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) rose as high as 12% this morning after the company announced an agreement with Baxter International (NYSE:BAX) 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. 


George Budwell has no position in any stocks mentioned. The Motley Fool recommends Baxter International. 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.