Merrimack Pharmaceuticals: The Long Case

Summary

The NAPOLI trial for MM-398 in pancreatic cancer worked.

Gemcitabine-resistant pancreatic cancer is a huge unmet medical need.

Merrimack has a huge potential for growth.

Shareholders in Merrimack Pharmaceuticals have seen a volatile share price this week, following the release of top-line data from the NAPOLI trial of MM-398 in gemcitabine relapsing pancreatic cancer. Adding to the speculative fever is the large number of investors shorting Merrimack's shares, either in the belief that the company will fail/run out of money, or as part of a shorting strategy or convertible arbitrage following the capital raising last year. This has led to a large number of (usually anonymous) postings on investor boards emphasizing the negatives of the Merrimack story. In particular, a very well written article appeared on Seeking Alpha a few days ago (with a high quality discussion of the data appearing in the subsequent online comments). The following is not intended as a rebuttal to that article. The pleasure/agony of biotech investing is that we never have all the information we need in front of us so there will always be argument over the meaning of trial results, and speculation over FDA decisions etc. The short/long prism though which any results are viewed will inevitably influence interpretation of data. I merely intend to share my thoughts on Merrimack in the context of this week's results, without too much speculation (I hope).

1. Pancreatic cancer is a terrible disease with few therapeutic options

The miserable prognosis of this disease is well documented. Pancreatic cancer is the 9th most commonly diagnosed cancer. 46,420 new cases will be diagnosed in the USA this year alone (ASCO statistics). Numbers outside the USA are likely more than double this number. Survival with current therapies is extremely poor. 5 years after diagnosis, 77% of patients are dead if the cancer is limited to the pancreas at diagnosis, whereas 98.2% are dead 5 years after diagnosis of metastatic cancer (National Cancer Institute). Death rates have not fallen significantly over the last 10 years, with current therapy. This condition is therefore a clear unmet medical need.

The number of patients being diagnosed with this cancer is increasing, as it is a disease of old age (as are most cancers). This implies that pancreatic cancer sufferers will be more frail and have larger numbers of co-morbidities. This means that novel therapies have to be tolerable by potentially elderly patients.

2. The NAPOLI trial was a success

The NAPOLI trial of MM-398 in gemcitabine resistant pancreatic cancer reached one of its pre-specified endpoints. Overall survival was significantly increased in the MM-398/5FU group over controls. The endpoint was reached in this group. The MM-398 alone group did not show significance, however.

It's worth also noting that this trial is very large indeed for this condition (n=417), and international. This makes the evidence from this trial much more credible in the eyes of regulators, doctors and payers. There may also be some interesting subgroup analysis forthcoming in the future.

Clinical trials are the currency of medicine and drug regulation. Merrimack has a valuable asset in the result of the NAPOLI trial.

Also, it's worth re-emphasizing that this trial was in the most difficult group of patients to treat- those who had failed gemcitabine therapy. There is no agreed second line treatment. FOLFIRINOX is a regime that may have a place here, but there is very little concrete clinical trial evidence.

Clearly payment for a putative MM-398 based regime is an issue- how much the company will charge, and whether payers will pay are questions that we can't answer at this stage.

3. MM-398 isn't "just" a reformulation of irinotecan.

Irinotecan/5FU combination has previously failed in second line pancreatic cancer. The Nano liposomal encapsulation of Irinotecan in MM398 apparently leads to the drug being delivered into tumor cells by macrophages. This is a novel mechanism, and as such deserves attention.

This technology is novel, patent protected, wholly owned by Merrimack, and potentially applicable to other drugs. One could say that the technology has been validated by these trial results.

4. We don't have all the information yet

This is the most important point. We only have the headlines here. Speculation has filled the void between the headline data and the full results, which are due in June. We know that one arm of the trial worked, and that the side effect profile was acceptable. That's it for certain.

The early MM-398 trials showed that a small but appreciable group of patients survive a long time on this regime. This would not necessarily show up in the headline data we have been given. It would be very exciting if this were the case - especially if the diagnostic being developed by MACK can identify this population (although I should say that this is speculation). We will have to wait for the ESMO meeting in Barcelona in June for the whole story.

5. MM398 vs. FOLFI

Recently, in a number of relatively small trials, the FOLFIRINOX regime has been found to be effective in second line (gemcitabine unresponsive) pancreatic cancer, leading some commentators to speculate that this regime could be a first-line treatment. Other commentators, however, noted that the toxicity of the FOLFIRINOX regime was significant, and in many cases the doses needed to be reduced, potentially resulting in lower anti-tumour activity; "The major disadvantage of [FOLFIRINOX] is increased toxicity, limiting its use to young patients with no comorbidities." Of course, most pancreatic cancer patients are not young, and many have comorbidities. Two important points here;

  • To my eye, the really striking information in the MACK press release was the low side effect rate of MM-398. This is likely to be very important in this condition, as patients are in general old and have other medical conditions, limiting their ability to tolerate extreme regimes.
  • MM-398 + 5FU and FOLFIRINOX are not entirely dissimilar regimes. The obvious follow-on from this is that if FOLFIRINOX is a potential first-line therapy for pancreatic cancer disease, then MM398+5FU could be too. The company is apparently thinking about this. They have the advantage of a large, robust clinical trial to back this up, and an international network of centres and investigators (not to be underestimated how valuable this is for ongoing cancer trials).

Clearly the roles of FOLFIRINOX and MM-398/5FU have not been defined yet. The full MM-398 dataset may go some way to clarifying this issue. Again, I think that tolerability of the regime is going to be an important factor (especially when thinking about hospital readmissions with sepsis etc.).

6. MM398 isn't just a "pancreatic cancer drug"

Like the vast majority of cancer chemotherapy drugs, MM-398 can potentially be used in more than one type of cancer. So even if the pancreatic cancer market is significant, there may be other diseases amenable to this treatment. The company is certainly looking for other opportunities, to judge by recent presentations.

7. Other drugs could be reformulated using the Nano liposomal technology.

This technology is owned my Merrimack. I imagine that this is a potentially significant partnering opportunity. There are certainly some very interesting follow-ons from this part of the MACK pipeline.

8. The main potential value of Merrimack still resides in the network biology platform

Over the last week, we have all been thinking about and discussing MM-398. However, Merrimack's main value proposition comes from MM-121 and its follow-on pipeline. We will all read the full details of the MM-121 lung, pancreatic and breast cancer results at ASCO. There are many "shots on goal" for this drug-clinicaltrials.gov lists 9 MM-121 trials, all of which are being funded by Sanofi. We also await a decision from Sanofi whether/when to start phase III trial(s) for MM-121. This will come with a significant milestone payment if trials proceed. We already have some data that MM-121 is effective in some cancers, and we are awaiting the completion of all phase II trials, apparently, before Sanofi makes an announcement. There is clearly a risk that Sanofi will not progress MM-121 into phase III, but I deem this low probability (and if they don't progress MM-121, there will be other Big Pharma takers).

9. The market has discounted the potential income from generic DOXIL.

Merrimack signed a deal with Actavis to manufacture generic liposomal doxorubicin (Doxil). This is a potentially multi-hundred million-dollar drug, for which Merrimack will receive a double-digit royalty. It has been confirmed by the company that this deal is cost neutral for Merrimack, and involved no ceding of IP to Actavis. The issue is that we do not have any specific data about how much/when, so this is difficult to factor into a share price.

The bearish case

Of course there is an argument against investing in this company, as there is for any biotech company. This bearish case has a large number of vocal proponents, as there are a large number of MACK shorts. Anonymous message boards create an opportunity for "bashing" of the company, to create a negative narrative, and increase the levels of nervousness in unsure investors.

1. The main argument is always that "the trial will not work." This has proved not to be the case for MM-398.

2. "The clinical trial endpoints aren't significant, so the FDA will never license MM398;" it is worthwhile pointing out that the endpoints for the NAPOLI trial were agreed in advance by the FDA (as all drug trials are for registration trials). This implies that the FDA thinks that this is a clinically significant endpoint (but of course does not guarantee it!). The hazard ratio of the NAPOLI trial (0.67) falls in the middle of recently posted ASCO guidelines for treating first line pancreatic cancer (range of 0.6-0.75), so it's likely that the oncology community will see this as clinically meaningful. Remember that this is an area of unmet medical need, which resulted in MM-398 being granted orphan status. We wait to see if the FDA will grant rapid-track consideration.

3. "There are lots of potential competitor drugs for MM-398;" there are indeed lots of drugs that have been used in gemcitabine resistant pancreatic cancer. However, the evidence for these therapies is sketchy at best. MM-398 has a high quality prospective trial data from a large number of patients. This is the information used by doctors, regulators and payers when they make decisions.

4. "The company will issue more shares;" since the frankly calamitous capital raising of last year, the share price of MACK has been under the cloud that the financing runway only lasts until late-2015. The company has repeatedly stated that they are planning to raise capital via business development rather than issuing shares. There are certainly many potential opportunities - most notably the rights to market MM-398 outside the USA. We await Sanofi's MM-121 decision, which, if positive, will have a milestone payment attached.

However, we will all have to wait here.

I remain long MACK. I think that MM-398 is a potentially significant commercial opportunity, and the NAPOLI trial has significantly de-risked this investment as it offers obvious commercial partnership opportunities. MM-398 certainly has a chance to improve patient treatment in pancreatic cancer (which itself is a big deal). We don't know all the results of the NAPOLI clinical trial yet - I think these may be very interesting. To my mind the long-term value proposition of MACK actually resides in the antibody pipeline, and we all await the ASCO MM-121 full dataset release to assess this fully. Therapeutic antibodies tend to have a higher rate of success in the clinic than small molecules, so MACK's long pipeline of antibodies is potentially significant. Certainly, at a market capital of under $1bn, MACK seems undervalued.

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.