Description

Thesis

MACK is a special situation with the opportunity to earn a ~25% return over the next ~9 months with little risk. MACK is a shell company with no employees or operations that owns a contingent milestone payment on Onivyde (a drug it sold to French Pharmaceutical company Ipsen in 2017) if it obtains FDA approval for treatment of metastatic pancreatic ductal adenocarcinoma (mPDAC) – an aggressive malignancy with a median overall survival of only 8 to 11 months. After presenting very robust phase III data on the efficacy and safety of Onivyde for the treatment of mPDAC in November last year and January this year, Ipsen has indicated it will file a new drug application for Onivyde by the end of this quarter. Onivyde has fast track designation from the FDA for its treatment of mPDAC and Ipsen is therefore likely to receive priority review of Onivyde’s application. Based on the phase III data, FDA approval of Onivyde for treatment of PDAC is mostly perfunctory. Upon approval by the FDA of Onivyde for the treatment of mPDAC, MACK is entitled to a $225mm cash payment from Ipsen (~$15/share) which should be almost entirely shielded by MACK’s net operating losses. MACK has some other contingent milestone payment assets (we assume these are worthless) and net cash of ~$1.30 per share implying that shares should trade around $16/share once the milestone payment is received – likely in early 2024. MACK is controlled by a financially sophisticated board that owns almost 29% of the stock, limiting the risk of the company doing something stupid with the proceeds from the Ipsen payment. MACK plans to return this windfall cash to shareholders through special dividends fairly quickly after receipt of the milestone payment. MACK shares currently trade at ~$12.50/share.

Overview

MACK is a non-operational biopharmaceutical company that is entitled to receive up to $450 million in contingent milestone payments related to its sale of Onivyde and MM-436 to French pharmaceutical company Ipsen in April 2017. The company does not have any employees (it fired all of them in 2019) and uses external consultants for the operation of the company. Almost all of the company’s expenses are director fees, audit fees, and other associated costs with being a public company.  

The $450.0 million in contingent milestone payments resulting from the Ipsen Sale consist of:

•$225.0 million upon approval by the U.S. Food and Drug Administration (“FDA”) of ONIVYDE® for the first-line treatment of metastatic adenocarcinoma of the pancreas (“mPDAC”), subject to certain conditions;

•$150.0 million upon approval by the FDA of ONIVYDE® for the treatment of small-cell lung cancer after failure of first-line chemotherapy; and

•$75.0 million upon approval by the FDA of ONIVYDE® for an additional indication unrelated to those described above.

Of these 3 contingent payments the only one that is likely to pay off is the one for mPDAC.

Ipsen’s trial studying Onivyde for use in the treatment of small-cell lung cancer after failure of first line chemotherapy failed to meet its primary endpoint of overall survival though a doubling of the secondary endpoint of objective response was observed. So far Ipsen has not communicated whether or not it will conduct any more trials on the use of Onivyde for the treatment of small cell lung cancer after the failure of first line chemotherapy and we assume this contingent payment is worthless.. 

In August 2022, Ipsen announced that the Phase III RESILIENT trial did not meet its primary endpoint of overall survival compared to topotecan. The trial is evaluating Onivyde® (irinotecan liposomal injection) versus topotecan in patients with small cell lung cancer, who have progressed on or after platinum-based first-line therapy treatment. RESILIENT is a Phase III trial conducted in two parts; the first part read out in 2020 confirming the safety, dosing and efficacy of Onivyde; part two is evaluating the efficacy of Onivyde versus topotecan. In the announcement, Ipsen indicated that detailed results from the RESILIENT trial will be presented at an upcoming medical conference.  The analysis concluded that the primary endpoint overall survival was not met in patients treated with Onivyde versus topotecan. However, a doubling of the secondary endpoint of objective response rate in favor of Onivyde was observed. The safety and tolerability of Onivyde was consistent with its already-known safety profile, and no new safety concerns emerged. In the August 2022 announcement, Ipsen reported that the clinical study results will be communicated with the regulatory agency. Ipsen indicated that while the results from the analysis of the RESILIENT trial have not demonstrated an overall survival benefit with Onivyde in patients in second-line small cell lung cancer, it intends to analyze the data further before decisions regarding next steps are made. To date, there have been no further public announcements by Ipsen regarding these matters and it remains unclear as to whether Ipsen will continue to seek approval for the use of ONIVYDE in the small cell lung cancer application.  If Ipsen elects not to proceed with seeking regulatory approval, or if regulatory approval is not obtained, we would not be entitled to the $150 million milestone payment tied to approval of Onivyde for treating small cell lung cancer.

Source: 10-K

Ipsen has not studied the use of Onivyde in other unrelated indications making it most likely that the $75 million contingent payment is also worthless.

MACK has some other contingent payment assets but these are also unlikely to have any material value

On July 12, 2019, the Company completed the sale to Elevation Oncology, Inc. (formerly known as 14ner Oncology, Inc.) (“Elevation”) of its anti-HER3 antibody programs, MM-121 (seribantumab) and MM-111 (the “Elevation Sale”). In connection with the Elevation Sale, the Company received an upfront cash payment of $3.5 million. The Company is also eligible to receive up to $54.5 million in additional potential development, regulatory approval and commercial-based milestone payments, consisting of:

•$3.0 million for achievement of the primary endpoint in the first registrational clinical study of either MM-121 or MM-111;

•Up to $16.5 million in total payments for the achievement of various regulatory approval and reimbursement-based milestones in the United States, Europe and Japan; and

•Up to $35.0 million in total payments for achieving various cumulative worldwide net sales targets between $100.0 million and $300.0 million for MM-121 and MM-111.

In January 2023, Elevation announced it is pausing further investment in the clinical development of seribantumab and intends to pursue further development only in collaboration with a partner. On March 14, 2023, Elevation Oncology announced that it would be presenting two posters on NRG1 fusions, including updated data from the Phase 2 CRESTONE study evaluating seribantumab in patients with solid tumors harboring NRG1 fusions at the American Association for Cancer Research (AACR) Annual Meeting 2023, held April 14-19, 2023.

On March 27, 2020, we entered into an Asset Purchase Agreement (the “Celator Asset Purchase Agreement”) with Celator Pharmaceuticals, Inc. (the “Buyer”), pursuant to which the Buyer agreed to purchase certain assets (the “Transferred Assets”) relating to certain of our preclinical nanoliposome programs (the “Transaction”). We completed the Transaction simultaneously with the execution of the Celator Asset Purchase Agreement. Under the terms of the Celator Asset Purchase Agreement, the Buyer paid to us a cash payment of $2.3 million and reimbursed us for $0.2 million related to certain specified expenses and to assume certain liabilities with respect to the Transferred Assets. We incurred $0.4 million expenses related to the Transaction.

On September 15, 2021, we entered into an Asset Purchase Option Agreement (the “Asset Purchase Option Agreement”) with a third party, pursuant to which the third party obtained an exclusive option, to purchase one of our preclinical programs with a consideration of $0.5 million. Under the terms of the Asset Purchase Option Agreement, the third party paid to us the option fee of $0.1 million.. On March 1, 2022,  the third party exercised the option and we received consideration of $0.5 million and a gain of $0.5 million was recognized in March 2022.

On January 23, 2023, we entered into an Asset Purchase Option Agreement (the “Option Agreement”) with a third party (the “Purchaser”), pursuant to which the Purchaser agreed to obtain an exclusive option (the “Option”) to purchase one of the Company’s preclinical programs with a consideration of $700 thousand. Under the terms of the Option Agreement, the Purchaser paid to us the Option fee of $150 thousand and we incurred transaction cost of $11 thousand. A net gain of $139 thousand was recognized in January 2023. The Purchaser may exercise the Option prior to July 23, 2023.

Source: 10-K

Onivyde for treatment of mPDAC

In November 2022, Ipsen announced the Phase III NAPOLI 3 trial of Onivyde met its primary endpoint demonstrating clinically meaningful and statistically significant improvement in overall survival compared to nab-paclitaxel plus gemcitabine in 770 previously untreated patients with mPDAC and key secondary efficacy outcome of progression free survival also showed significant improvement over the comparator arm. Ipsen also announced that the safety profile of Onivyde in the NAPOLI 3 trial was consistent with those observed in the previous phase I/II mPDAC study.

In the trial, Onivyde demonstrated a statistically significant 17% improvement in median overall survival at 11.1 months vs. 9.2 months for nab-paclitaxel plus gemcitabine. On the secondary endpoint of Progression-Free survival Onivyde achieved a statistically significant 31% improvement of 7.4 months vs. 5.6 months – 1 month longer than FOLFIRINOX the current standard of care. In terms of safety, the Onivyde regimen (NALIRIFOX) appears better than both nab-paclitaxel plus gemcitabine and FOLFIRINOX offset by higher rates of diarrhea.

Source: Barclays

Source: JP Morgan

In its earnings release and conference call, Ipsen reiterated plans to file an NDA for Onivyde in mPDAC by the end of H1 2023. Onivyde was granted Fast Track Determination for treatment of mPDAC in 2020.

On its Q1 2023 earnings call on April 27th, Ipsen stated: “On the pipeline, Phase III Onivyde rial data in first-line pancreatic ductal adenocarcinoma were presented at ASCO GI in San Francisco. And following regulatory submission in H1 this year, we look forward to communicating on filing acceptance.”

Balance sheet

At 3/31 MACK had cash of $19.4 million. This cash is mostly invested in money market funds earning a yield a little under 4%. The company has no debt. 

As of 3/31 MACK had Mack has 14,260,104 shares outstanding and an additional 695k stock options outstanding ($12.38/share weighted average exercise price.) For the purposes of this write up we assume all those stock options will end up in the money and be exercised implying a total share count of ~14.955 million. 

Since the start of 2020, the average quarterly operating cash burn has been ~$533k.

MACK has $215 million of Federal NOLs and $300.4 million of state NOLs. The company also has $122.7 million of Federal Orphan Drug Credits. The NOLs and orphan drug credits should shield most/all of the tax obligation on the milestone payment though MACK will be subject to 453A payments (interest on the deferred corporate tax) which can’t be shielded by NOLs.

As of December 31, 2022, we had net operating loss carryforwards for federal and state income tax purposes of $215.0 million and $300.4 million, respectively. Our existing federal and state net operating loss carryforwards begin to expire in 2033. We also had available research and development credits for federal and state income tax purposes of approximately $28.7 million and $20.3 million, respectively. The federal and state research and development credits will begin to expire in 2022 and 2025, respectively. We also had federal Orphan Drug Credits of approximately $122.7 million that begin to expire in 2031. These net operating loss and tax credit carryforwards could expire unused or could be unavailable to offset our future income tax liabilities. Under federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to this change in federal tax laws. If our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. In addition, the Ipsen sale was an installment sale given the potential milestone payments that could be received by us in future years. If we receive milestone payments in future years pursuant to the Ipsen sale, we will be liable for interest to the federal government pursuant to Internal Revenue Code section 453A and state governments pursuant to similar state tax provisions because it was an installment sale. The interest is compounding and is calculated based on the number of years between 2017 and the year the milestone payment is received by us. Any interest charges cannot be offset by net operating loss carryforwards or tax credits.

Source: 10-K

Putting this altogether, MACK should have net cash of around $15.88 per share after receipt of the milestone payment from Ipsen which we estimate will occur in the first quarter of 2024 (assumes a filing in late June, FDA acceptance of the filing in July and a pdufa date 6 months from the date of FDA acceptance.) 

Insider Buying

Insiders have been consistently buying MACK’s stock personally or through the funds they control since the company’s strategy shift in 2019. Insiders have continued to buy since the positive Onivyde data for treatment of mPDAC came out in November 2022.

MACK has a concentrated shareholder base with the top 10 shareholders owning 48% of the stock. 

MACK’s board of directors is populated mostly by investment professionals 2 of which are the principals of MACK’s 2 largest shareholders. Collectively the board owns 28.87% of the equity.

Gary L. Crocker has served as a member of our board of directors since 2004, as Chairman of the Board since 2005 and as President and Treasurer since June 2019. Mr. Crocker also served as our Interim President and Chief Executive Officer from October 2016 to February 2017 and was responsible for the negotiation of the sale of ONIVYDE to Ipsen S.A. Since 2002, Mr. Crocker has served as President and Managing Director of Crocker Ventures, LLC, a privately-held life science investment firm funding differentiated biotechnology and medical device companies. Mr. Crocker has held senior executive positions or served on the board of directors of several life science companies, including as Chairman of the Board of ARUP Laboratories, co-founder and director of Theratech, Inc. (acquired by Actavis plc) and President, Chief Executive Officer and founder of Research Medical, Inc. (acquired by Baxter International). Mr. Crocker also served on the boards of directors of the publicly traded firms Interleuken Genetics, Inc. and The Med-Design Corporation. Mr. Crocker served as a member of the board of the Federal Reserve Branch of San Francisco from 1999 to 2007, and currently serves as the Chairman of the University of Utah’s Center for Medical Innovation and on the board of the Sorenson Legacy Foundation and as Chairman of the Board of Nexus Spine. Mr. Crocker holds an M.B.A. from Harvard Business School and a B.S. from Harvard College. We believe that Mr. Crocker is qualified to serve on our board of directors due to his experience in the life sciences industry as an entrepreneur, venture capitalist and executive and his service on the boards of directors of a range of public and private companies and government institutions, as well as his ability to provide us with his expertise in diagnostics and therapeutic development.

Eric D. Andersen has served as a member of our board of directors since September 2019. Mr. Andersen has been a managing member/portfolio manager at Western Standard, LLC, an investment firm, since June 2008. Prior to that, Mr. Andersen served as an analyst at Ivory Capital and JCK Partners, both investment firms, from 2006 to 2008 and 2004 to 2006, respectively; an associate in the private equity group at J.P. Morgan Partners, LLC from 2002 to 2004; and an analyst, mergers and acquisitions, at The Blackstone Group, an investment firm, from 2000 to 2002. Mr. Andersen holds a B.A. from Dartmouth College and is a CFA Charterholder. We believe Mr. Andersen is qualified to serve on our board of directors due to his investment management experience and strong financial and business acumen.

Noah G. Levy has served as a member of our board of directors since September 2019. Mr. Levy has been a managing member and portfolio manager at Newtyn Management, LLC, an investment firm, since June 2011. Prior to that, Mr. Levy served as a senior member at Tyndall Management, LLC, an investment firm, from 2002 to 2011, and as an analyst at Goldman Sachs, an investment bank and financial services company, from 2000 to 2002. Mr. Levy holds a B.A. from Dartmouth College. We believe Mr. Levy is qualified to serve on our board of directors due to his investment management experience and strong financial and business acumen.

Ulrik B. Nielsen, Ph.D. has served as a member of our board of directors since January 2015 and is one of our co-founders. Dr. Nielsen led our research and drug discovery in various roles from when he joined us in 2002 to January 2015, including as our Senior Vice President and Chief Scientific Officer from March 2009 until January 2015. Dr. Nielsen has been President and Chief Executive Officer of Tidal Therapeutics, Inc., a biotechnology company, since August 2018. Dr. Nielsen previously served in various capacities at Torque Therapeutics Inc., a biotechnology company, including as President from January 2015 to June 2018, Founder Chairman from November 2017 to June 2018 and Chief Executive Officer from January 2015 to November 2017. Dr. Nielsen also served as Chief Executive Officer of Silver Creek Pharmaceuticals, Inc., a former majority owned subsidiary of ours, from July 2010 to March 2014. Dr. Nielsen is currently the CEO of Tidal Therapeutics, a wholly owned subsidiary of Sanofi S.A., and also currently serves on the board of directors of Alloy Therapeutics LLC and Unikum Therapeutics, A/S. Dr. Nielsen holds a Ph.D. in molecular biology and an M.S. in biochemistry from the University of Copenhagen. We believe that Dr. Nielsen is qualified to serve on our board of directors due to his extensive knowledge of Merrimack, his leadership and management experience at Merrimack and other biotechnology companies, and his thorough understanding of our business and industry.

Ana Radeljevic has served as a member of our Board of Directors since June 2022. Ms. Radeljevic has served as Chief Executive Officer of Adventus Partners since 2016, where she is responsible for advising biotechnology clients in the areas of strategy, business development and finance. Since September of 2021, she has served as Chief Business Officer for ADRx Pharma Inc. leading strategy and corporate development. From 2014 through 2016, she served as Vice President of Financial Planning and Analysis at Perkin Elmer, Inc. From 2009 to 2014, Ms. Radeljevic served in several positions at Sanofi, most recently as Director of Business Planning and Business Development. Ms. Radeljevic started her career with Deloitte in audit and subsequently joined its valuation practice. Ms. Radeljevic received her MBA from Syracuse University, a Bachelor of Science in Business Administration and Finance from Old Dominion University and holds CPA and is a CFA Charterholder. We believe that Ms. Radeljevic is qualified to serve on our board of directors due to her extensive experience in strategic and business planning, finance, business development and operations for life science companies and her technical expertise in finance and valuation.

Source: Proxy Statement

Director compensation is not particularly high and the shareholder directors do not take any compensation for participating on the board.

Source: Proxy Statement

Catalyst

Q2 2023 Ipen submission of new drug application for Onivyde for the treatment of mPDAC

Early Q3 2023 FDA acceptance of the application and granting of priority review setting a PDUFA date in early Q1 2024

Early Q1 2024 FDA approval