mack-10q_20200630.htm
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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 June 30, 2020

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 August 3, 2020, there were 13,380,243 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 – June 30, 2020 and December 31, 2019 (unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss – Three and Six Months Ended June 30, 2020 and 2019 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity – June 30, 2020 and June 30, 2019 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2020 and 2019 (unaudited)

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

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

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

19

 

 

 

Item 4.

Controls and Procedures.

19

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors.

20

 

 

 

Item 6.

Exhibits.

21

 

 

Signatures

22

 

 

 

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 rights to receive payments related to the milestone events under the asset purchase and sale agreement with Ipsen S.A.;

 

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

 

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

 

our ability to utilize our net operating loss carryforwards in future periods;

 

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

 

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

 

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

 

other risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), press releases and other communications, including those set forth under “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2019, and in the documents incorporated by reference herein and therein.

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. 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)

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,735

 

 

$

16,580

 

Prepaid expenses and other current assets

 

 

3,631

 

 

 

2,112

 

Total current assets

 

 

19,366

 

 

 

18,692

 

Other assets

 

 

315

 

 

 

1,390

 

Total assets

 

$

19,681

 

 

$

20,082

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

2,279

 

 

$

2,714

 

Other current liability

 

 

56

 

 

 

56

 

Total current liabilities

 

 

2,335

 

 

 

2,770

 

Total liabilities

 

 

2,335

 

 

 

2,770

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 10,000 shares authorized at June 30, 2020 and

   December 31, 2019; no shares issued or outstanding at June 30, 2020 or

   December 31, 2019

 

 

 

 

 

 

Common stock, $0.01 par value: 30,000 shares authorized at June 30, 2020 and

   December 31, 2019; 13,380 shares issued and outstanding at June 30, 2020

   and December 31, 2019

 

 

1,334

 

 

 

1,334

 

Additional paid-in capital

 

 

557,535

 

 

 

556,587

 

Accumulated deficit

 

 

(541,523

)

 

 

(540,609

)

Total stockholders’ equity

 

 

17,346

 

 

 

17,312

 

Total liabilities and stockholders’ equity

 

$

19,681

 

 

$

20,082

 

 

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

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands, except per share amounts)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

$

 

 

$

4,739

 

 

$

 

 

$

11,100

 

General and administrative expenses

 

 

1,184

 

 

 

5,929

 

 

 

3,119

 

 

 

9,612

 

Gain on sale of assets

 

 

 

 

 

(1,410

)

 

 

(2,139

)

 

 

(1,410

)

Total operating expenses

 

 

1,184

 

 

 

9,258

 

 

 

980

 

 

 

19,302

 

Loss from operations

 

 

(1,184

)

 

 

(9,258

)

 

 

(980

)

 

 

(19,302

)

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3

 

 

 

207

 

 

 

48

 

 

 

572

 

Interest expense

 

 

 

 

 

(1,049

)

 

 

 

 

 

(1,527

)

Other income, net

 

 

18

 

 

 

670

 

 

 

18

 

 

 

369

 

Total other income and expenses

 

 

21

 

 

 

(172

)

 

 

66

 

 

 

(586

)

Net loss

 

$

(1,163

)

 

$

(9,430

)

 

$

(914

)

 

$

(19,888

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

9

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

$

9

 

Comprehensive loss

 

$

(1,163

)

 

$

(9,430

)

 

$

(914

)

 

$

(19,879

)

Net loss per common share - basic and diluted

 

$

(0.09

)

 

$

(0.71

)

 

$

(0.07

)

 

$

(1.49

)

Weighted-average common shares used to compute basic and

   diluted net loss per common share

 

 

13,380

 

 

 

13,344

 

 

 

13,380

 

 

 

13,343

 

 

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, 2019

 

 

13,380

 

 

$

1,334

 

 

$

556,587

 

 

$

 

 

$

(540,609

)

 

$

17,312

 

Stock-based compensation

 

 

 

 

 

 

 

 

484

 

 

 

 

 

 

 

 

 

484

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

249

 

 

 

249

 

Balance at March 31, 2020

 

 

13,380

 

 

$

1,334

 

 

$

557,071

 

 

$

 

 

$

(540,360

)

 

$

18,045

 

Stock-based compensation

 

 

 

 

 

 

 

 

464

 

 

 

 

 

 

 

 

 

464

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,163

)

 

 

(1,163

)

Balance at June 30, 2020

 

 

13,380

 

 

$

1,334

 

 

$

557,535

 

 

$

 

 

$

(541,523

)

 

$

17,346

 

 

 

 

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

 

 

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

4


 

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(914

)

 

$

(19,888

)

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

 

 

 

 

 

 

 

 

Non-cash interest expense

 

 

 

 

 

141

 

Loss on extinguishment of debt

 

 

 

 

 

971

 

Depreciation and amortization expense

 

 

 

 

 

2,228

 

Gain on sale of equipment

 

 

 

 

 

(1,984

)

Gain on sale of in progress research and development

 

 

(2,139

)

 

 

 

Amortization and accretion on marketable securities

 

 

 

 

 

(279

)

Stock-based compensation expense

 

 

948

 

 

 

1,081

 

Gain on equity method investment

 

 

 

 

 

(372

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(444

)

 

 

2,432

 

Accounts payable, accrued expenses and other

 

 

(435

)

 

 

(9,855

)

Net cash used in operating activities

 

 

(2,984

)

 

 

(25,525

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

 

 

2,025

 

Proceeds from sale of in progress research and development

 

 

2,139

 

 

 

 

Proceeds from sale of equity method investment

 

 

 

 

 

7,800

 

Proceeds from maturities and sales of marketable securities

 

 

 

 

 

48,500

 

Net cash provided by investing activities

 

 

2,139

 

 

 

58,325

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

23

 

Repayment of debt

 

 

 

 

 

(15,000

)

Payment of debt extinguishment costs

 

 

 

 

 

(985

)

Net cash used in financing activities

 

 

 

 

 

(15,962

)

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

 

 

(845

)

 

 

16,838

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

16,580

 

 

 

20,663

 

Cash, cash equivalents and restricted cash, end of period

 

$

15,735

 

 

$

37,501

 

Non-cash investing activities

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flows

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

1,399

 

 

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 eligible to receive up to $450.0 million in contingent milestone payments related to its sale of ONIVYDE® and MM-436 to Ipsen S.A. (“Ipsen”) in April 2017 (the “Ipsen sale”) and up to $54.5 million in contingent milestone payments related to its sale of MM-121 and MM-111 to Elevation Oncology, Inc. (formerly known as 14ner Oncology, Inc.), or Elevation, in July 2019. 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 as of June 30, 2020 and instead uses external consultants for the operation of the 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, 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.

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.

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 May 30, 2019, the Company announced the completion of its review of strategic alternatives, following which the Company’s board of directors (the “Board”) 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 and regulatory matters and the continued wind-down of operations.

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.

6


 

On July 25, 2019, the Board 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.

On November 29, 2019, the Company received the remaining $5.0 million milestone payment that became 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 (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.

On December 3, 2019, the Board authorized and declared a special cash dividend of $6.7 million to holders of the Company's common stock, which was payable on December 23, 2019 to stockholders of record as of the close of business on December 16, 2019.

On March 27, 2020, the Company entered into an Asset Purchase Agreement (the “Celator Agreement”) with Celator Pharmaceuticals, Inc. (“Celator”), pursuant to which Celator agreed to purchase certain assets relating to certain of the Company’s preclinical nanoliposome programs (the “Celator sale”). The Company and Celator completed the Celator sale simultaneously with the execution of the Celator Agreement. Under the terms of the Celator Agreement, Celator paid to the Company a cash payment of $2.3 million and reimbursed the Company for $0.2 million related to certain specified expenses. The Company incurred $0.4 million expenses related to the Celator sale as of June 30, 2020.

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, among other things, development by competitors of new technological innovations, protection of proprietary technology and compliance with government regulations, approval by the FDA and other foreign health agencies to approve any pharmaceutical under development, obtaining insurance reimbursement for any drug if and when approved by regulators, and its ability to secure additional capital to fund operations. 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 Elevation. 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.

The recent COVID-19 outbreak has created significant volatility and economic disruption and the impact on the Company’s future consolidated results of operations is uncertain. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – COVID-19 Update” and “Risk Factors” for further information regarding the impact of the COVID-19 pandemic on the Company’s business and financial condition.

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 June 30, 2020, the Company had an accumulated deficit of $541.5 million. During the six months ended June 30, 2020, the Company incurred a net loss of $0.9 million and used $3.0 million of cash in operating activities. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash and cash equivalents of $15.7 million at June 30, 2020 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 realize milestone payments from its licensed product candidates, raise additional capital to finance its operations or to reduce operating expenses. There can be no assurance that the Company will be successful in receiving future milestone payments or able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

The Company expects that it would seek to 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”).

7


 

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, 2019.

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, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated balance sheet as of June 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 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 June 30, 2020, the results of its operations for the three and six months ended June 30, 2020 and 2019, its statements of stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and its statements of cash flows for the six months ended June 30, 2020 and 2019. The financial data and other information disclosed in the notes related to the three and six months ended June 30, 2020 and 2019 are unaudited. The results for the three and six months ended June 30, 2020 and 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2020, 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, 2019 filed with the SEC on March 12, 2020.

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)

 

June 30,

2020

 

 

June 30,

2019

 

Cash and cash equivalents

 

$

15,735

 

 

$

36,917

 

Restricted cash (short-term)

 

 

 

 

 

584

 

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

   statement of cash flows

 

$

15,735

 

 

$

37,501

 

 

Restricted cash on the statement of financial position for 2019 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.

 

8


 

3. Fair Value of Financial Instruments

The following tables show assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:

 

 

 

June 30, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,442

 

 

$

 

 

$

 

Totals

 

$

14,442

 

 

$

 

 

$

 

 

 

 

December 31, 2019

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,375

 

 

$

 

 

$

 

Totals

 

$

16,375

 

 

$

 

 

$

 

 

The Company’s 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.

 

 

4. Accounts Payable, Accrued Expenses and Other

Accounts payable, accrued expenses and other as of June 30, 2020 and December 31, 2019 consisted of the following:

 

(in thousands)

 

June 30,

2020

 

 

December 31,

2019

 

Accounts payable

 

$

208

 

 

$

271

 

Accrued goods and services

 

 

216

 

 

 

372

 

Accrued clinical trial costs

 

 

155

 

 

 

320

 

Accrued drug purchase costs

 

 

371

 

 

 

371

 

Accrued restructuring expenses

 

 

15

 

 

 

66

 

Deferred tax incentives

 

 

1,314

 

 

 

1,314

 

Total accounts payable, accrued expenses and other

 

$

2,279

 

 

$

2,714

 

 

 

5. Stock-Based Compensation

The Company’s 2011 Stock Incentive Plan (the “2011 Plan”) is administered by the Company’s Board of Directors and permits the Company to grant incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards.

There were no options granted during the three and six months ended June 30, 2020. At June 30, 2020, there were 1.5 million shares remaining available for grant under the 2011 Plan.

The Company recognized stock-based compensation expense during the three and six months ended June 30, 2020 and 2019 as follows:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development expense

 

$

 

 

$

40

 

 

$

 

 

$

223

 

General and administrative expense

 

 

464

 

 

 

447

 

 

 

948

 

 

 

858

 

Total stock-based compensation expense

 

$

464

 

 

$

487

 

 

$

948

 

 

$

1,081

 

 

 

6. Net Loss Per Common Share

Basic net loss per share is calculated by dividing the net loss attributable to the Company by the weighted-average number of common shares outstanding during the period.

9


 

Diluted net loss per share is computed by dividing the net loss attributable to the Company by the weighted-average number of dilutive common shares outstanding during the period. Dilutive shares outstanding is calculated by adding to the weighted shares outstanding any potential (unissued) shares of common stock from outstanding stock options based on the treasury stock method. Outstanding stock options were not included in the diluted net loss per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market value of the underlying common shares). In a period when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods where a loss is reported, there is no difference in basic and dilutive loss per share.

Stock options are excluded from the calculation of diluted loss per share because the net loss for the three and six months ended June 30, 2020 and 2019 causes such securities to be anti-dilutive. Outstanding options excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2020 and 2019 are shown in the chart below:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Outstanding options to purchase common stock

 

 

1,877

 

 

 

1,573

 

 

 

1,877

 

 

 

1,573

 

 

7. Restructuring Activities

On November 7, 2018, the Company announced that it was implementing a reduction in headcount as part of a corporate restructuring. The accrued balance as of December 31, 2019 approximated to $0.1 million.

No additional restructuring expenses were recognized during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, the Company recognized additional restructuring expenses of $4.6 million and $4.9 million, respectively, consisting of one-time employee termination benefits of $1.8 million and $2.0 million, respectively, recorded in research and development expense and $2.8 million and $2.9 million, respectively, recorded in general and administrative expense. These one-time employee termination benefits are comprised of severance, benefits and related costs, all of which are expected to result in cash expenditures.

The Company paid and adjusted approximately less than $0.1 million and $0.1 million of these restructuring expenses during the three and six months ended June 30, 2020, respectively. The remaining payments of less than $0.1 million will be paid during the three months ended September 30, 2020. During the three and six months ended June 30, 2019, the Company paid approximately $3.8 million and $4.8 million of these restructuring expenses, respectively.

 

The following table summarizes the charges related to the restructuring activities as of June 30, 2020 and 2019:

 

(in thousands)

 

Accrued

Restructuring

Expenses at

December 31, 2019

 

 

Expenses

 

 

Less:

Payments and Adjustments

 

 

Accrued

Restructuring

Expenses at

June 30, 2020

 

Severance, benefits and related costs due to workforce

   reduction

 

$

66

 

 

$

 

 

$

(51

)

 

$

15

 

Totals

 

$

66

 

 

$

 

 

$

(51

)

 

$

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Accrued

Restructuring

Expenses at

December 31, 2018

 

 

Expenses

 

 

Less:

Payments

 

 

Accrued

Restructuring

Expenses at

June 30, 2019

 

Severance, benefits and related costs due to workforce

   reduction

 

$

921

 

 

$

4,890

 

 

$

(4,755

)

 

$

1,056

 

Totals

 

$

921

 

 

$

4,890

 

 

$

(4,755

)

 

$

1,056

 

 

10


 

8. Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which represents a new credit loss standard that will change the impairment model for most financial assets and certain other financial instruments. Specifically, this guidance will require entities to utilize a new “expected loss” model as it relates to trade and other receivables. In addition, entities will be required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position. This guidance will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted. The new guidance was adopted on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This standard eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods and early adoption is permitted. The new guidance was adopted on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed above, the Company does not believe that the adoption of recently issued standards has or may have a material impact on the Company’s condensed consolidated financial statements or disclosures.

 

11


 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019 included in our Annual Report on Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, which are incorporated herein by reference, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company based in Cambridge, Massachusetts that is eligible to receive up to $450.0 million in contingent milestone payments related to our sale of ONIVYDE® to Ipsen in April 2017 and up to $54.5 million in contingent milestone payments related to our sale of MM-121 and MM-111 to Elevation in July 2019. We do not have any ongoing research or development activities and are seeking potential acquirers for our remaining preclinical and clinical assets. We do not have any employees and instead use external consultants for the operation of our company.

On April 3, 2017, we completed the Ipsen sale. In connection with the Ipsen sale, we are eligible to receive up to $450.0 million in additional regulatory approval-based milestone payments. We 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. We have received all $33.0 million in milestone payments under the Servier Agreement.

We are eligible to receive up to $450.0 million in potential additional milestone payments resulting from the Ipsen sale consist of:

 

$225.0 million upon approval by the 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 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, we announced the completion of our review of strategic alternatives, following which our board of directors implemented a series of measures which we believe allow us to extend our cash runway into 2027 and preserve our ability to capture the potential milestone payments resulting from the Ipsen sale. We have based this estimate on assumptions that may prove to be wrong, and we could use our financial resources sooner than we currently expect. In connection with that announcement, we discontinued the discovery efforts on our 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. We are seeking potential acquirers for our remaining preclinical and clinical assets.

The termination of our 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, we do not have any employees. We have engaged external consultants to run our day-to-day operations. We have also entered into consulting agreements with certain former members of our executive management team who are supporting our relationship with current partners, assisting with the potential sale of remaining preclinical and clinical assets, and assisting with certain legal and regulatory matters and the continued wind-down of operations.

On April 15, 2019, we repaid in full all principal, accrued and unpaid interest, fees, costs and expenses under Loan Agreement, with Hercules, in an aggregate amount equal to $16.0 million.

In May 2019, we monetized certain assets to strengthen our cash position. This included the sale of our entire equity position in Silver Creek, resulting in $7.8 million in cash, and the sale of laboratory equipment from our research and development operations, resulting in approximately $1.4 million in cash.

12


 

On July 12, 2019, we completed the Elevation sale, of our anti-HER3 antibody programs, MM-121 (Seribantumab) and MM-111. In connection with the Elevation sale, we received an upfront cash payment of $3.5 million and are 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.

On July 25, 2019, our board of directors announced, authorized and declared a special cash dividend of $20.0 million to holders of our common stock. The special dividend was payable on September 5, 2019 to stockholders of record as of the close of business on August 28, 2019. The special dividend resulted in a decrease to additional paid-in capital.

On December 3, 2019, our board of directors announced, authorized and declared a special cash dividend of $6.7 million to holders of our common stock. The special dividend was payable on December 23, 2019 to stockholders of record as of the close of business on December 16, 2019. The special dividend resulted in a decrease to additional paid-in capital.

On March 27, 2020, we entered into the Celator Agreement , pursuant to which Celator agreed to purchase certain assets (the “transferred assets”), relating to certain of our preclinical nanoliposome programs, (the “Celator sale”). We completed the Celator sale simultaneously with the execution of the Celator Agreement. Under the terms of the Celator Agreement, Celator paid to us a cash payment of $2.3 million, reimbursed us for $0.2 million related to certain specified expenses and assumed certain liabilities with respect to the transferred assets. We incurred $0.4 million expenses related to the Celator sale as of June 30, 2020.

We previously devoted substantially all of our resources to our drug discovery and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We have financed our operations primarily through private placements of convertible preferred stock, collaborations, public offerings of our securities, secured debt financings, sales of ONIVYDE and the Ipsen sale.

As of June 30, 2020, we had unrestricted cash and cash equivalents of $15.7 million. We expect that our cash and cash equivalents as of June 30, 2020 will be sufficient to continue our operations into 2027, which we estimate is the maximum period of time needed to achieve the longest-term potential milestone.

As of June 30, 2020, we had an accumulated deficit of $541.5 million. Our net loss was $0.9 million and $19.9 million for the six months ended June 30, 2020 and 2019, respectively. We do not expect to have any research and development expenses going forward. We do not expect to be profitable from our continuing operations in the future.

COVID-19 Update

 

A new strain of novel coronavirus which causes a severe respiratory disease (“COVID-19”) was identified in 2019, and subsequently declared a pandemic in 2020 by the World Health Organization, affecting the populations of the United States as well as many foreign countries. The recent COVID-19 outbreak has created significant volatility and economic disruption and the impact on our future operations and financial position is uncertain. The extent to which COVID-19 impacts Ipsen and Elevation depends on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; government actions taken in response to the pandemic; the impact on research, clinical trials and regulatory activities; the impact on Ipsen and Elevation’s operations and financial condition; and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted. While we do not currently anticipate that the current COVID-19 pandemic will affect our organization’s ability to conduct its activities, Ipsen and Elevation may be impacted by government actions, orders and policies regarding the COVID-19 pandemic, including temporary closures of non-essential businesses, delays in conducting clinical trials, delays in filing for and obtaining regulatory approvals, shelter-in-place orders, and travel, social distancing and quarantine policies, the implementation and enforcement of which vary from state to state and country to country. Future events related to the pandemic and the economic impact of the pandemic could have a material adverse effect on our financial condition, liquidity and results of operations.

13


 

Financial Operations Overview

Research and development expenses

Research and development expenses consisted of costs associated with our preclinical research activities, conduct of clinical trials, manufacturing development efforts and activities related to regulatory filings. Our research and development expenses consisted of:

 

employee salaries and related expenses, which included stock-based compensation and benefits for the personnel involved in our drug discovery and development activities;

 

external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites;

 

manufacturing material expense for third-party manufacturing organizations and consultants, including costs associated with manufacturing product prior to product approval;

 

license fees for and milestone payments related to in-licensed products and technologies; and

 

facilities, depreciation and other allocated expenses, which included direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory and other supplies.

We expensed research and development costs as incurred. During the second quarter of 2019, we ceased all research and development activities related to all of our programs listed above and are actively pursuing the sale of any of our remaining program assets.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, including stock-based compensation expenses and benefits, legal, intellectual property, business development, finance, information technology, corporate communications, investor relations and human resources departments. Other general and administrative expenses include costs for employee training and development, board of director’s costs, depreciation, insurance expenses, facility-related costs not otherwise included in research and development expenses, legal and professional fees, and accounting and information technology services fees.

Restructuring expenses

As a result of the corporate restructuring activities we announced on November 7, 2018, April 30, 2019 and May 30, 2019, we had an accrued restructuring balance of approximately $0.1 million as of December 31, 2019. We had no restructuring expenses for the three and six months ended June 30, 2020. Approximately, less than $0.1 million in restructuring payments were made during the three and six months ended June 30, 2020. The remaining less than $0.1 million in accrued restructuring expenses as of June 30, 2020 will be paid in the third quarter of 2020. We recognized total restructuring expenses of $4.6 million and $4.9 million for the three and six months ended June 30, 2019, respectively, related to one-time employee termination benefits comprised of severance, benefits and related costs, all of which are expected to result in cash expenditures. Approximately $3.8 million and $4.8 million in payments were made during the three and six months ended June 30, 2019, respectively.

Interest income

Interest income consists primarily of interest income associated with our marketable securities and money market fund.

Interest expense

Interest expense for the three and six months ended June 30, 2019 consisted primarily of cash and non-cash interest related to the Loan Agreement with Hercules that we entered into on July 2, 2018.

Other income, net

Other income, net for three and six months ended June 30, 2019 consisted primarily of our proportionate share of losses from our equity method investment in Silver Creek as well as the gain we recorded upon the sale of the investment in the second quarter of 2019.

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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with the rules and regulations of the SEC and GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies and the methodologies and assumptions we apply under them have not materially changed since March 12, 2020, the date we filed our Annual Report on Form 10-K for the year ended December 31, 2019. For more information on our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

Results of Operations

Comparison of the three months ended June 30, 2020 and 2019

 

 

 

Three Months Ended

June 30,

 

(in thousands)

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development expenses

 

$

 

 

$

4,739

 

General and administrative expenses

 

 

1,184

 

 

 

5,929

 

Gain on sales of assets

 

 

-

 

 

 

(1,410

)

Total operating expenses

 

 

1,184

 

 

 

9,258

 

Loss from operations

 

 

(1,184

)

 

 

(9,258

)

Interest income

 

 

3

 

 

 

207

 

Interest expense

 

 

 

 

 

(1,049

)

Other income, net

 

 

18