mack-10q_20190630.htm

 

 

 

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, 2019

OR

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

For the transition period from            to           

Commission file number: 001-35409

 

Merrimack Pharmaceuticals, Inc.

 

(Exact name of registrant as specified in its charter)

 

Delaware

04-3210530

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

One Broadway, 14th Floor

Cambridge, MA

02142

(Address of principal executive offices)

(Zip Code)

 

(617) 441-1000

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

MACK

Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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

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

As of July 10, 2019, there were 13,349,821 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, 2019 and December 31, 2018 (unaudited)

2

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

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

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

22

 

 

 

Item 4.

Controls and Procedures.

22

 

PART II

OTHER INFORMATION

 

Item 1A.

Risk Factors.

23

 

 

 

Item 5.

Other Information.

37

 

 

 

Item 6.

Exhibits.

38

 

 

Signatures

39

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

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

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

 

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

 

the anticipated cost savings in connection with our restructuring efforts;

 

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

 

our receipt of payments related to the milestone events under the asset purchase and sale agreement with Ipsen S.A. or under the license and collaboration agreement between Ipsen S.A. and Les Laboratoires Servier SAS (as assignee from Shire plc), when expected or at all;

 

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

 

our plans to declare and pay a special dividend to our stockholders;

 

our intellectual property position;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

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

 

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

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

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

NOTE REGARDING TRADEMARKS

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

 

1


 

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements.

Merrimack Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets

(unaudited)

 

(in thousands, except per share amounts)

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,917

 

 

$

20,079

 

Marketable securities

 

 

2,987

 

 

 

51,199

 

Restricted cash

 

 

584

 

 

 

584

 

Prepaid expenses and other current assets

 

 

2,069

 

 

 

4,240

 

Total current assets

 

 

42,557

 

 

 

76,102

 

Property and equipment, net

 

 

 

 

 

2,269

 

Equity method investment

 

 

 

 

 

7,428

 

Other assets

 

 

2,483

 

 

 

2,744

 

Total assets

 

$

45,040

 

 

$

88,543

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

4,940

 

 

$

13,677

 

Deferred rent

 

 

 

 

 

1,118

 

Total current liabilities

 

 

4,940

 

 

 

14,795

 

Note payable, net of discount and current portion

 

 

 

 

 

14,873

 

Other long-term liabilities

 

 

56

 

 

 

56

 

Total liabilities

 

 

4,996

 

 

 

29,724

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

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

   December 31, 2018

 

 

 

 

 

 

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

   December 31, 2018; 13,349 and 13,343 shares issued and outstanding

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

 

 

1,334

 

 

 

1,334

 

Additional paid-in capital

 

 

581,875

 

 

 

580,771

 

Accumulated other comprehensive loss

 

 

 

 

 

(9

)

Accumulated deficit

 

 

(543,165

)

 

 

(523,277

)

Total stockholders’ equity

 

 

40,044

 

 

 

58,819

 

Total liabilities and stockholders’ equity

 

$

45,040

 

 

$

88,543

 

 

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

2


 

Merrimack Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands, except per share amounts)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

$

4,739

 

 

$

13,678

 

 

$

11,100

 

 

$

26,784

 

General and administrative expenses

 

 

5,929

 

 

 

3,513

 

 

 

9,612

 

 

 

7,783

 

Gain on sale of assets

 

 

(1,410

)

 

 

 

 

 

(1,410

)

 

 

 

Total operating expenses

 

 

9,258

 

 

 

17,191

 

 

 

19,302

 

 

 

34,567

 

Loss from operations

 

 

(9,258

)

 

 

(17,191

)

 

 

(19,302

)

 

 

(34,567

)

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

207

 

 

 

282

 

 

 

572

 

 

 

557

 

Interest expense

 

 

(1,049

)

 

 

 

 

 

(1,527

)

 

 

 

Other (expense) income, net

 

 

670

 

 

 

(860

)

 

 

369

 

 

 

(1,541

)

Total other income and expenses

 

 

(172

)

 

 

(578

)

 

 

(586

)

 

 

(984

)

Net loss

 

$

(9,430

)

 

$

(17,769

)

 

$

(19,888

)

 

$

(35,551

)

Net loss per common share - basic and diluted

 

$

(0.71

)

 

$

(1.33

)

 

$

(1.49

)

 

$

(2.66

)

Weighted-average common shares used to compute basic and

   diluted net loss per common share

 

 

13,344

 

 

 

13,343

 

 

 

13,343

 

 

 

13,343

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(9,430

)

 

$

(17,769

)

 

$

(19,888

)

 

$

(35,551

)

Unrealized gain (loss) on marketable securities

 

 

 

 

 

11

 

 

 

9

 

 

 

(1

)

Comprehensive loss

 

$

(9,430

)

 

$

(17,758

)

 

$

(19,879

)

 

$

(35,552

)

 

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

3


 

Merrimack Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2018

 

 

13,343

 

 

$

1,334

 

 

$

580,771

 

 

$

(9

)

 

$

(523,277

)

 

$

58,819

 

Stock-based compensation

 

 

 

 

 

 

 

 

594

 

 

 

 

 

 

 

 

 

594

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,458

)

 

 

(10,458

)

Balance at March 31, 2019

 

 

13,343

 

 

$

1,334

 

 

$

581,365

 

 

$

 

 

$

(533,735

)

 

$

48,964

 

Stock-based compensation

 

 

 

 

 

 

 

 

487

 

 

 

 

 

 

 

 

 

487

 

Exercise of stock options

 

 

6

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,430

)

 

 

(9,430

)

Balance at June 30, 2019

 

 

13,349

 

 

$

1,334

 

 

$

581,875

 

 

$

 

 

$

(543,165

)

 

$

40,044

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2017

 

 

13,343

 

 

$

1,334

 

 

$

577,721

 

 

$

 

 

$

(482,771

)

 

$

96,284

 

Stock-based compensation

 

 

 

 

 

 

 

 

764

 

 

 

 

 

 

 

 

 

764

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

(12

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,782

)

 

 

(17,782

)

Balance at March 31, 2018

 

 

13,343

 

 

$

1,334

 

 

$

578,485

 

 

$

(12

)

 

$

(500,553

)

 

$

79,254

 

Stock-based compensation

 

 

 

 

 

 

 

 

780

 

 

 

 

 

 

 

 

 

780

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,769

)

 

 

(17,769

)

Balance at June 30, 2018

 

 

13,343

 

 

$

1,334

 

 

$

579,265

 

 

$

(1

)

 

$

(518,322

)

 

$

62,276

 

 

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)

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(19,888

)

 

$

(35,551

)

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

 

 

 

2,258

 

Loss (gain) on sale of equipment

 

 

(1,984

)

 

 

184

 

Premiums paid on marketable securities

 

 

 

 

 

(40

)

Amortization and accretion on marketable securities

 

 

(279

)

 

 

(223

)

Stock-based compensation expense

 

 

1,081

 

 

 

1,544

 

Loss (gain) on equity method investment

 

 

(372

)

 

 

1,417

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

2,432

 

 

 

(79

)

Accounts payable, accrued expenses and other

 

 

(9,855

)

 

 

(2,037

)

Deferred rent

 

 

 

 

 

(1,055

)

Net cash used in operating activities

 

 

(25,525

)

 

 

(33,582

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

 

 

 

(118

)

Proceeds from sale of equipment

 

 

2,025

 

 

 

 

Proceeds from sale of equity method investment

 

 

7,800

 

 

 

 

Proceeds from maturities and sales of marketable securities

 

 

48,500

 

 

 

11,050

 

Purchases of marketable securities

 

 

 

 

 

(48,331

)

Net cash provided by (used in) investing activities

 

 

58,325

 

 

 

(37,399

)

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

 

 

16,838

 

 

 

(70,981

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

20,663

 

 

 

94,217

 

Cash, cash equivalents and restricted cash, end of period

 

$

37,501

 

 

$

23,236

 

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

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

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

 

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

 

$225.0 million upon approval by the U.S. Food and Drug Administration (“FDA”) of ONIVYDE for the first-line treatment of metastatic adenocarcinoma of the pancreas, subject to certain conditions;

 

$150.0 million upon approval by the FDA of ONIVYDE for the treatment of SCLC after failure of first-line chemotherapy; and

 

$75.0 million upon approval by the FDA of ONIVYDE for an additional indication unrelated to those described above.

 

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

The Company’s termination of its executive management team and all other employees was substantially completed by June 28, 2019 and fully completed by July 12, 2019. As of July 12, 2019, the Company does not have any employees. The Company has engaged an external consultant 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.

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

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

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

6


 

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, 2019, the Company had an accumulated deficit of $543.2 million. During the six months ended June 30, 2019, the Company incurred a net loss of $19.9 million and used $25.5 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, cash equivalents and marketable securities of $39.9 million at June 30, 2019 will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from issuance of the financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

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

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Consolidation

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

Unaudited Interim Financial Information

The condensed consolidated balance sheet as of December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated balance sheet as of June 30, 2019, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2019 and 2018 and the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2019, the results of its operations for the three and six months ended June 30, 2019 and 2018, its statements of stockholders’ equity for the three and six months ended June 30, 2019 and 2018 and its statements of cash flows for the six months ended June 30, 2019 and 2018. The financial data and other information disclosed in the notes related to the three and six months ended June 30, 2019 and 2018 are unaudited. The results for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

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

7


 

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,

2019

 

 

June 30,

2018

 

Cash and cash equivalents

 

$

36,917

 

 

$

22,460

 

Restricted cash in prepaid expenses and other current assets

 

 

 

 

 

192

 

Restricted cash (short-term)

 

 

584

 

 

 

 

Restricted cash (long-term)

 

 

 

 

 

584

 

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

   statement of cash flows

 

$

37,501

 

 

$

23,236

 

 

Restricted cash on the statement of financial position for 2019 and 2018 primarily represents amounts pledged as collateral for operating lease obligations as contractually required.

Use of Estimates

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

Marketable Securities

Marketable debt securities consist of investments with original maturities greater than 90 days at their acquisition date. The Company classifies all of its marketable debt securities as available-for-sale securities. The Company’s marketable debt securities are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive loss, which is a separate component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income and expenses, net in the consolidated statements of operations and comprehensive loss.

The Company evaluates its marketable debt securities with unrealized losses for other-than-temporary impairment. When assessing marketable debt securities for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

 

3. Leases

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

  

4. Fair Value of Financial Instruments

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

8


 

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

 

 

 

June 30, 2019

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

28,600

 

 

$

 

 

$

 

Totals

 

$

28,600

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

2,987

 

 

 

 

Totals

 

$

 

 

$

2,987

 

 

$

 

 

 

 

December 31, 2018

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,292

 

 

$

 

 

$

 

Commercial paper

 

 

 

 

 

1,998

 

 

 

 

Totals

 

$

16,292

 

 

$

1,998

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

 

 

$

31,766

 

 

$

 

Corporate debt securities

 

 

 

 

 

7,479

 

 

 

 

Government securities

 

 

 

 

 

11,954

 

 

 

 

Totals

 

$

 

 

$

51,199

 

 

$

 

 

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

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

 

 

5. Marketable Securities and Cash Equivalents

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

 

 

 

June 30, 2019

 

(in thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

28,600

 

 

$

 

 

$

 

 

$

28,600

 

Total cash equivalents

 

$

28,600

 

 

$

 

 

$

 

 

$

28,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

2,987

 

 

$

 

 

$

 

 

$

2,987

 

Total marketable securities

 

$

2,987

 

 

$

 

 

$

 

 

$

2,987

 

Total cash equivalents and marketable securities

 

$

31,587

 

 

$

 

 

$

 

 

$

31,587

 

9


 

 

 

 

 

December 31, 2018

 

(in thousands)

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,292

 

 

$

 

 

$

 

 

$

16,292

 

Commercial paper

 

 

1,998

 

 

 

 

 

 

 

 

 

1,998

 

Total cash equivalents

 

$

18,290

 

 

$

 

 

$

 

 

$

18,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

31,766

 

 

$

 

 

$

 

 

$

31,766

 

Corporate debt securities

 

 

7,487

 

 

 

 

 

 

(8

)

 

 

7,479

 

Government securities

 

 

11,955

 

 

 

 

 

 

(1

)

 

 

11,954

 

Total marketable securities

 

$

51,208

 

 

$

 

 

$

(9

)

 

$

51,199

 

 

 

6. Notes Payable

Through April 15, 2019, the Company borrowed $15.0 million under the Loan Agreement by and among the Company, certain subsidiaries of the Company from time to time party thereto, the several banks and other financial institutions or entities from time to time parties thereto (collectively referred to as “Lender”) and Hercules, in its capacity as administrative agent and collateral agent for itself and Lender, and incurred $0.4 million of related debt discount and issuance costs, inclusive of the $0.3 million fee paid upon closing. Prior to the repayment of the debt, the debt discount and issuance costs were being accreted to the principal amount of debt and being amortized from the date of issuance through August 1, 2021 to interest expense using the effective-interest method.  

On April 15, 2019, the Company repaid in full all principal, accrued and unpaid interest, fees, costs and expenses under the Loan Agreement in an aggregate amount equal to $16.0 million (the “Payoff Amount”). The Payoff Amount includes a prepayment penalty of $0.2 million and a fee of $0.8 million, which were recorded to interest expense. The loss on extinguishment of the debt of approximately $1.0 million was recorded as interest expense during the second quarter of 2019. The loss on extinguishment represents the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt.  In connection with the payment of the Payoff Amount, all liens and security interests granted to secure the obligations under the Loan Agreement and all guaranties of the obligations under the Loan Agreement terminated.  

 

 

During the three and six months ended June 30, 2019, the Company recognized $1.0 million and $1.5 million of interest expense related to the Loan Agreement, respectively. No interest expense was associated with the Loan Agreement for the three and six months ended June 30, 2018.

 

7. Accounts Payable, Accrued Expenses and Other

Accounts payable, accrued expenses and other as of June 30, 2019 and December 31, 2018 consisted of the following:

 

(in thousands)

 

June 30,

2019

 

 

December 31,

2018

 

Accounts payable

 

$

24

 

 

$

1,034

 

Accrued goods and services

 

 

694

 

 

 

2,082

 

Accrued clinical trial costs

 

 

1,354

 

 

 

1,683

 

Accrued drug purchase costs

 

 

371

 

 

 

4,245

 

Accrued payroll and related benefits

 

 

44

 

 

 

2,315

 

Accrued restructuring expenses

 

 

1,056

 

 

 

921

 

Income taxes payable

 

 

83

 

 

 

83

 

Deferred tax incentives

 

 

1,314

 

 

 

1,314

 

Total accounts payable, accrued expenses and other

 

$

4,940

 

 

$

13,677

 

 

 

8. 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.

10


 

There were no options granted during the three and six months ended June 30, 2019. At June 30, 2019, there were 1.4 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, 2019 and 2018 as follows:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(in thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Employee awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

$

40

 

 

$

280

 

 

$

223

 

 

$

614

 

General and administrative expense

 

 

447

 

 

 

500

 

 

 

858

 

 

 

930

 

Total stock-based compensation expense

 

$

487

 

 

$

780

 

 

$

1,081

 

 

$

1,544

 

 

 

9. Net Loss Per Common Share

Basic net loss per share is calculated by dividing the net loss attributable to Merrimack Pharmaceuticals, Inc. 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 Merrimack Pharmaceuticals, Inc. 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. 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.

The Company follows the two-class method when computing net loss per share when it has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of