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Wednesday, June 12, 2024

Clark Avenue Worth: Merrimack Prescribed drugs: Ipsen Milestone Achieved, Liquidation


Merrimack Prescribed drugs (MACK) ($220MM market cap) is basically a publicly traded CVR in a c-corp kind, I owned the inventory briefly in 2017 after the corporate bought Onivyde to Ipsen and dedicated to passing by way of any future milestone funds associated to Onivyde to shareholders.  Sadly, it did not have the identical protections of a CVR and administration ended up diluting shareholders of these future milestone funds by elevating fairness to pursue their remaining growth stage pipeline.  In 2019, the corporate formally gave up growth of latest medication, administration was eliminated and it has been little greater than a shell since as the corporate awaited any milestone funds from Ipsen.

Seven quick years later, Ipsen introduced that Onivyde was accredited by the FDA for metastatic pancreatic ductal adenocarcinoma (“mPDAC”), a very terrible type of pancreatic most cancers.  This approval triggers a $225MM milestone cost to Merrimack, the remaining milestones for Onivyde and one other asset sale (to Elevation) will not be anticipated to be reached.  Merrimack waited little time to announce they had been formally liquidating pending a shareholder vote in Could, with the liquidation distribution vary of $14.65 to $15.35/share.

We’ll have to attend for the proxy to see how conservative this estimated vary is, however to my eye, it appears fairly conservative, with the precise distribution prone to be on the high quality and even simply above.  Beneath is my math, as traditional, it may be wildly off (and any variance to those numbers can swing the anticipated IRR fairly violently), I am significantly cautious of my tax estimate, any tax wizards on the market please be happy to chime in under within the remark part.

The corporate has $215MM in NOLs which just about matches the Ipsen windfall, however taxes are nonetheless due beneath part 452A of the IRS code, which in my novice learn imposes an curiosity penalty on deferred gross sales like a milestone cost.  The rate of interest relevant has assorted throughout the final 7 years, since I am only a retail man, I did not construct out a full mannequin, however I feel my quantity is roughly proper, perhaps a contact low.  The $0.03 distribution is solely a 50% haircut of my estimated escrow quantity to account for any bills in the course of the liquidating belief lifecycle.

The board at MACK has been managed by buyers/homeowners since 2019, they have been prepping and making ready for this present day since, I do not anticipate any giant shocking bills or a lot of an escrow.  Congratulations to that workforce, I’ve adopted at a brief distance however by no means felt absolutely snug betting on an FDA approval.

Disclosure: I personal shares of MACK

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