Merrimack Pharmaceuticals: Speculation Is An Investor's Best Friend

One of the most exciting aspects of biotechs is their ability to skyrocket on rumors or plain old rampant speculation. Rumors that Dendreon (NASDAQ:DNDN) was looking to sell itself earlier in the month, for instance, pushed the stock up over 9% in short order.

While it's not always possible to game rumors or positive speculation, Merrimack Pharmaceuticals (NASDAQ:MACK) offers traders a chance to do just that.

Why? Because the company recently announced that topline results for their pancreatic cancer drug, MM-398, will be delayed until the middle of next year. And the cause of this delay is rather intriguing. According to the press release, this delay is the result of overall survival events, across the entire trial, occurring later than forecasted.

For those new to Merrimack and their orphan pancreatic cancer drug, MM-398 is currently in a pivotal Phase 3 trial called NAPOLI-1. The trial consists of 3-arms: MM-398 alone, MM-398 in combo with 5FU/LV, and 5FU/LV alone. The primary endpoint is overall survival at 4.5 months for monotherapy and 6 months in combo.

What's important to understand is that MM-398 would probably be employed as a second-line therapy for this devastating disease. The current host of front-line therapies for metastatic pancreatic cancer are gemcitabine monotherapy or multiple-drug regimens such as FOLFIRINOX. Recent studies have shown a significant survival advantage for FOLFIRNOX compared to gemcitabine monotherapy, but at a much higher toxicity level. Specifically, median overall survival for patients receiving FOLFIRNOX comes in at about 11 months compared to 6.8 months for patients taking gemcitabine. Nonetheless, only patients that are still in good physiological condition are candidates for FOLFIRNOX because of its severe side-affects.

When patients fail to respond to front-line therapies, however, there are few therapeutic options remaining. To be blunt, patients failing front-line treatment tend to show rapid deterioration, and care often becomes merely supportive at that point. Studies have shown that median survival with the best supportive care is about 2.4 months. As a grim illustration of this dire situation, I suggest readers take a look at this table comparing the median survival of patients participating in clinical trials for a host of second-line therapies.

In short, this is where drugs like MM-398 come into the picture, and could play an important role in the standard of care for advanced metastatic cancer. MM-398 is a nanolipsomal encapsulation of irinotecan, a topoisomerase I inhibitor currently used in the treatment of colon and rectal cancer. This nanoliposomal encapsulation helps to reduce the severe immunosuppression seen in the free form of the drug, which is critical in patients that are already extremely immunocompromised to begin with.

A Phase 2 study reported earlier this year that patients that had previously failed gemcitabine treatment exhibited a median survival of 5.2 months when being treated with MM-398. That's more than double compared to supportive care alone. Most impressively, 25% of the patients in the trial were still alive after 1 year.

Based on these promising mid-stage results, Merrimack decided to launch the current Phase 3 trial that began in November 2011. And yes, this is the very trial where results are being delayed because overall survival is occurring later than expected.

Ok, sounds good so far, but is a delay really a good sign?

All we know to date is that a blinded assessment of overall survival in the trial has been taking longer than expected. So what would they expect in terms of median overall survival at this point?

Frankly, it's hard to judge. The progression of pancreatic cancer is highly dependent upon demographic factors, and the median survival for second-line therapies seem to reflect this reality.

One of the most commonly cited studies for second-line therapies showed that a combo similar to what Merrimack is using in the control arm boosted median survival to 10 months. That said, this was one small study, and no confirmatory trials have been conducted. Furthermore, a number of other Phase II studies for second line therapies have reported no significant survival benefit, and researchers have therefore openly questioned the use of highly toxic therapies when a survival benefit is unclear (see table hyperlinked above). In effect, the clinical trial picture for expected median survival in such cases is rather muddy, making it impossible to get a good grip on what Merrimack is expecting at the current time.

My best guess is that they are referring to the average of the three arms, which would be 4.5 months. Interestingly, this is roughly the time period by which they delayed the readout. Not to say this is definitely the target, but it fits the bill in some respects.

So what do we know and what can we learn?

We know so far that there are no safety signals that would prohibit the drug's clinical trial from progressing. And we know that the control arm could be driving this trend, unfortunately. The problem is that second line studies have shown a wide range of results in terms of median survival. And this is why Merrimack's President cautioned investors against reading too much into the delay during a recent conference call.

So although I would love to speculate that MM-398 is providing these patients a clinically meaningful benefit and the stock is going to explode to the upside, that's not warranted quite yet.

Conclusions

The good news for investors is that there is a major void of viable second and third line therapies for pancreatic cancer available. In fact, there are only two FDA approved front-line therapies, which are projected to see sales of $1.2 billion by 2015. So if MM-398 can show any form of survival benefit, without a totally outrageous toxicity profile, I think the drug will get approved. As a second line therapy, I would expect peak sales of $300 million, which is roughly Merrimack's current market cap. As such, MM-398 does offer an intriguing risk to reward ratio, but I do caution investors against putting too much stock into the delay of the data release. There is no good way to read the tea leaves on this one, and speculation will have to remain, well, just speculation for the time being.

Disclosure: I am long MACK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.