Intrinsic value of Merrimack Pharmaceuticals - MACK

Previous Close

$10.35

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$10.35

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

We calculate the intrinsic value of MACK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  61.80
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  144
  147
  150
  154
  158
  163
  169
  174
  180
  187
  194
  202
  210
  219
  228
  238
  249
  260
  271
  284
  297
  310
  325
  340
  356
  373
  391
  410
  430
  450
  472
Variable operating expenses, $m
 
  94
  96
  98
  101
  104
  108
  111
  115
  120
  124
  129
  134
  140
  146
  152
  159
  166
  173
  181
  190
  198
  208
  217
  228
  238
  250
  262
  275
  288
  302
Fixed operating expenses, $m
 
  170
  174
  179
  183
  188
  193
  197
  202
  207
  212
  218
  223
  229
  235
  240
  246
  253
  259
  265
  272
  279
  286
  293
  300
  308
  315
  323
  331
  340
  348
Total operating expenses, $m
  254
  264
  270
  277
  284
  292
  301
  308
  317
  327
  336
  347
  357
  369
  381
  392
  405
  419
  432
  446
  462
  477
  494
  510
  528
  546
  565
  585
  606
  628
  650
Operating income, $m
  -110
  -117
  -120
  -123
  -126
  -129
  -132
  -134
  -137
  -140
  -142
  -145
  -147
  -150
  -152
  -154
  -157
  -159
  -161
  -163
  -165
  -167
  -168
  -170
  -172
  -173
  -174
  -175
  -176
  -177
  -178
EBITDA, $m
  -104
  -114
  -117
  -120
  -123
  -126
  -128
  -131
  -133
  -136
  -138
  -141
  -143
  -145
  -148
  -150
  -152
  -154
  -155
  -157
  -159
  -160
  -162
  -163
  -164
  -165
  -166
  -167
  -168
  -168
  -168
Interest expense (income), $m
  24
  22
  -6
  -6
  -6
  -6
  -6
  -5
  -5
  -5
  -5
  -4
  -4
  -4
  -3
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  0
  0
  1
  2
  2
  3
  4
  4
  5
Earnings before tax, $m
  -154
  -139
  -114
  -117
  -120
  -123
  -126
  -129
  -132
  -135
  -138
  -140
  -143
  -146
  -149
  -151
  -154
  -157
  -159
  -161
  -164
  -166
  -168
  -171
  -173
  -175
  -177
  -178
  -180
  -181
  -183
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -152
  -139
  -114
  -117
  -120
  -123
  -126
  -129
  -132
  -135
  -138
  -140
  -143
  -146
  -149
  -151
  -154
  -157
  -159
  -161
  -164
  -166
  -168
  -171
  -173
  -175
  -177
  -178
  -180
  -181
  -183

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  81
  60
  62
  63
  65
  67
  69
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
  185
  194
Adjusted assets (=assets-cash), $m
  59
  60
  62
  63
  65
  67
  69
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  122
  127
  133
  139
  146
  153
  160
  168
  176
  185
  194
Revenue / Adjusted assets
  2.441
  2.450
  2.419
  2.444
  2.431
  2.433
  2.449
  2.451
  2.432
  2.429
  2.425
  2.434
  2.442
  2.433
  2.426
  2.429
  2.441
  2.453
  2.441
  2.448
  2.434
  2.441
  2.444
  2.446
  2.438
  2.438
  2.444
  2.440
  2.443
  2.432
  2.433
Average production assets, $m
  15
  15
  15
  16
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
Working capital, $m
  -31
  -54
  -55
  -57
  -58
  -60
  -62
  -64
  -66
  -69
  -72
  -74
  -77
  -81
  -84
  -88
  -91
  -96
  -100
  -104
  -109
  -114
  -120
  -125
  -131
  -137
  -144
  -151
  -158
  -166
  -174
Total debt, $m
  217
  -61
  -60
  -58
  -57
  -55
  -53
  -51
  -48
  -46
  -43
  -41
  -37
  -34
  -31
  -27
  -23
  -19
  -15
  -10
  -6
  -1
  5
  10
  16
  23
  29
  36
  43
  51
  59
Total liabilities, $m
  333
  54
  55
  57
  58
  60
  62
  64
  67
  69
  72
  74
  78
  81
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  138
  144
  151
  158
  166
  174
Total equity, $m
  -251
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
Total liabilities and equity, $m
  82
  60
  61
  63
  64
  67
  69
  71
  74
  77
  80
  82
  87
  90
  93
  98
  102
  107
  111
  117
  121
  127
  133
  139
  146
  153
  160
  168
  176
  184
  193
Debt-to-equity ratio
  -0.865
  -10.110
  -9.680
  -9.210
  -8.720
  -8.190
  -7.660
  -7.110
  -6.550
  -6.000
  -5.440
  -4.890
  -4.350
  -3.820
  -3.300
  -2.790
  -2.290
  -1.810
  -1.350
  -0.900
  -0.460
  -0.040
  0.360
  0.750
  1.120
  1.480
  1.820
  2.150
  2.470
  2.770
  3.060
Adjusted equity ratio
  -4.627
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -152
  -139
  -114
  -117
  -120
  -123
  -126
  -129
  -132
  -135
  -138
  -140
  -143
  -146
  -149
  -151
  -154
  -157
  -159
  -161
  -164
  -166
  -168
  -171
  -173
  -175
  -177
  -178
  -180
  -181
  -183
Depreciation, amort., depletion, $m
  6
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Funds from operations, $m
  -232
  -136
  -111
  -114
  -117
  -120
  -123
  -126
  -128
  -131
  -134
  -136
  -139
  -142
  -144
  -147
  -149
  -151
  -154
  -156
  -158
  -160
  -162
  -164
  -165
  -167
  -169
  -170
  -171
  -172
  -173
Change in working capital, $m
  -62
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from operations, $m
  -170
  -135
  -110
  -113
  -115
  -118
  -121
  -123
  -126
  -129
  -131
  -134
  -136
  -138
  -141
  -143
  -145
  -147
  -149
  -151
  -153
  -155
  -157
  -158
  -160
  -161
  -162
  -163
  -164
  -165
  -165
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
New CAPEX, $m
  -3
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
Free cash flow, $m
  -173
  -138
  -113
  -116
  -119
  -122
  -125
  -127
  -130
  -133
  -136
  -138
  -141
  -143
  -146
  -149
  -151
  -153
  -156
  -158
  -160
  -162
  -164
  -166
  -168
  -170
  -171
  -173
  -174
  -175
  -177
Issuance/(repayment) of debt, $m
  0
  -278
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Issuance/(repurchase) of shares, $m
  10
  418
  114
  117
  120
  123
  126
  129
  132
  135
  138
  141
  144
  146
  149
  152
  154
  157
  160
  162
  164
  167
  169
  171
  173
  175
  177
  179
  181
  182
  184
Cash from financing (excl. dividends), $m  
  9
  140
  115
  118
  122
  125
  128
  131
  134
  137
  141
  144
  147
  149
  152
  156
  158
  161
  164
  167
  169
  172
  174
  177
  179
  181
  184
  186
  188
  190
  192
Total cash flow (excl. dividends), $m
  -164
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
Retained Cash Flow (-), $m
  67
  -418
  -114
  -117
  -120
  -123
  -126
  -129
  -132
  -135
  -138
  -141
  -144
  -146
  -149
  -152
  -154
  -157
  -160
  -162
  -164
  -167
  -169
  -171
  -173
  -175
  -177
  -179
  -181
  -182
  -184
Prev. year cash balance distribution, $m
 
  22
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -394
  -112
  -115
  -117
  -120
  -123
  -125
  -128
  -130
  -133
  -135
  -138
  -140
  -143
  -145
  -147
  -149
  -151
  -153
  -155
  -157
  -159
  -161
  -162
  -164
  -165
  -166
  -167
  -168
  -168
Discount rate, %
 
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
 
  -372
  -99
  -95
  -90
  -85
  -79
  -74
  -68
  -61
  -55
  -49
  -44
  -38
  -33
  -28
  -23
  -19
  -15
  -12
  -10
  -7
  -6
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  2.5
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Merrimack Pharmaceuticals, Inc. is a biopharmaceutical company. The Company is engaged in discovering, developing and commercializing medicines consisting of therapeutics paired with companion diagnostics for the treatment of cancer. The Company has one marketed therapeutic oncology product and multiple targeted therapeutic oncology candidates in clinical development. Its advanced program is its therapeutic MM-398, which it markets in the United States under the brand name ONIVYDE. Its other clinical stage product candidates include MM-121, MM-141, MM-310, MM-302 and MM-151. The Company is developing in vitro and in vivo diagnostics for use with each of its oncology therapeutic product candidates. Its in vitro diagnostic agents employ biophysical or biochemical markers of cancer, or biomarkers. Its in vivo diagnostics take the form of imaging agents that may help identify patients likely to benefit from its therapeutic products by measuring deposition of its products in the tumor.

FINANCIAL RATIOS  of  Merrimack Pharmaceuticals (MACK)

Valuation Ratios
P/E Ratio -0.9
Price to Sales 0.9
Price to Book -0.5
Price to Tangible Book
Price to Cash Flow -0.8
Price to Free Cash Flow -0.8
Growth Rates
Sales Growth Rate 61.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -76.9%
Cap. Spend. - 3 Yr. Gr. Rate -21.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0.4
LT Debt to Equity -86.5%
Total Debt to Equity -86.5%
Interest Coverage -5
Management Effectiveness
Return On Assets -81%
Ret/ On Assets - 3 Yr. Avg. -64.2%
Return On Total Capital -760%
Ret/ On T. Cap. - 3 Yr. Avg. -424.2%
Return On Equity 69.9%
Return On Equity - 3 Yr. Avg. 96%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 95.1%
Gross Margin - 3 Yr. Avg. 65%
EBITDA Margin -86.1%
EBITDA Margin - 3 Yr. Avg. -101.9%
Operating Margin -76.4%
Oper. Margin - 3 Yr. Avg. -95.5%
Pre-Tax Margin -106.9%
Pre-Tax Margin - 3 Yr. Avg. -118.3%
Net Profit Margin -105.6%
Net Profit Margin - 3 Yr. Avg. -117.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

MACK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MACK stock intrinsic value calculation we used $144 million for the last fiscal year's total revenue generated by Merrimack Pharmaceuticals. The default revenue input number comes from 2016 income statement of Merrimack Pharmaceuticals. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MACK stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.9%, whose default value for MACK is calculated based on our internal credit rating of Merrimack Pharmaceuticals, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Merrimack Pharmaceuticals.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MACK stock the variable cost ratio is equal to 63.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $166 million in the base year in the intrinsic value calculation for MACK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 10.1% for Merrimack Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Merrimack Pharmaceuticals. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MACK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MACK are equal to 10.1%.

Life of production assets of 2.8 years is the average useful life of capital assets used in Merrimack Pharmaceuticals operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MACK is equal to -36.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-251 million for Merrimack Pharmaceuticals - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 13.279 million for Merrimack Pharmaceuticals is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Merrimack Pharmaceuticals at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Merrimack beats 3Q profit forecasts   [Nov-08-17 10:15AM  Associated Press]
▶ Is It Time To Buy Merrimack Pharmaceuticals Inc (MACK)?   [Sep-20-17 04:15PM  Simply Wall St.]
▶ Merrimack misses 2Q profit forecasts   [Aug-09-17 10:59PM  Associated Press]
▶ Merrimack Announces Management Change   [May-25-17 04:30PM  PR Newswire]
▶ Merrimack reports 1Q loss   [06:52AM  Associated Press]
▶ Merrimack asset sale prompts legal blowback   [Mar-23-17 01:20PM  at bizjournals.com]
▶ Merrimack asset sale prompts legal blowback   [01:20PM  American City Business Journals]
▶ Is Merrimack Pharmaceuticals Worth Stashing in Portfolios?   [Feb-12-17 08:41AM  at Motley Fool]
▶ 3 Stocks Begging for a Buyout   [Feb-11-17 02:04PM  at Motley Fool]
▶ Why Merrimack Pharmaceuticals Got Crushed 23.8% in January   [Feb-06-17 06:02PM  at Motley Fool]
Financial statements of MACK
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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