What: Merrimack Pharmaceuticals (NASDAQ:MACK), an oncology company developing precision medicines, saw its shares drop by nearly 20% last month as a result of the marketwide downturn sparked by the Brexit vote, according to data from S&P Global Market Intelligence.
So what: Merrimack's pronounced slide last month even outpaced the sizable downturn in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB):
In short, the market seems to be souring on cash-flow-negative operations like Merrimack, regardless of their near- or long-term prospects. Merrimack, for instance, is now trading at about 3 times the 2017 projected revenue from its advanced pancreatic cancer drug Onivyde. That's definitely a noteworthy valuation, given that most oncology companies receive ginormous premiums for their lead drugs.
Now what: Onivyde appears set to have a long commercial shelf life, given the particularly high failure rate for experimental pancreatic cancer drugs in general. So, when the market finally changes its tune toward biotechs, Merrimack should rebound sharply along with the IBB. After all, Merrimack does sport a fairly robust portfolio of clinical-stage anti-cancer drugs, giving it multiple shots on goal in terms of bringing yet another product to market within a few years. And with Onivyde's sales expected to pick up over the next few months, the company should be able to build a respectable cash runway to fund its various clinical activities going forward. All told, Merrimack is arguably a great bargain buy following this latest sell-off in June.
George Budwell owns shares of iShares NASDAQ Biotechnology Index. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.