milestone obligations from Shire are $427.5 million and are offset by $35.0 million of future potential commitments to PharmaEngine related to these milestones.

With respect to its fiscal 2016 guidance, Merrimack:

  • Lowers and narrows its previously provided expense guidance range, such that Merrimack now anticipates aggregate research and development and selling, general and administrative expenses for 2016, when calculated in accordance with GAAP, to be in the range of $235.5 million to $245.5 million. Excluding anticipated milestone obligations to PharmaEngine of $35.5 million, this corresponds to a range of $200.0 million to $210.0 million of anticipated aggregate research and development and selling, general and administrative expenses for 2016, which is a non-GAAP financial measure.

With respect to its fiscal 2017 guidance:

  • Merrimack had previously provided guidance as to the achievement of $46.5 million of net milestones related to ONIVYDE in 2016.  Merrimack is revising this guidance to reflect that Merrimack now anticipates that only $4.5 million of these net milestones are expected to be achieved in 2016. Merrimack now anticipates that the achievement of the remaining $42.0 million of net milestones related to ONIVYDE will occur in the first half of 2017. This remaining amount is made up of $32.0 million of net substantive milestones, which are expected to increase net income in 2017, and $10.0 million of net non-substantive milestones, which are expected to increase deferred revenues on Merrimack’s balance sheet, as they are included in the Shire proportional performance revenue recognition model;
  • Merrimack anticipates that aggregate research and development and selling, general and administrative expenses for 2017, when calculated in accordance with GAAP, will be approximately $193.0 million, which includes the anticipated achievement of $28.0 million of milestone obligations to PharmaEngine. This corresponds to aggregate research and development and selling, general and administrative expenses, excluding anticipated milestone obligations to PharmaEngine, a non-GAAP financial measure, of approximately $165.0 million for 2017; and
  • Merrimack expects that at its currently forecasted spending rates, its existing financial resources, together with anticipated net product revenues and net royalty payments from sales of ONIVYDE, the net milestone payments and reimbursements it expects to receive under its Shire collaboration and access to its $25.0 million credit facility, will be sufficient to fund its operations into 2018. (Original Source)

Shares of Merrimack are down nearly 5% to $5.60 in after-hours trading. MACK has a 1-year high of $9.66 and a 1-year low of $4.39. The stock’s 50-day moving average is $5.61 and its 200-day moving average is $5.76.

On the ratings front, MACK stock has been the subject of a number of recent research reports. In a report issued on October 7, J.P. Morgan analyst Anupam Rama downgraded MACK to Hold, with a price target of $7.00, which implies an upside of 33% from current levels. Separately, on October 4, BTIG’s Ling Wang maintained a Hold rating on the stock.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Anupam Rama and Ling Wang have a yearly average loss of 3.2% and 31.1% respectively. Rama has a success rate of 40% and is ranked #3295 out of 4186 analysts, while Wang has a success rate of 17% and is ranked #4050.

Merrimack Pharmaceuticals, Inc. engages in discovering, developing and preparing to commercialize innovative medicines consisting of novel therapeutics paired with diagnostics for the treatment of cancer. Its offers its first commercial product, Onivyde, which is a novel encapsulation of the marketed chemotherapy drug irinotecan in liposomal formulation.