mack-10q_20190930.htm

Al cost

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission file number: 001-35409

 

Merrimack Pharmaceuticals, Inc.

 

(Exact name of registrant as specified in its charter)

 

Delaware

04-3210530

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

One Broadway, 14th Floor

Cambridge, MA

02142

(Address of principal executive offices)

(Zip Code)

 

(617) 441-1000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

MACK

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 8, 2019, there were 13,362,951 shares of Common Stock, $0.01 par value per share, outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

 

 

 

Page

Item 1.

Financial Statements.

2

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2019 and December 31, 2018 (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity – September 30, 2019 and September 30, 2018 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018 (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

22

 

 

 

Item 4.

Controls and Procedures.

22

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors.

24

 

 

 

Item 5.

Exhibits.

39

 

 

Signatures

40

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

 

our plans to cease development of our product candidates and diagnostics;

 

the anticipated cost savings in connection with our restructuring efforts;

 

our plans to seek to divest our product candidates and other assets;

 

our rights to receive payments related to the milestone events under the asset purchase and sale agreement with Ipsen S.A. or under the license and collaboration agreement between Ipsen S.A. and Les Laboratoires Servier SAS (as assignee from Shire plc), when expected or at all, and our intent to deliver any such milestone payments received to stockholders, after any taxes owed;

 

our rights to receive payments related to the milestone events under the asset purchase agreement with 14ner Oncology, Inc., when expected or at all;

 

our intellectual property position;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our cash runway and the sufficiency of our financial resources to fund our operations; and

 

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. Risk Factors, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments that we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

NOTE REGARDING TRADEMARKS

ONIVYDE® is a trademark of Ipsen S.A. Any other trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

 

1


 

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements.

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

(in thousands, except per share amounts)

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,858

 

 

$

20,079

 

Marketable securities

 

 

 

 

 

51,199

 

Restricted cash

 

 

 

 

 

584

 

Prepaid expenses and other current assets

 

 

1,540

 

 

 

4,240

 

Total current assets

 

 

22,398

 

 

 

76,102

 

Property and equipment, net

 

 

 

 

 

2,269

 

Equity method investment

 

 

 

 

 

7,428

 

Other assets

 

 

2,443

 

 

 

2,744

 

Total assets

 

$

24,841

 

 

$

88,543

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

4,683

 

 

$

13,677

 

Deferred rent

 

 

 

 

 

1,118

 

Other current liabilities

 

 

56

 

 

 

 

Total current liabilities

 

 

4,739

 

 

 

14,795

 

Note payable, net of discount and current portion

 

 

 

 

 

14,873

 

Other long-term liabilities

 

 

 

 

 

56

 

Total liabilities

 

 

4,739

 

 

 

29,724

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 10,000 shares authorized at September 30, 2019 and

   December 31, 2018; no shares issued or outstanding at September 30, 2019 or

   December 31, 2018

 

 

 

 

 

 

Common stock, $0.01 par value: 30,000 shares authorized at September 30, 2019 and

   December 31, 2018; 13,363 and 13,343 shares issued and outstanding

   at September 30, 2019 and December 31, 2018, respectively

 

 

1,334

 

 

 

1,334

 

Additional paid-in capital

 

 

562,638

 

 

 

580,771

 

Accumulated other comprehensive loss

 

 

 

 

 

(9

)

Accumulated deficit

 

 

(543,870

)

 

 

(523,277

)

Total stockholders’ equity

 

 

20,102

 

 

 

58,819

 

Total liabilities and stockholders’ equity

 

$

24,841

 

 

$

88,543

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

$

 

 

$

12,959

 

 

$

11,100

 

 

$

39,743

 

General and administrative expenses

 

 

4,346

 

 

 

3,777

 

 

 

13,958

 

 

 

11,560

 

Gain on sale of assets

 

 

(3,500

)

 

 

 

 

 

(4,910

)

 

 

 

Total operating expenses

 

 

846

 

 

 

16,736

 

 

 

20,148

 

 

 

51,303

 

Loss from operations

 

 

(846

)

 

 

(16,736

)

 

 

(20,148

)

 

 

(51,303

)

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

140

 

 

 

306

 

 

 

712

 

 

 

863

 

Interest expense

 

 

 

 

 

(472

)

 

 

(1,527

)

 

 

(472

)

Other (expense) income, net

 

 

1

 

 

 

(237

)

 

 

370

 

 

 

(1,778

)

Total other income and expenses

 

 

141

 

 

 

(403

)

 

 

(445

)

 

 

(1,387

)

Net loss from continuing operations before income tax benefit

 

 

(705

)

 

 

(17,139

)

 

 

(20,593

)

 

 

(52,690

)

Income tax benefit

 

 

 

 

 

4,798

 

 

 

 

 

 

4,798

 

Net loss from continuing operations

 

 

(705

)

 

 

(12,341

)

 

 

(20,593

)

 

 

(47,892

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

 

 

 

16,330

 

 

 

 

 

 

16,330

 

Net income (loss)

 

$

(705

)

 

$

3,989

 

 

$

(20,593

)

 

$

(31,562

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

 

 

 

(4

)

 

 

9

 

 

 

(5

)

Other comprehensive income (loss)

 

 

 

 

 

(4

)

 

 

9

 

 

 

(5

)

Comprehensive income (loss)

 

$

(705

)

 

$

3,985

 

 

$

(20,584

)

 

$

(31,567

)

Basic and dilutive net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(0.05

)

 

$

(0.92

)

 

$

(1.54

)

 

$

(3.59

)

Net income from discontinued operations, net of tax

 

 

 

 

 

1.22

 

 

 

 

 

$

1.22

 

Net income (loss) per share

 

$

(0.05

)

 

$

0.30

 

 

$

(1.54

)

 

$

(2.37

)

Weighted-average common shares used to compute basic and

   diluted net loss per common share

 

 

13,358

 

 

 

13,343

 

 

 

13,348

 

 

 

13,343

 

Cash dividend paid per common share

 

$

1.4967

 

 

$

 

 

$

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2018

 

 

13,343

 

 

$

1,334

 

 

$

580,771

 

 

$

(9

)

 

$

(523,277

)

 

$

58,819

 

Stock-based compensation

 

 

 

 

 

 

 

 

594

 

 

 

 

 

 

 

 

 

594

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,458

)

 

 

(10,458

)

Balance at March 31, 2019

 

 

13,343

 

 

$

1,334

 

 

$

581,365

 

 

$

 

 

$

(533,735

)

 

$

48,964

 

Stock-based compensation

 

 

 

 

 

 

 

 

487

 

 

 

 

 

 

 

 

 

487

 

Exercise of stock options

 

 

6

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,430

)

 

 

(9,430

)

Balance at June 30, 2019

 

 

13,349

 

 

$

1,334

 

 

$

581,875

 

 

$

 

 

$

(543,165

)

 

$

40,044

 

Stock-based compensation

 

 

 

 

 

 

 

 

703

 

 

 

 

 

 

 

 

 

703

 

Exercise of stock options

 

 

14

 

 

 

 

 

 

60

 

 

 

 

 

 

 

 

 

60

 

Dividend paid

 

 

 

 

 

 

 

 

(20,000

)

 

 

 

 

 

 

 

 

(20,000

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(705

)

 

 

(705

)

Balance at September 30, 2019

 

 

13,363

 

 

$

1,334

 

 

$

562,638

 

 

$

 

 

$

(543,870

)

 

$

20,102

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2017

 

 

13,343

 

 

$

1,334

 

 

$

577,721

 

 

$

 

 

$

(482,771

)

 

$

96,284

 

Stock-based compensation

 

 

 

 

 

 

 

 

764

 

 

 

 

 

 

 

 

 

764

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,782

)

 

 

(17,782

)

Balance at March 31, 2018

 

 

13,343

 

 

$

1,334

 

 

$

578,485

 

 

$

(12

)

 

$

(500,553

)

 

$

79,254

 

Stock-based compensation

 

 

 

 

 

 

 

 

780

 

 

 

 

 

 

 

 

 

780

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,769

)

 

 

(17,769

)

Balance at June 30, 2018

 

 

13,343

 

 

$

1,334

 

 

$

579,265

 

 

$

(1

)

 

$

(518,322

)

 

$

62,276

 

Stock-based compensation

 

 

 

 

 

 

 

 

782

 

 

 

 

 

 

 

 

 

782

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,989

 

 

 

3,989

 

Balance at September 30, 2018

 

 

13,343

 

 

$

1,334

 

 

$

580,047

 

 

$

(5

)

 

$

(514,333

)

 

$

67,043

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(20,593

)

 

$

(31,562

)

Less:

 

 

 

 

 

 

 

 

Gain from discontinued operations

 

 

 

 

 

16,330

 

Loss from continuing operations

 

 

(20,593

)

 

 

(47,892

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Non-cash interest expense

 

 

141

 

 

 

121

 

Loss on extinguishment of debt

 

 

971

 

 

 

 

Benefit from intraperiod tax allocation

 

 

 

 

 

(4,798

)

Depreciation and amortization expense

 

 

2,228

 

 

 

3,211

 

Non-cash activity related to discontinued operations

 

 

 

 

 

(532

)

Loss (gain) on sale of equipment

 

 

(1,984

)

 

 

184

 

Gain on sale of in progress research and development asset

 

 

(3,500

)

 

 

 

Premiums paid on marketable securities

 

 

 

 

 

(2

)

Amortization and accretion on marketable securities

 

 

(292

)

 

 

(398

)

Stock-based compensation expense

 

 

1,784

 

 

 

2,326

 

Loss (gain) on equity method investment

 

 

(372

)

 

 

1,658

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

3,001

 

 

 

(314

)

Income taxes payable

 

 

 

 

 

361

 

Accounts payable, accrued expenses and other

 

 

(10,112

)

 

 

1,083

 

Deferred rent

 

 

 

 

 

(1,704

)

Net cash used in operating activities

 

 

(28,728

)

 

 

(46,696

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

 

 

 

(118

)

Proceeds from sale of equipment

 

 

2,025

 

 

 

 

Proceeds from sale of in progress research and development asset

 

 

3,500

 

 

 

 

Proceeds from sale of equity method investment

 

 

7,800

 

 

 

 

Proceeds from sale of business

 

 

 

 

 

23,000

 

Proceeds from maturities and sales of marketable securities

 

 

51,500

 

 

 

42,200

 

Purchases of marketable securities

 

 

 

 

 

(76,857

)

Net cash provided by (used in) investing activities

 

 

64,825

 

 

 

(11,775

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable, net of issuance costs

 

 

 

 

 

14,632

 

Proceeds from exercise of stock options

 

 

83

 

 

 

 

Repayment of debt

 

 

(15,000

)

 

 

 

Payment of debt extinguishment costs

 

 

(985

)

 

 

 

Payment of dividend

 

 

(20,000

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(35,902

)

 

 

14,632

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

195

 

 

 

(43,839

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

20,663

 

 

 

94,217

 

Cash, cash equivalents and restricted cash, end of period

 

$

20,858

 

 

$

50,378

 

Non-cash investing activities

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flows

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

1,399

 

 

 

235

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

Merrimack Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

1. Nature of the Business

Merrimack Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company based in Cambridge, Massachusetts that is entitled to receive up to $455.0 million in contingent milestone payments related to its sale of ONIVYDE® to Ipsen S.A. (“Ipsen”) in April 2017. The Company does not have any ongoing research or development activities and is seeking potential acquirers for its remaining preclinical and clinical assets. The Company does not have any employees and instead uses external consultants for the operation of the Company.

On April 3, 2017, the Company completed the sale to Ipsen (the “Ipsen Sale”) of ONIVYDE and MM-436. In connection with the Ipsen Sale, the Company is eligible to receive up to $450.0 million in additional regulatory approval-based milestone payments. The Company is also eligible to receive a remaining $5.0 million milestone payment that may become payable for the ex-U.S. development and commercialization of ONIVYDE pursuant to a license and collaboration agreement (the “Servier Agreement”) between Ipsen and Les Laboratoires Servier SAS (“Servier”) (as assignee from Shire plc). The Company entered into the Servier Agreement in 2014, and on April 3, 2017, the Servier Agreement was assigned to Ipsen in connection with the completion of the Ipsen Sale. To date, the Company has received $28.0 million of the potential $33.0 million in milestone payments under the Servier Agreement.

The remaining up to $455.0 million in potential milestone payments resulting from the Ipsen Sale consist of:

 

$5.0 million upon Ipsen and Servier’s joint decision to progress their ongoing multi-part clinical trial evaluating ONIVYDE in small-cell lung cancer (“SCLC”) into the second randomized portion of the trial focused on efficacy;

 

$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, subject to certain conditions;

 

$150.0 million upon approval by the FDA of ONIVYDE for the treatment of small-cell lung cancer (“SCLC”) 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.

 

On May 30, 2019, the Company announced the completion of its review of strategic alternatives, following which the Company’s board of directors implemented a series of measures designed to extend the Company’s cash runway and preserve its ability to capture the potential milestone payments resulting from the Ipsen Sale. In connection with that announcement, the Company discontinued the discovery efforts on its remaining preclinical programs: MM-401, an agonistic antibody targeting a novel immuno-oncology target, TNFR2; and MM-201, a highly stabilized agonist-Fc fusion protein targeting death receptors 4 and 5. The Company is seeking potential acquirers for its remaining preclinical and clinical assets.

The Company’s termination of its executive management team and all other employees was substantially completed by June 28, 2019 and fully completed by July 12, 2019. As of July 12, 2019, the Company does not have any employees. The Company has engaged external consultants to run the day-to-day operations of the Company. The Company has also entered into consulting agreements with certain former members of its executive management team who are supporting the Company’s relationship with current partners, assisting with the potential sale of remaining preclinical and clinical assets, and assisting with certain legal matters and the continued wind-down of operations.

In May 2019, the Company monetized certain assets to strengthen its cash position. This includes the sale of its entire equity position in Silver Creek Pharmaceuticals, Inc. (“Silver Creek”), resulting in $7.8 million in cash, and the sale of laboratory equipment from its research and development operations, resulting in approximately $1.4 million in cash.

On April 15, 2019, the Company repaid in full all principal, accrued and unpaid interest, fees, costs and expenses under its Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) in an aggregate amount equal to $16.0 million.

On July 12, 2019, the Company completed the sale to 14ner Oncology, Inc. (“14ner”) (the “14ner Sale”) of its anti-HER3 antibody programs, MM-121 (seribantumab) and MM-111. In connection with the 14ner Sale, the Company received an upfront cash payment of $3.5 million in connection with the completion of the 14ner Sale. 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

6


 

 

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.

 

The Company’s board of directors authorized and declared a special cash dividend of $20.0 million to holders of the Company's common stock, which was payable on September 5, 2019 to stockholders of record as of the close of business on August 28, 2019.

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, among other things, its ability to secure additional capital to fund operations, development by competitors of new technological innovations, protection of proprietary technology and compliance with government regulations. None of the Company’s product candidates are approved for any indication by the FDA or any other regulatory agency. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies, among others. In addition, the Company is dependent upon the services of its external consultants for the operation of the Company. The Company’s business strategy depends substantially upon its ability to receive future milestone payments from Ipsen and Servier. Any failure to achieve such milestones or a perception that the milestones may not be achieved will materially and adversely affect the Company and the value of its common stock.

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As of September 30, 2019, the Company had an accumulated deficit of $543.9 million. During the nine months ended September 30, 2019, the Company incurred a net loss of $20.6 million and used $28.7 million of cash in operating activities. The Company expects to continue to generate operating losses in the foreseeable future. Based on current projections, the Company believes that existing cash, and cash equivalents of $20.9 million as of September 30, 2019 will allow the Company to continue its operations into 2027, when the Company estimates the longest-term potential Ipsen milestone may be achieved. The continued viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations or to reduce operating expenses. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

The Company expects that it would finance any future cash needs through a combination of divestitures of its product candidates or other assets, equity offerings and debt financings. There can be no assurance as to the timing, terms or consummation of any divestiture or financing, and the terms of any such financing may adversely affect the holdings or the rights of the Company’s stockholders or require the Company to relinquish rights to certain of its revenue streams or product candidates.

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements reflect the operations of Merrimack Pharmaceuticals, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

The condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent in all material respects with those presented in Note 1 to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Consolidation

The accompanying condensed consolidated financial statements reflect Merrimack Pharmaceuticals, Inc. and its wholly owned subsidiaries.

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2019, the results of its operations for the three and nine

7


 

months ended September 30, 2019 and 2018, its statements of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and its statements of cash flows for the nine months ended September 30, 2019 and 2018. The financial data and other information disclosed in the notes related to the three and nine months ended September 30, 2019 and 2018 are unaudited. The results for the three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

The unaudited interim financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 6, 2019.

Condensed Consolidated Statements of Cash Flows

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:

 

(in thousands)

 

September 30,

2019

 

 

September 30,

2018

 

Cash and cash equivalents

 

$

20,858

 

 

$

49,794

 

Restricted cash (long-term)

 

 

 

 

 

584

 

Total cash, cash equivalents and restricted cash shown in the condensed consolidated

   statement of cash flows

 

$

20,858

 

 

$

50,378

 

 

Restricted cash on the statement of financial position for 2018 primarily represents amounts pledged as collateral for operating lease obligations as contractually required.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates, assumptions and judgments reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

 

3. Leases

The Company adopted the new leasing standards on January 1, 2019, using the modified retrospective transition method, which does not require restatement of prior periods, for all the leases existing as of the adoption date. The adoption of the new leasing standards did not have a significant impact on the Company’s consolidated financial statements. As of January 1, 2019, the Company’s only existing lease was the lease of its principal research and office space located at One Kendall Square in Cambridge, Massachusetts, which expired in June 2019.

  

4. Fair Value of Financial Instruments

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. As a basis for considering such assumptions, GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used to develop the assumptions and for measuring fair value as follows: Level 1 observable inputs such as quoted prices in active markets for identical assets; Level 2 inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3 unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

8


 

The following tables show assets measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018:

 

 

 

September 30, 2019

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,705

 

 

$

 

 

$

 

Totals

 

$

16,705

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,292

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

1,998

 

 

 

 

Totals

 

$

16,292

 

 

$

1,998

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

31,766

 

 

$

 

Corporate debt securities

 

 

 

 

 

7,479

 

 

 

 

Government securities

 

 

 

 

 

11,954

 

 

 

 

Totals

 

$

 

 

$

51,199

 

 

$

 

 

During the nine months ended September 30, 2019 and the year ended December 31, 2018, there were no transfers between Level 1 and Level 2. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities were determined through third-party pricing services.

The Company’s cash, restricted cash, prepaid expenses and other current assets, accounts payable and accrued expenses are recorded at cost, which approximates fair value due to their short-term nature.

 

 

5. Marketable Securities and Cash Equivalents

The following table summarizes the Company’s marketable securities and cash equivalents as of September 30, 2019 and December 31, 2018:

 

 

 

September 30, 2019

 

(in thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,705

 

 

$

 

 

$

 

 

$

16,705

 

Total cash equivalents

 

$

16,705

 

 

$

 

 

$

 

 

$

16,705

 

 

 

 

 

December 31, 2018

 

(in thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,292

 

 

$

 

 

$

 

 

$

16,292

 

Commercial paper