Why Merrimack Pharmaceuticals, Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Merrimack Pharmaceuticals (NASDAQ: MACK  ) , a biopharmaceutical company developing cancer-focused therapies to be paired with companion diagnostic tests, skyrocketed as much as 74% after announcing that MM-398, its late-stage pancreatic cancer therapy that is given to patients who've previously been treated with Gemzar, had met its primary endpoint of overall survival.

So what: According to Merrimack's press release, the combination of MM-398 with 5-flouroacil and leucovorin delivered an overall survival of 6.1 months, which was an improvement of 1.9 months compared to the placebo of 5-flouroacil and leucovorin alone which achieved only 4.2 months of overall survival. Furthermore, a hazard ratio of 0.67 implied a 33% death risk reduction for the MM-398 intent-to-treat arm as well as a "significant advantage" for progression-free survival. Merrimack intends to file a new drug application for MM-398 before the year is over.

Now what: There are so few success stories among experimental late-stage pancreatic cancer drug hopefuls that it's no wonder shares exploded to the upside today. A 1.9 month survival improvement may not seem like much, but its death risk reduction of 33% is significant, and we have to remember MM-398 would only be used as a second-line therapy for patients that have stopped responding to or had no response from Gemzar. While great news for shareholders, it's also difficult to say how successful MM-398 will ultimately be. Peak sales could hit somewhere around $800 million, but that will depend largely on how well Merrimack hands the launch (if approved). Following today's monstrous run, I'd still prefer to stick to the sidelines with Merrimack.

Merrimack shares may have soared today, but they'll likely be hard-pressed to keep up with this top stock over the long haul
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  • Report this Comment On May 01, 2014, at 2:00 PM, z9841 wrote:

    At this stage, the risk of investment in Merrimack is a lot smaller than in a biotech companies that are at earlier development stages. At lower risk and an estimated peak sales of $800 million for a company with a market cap of $700 million the reward in keeping the stocks is likely drive the stock price to a high level.

  • Report this Comment On May 01, 2014, at 3:03 PM, kirovs wrote:

    I would second what z9841 is saying. I did not see in your blog any analysis on the downside, what are the chances of approval, etc.

    Even at 100-200M sales the upside for this company is pretty impressive, don't you think?

    How achievable is this number?

    I would like to see some analysis on what uptake there might be, potential pricing, etc.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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8/28/2015 4:00 PM
MACK $10.50 Up +0.07 +0.67%
Merrimack Pharmace… CAPS Rating: ***