Merrimack Pharmaceuticals' (MACK 0.14%) IPO debuted with a thud this past summer, falling 14% intraday from its $7 listing price. The biopharmaceuticals company focuses on innovative treatments for serious conditions with a primary focus on cancers. The product pipeline includes a promising lead drug and a secondary drug backed by Sanofi (SNY 5.90%). But the company's trading nearly 13% below its list price.
Here are three things to watch when considering Merrimack.
1. Lead drug
MM-398 began phase 3 trials this past summer for treatment-resistant pancreatic cancer. The Food and Drug Administration granted the drug orphan status. Additional early stage trials will examine its efficacy with colorectal cancer and gliomas -- or tumors beginning in the brain or spinal cord.
Transparency Market Research estimates that the domestic pancreatic cancer market will hit $1.2 billion by 2015. The leading treatment has historically been Eli Lilly's (LLY -1.00%) chemo drug Gemzar. But a rising new wave of treatments, including Merrimack and Celgene's (CELG) Abraxane, offers options for patients for whom Gemzar wasn't enough .
Merrimack paid up to have a chance in this market. The company acquired MM-398's original developer in 2009 . Last year, Merrimack agreed to pay up to $220 million in up-front and milestone payments to PharmaEngine for overseas marketing rights. PharmaEngine, the drug's collaborator, will retain rights in its home country of Taiwan.
2. Secondary drug
MM-121 is involved in three phase 2 trials, one phase 1/2 trial, and four phase 1 trials. Those trials include several types of cancers such as breast and lung. It is an ambitious drug for a small company but benefits from having Sanofi as a backer.
Sanofi made a $60 million up-front payment and a series of milestone payments for its share of MM-121. More milestones and potential royalty payments could follow. Sanofi is responsible for the manufacturing and development costs. Merrimack will participate through phase 2 and has the option to co-promote the drug in the U.S. upon its release.
3. Cash burn
Merrimack's cash burn for the most recent quarter was around $21 million . The company reported about $87 million in cash, cash equivalents, and short-term investments. Combine that with a new loan agreement with a $40 million limit, and Merrimack can probably sustain itself until 2014, when revenues should start flowing.
Final thoughts
It will be some time before late-stage trials report and show a clearer picture of Merrimack's standing. MM-398 will need to show strength in a market that's becoming increasingly crowded. MM-121 could become the underdog champion, especially with Sanofi's contribution. It might benefit investors to take a "wait and see" approach with Merrimack until more data arrives.
