Merrimack Pharmaceuticals (MACK) - Ipsen/Onivyde Pipeline Update

Further to our previous coverage of MACK, this is a quick update blog to note that the trials for Onivyde by Ipsen for both pancreatic cancer and SSLC have advanced to Phase III. Below are Ipsen's pipeline flow charts from both the end of July 2019 (included in our blog post of that date, which can be found here) and currently (see source here):

Thus MACK shareholders are one step closer to receiving the CVR payouts for each of these trials (assuming they result in FDA approvals for either of the indications). Per one study regarding the 2006-2015 time period, drugs that advanced to Phase III studies had a 50% chance (58.1% X 85.3%) of receiving FDA approval (see source here), although the chances for Onivyde arguably should be a bit higher since the drug received approval back in 2015 for second-line treatment of pancreatic cancer (see here):

As a reminder, the payouts upon approval for Onivyde are as follows:

• $225 million for U.S. Food and Drug Administration (“FDA”) approval in first-line pancreatic cancer; • $150 million for FDA approval in small cell lung cancer (SSLC); and • $75 million for FDA approval in any third indication.

If we accept that there is a 50% probability that the first two of these payouts are received by MACK, then logically these should be worth $187.5 million on an undiscounted basis for MACK shareholders (375 million X 50%), or $14/share based on 13.363 million shares outstanding as of November 8, 2019 (per MACK's most recent 10-Q filing). Compare this to MACK's $3.85/share closing price as of December 13, 2019--quite a disconnect. Note that the $14/share figure does not give any value to (1) any other Onivyde approvals that might be obtained down the line, or (2) the potential $54.5 million in CVR payments pursuant to the 14ner Oncology asset sale which closed in July 2019 (see pages 6-7 of the 10-Q filing).

DISCLOSURE: Long MACK.