Monday, January 9, 2017

Arantana Therapeutics (PETX) and Merrimack Pharmaceuticals (MACK)

The following are the last two comments that I published at SeekingAlpha:

PETX (own 100 shares-Lotto Ticket):
Aratana Therapeutics, Inc. (PETX)
$8.55 +0.77 (+9.90%)
As of 12:23 PM EST

I did not see any specific PETX news to account for today's move. The shares have been extremely volatile and were up 42% last year:
Why Aratana Therapeutics Inc. Rocketed 42.7% Higher in 2016 -- The Motley Fool

Sometimes, the stock spikes based on a knee jerk reaction to acquisition news news that does not involve a company and that may be the case today.
The privately held Mars company, which has a significant pet food business headquartered in Franklin Tennessee, has agreed to acquire VCA Inc.:
$90.64 +$19.87 (+28.07%)
As of 12:28 PM EST.

WOOF operates animal hospitals and provides laboratory and consulting for veterinarians.
There has been a lot of acquisition activity in the pet sector over the past few years:
Profit From Trends In The Pet Care Industry | Seeking Alpha
I view PETX as an acquisition candidate given its small market cap and the receipt of three FDA approvals last year
PETX is a drug company focused on animal health.
I first bought 50 shares and discussed that purchase here:
2. Bought 50 PETX at $6.43: Update For Healthcare Basket Strategy As Of 7/29/16-Growing Lottery Ticket Component - South Gent | Seeking Alpha

The stock has been on a roller coaster rise since that July 2016 purchase: Historical Prices

After one of its periodic dips, I bought another 50 shares at $7.34, an average up, and discussed that trade in Comment Blog # 5: at Seeking Alpha. 

PETX has drifted down some by mid-afternoon and last traded at $8.31, up 6.815 as of 1:58 E.S.T.   


MACK: Notwithstanding the market's negative reaction to MACK's announcement's announcement today,  I went ahead and bought another 50 shares this morning at $3.85 using a commission free trade. The other lot is in the IB account. MACK is still well within the definition of a Lottery Ticket.

Merrimack Concludes Strategic Review; Announces Plan to Divest Assets and Sharpen Strategic Focus
Another way to look at this deal, which is not consistent with the current pricing, is that it does monetize ONIVIDE and removes the concern about dilutive share offerings to finance further ONIVIDE trials while retaining benefits in the milestone payments in the event other indications are approved for marketing. In the materials released so far, I did not see any MACK obligation to continue funding those trials in order to receive the milestone payments. Those materials include a slideshow: Merrimack Pharmaceuticals (MACK) Investor Presentation - Slideshow- Seeking Alpha

I also read parts of the acquisition agreement itself which states at page 2 that MACK is transferring "all rights to perform research with respect to, Develop (including clinical development), manufacture, sell, distribute, license, promote and use (or cause to be performed, Developed, manufactured, sold, distributed, licensed, promoted and used) the Transferred Products, including all rights and claims to all clinical study data, reports and analyses to the extent related to the Transferred Products". EX-2.1: SEC Filing

On a related issue, MACK will not have to raise additional capital to further its remaining pipeline drugs into the second half of 2019.
The first MACK dividend of $1.54 looks like close to a sure thing. That mitigates the risk some for a purchase now. Any further dividends, when and if received, would further de-risk stock ownership at the current price. If all milestone payments are made, then the cumulative value of all dividends would exceed the current price.
It is of course virtually impossible to say one way or the other whether the remaining pipeline products will succeed. I am without question unqualified to render an opinion on that subject.
MACK says that seribantumab is now its leading pipeline candidate (page 12 of slide show).
The "U.S. Food and Drug Administration (FDA) has granted seribantumab, also known as MM-121, Fast Track designation for development in patients with heregulin-positive, locally advanced or metastatic non-small cell lung cancer (NSCLC) whose disease has progressed following immunotherapy." FDA Grants Merrimack Fast Track Designation for Seribantumab (MM-121) in Non-small Cell Lung Cancer 

And, MACK just had a pipeline failure as I have discussed previously. 


MACK Purchase Today: 50 at $3.85 (commission free at Schwab-over 400 free trades left)

I last sold 100 MACK at $6.43: 

I discussed buying 50 shares of that 100 share lot here: Item # 5 Bought 50 MACK at $5.35: Update For Healthcare Basket Strategy As Of 7/29/16-Growing Lottery Ticket Component - South Gent | Seeking Alpha  

I then bought back 50 shares at $3.6 last Friday in my IB account: 


There are several possible reasons for the poor response to MACK's announcement today: (1) Investors believe that ONIVDE was sold at too low of a price or the price for ONIVDE was low due to its disappointing launch which continued into the last quarter; (2) too much of the ONIVDE potential revenues for MACK are backloaded into new FDA indication approvals; (3) the market is not confident that those milestone payments will actually be received; (4) investors are disappointed that MACK decided to stay independent; (5) investors lack confidence in the remaining pipeline and/or (6) the remaining pipeline products are just too far away from securing marketing approval to place value on them.

I am now at 150 MACK shares as a Lotto Ticket. 


  1. South Gent,

    As I mentioned I took a small position of MACK and four other biotech stocks today. I think there is a contrarian play in the biotech sector. I have six more on my watch list (ARLZ,DRRX,OPK,REPH,VCYT, and XENE). I think I will have 35-40 stocks in this lotto basket when I am done with my research.

  2. Y: MACK's closing price yesterday was $3.67, up only 7 cents, and pre-market trading today is currently showing a $3.55 price. At $3.55, the market is pricing the stock at $2.01 per share adjusted for the upcoming $1.54 dividend that MACK says it will pay when the deal closes.

    If one of the 3 remaining pipeline drugs is approved and achieves minor success (e.g. $100M in annual revenues), then the $2.01 adjusted price is too low IMO and that assumes that none of the milestone payments are made for Onivyde which could be as high as $450M or $3.56 per share prior to taxes. There are a lot of future negatives built into the current price that have not yet occurred.

    I know that DRRX went down after Pain Therapeutics bombed again on securing FDA approval of a product that would have resulted in royalty payments to DRRX.

  3. South Gent,

    More selling in the biotech industry today due to Trump's pledge to rein in the drug price (and the healthcare expenses). The whole healthcare industry will be under pressure one way or another for a while, maybe more so than under a Clinton administration. Need to re-examine the allocation to the industry.

  4. Y: Until I see something concrete moving through Congress to control drug prices, my initial reaction to Trump statements will be to look for a small biotech to buy as a Lotto Ticket.

    My purchase today was 50 share of TCON at $4.8. I entered that limit order when the bid price was $5. The stock is now at $4.73, down 7.35% for the day.

    From 1/3/17: "TRACON Pharma clarifies development path for lead product candidate; shares ahead 11%"

  5. South Gent,

    85% of my biotech basket are in red today, but I did exactly the same as you did. I bought four more Lotto Tickets: NVAX (-5.59%), TXMD (-4.01%), MRTX (-0.92%), and VCYT (-0.13%).