Thursday, June 4, 2015

Merrimack Pharmaceuticals (NASDAQ: MACK)

Now, I am not a doctor — the science behind any biotech company is a bit of a mystery to me. And so I have to rely on the market's acceptance of any biotech company for validation. For Merrimack, it looks pretty good.
So far in 2015, the stock has moved from $9 in January to a recent high around $13.60. It has since pulled back to the ~$12 level.
Merrimack is still in the development stage, so it is losing money on R&D. But next year's loss has been cut significantly, which suggests that momentum is building.
Merrimack is valued at $1.3 billion, and it has $103 million in trailing revenues. In fiscal 2016, revenues are expected to jump to $189 million. But the thing is, Merrimack is already positive $20 million for levered cash flow, which accounts for administrative costs and debt payments.
Merrimack is partnered with Baxter and receives milestone payments that are expected to cover operations through 2016, so funding shouldn't be an issue. That's always good for a development-stage company. For investors, the sole focus can be on efficacy of its two main drugs for pancreatic and breast cancer.
Of course, there is always risk with any biotech stock. With Merrimack, the partnership with Baxter is a big plus. The fact that biotechs have been so strong is also a positive.
Big Pharma like Pfizer (NYSE: PFE) and Merck (NYSE: MRK) must make acquisitions to grow pipelines, and that's been a big driver for biotechs. It's not likely to end soon.
Merrimack's chart is a bit indecisive at $11.90 right now. The recent decline from $13 is the result of earnings, not negative results from its drugs. There's support at $11, and that level would make a pretty good entry. 

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