Merrimack Pharmaceuticals Inc (NASDAQ:MACK) Sees Earnings Boost As FDA Accepts Application For Generic Drug

Merrimack Pharmaceuticals Inc (NASDAQ:MACK) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) have moved closer to introducing their generic version of Johnson & Johnson (NYSE:JNJ) drug DOXIL to the market. The FDA has accepted an application from the companies to review the generic drug for commercialization approval.

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DOXIL is a doxorubicin hydrochloride (HCI) liposome administered through injection. The drug is sold in the U.S. by Johnson & Johnson’s subsidiary Janssen Products. It is offered as a treatment for ovarian cancer and multiple myeloma. Prior to 2011, DOXIL logged about $600 million in annual worldwide sales. But Johnson & Johnson suffered problems with production of the drug, leading to a supply shortage that has now created an opportunity for Merrimack and others to develop and seek approval for a generic version of the chemotherapy treatment.

Sharing revenue

Merrimack said generic DOXIL is the first product it is working on in partnership with Actavis. Under the partnership, Merrimack is charged with the responsibility of developing the drug and later producing it in large quantity for Actavis to sell. In addition to be responsible for selling the drug, Actavis is also responsible for regulatory approvals.

If Merrimack’s generic DOXIL is successful, the company will share revenue with Actavis. Merrimack is expected to receive royalty payments in the rate of mid-twenties of the net profits coming from the sales of generic DOXIL.

The company said the anticipated contribution from the DOXIL-linked income would not only help it cover costs of developing the drug, but also meaningfully boost its earnings.

But Merrimack’s HCI will battle for market share not only with Johnson & Johnson’s DOXIL, but also with Sun Pharma Global’s generic version of the same drug. The FDA approved generic DOXIL from Sun Pharma to offset a supply shortage of the drug after Johnson & Johnson suffered manufacturing disruption.

Restructuring mode

The update on generic DOXIL comes at a time when Merrimack is undergoing restructuring. The company announced plans to cut 22% of its workforce as part of the efforts to eliminate $200 million in expenses. The restructuring process led to the resignation of the company’s CEO Robert Mulroy. Merrimack is in the process of recruiting a permanent CEO.

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