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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 September 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 November 2, 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 – September 30, 2020 and December 31, 2019 (unaudited)

2

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 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)

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,814

 

 

$

16,580

 

Prepaid expenses and other current assets

 

 

2,870

 

 

 

2,112

 

Total current assets

 

 

18,684

 

 

 

18,692

 

Other assets

 

 

274

 

 

 

1,390

 

Total assets

 

$

18,958

 

 

$

20,082

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

2,218

 

 

$

2,714

 

Other current liability

 

 

 

 

 

56

 

Total current liabilities

 

 

2,218

 

 

 

2,770

 

Total liabilities

 

 

2,218

 

 

 

2,770

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

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

   December 31, 2019

 

 

 

 

 

 

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

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

   and December 31, 2019

 

 

1,334

 

 

 

1,334

 

Additional paid-in capital

 

 

557,935

 

 

 

556,587

 

Accumulated deficit

 

 

(542,529

)

 

 

(540,609

)

Total stockholders’ equity

 

 

16,740

 

 

 

17,312

 

Total liabilities and stockholders’ equity

 

$

18,958

 

 

$

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

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands, except per share amounts)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

$

 

 

$

 

 

$

 

 

$

11,100

 

General and administrative expenses

 

 

1,007

 

 

 

4,346

 

 

 

4,126

 

 

 

13,958

 

Gain on sale of assets

 

 

 

 

 

(3,500

)

 

 

(2,139

)

 

 

(4,910

)

Total operating expenses

 

 

1,007

 

 

 

846

 

 

 

1,987

 

 

 

20,148

 

Loss from operations

 

 

(1,007

)

 

 

(846

)

 

 

(1,987

)

 

 

(20,148

)

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

140

 

 

 

49

 

 

 

712

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

(1,527

)

Other income, net

 

 

 

 

 

1

 

 

 

18

 

 

 

370

 

Total other income and expenses

 

 

1

 

 

 

141

 

 

 

67

 

 

 

(445

)

Net loss

 

$

(1,006

)

 

$

(705

)

 

$

(1,920

)

 

$

(20,593

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

9

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

9

 

Comprehensive loss

 

$

(1,006

)

 

$

(705

)

 

$

(1,920

)

 

$

(20,584

)

Net loss per common share - basic and diluted

 

$

(0.08

)

 

$

(0.05

)

 

$

(0.14

)

 

$

(1.54

)

Weighted-average common shares used to compute basic and

   diluted net loss per common share

 

 

13,380

 

 

 

13,358

 

 

 

13,380

 

 

 

13,348

 

Cash dividend paid per common share

 

$

 

 

$

1.4967

 

 

$

 

 

$

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, 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

 

Stock-based compensation

 

 

 

 

 

 

 

 

400

 

 

 

 

 

 

 

 

 

400

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,006

)

 

 

(1,006

)

Balance at September 30, 2020

 

 

13,380

 

 

$

1,334

 

 

$

557,935

 

 

$

 

 

$

(542,529

)

 

$

16,740

 

 

 

 

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

 

 

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)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(1,920

)

 

$

(20,593

)

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

)

 

 

(3,500

)

Amortization and accretion on marketable securities

 

 

 

 

 

(292

)

Stock-based compensation expense

 

 

1,348

 

 

 

1,784

 

Gain on equity method investment

 

 

 

 

 

(372

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

358

 

 

 

3,001

 

Accounts payable, accrued expenses and other

 

 

(496

)

 

 

(10,112

)

Net cash used in operating activities

 

 

(2,849

)

 

 

(28,728

)

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

 

 

 

3,500

 

Proceeds from sale of equity method investment

 

 

 

 

 

7,800

 

Proceeds from maturities and sales of marketable securities

 

 

 

 

 

51,500

 

Net cash provided by investing activities

 

 

2,139

 

 

 

64,825

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

83

 

Repayment of other liability

 

 

(56

)

 

 

 

Repayment of debt

 

 

 

 

 

(15,000

)

Payment of debt extinguishment costs

 

 

 

 

 

(985

)

Payment of dividend

 

 

 

 

 

(20,000

)

Net cash used in financing activities

 

 

(56

)

 

 

(35,902

)

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

 

 

(766

)

 

 

195

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

16,580

 

 

 

20,663

 

Cash, cash equivalents and restricted cash, end of period

 

$

15,814

 

 

$

20,858

 

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 September 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 September 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 September 30, 2020, the Company had an accumulated deficit of $542.5 million. During the nine months ended September 30, 2020, the Company incurred a net loss of $1.9 million and used $2.8 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 $15.8 million at September 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 September 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 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 September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019, its statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and its statements of cash flows for the nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in the notes related to the three and nine months ended September 30, 2020 and 2019 are unaudited. The results for the three and nine months ended September 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.

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 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. Fair Value of Financial Instruments

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

 

 

 

September 30, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,443

 

 

$

 

 

$

 

Totals

 

$

14,443

 

 

$

 

 

$

 

 

 

 

December 31, 2019

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,375

 

 

$

 

 

$

 

Totals

 

$

16,375

 

 

$

 

 

$

 

 

8


 

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 September 30, 2020 and December 31, 2019 consisted of the following:

 

(in thousands)

 

September 30,

2020

 

 

December 31,

2019

 

Accounts payable

 

$

50

 

 

$

271

 

Accrued goods and services

 

 

348

 

 

 

372

 

Accrued clinical trial costs

 

 

128

 

 

 

320

 

Accrued drug purchase costs

 

 

371

 

 

 

371

 

Accrued restructuring expenses

 

 

7

 

 

 

66

 

Deferred tax incentives

 

 

1,314

 

 

 

1,314

 

Total accounts payable, accrued expenses and other

 

$

2,218

 

 

$

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.

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 board of directors determined, in accordance with the adjustment provision of the 2011 Plan, that the special cash dividend was unusual and non-recurring and that appropriate adjustment to the stock options to purchase shares of the Company’s common stock outstanding under the 2011 Plan was required. The Company treated this adjustment as a modification to the original stock option grant because the terms of the agreements were modified in order to preserve the value of the option awards after a large non-recurring cash dividend. These options were amended to decrease the exercise price and increase the shares subject to the stock option. However, as the fair value of the underlying stock decreased more than the exercise price upon modification, and the result was a decrease in the fair value of such options. Accordingly, no incremental value was provided and no additional compensation cost was recorded by the Company.

There were 22,000 options granted during the three and nine months ended September 30, 2020. The weighted-average grant date fair value per share of stock options granted during the three and nine months ended September 30, 2020 was $1.90. The weighted-average grant date fair value per share of stock options granted during the three and nine months ended September 30, 2019 was $3.53. At September 30, 2020, there were 1.5 million shares remaining available for grant under the 2011 Plan.

The fair value of stock options granted to employees during the nine months ended September 30, 2020 and 2019 was estimated at the date of grant using the following assumptions:

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Risk-free interest rate

 

0.2%

 

 

1.8%

 

Expected dividend yield

 

 

0

%

 

 

0

%

Expected term

 

5.3 years

 

 

5.4 years

 

Expected volatility

 

67%

 

 

67%

 

 

9


 

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development expenses

 

$

 

 

$

 

 

$

 

 

$

223

 

General and administrative expenses

 

 

400

 

 

 

703

 

 

 

1,348

 

 

 

1,561

 

Total stock-based compensation expenses

 

$

400

 

 

$

703

 

 

$

1,348

 

 

$

1,784

 

 

 

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.

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 nine months ended September 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 nine months ended September 30, 2020 and 2019 are shown in the chart below:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Outstanding options to purchase common stock

 

 

1,899

 

 

 

1,781

 

 

 

1,899

 

 

 

1,781

 

 

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 nine months ended September 30, 2020. During the three months ended September 30, 2019, the Company reversed restructuring expenses of $0.1 million, consisting of one-time employee termination benefits of $0.1 million recorded in general and administrative expense. During the nine months ended September 30, 2019, the Company recognized additional restructuring expenses of $4.8 million, consisting of one-time employee termination benefits of $2.0 million recorded in research and development expense and $2.8 million 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 nine months ended September 30, 2020, respectively. The remaining payments of less than $0.1 million will be paid during the three months ended December 31, 2020. During the three and nine months ended September 30, 2019, the Company paid approximately $0.8 million and $5.6 million of these restructuring expenses, respectively.

 

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

 

(in thousands)

 

Accrued

Restructuring

Expenses at

December 31, 2019

 

 

Expenses

 

 

Less:

Payments and Adjustments

 

 

Accrued

Restructuring

Expenses at

September 30, 2020

 

Severance, benefits and related costs due to workforce

   reduction

 

$

66

 

 

$

 

 

$

(59

)

 

$

7

 

Totals