What: Shares of Merrimack Pharmaceuticals (MACK), a clinical-stage biopharmaceutical company with a focused on treating cancer, were up more than 15% at one point today and have since settled to be up around 2% after the company reported second quarter results last night.
So what: Revenue during the quarter was $36.6 million in the period, up 31% over the $27.8 million recorded last year. The growth was driven completely by collaboration payments received from its international marketing partner Baxalta, as a successful regulatory submission in the EU triggered a one-time $20 million milestone payment during the quarter. This revenue growth helped the company post a loss of only $22.8 million for the period, which on a per-share basis came to -$0.21, better than the -$0.28 loss that analysts were expecting.
While these results looked good, as Merrimack is still a clinical-stage company without any products on the market, investors eyes remain focused on progress of the pipeline.
The company is currently waiting to hear from both the FDA and European regulators about MM-398, its second-line treatment candidate for patients with pancreatic cancer who previously did not respond to the first-line treatment using a gemcitabine-based therapy. While a European review date is currently unknown, the company should hear a response from the FDA by October 24, 2015.
The company also announced it is looking for additional clinical indications for MM-398, as it initiated clinical trials during the quarter to study the drug as a treatment in both front-line metastatic pancreatic cancer and in front-line HER2-negative gastric cancer.
Turning to the balance sheet, the company currently has $67.7 million in cash, and when combined with the $51.5 million in net milestone payments that it believes it will receive be the end of the year should be enough capital to fund operations into 2016.
Now what: Short interest in Merrimack has grown steadily since the start of the year, so today's share price action could be related to shorts covering their position as the chance for an approval grows closer. With more than 20 million shares still currently sold short, which represents about 24% of the float, Merrimack's stock could continue to pop from here if we see a positive FDA decision in October.
While the company's financial position may seem a bit troubling, given that it only has enough cash on hand to run operations into 2016, the company did remind investors that its estimates did not include any revenue generated from sales of MM-398, any milestone payments it may be entitled to in 2016, or any cash received from the company's at-the-market offering program, which could allow the company access to up to $40 million. When you add in those funding sources, the company's financial picture starts to look a little brighter.
There certainly appears to be a decent amount of potential for MM-398. Peak sales estimates are currently around $700 million, and that number could grow substantially if the company can gain approval for additional indications. However, the company still remains a little bit too risky for my taste, as the company's near term financial future is tied to the success of only one yet-to-be-proven drug. If MM-398 proves to be a success and clears up Merrimack's financial picture, I'd be happy to change my tune and call Merrimack's stock a buy. Until then, I'm content to wait on the sidelines.
