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 (MACK) rose as high as 12% this morning after the company announced an agreement with Baxter International (BAX 1.53%) to license out its experimental pancreatic cancer drug MM-398 for a reported $100 million in upfront fees and up to $120 million in additional milestone payments. If Merrimack can successfully develop the drug for two other indications, it could receive another $220 million from Baxter.
Earlier this year, Merrimack reported top-line data for MM-398's pivotal late-stage trial, where the drug significantly increased overall survival by 1.9 months when combined with 5-fluorouracil and leucovorin. The drug failed to show a clinical benefit in advanced pancreatic cancer patients as a monotherapy, however.
So what: Merrimack is a small cap biopharma that is struggling to develop its flagship cancer treatment MM-121. This licensing deal will therefore help to inject much needed capital into the company, perhaps enabling it to expand its clinical efforts without resorting to dilutive financing in the near-term.
More importantly, this deal ensures that Merrimack won't have to spend money on raising a sales staff from scratch and diverting management's attention away from the development of more lucrative drugs.
Now what: While this deal is certainly good news for Merrimack, I think the investing thesis will now center squarely on the company's other clinical candidates going forward. And therein lies the problem. MM-121 has had a number of high profile clinical failures, resulting in Sanofi handing the commercial rights back to Merrimack last June.
The company does have other early to mid-stage clinical candidates, but its Systems Biology drug discovery platform hasn't proven to be a winner as of yet. Merrimack will therefore need more success in the clinic before it finds its way into my portfolio.
