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Merrimack (MACK) Posts Narrower-than-Expected Loss in Q1

Merrimack Pharmaceuticals, Inc. MACK reported a loss of 33 cents per share in the first quarter of 2016, narrower than both the Zacks Consensus Estimate of 39 cents and the prior-quarter loss of 41 cents.

Quarter in Detail

Total revenue of $21.3 million was slightly lower than $21.4 million reported last quarter but well above the Zacks Consensus Estimate of $15 million.

In Oct 2015, Merrimack Pharma’s first product, Onivyde, gained approval in the U.S., in combination with fluorouracil (5-FU) and leucovorin, for the treatment of patients suffering from metastatic adenocarcinoma of the pancreas, who were previously treated with Gemzar-based therapy.

The drug was subsequently launched in the U.S. on Oct 26. Onivyde sales in the reported quarter amounted to $10 million, up 133% over the prior quarter. We note that the drug was also added to the National Comprehensive Cancer Network (NCCN) 2016 Clinical Practice Guidelines in Oncology as a category I Treatment Option for patients with metastatic pancreatic adenocarcinoma who have previously been treated with Gemzar-based therapy.

Merrimack Pharma earned collaboration revenues of $11.3 million, down 33.8% sequentially.

Research and development expenses were $32.9 million, down 26.5% due to the completion of various clinical trials in the first quarter of 2016. General and administrative expenses were also down 8% to $17.8 million primarily due to incremental expenses related to the launch of Onivyde last quarter.

Pipeline Update

Currently, Merrimack Pharma is evaluating Onivyde in a phase II study for previously untreated front-line metastatic pancreatic cancer. Data from the phase II study are expected in 2017. The company also expects data from three other studies investigating Onivyde in new indications, including pediatric sarcoma, glioma and breast cancer, later in 2016.

The company has three more candidates in phase II studies – MM-121 for heregulin-positive, locally advanced or metastatic non-small cell lung cancer (results expected in 2018 from a phase II study designed to support a potential Biologics License Application to the FDA); MM-302 for HER2-positive metastatic breast cancer (results expected in 2017 from the HERMIONE trial designed to support a potential accelerated approval application to the FDA); and MM-141 for the treatment of patients with front-line metastatic pancreatic cancer who have high serum levels of free IGF-1 (results expected in 2018). The company recently completed the safety portion and transitioned to part two of the phase II study on MM-141 in patients with front-line metastatic pancreatic cancer.

Outlook Reiterated

Merrimack Pharma continues to expect $46.5 million as net milestones related to Onivyde from Baxalta, Inc. BXLT in 2016. Cost of goods sold is estimated to increase as a percentage of revenues as the company sells through the zero-cost products that were manufactured prior to receiving FDA approval and therefore, did not have capitalized costs associated with it. Operating expenses are projected between $225 million and $245 million.

Our Take

Merrimack Pharma reported a narrower-than-expected loss in the first quarter. The initial uptake of Onivyde is strong and should boost the top line going forward. Inclusion of the drug in the NCCN pathway should prove to be a big boost and accelerate access to the drug.

Merrimack Pharma carries a Zacks Rank #3 (Hold). A couple of well-placed stocks in the health care sector are Gilead Sciences GILD and Aegerion Pharmaceuticals AEGR. Both the stocks sport a Zacks Rank #1 (Strong Buy).

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