Merrimack Pharmaceuticals (MACK) has gone up at least 80% in November. Despite this, the stock is down year to date by 24%. The reason for the drop in share price had to do with a couple of trial results. So what catalyst will cause the share price in the coming months to go up 100% from its current share price? We believe that MM-398, which is currently in Phase III testing for pancreatic cancer, has the chance to redeem Merrimack as a sustainable biotechnology company.
MM-121 Phase II Trial Results (Signaling Inhibitors)
For starters, MM-121 was being developed for patients with metastatic ER/PR+ HER2-negative breast cancer. There were two studies created for the purpose of testing efficacy of the compounds in relation to two different types of placebo drugs vs. two different types of breast cancer patient groups. The first Phase II study was testing MM-121, an Erb3-signaling monoclonal antibody in combination with Exemestane. Exemestane is known on the market as Aromasin, which had been developed by Pfizer (PFE) to treat patients with advanced breast cancer. The study showed that a certain sub-population (31% of the patients) was able to achieve a hazard ratio (HR) of 0.32. The overall group ended with an HR progression-free survival (PFS) of 0.75, which had failed to meet the primary endpoint of the study HR of 0.5. In order for the trial to have met its primary endpoint, the HR needed to be below 0.5. The higher HR PFS signifies a greater population death rate.
The second Phase II study was testing MM-121, an Erb3-signaling monoclonal antibody in combination with Paclitaxel -- made by Abraxis Bioscience, which is a subsidiary of Celgene (CELG) -- in Neoadjuvant ER/PR+ HER2-negative breast cancer. This trial was a little more advanced because patients were put on more drug regimens than the other Phase II study. The other study tested MM-121 in combination with Exemestane. This trial had MM-121 in combination with paclitaxel followed by two other compounds drugdoxorubcin-cyclophosphamide, respectively, while the control group had paclitaxel alone with doxorubcin and cyclophosphamide. This time, though, the trial was assessing the pathologic complete response (pCR) rate. This rate measures the absence of cancer in the breast tissue, and is an indicator for PFS survival for these patients. MM-121 in combination with paclitaxel was able to achieve a pCR rate of 10.8%, vs. the placebo arm only achieving a 3.3% pCR rate. Which seems good in essence, but the problem is that this study did not set a quantifiable primary endpoint. Merrimack has stated that the company intends to perform biopsies in the future to determine the efficacy of this drug.
Prior to this double study of MM-121 targeting breast cancer, Merrimack reported a failed Phase II trial in patients with ovarian cancer. What went wrong with this trial was that MM-121 -- in combination with Taxol (another name for Paclitaxel) -- was unable to achieve the primary endpoint for the study. MM-121 reported an HR PFS of 1.0, which was way above the required primary endpoint. All of these signaling inhibitors missed their primary endpoints, but were still able to reach a biomarker analysis that merits further investigation in the sub-population groups. What brings hope for the company, though, are not these trials but rather what lies ahead for MM-398 data.
Partnership With Sanofi (SNY)
The key item to note about MM-121 is that Merrimack had made a deal with Sanofi to co-develop the drug compound. The deal was made back on Oct. 1, 2009, and allowed Merrimack to obtain an upfront payment of $60 million. Under the terms of the deal, Sanofi would pay for all development costs plus another $470 million in potential milestone payments. Sanofi's CEO had a strategy to shift the focus of the company five years ago by creating a bigger oncology program pipeline. Unfortunately, Sanofi was met with a lot of trouble along the way with a couple of trial failures in its oncology pipeline.
Sanofi recently had a failure in one of its JAK2 drugs known as fedratinib. This is because the FDA put a clinical hold on the drug since patients were reported to have developed Wernicke's encephalopothy. Wernicke's encephalopothy is a neurological condition in which patients develop brain lesions. Fedratinib was being developed for patients with myelofibrosis (bone marrow disorder). Fedratinib was under investigation in seven clinical trials that all had to be discontinued. This setback was not good at all for Sanofi, as its oncology platform dropped off a bit more.
Trial failures had occurred even before the JAK2 fedratinib drug debacle. Another cancer drug that had failed for Sanofi was iniparib, which was being developed for patients with lung cancer. This trial failed in June 2013 and was another big loss for Sanofi's clinical oncology program. After this trial failure, Sanofi had to take a $285 million one-time charge.
Going forward, Merrimack proposes to keep both MM-121 clinical trial programs going. This is a good decision because, as we have explained above, there was a certain subset group of the population that had responded to certain biomarkers. Also, the other trial is waiting on results from biopsies, so it is a good idea to see the end results. Merrimack wants to continue on with the MM-121 trials, so it will meet up with Sanofi to discuss the details to see if the continuation of these trials are still in play.
A nanotherapeutic compound known as MM-398 is currently in a Phase III clinical trial treating patients with metastatic pancreatic cancer. MM-398 consists of a chemotherapeutic agent irinotecan that is encapsulated in a liposome. Merrimack ran a single-arm Phase II study in late-stage pancreatic cancer patients to determine the efficacy of the compound. Prior to patients entering the study with MM-398, though, they went through one round of gemcitabine (standard of care).
Merrimack came out with positive Phase II results for MM-398, citing that the single-arm study met its primary endpoint with 75% of patients surviving for at least three months. Even more impressive, 25% of the patients were able to reach the one-year mark in survival. These results are remarkable for patients with late-stage pancreatic cancer. In a quote, Eliel Bayever describes the outstanding results with MM-398:
'We are pleased that this study, which suggests promising results against a difficult-to-treat cancer, has been published in the respected peer-reviewed British Journal of Cancer,' said Eliel Bayever, M.D., vice president and medical director of MM-398. 'This study laid the groundwork for our subsequent, ongoing Phase III study of nanoliposomal irinotecan sucrosofate in the same patient population.'
As mentioned above, these results lead the way to keep the same patient population, allowing a greater chance for the Phase III trial to succeed in clinical efficacy. What should also be noticed in the above quote is that these results were published in the peer-reviewed British Journal of Cancer. The reason why the publishing of the MM-398 results in a peer-reviewed medical journal is substantial is because it is reviewed by a group of healthcare professionals who treat pancreatic cancer patients daily. It is always a plus to receive praise from a collective group of professionals in a certain field.
Recently, Merrimack had gone up as much as 38% on Nov. 7 because of an update in the pipeline on MM-398. The company had been expecting to originally announce results for MM-398 around the fourth quarter of 2013, or at the latest in the first quarter of 2014. What caused such a huge surge in the share price was the fact that management had pushed up the results all the way up to Q2 2014. The results for Phase III MM-398 haven't been shown yet, but in our analysis this can conclude that patients are achieving greater overall survival. Management cites that the overall survival is being finished later than anticipated, so this may bode well for the final results.
As of Sept. 30, 2013, Merrimack has cash and cash equivalents of $182.5 million, according to the 8-K filing. With the Sanofi collaboration agreement and the cash on hand, the company expects to be able to operate its business operations all the way into 2015. Although, as of right now, it all depends on the results for MM-398. Positive results for MM-398 would be met with increased expenses, as the company would have to go forward with commercialization plans for the compound. As the company explains in the 8-k it may be able to form a collaboration agreement so that it may offset the expenses to be incurred. We believe that with significant Phase III MM-398 results in the NAPOLI-1 trial, Merrimack should have no problem finding a partner to commercialize the drug compound. The company had reported a net loss of $39.6 million for the quarter due to increased expenses from both the MM-121 trials, and the MM-398 trial.
As mentioned in the financials section above, a possible collaboration agreement would be achieved only under the pretense of positive results for the NAPOLI-1 study of MM-398. There is a chance for the trial to fail even with the results being pushed up into the second quarter of 2014. In the event that the Phase III trial fails, then all hopes for a collaboration agreement will be gone. This will leave Merrimack with a lot of expenses on hand. The increased expenses along with no collaboration agreement will leave the company forced to dilute shareholders for more money to pay for trials.
But with positive results, there is still no guarantee that Merrimack will find a partner in time. Thus it will have to dilute shareholders anyways to pay for continuing operations. So please keep in mind that either way there is that risk of dilution in play. Even with positive results, and eventual commercialization of MM-398, Merrimack may face competition from Celgene's Abraxane. Abraxane was approved for late-stage pancreatic cancer on Sept. 6, 2013. Abraxane works by interfering with the division of cancerous cells. The blocking of the cancerous cells division leads to less cancerous cells in the body. This allows patients to live longer than anticipated. Merrimack will have to achieve superior results in order to compete against Abraxane, which is currently out on the market.
Investors have the opportunity to see an increase of 100% in Merrimack's share price upon the release of positive Phase III MM-398 results in Q2 2014. We believe that investors should get in as soon as possible because there may be the ability for the share price to appreciate before the release of the MM-398 result. Speculative biotechnology stocks like this tend to run up in anticipation of positive results. While there may still be an opportunity for MM-121 as a novel compound in a certain subset of patients, MM-398 is the value driver of the company going forward. The results for the MM-398 compound will be the determining factor in whether or not Merrimack can sustain itself as a biotechnology company going forward.