Merrimack Pharmaceuticals (MACK) ($220MM market cap) is essentially a publicly traded CVR in a c-corp form, I owned the stock briefly in 2017 after the company sold Onivyde to Ipsen and committed to passing through any future milestone payments related to Onivyde to shareholders. Unfortunately, it didn’t have the same protections of a CVR and management ended up diluting shareholders of those future milestone payments by raising equity to pursue their remaining development stage pipeline. In 2019, the company officially gave up development of new drugs, management was removed and it has been little more than a shell since as the company awaited any milestone payments from Ipsen.
Seven short years later, Ipsen announced that Onivyde was approved by the FDA for metastatic pancreatic ductal adenocarcinoma (“mPDAC”), a particularly awful form of pancreatic cancer. This approval triggers a $225MM milestone payment to Merrimack, the remaining milestones for Onivyde and another asset sale (to Elevation) are not expected to be reached. Merrimack waited little time to announce they were formally liquidating pending a shareholder vote in May, with the liquidation distribution range of $14.65 to $15.35/share.
We’ll have to wait for the proxy to see how conservative this estimated range is, but to my eye, it looks pretty conservative, with the actual distribution likely to be at the top of the range or even just above. Below is my math, as usual, it might be wildly off (and any variance to these numbers can swing the expected IRR quite violently), I’m particularly wary of my tax estimate, any tax wizards out there please feel free to chime in below in the comment section.
The company has $215MM in NOLs which virtually matches the Ipsen windfall, but taxes are still due under section 452A of the IRS code, which in my novice read imposes an interest penalty on deferred sales like a milestone payment. The interest rate applicable has varied across the last 7 years, since I’m just a retail guy, I didn’t build out a full model, but I think my number is roughly right, maybe a touch low. The $0.03 distribution is simply a 50% haircut of my estimated escrow amount to account for any expenses during the liquidating trust lifecycle.
The board at MACK has been controlled by investors/owners since 2019, they’ve been prepping and preparing for this day since, I don’t anticipate any large surprising expenses or much of an escrow. Congratulations to that team, I’ve followed at a short distance but never felt fully comfortable betting on an FDA approval.
Disclosure: I own shares of MACK
