Merrimack Pharmaceuticals' Stock Tanked in July: Is It Now a Buy?

What: Shares of the clinical-stage biopharma Merrimack Pharmaceuticals shed 16.5% of their value over the course of July. Although the company is developing a host of experimental cancer treatments based on their systems biology platform, its most important value driver at the moment is the experimental advanced pancreatic cancer drug MM-398 (irinotecan liposome injection). Per its most advanced clinical trial data, MM-398 is targeting patients withmetastatic adenocarcinoma of the pancreas who have been previously treated with gemcitabine-based therapy.

Last year, Merrimack reported that MM-398 increased survival in this patient population by 1.9 months on average, in a pivotal late-stage study,when combined with 5-fluorouracil and leucovorin, compared to those receiving5-FU and leucovorin alone. These results subsequently led to an ex-U.S. licensing deal with Baxter International, with Baxter gainingexclusive commercialization rights for all potential indications of the experimental cancer drug outsidethe United StatesandTaiwan.

So what: This marked decline in share price is interesting because the biopharma essentially maintained radio silence in July, and MM-398's regulatory applications in both the U.S. and EU are progressing nicely. Specifically, the U.S. Food and Drug Administration granted the drug Priority Review, setting a target review date of October 24 of this year. And the European Medicines Agency also accepted MM-398's Marketing Authorization Application for review.

Now what: The sell-off in Merrimack last month therefore appears to be mainly the result of the marketwide turbulence caused by the Greek financial crisis that clobbered developmental biopharmas in general, combined with the stock's sky-high short interest. At last count, for instance, the stock's short float stood at a noteworthy 20.8%.

Another potential contributing factor, though, might be the company's limited cash runway. Per Merrimack's last update, management believed that its cash on hand, and forthcoming milestone payments via the Baxter deal, gave it only enough cash to continue operations until the first half of 2016. Investors should get an updated financial outlook at the company's second-quarter earnings call scheduled for August 10.

Despite this double-digit drop, Merrimack's shares don't come across, to me, as a screaming buy. MM-398's commercial potential is murky to say the least due to the lack of comparable drugs on the market. Analysts think the drug could see peak sales of $700 million as a later-line treatment in pancreatic cancer, but there's no way of telling how well it will perform until it is actually on the market -- again, because of the dearth of advanced pancreatic cancer drugs that could act as a rough road map for investors.

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