Merrimack Falls For $1bn Oncology Offer From Ipsen

If not a match made in heaven, Ipsen’s (OTC:IPSEF) (OTCPK:IPSEY) $575m up-front deal to acquire Merrimack Pharmaceuticals’ (NASDAQ:MACK) oncology business is a marriage of convenience on both sides. In return for a much-needed cash injection the struggling groom, Merrimack, gives its French bride an easier way into the US oncology market – complete with sales force, manufacturing facilities, and the slightly dull family silver in the form of pancreatic cancer drug Onivyde.

Gaining a US-approved oncology product, and more importantly, the infrastructure around it, also helps Ipsen rebalance a portfolio where its primary care operations have underperformed, creating a drag on the speciality pharma business.

Turning point

The deal also represents some good news for Merrimack investors, who have recently seen their shares fall close to historic lows after a slew of bad news. Most recently, Merrimack announced the discontinuation of its Phase II Hermione study of MM-302 in Her2-positive metastatic breast cancer after a futility analysis.

Earlier in October, the group introduced a restructuring program that saw it swing the axe on almost a quarter of its staff, implement a $200m cost-cutting plan, and announce the exit of its Chief Executive Robert Mulroy.

Alongside the October strategy change, the group also announced a refocusing of the portfolio on biologic-based oncology products, in an attempt to bolster the pipeline in the wake of disappointing sales of its lead product, Onivyde.

Slow burner to back burner

Onivyde was originally approved in late 2015 for metastatic pancreatic cancer, but its sales have underwhelmed, chalking up just $14.5m in the third quarter. With its chunky offer, Ipsen, and its new Chief Executive David Meek, must believe that the French group can make a better fist of selling the product.

But given Onivyde’s less-than-impressive data in improving overall survival, this is going to be hard, even for a new and enthusiastic management team. According to EvaluatePharma consensus of banks covering Merrimack, Onivyde is forecast to have sales of $619m by 2022, though Oddo analysts, covering Ipsen, put the drug's peak sales at a mere €200m ($211m).

As such, and given that Merrimack’s market cap is $467m, this deal appears to be mostly about a low-risk way for Ipsen to enter the US oncology market, complete with sales force and manufacturing capacity. Both will help it with its own oncology ambitions, including bolstering sales of Somatuline.

Friends with benefits

Additionally, the agreement gives the French company a new partner – Shire (NASDAQ:SHPG), which has some ex-US rights to Onivyde. As one of the industry’s fastest-growing businesses, Ipsen is bound to welcome the new company it is in.

As for Merrimack, today’s deal holds the promise of a further $450m in regulatory and sales milestones, and will give it the funds needed to continue refocusing itself as a streamlined oncology player and develop three new products. It has been reported that $125m of the money from the deal will be set aside to develop MM-121 in non-small cell lung cancer, MM-141 for metastatic pancreatic cancer and the antibody-directed nanotherapy MM-310.

While no one might have picked the two companies to hook up, some very happy relationships are built on less than the mutual benefits these two have identified.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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