Why Merrimack Pharmaceuticals Inc. Shares Plunged in After Hours

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 focused on developing therapies designed to treat cancer, dipped as much as 15% in after-hours trading after announcing an agreement with Sanofi (NYSE: SNY  ) to regain the worldwide rights to investigational cancer drug MM-121.

So what: According to its after-market press release, Merrimack appears positive after regaining development and worldwide commercialization rights to MM-121 which was tested in a series of phase 2 studies to assess the role of ErbB3 in a multitude of metastatic and neoadjuvant cancer settings. Per its press release, Sanofi will continue to fund existing phase 2 studies for the next six months.

In addition, Merrimack announced data from its second cohort of patients in its midstage collaboration of MM-121 in combination with paclitaxel in triple-negative breast cancer (TNBC) patients. According to its data release, the MM-121 intent to treat arm delivered a pCR rate of 42.9% compared to 51.7% for the control arm. In addition, adverse events were nearly double in the MM-121 arm relative to the control group (28.1% vs. 15.6%), so these results weren't very encouraging.

Now what: The real downside here is Sanofi walking away. By cutting its losses Sanofi walking could signify that there's little value in developing MM-121. More importantly, Merrimack is now down a very knowledgeable and experienced marketing partner and will soon be on the line for all additional MM-121 development costs.

There's also MM-121 itself, which showed no statistical benefit in a midstage treatment-resistant or refractory-advanced ovarian cancer study released in October. As a whole, the hazard ratio of 1 implied no clinical benefit, although it did identify some submarkers which could imply MM-121's future success on a more select group of cancer patients. Today's data from the TNBC cohort adds further fuel to the fire that MM-121 may not target a large enough audience to eventually be worthwhile for Merrimack or investors to stick around. It remains to be seen what Merrimack does moving forward, but as of now I'm sticking squarely on the sidelines.

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