Here's Why Merrimack Pharmaceuticals Tumbled 18.4% Today

By Maxx

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What happened

Shares of biopharma Merrimack Pharmaceuticals (NASDAQ: MACK) dropped 18.4% today after the company announced that it was stopping a phase 2 trial of a drug aimed at HER2-positive breast cancer. A panel of independent investigators determined that although the drug was safe, it was unlikely to outperform drugs already on the market for the same indication.

So what

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Deciding not to pursue the development of a drug is never great news for the growth prospects of a young biopharma. It hurts a little more when a drug candidate is in the middle of a phase 2 trial. Thus, Merrimack Pharmaceuticals took an unsurprising hit for the news. Some young biopharmas continue drug development even when a treatment is unlikely to be approved or to be competitive on the market. The company is not quite so desperate, thanks in large part to having a drug already on the market.

Although it was absolutely the right move and will conserve cash and refocus efforts on more productive goals, it may not be enough.Its long-term CEO stepped down unexpectedly in October and analysts have questioned the viability of the company's current pipeline. That prompted a 20% workforce reduction to preserve cash and a strategic review of the pipeline, which is due to be released to investors next month.

Now what

Making matters worse, despite a successful drug launch, Merrimack Pharmaceuticals has struggled to detox its balance sheet. Cash on hand is quickly disappearing while the debt-to-assets ratio has begun to balloon. Without major changes -- and quickly -- this company could continue to struggle.

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Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitterto keep up with developments in engineered biology and materials science.

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