Merrimack Pharmaceuticals Inc (NASDAQ:MACK) Is A Discount Entry Opportunity

Merrimack Pharmaceuticals Inc (NASDAQ:MACK) gained nearly 35% between mid-April and mid-May, hitting monthly highs just shy of $4 a piece on May 15. Fast forward a couple of weeks, however, and the company has given back these gains and more. At close on May 26, Merrimack shares went for $3.30. At its most recent price, mid-session on Wednesday, the company was sub-$2.For us, this is a move not representative of what's going o behind the scenes. This is a company that just paid out a special dividend of $140 million to shareholders (the paying out of which coincided with the just mentioned dip below $2 a share and has spent the last few months restructuring to become what is essentially a brand new operation – one that's far more focused, streamlined and (in our eyes) stronger than its previous iteration.Our thesis on this one then is that the current price is an oversell in response to a misinterpreted bit of news and that, by proxy, it's poised to recover.Here's what we're basing this on.The latest bit of news (and the one that's seemingly caused the sell-off) is the resignation of the company's Chief Financial Officer and Head of Corporate Development, Dr. Yasir Al-Wakeel. We didn’t get any specifics as to the justification for resignation, other than the standard other business interests spiel, but it really doesn’t matter. This is a company with a brand new CEO, a fresh operational focus, and direction and a fresh team driving operational advance. In another situation, the resignation of an executive might be a sign of troubled waters. In this situation, we'd have been surprised if he'd stayed.So with that noted, the story becomes about the company's pipeline. To bring readers up to speed, Merrimack just unloaded some of its core assets (read: Oxivyde and a generic version of Doxil) to Ipsen SA (EPA:IPN). In return, it picked up $575 million in cash, received at closing, and up to $450 million in potential regulatory approval based milestone payments. All of this latter sum (the $450 million) will be returned to shareholders (presumably in the same fashion as was the $140 million special dividend) as and when it hits the balance sheet.The company has allocated the cash infusion as funds with which to now focus on the development of three core pipeline assets: MM-121, MM-141 and MM-310. These are oncology assets, all of which are targeting oncology indications in which there is a great unmet need right now, and the cash on hand that resulted from the Ipsen transaction is enough to fund their respective development pathways through to the second half of 2019.That's some runway for a company of this size.And it's these three drugs that are going to provide the framework for major, and relatively near term, catalysts hitting press over the next twelve to eighteen months. MM-121 is already in a phase II in lung cancer and will kick off a phase II in breast cancer before the end of the year. Both trials will read out topline during 2018. MM-141 is in a phase II right now in frontline pancreatic cancer (the deadliest cancer in the US) and that, also, will read out topline during 2018. MM-310 just kicked off a phase I study in various solid tumors which will read out – again – during 2018.Management was asked why it can't be any more specific with these topline readout dates on the company's most recent conference call. Some point during 2018 is, after all, pretty vague. The response satisfied us. Basically, as the new CEO has come on board and reallocated the fresh injection of capital to the trials, certain endpoints and recruitment criteria have changed. With these changes have come a change in recruitment pace and a degree of uncertainty as to how fast centers can enroll under the new criteria. Until the company gets a sense of how these changes are affecting pace, it cannot be any more specific as to enrollment completion and – by proxy – trial completion. We're going to suggest we're probably looking at the second half of the year before the trials start to read out. In another situation, this length-to-readout might be an issue. Indeed, so might the uncertainty. With a runway through to at least 6 months subsequent to the final expected readout from all of these programs, however, it's not too much of a concern at this stage. By the time we have to consider a dilution risk, we'll have a far stronger idea of pipeline potential.We will be updating our subscribers as soon as we know more. For the latest updates on MACK, sign up below!Disclosure: We have no position in MACK and have not been compensated for this article.