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Merrimack (MACK) Sells Onivyde Rights to Ipsen for $1B

Zacks

Merrimack Pharmaceuticals, Inc. MACK announced that it has entered into a definitive asset purchase and sale agreement with Ipsen for $1.0 billion along with milestone payment of up to $33 million.

Notably, Merrimack has underperformed the Zacks classified Medical Biomed/Genetics industry in the last 12 months. In fact, the stock has lost 38.1 % during this period, compared with a decline of 13.5% for the industry.

As per the terms of the agreement, Merrimack will sell its marketed product, Onivyde, to Ipsen. The sale will include commercialization rights in the U.S. and Merrimack’s licensing agreement with Shire SHPG. Ipsen will also purchase Mericmack;s generic version of Doxil (doxorubicin hydrochloride (HCI) liposome injection for which the latter has a license and supply agreement with Actavis LLC, a part of Teva Pharmaceuticals TEVA.


Terms of the Transaction

The transaction is expected to close in the first quarter of 2017. Merrimack will receive $575 million from Ipsen on closing, along with $450 million in milestone payments.

Merrimack will also retain the rights to receive net milestone payments of up to $33 million pursuant to its exclusive licensing agreement with Shire for the development and commercialization of Onivyde in the U.S.

Last month, Merrimack announced the discontinuation of a phase II trial on its breast cancer candidate, MM-302. The decision was taken following the recommendation and a subsequent futility analysis by an independent Data and Safety Monitoring Board (DSMB).

MM-302 is being evaluated for the treatment of HER2-positive metastatic breast cancer in patients who were previously treated with Herceptin, Perjeta and ado-trastuzumab emtansine (T-DM1, Kadcyla).

The DSMB recommended that the continuation of the trial is unlikely to demonstrate benefit over the comparator treatments. A subsequent futility assessment confirmed the DSMB's opinion as both the treatment and control arms were found to have shorter-than-expected median progression-free survival.

Consequently, Merrimack will now focus its resources on the development of its three pipeline candidates – MM-121, MM-141 and MM-310. Of the $575 million that the company will receive upon closing, it will invest $125 million to develop its pipeline.

In Oct 2016, Merrimack undertook a restructuring initiative to focus R&D on a set of oncology products as well as to strengthen its cash runway for the next two years. As part of this move, the company has reduced its headcount by 22%.

As a result of the sale of rights to Onivyde, the discontinuation of the MM-302 trial and the restructuring activities announced in Oct 2016, Merrimack should have a significantly leaner operating expense structure and capital structure, which would better support the company's new focus.

These restructuring activities will reduce the company’s workforce by 80% and Merrimack will now have only 80 employees, down from 400 employees prior to implementing the restructuring in Oct 2016.

Merrimack will also repay $175 million of outstanding debt due in 2022. The company will return approximately $200 million to its shareholders through a special dividend of $1.54 per outstanding share. Merrimack also plans to return to stockholders 100% of the amount received of up to $450 million. The amount is to be returned in additional regulatory approval-based milestone payments for Onivyde in the U.S. The total dividend comes to approximately $3.46 per share.

Merrimack will also discontinue the phase I study on MM-151 and defer continued investment in MM-131, MM-302 and several preclinical programs until the company gets partners or funding sources.

Merrimack had only one marketed product in its portfolio, Onivyde which is approved in the U.S., for use in combination with fluorouracil (5-FU) and leucovorin (LV). Onivyde is used for treating patients with metastatic adenocarcinoma of the pancreas by the Gemzar (gemcitabine)-based therapy. With only one approved product in its portfolio, Merrimack was heavily dependent on Onivyde for growth. Thus, successful development of other candidates in its pipeline is critical for Merrimack’s growth prospects.

Merrimack carries a Zacks Rank #2 (Buy).

Key Pick in Sector

Sucmapo Pharmaceuticals SCMP looks well placed with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sucmapo’s earnings estimates increased from $1.03 to $1.22 for 2016 and from $1.30 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 35.5%

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