Mersana Therapeutics, Inc. (NASDAQ:MRSN) Q2 2022 Earnings Conference Call August 8, 2022 4:30 PM ET

Company Participants

Jason Fredette - Senior Vice President, Investor Relations and Corporate Communications
Anna Protopapas - President, CEO & Director
Arvin Yang - Senior VP & Chief Medical Officer
Brian DeSchuytner - Senior VP & CFO

Conference Call Participants

Jonathan Chang - SVB Securities
Colleen Kusy - Baird

Operator

Good afternoon, and welcome to Mersana Therapeutics Second Quarter 2022 Conference Call and webcast. Currently, all participants are in a listen-only mode. There will be a question answer session at the end of this call.

I would now like to turn the call over to Jason Fredette, Senior Vice President, Investor Relations and Corporate Communications. Please proceed.

Jason Fredette

Good afternoon, everyone. Before we begin, please note that this call will contain forward-looking statements within the meaning of the federal securities laws. These statements may include, but are not limited to, those related to the company's business strategy, platform potential, clinical trial or preclinical study execution and data releases, regulatory plans and objectives, commercial opportunities, collaborations and potential associated payments, operating expenses and cash runway. Each of these forward-looking statements is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

These risks and uncertainties are discussed in the company's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 9, 2022 and in subsequent SEC filings. Our filings are available at sec.gov and on our website, mersana.com. Except as required by law, we assume no obligation to update forward-looking statements publicly even if new information becomes available in the future.

With that, let me turn the call over to Anna Protopapas, our President and Chief Executive Officer.

Anna Protopapas

Hello, everyone, and welcome to our conference call. Joining me today with prepared remarks are our Chief Medical Officer, Arvin Yang and our Chief Financial Officer, Brian DeSchuytner. I'm also joined by several other members of management, who will be available to answer your questions.

At Mersana, we aspire to be the leader in the ADC space. And in recent months, we have made significant advances towards this patient. As we approached enrollment completion in UPLIFT, our potential registration trial, initiated patient screening in UP-NEXT, our potential confirmatory trial cleared their IND with the FDA for XMT-1660. Cleared their IND for XMT-2056, and announced that the FDA has granted orphan drug designation for this candidate in gastric cancer.

And finally, as we just announced, we entered into yet another exciting strategic partnership that provides significant non dilutive capital to extend our cash runway, while also allowing us to retain longer term strategic and financial upside potential.

Let me begin with this most recent accomplishment. We are excited to share the news after market today that we have entered into a global collaboration, providing GSK with an exclusive option to co-develop and commercialize XMT-2056, which is our first Immunosynthen ADC.

2056, targets a novel epitope of HER2, and is designed to activate the innate immune system through STING signaling in both tumor-resident immune cells and in tumor cells. There are several financial and strategic aspects that make this deal particularly noteworthy.

First and foremost, from a financial perspective, this is a very meaningful deal for an early stage ADC asset [ph]. We believe it's magnitude. So it is recognition of our differentiated Immunosynthen platform, the strength of our preclinical data, and the transformational potential of XMT-2056.

Secondly, the upfront option purchase fee of $100 million extends are runway into the first half of 2024, well beyond important inflection points. Thirdly, assuming GSK option, they will fund a majority of the development costs for 2056, and the deal is structured, so that our cash contribution will generally be offset by development, milestones and other features, all while retaining participation in the potential longer term value of this exciting program. Brian will share some additional information on the financials in just a few minutes.

We believe GSK would be an ideal partner for XMT-2056, given our shared vision for the potential of this program, their wealth of global development and commercial capabilities, and their deep experience in ADC, the IO space and the STING pathway.

And finally, from a strategic perspective, we view this agreement is a strong endorsement of the potential of our Immunosynthen platform and XMT-2056. When coupled with the recent collaboration that we formed with Janssen earlier this year, leveraging a Dolasynthen platform, we believe it also reaffirms that Mersana is increasingly being viewed as a partner of choice during this momentous period in the broader ADC space.

Now, let's touch on the progress we have made recently in executing against our plan to position UpRi as a foundational medicine in ovarian cancer, which remains our top priority. We continue to be pleased by the pace of enrollment in UPLIFT, our single arm registration trial in platinum-resistant ovarian cancer and are on track to announce enrollment completion around the end of the third quarter.

This would position us for a top line readout and potential BLA in this indication in 2023. UP-NEXT is our Phase 3 clinical trial of UpRi monotherapy maintenance and NaPi2b to the high recurrent platinum-sensitive ovarian cancer. We are pleased to report that we recently initiated patient screening in this trial.

And then, there's UPGRADE. Our Phase 1/2 umbrella combination trials in early line platinum-sensitive patients. Dose escalation is underway in the first arm of the trial, which is looking at the combination of UpRi with carboplatin.

These three ongoing clinical trials have the potential to demonstrate UpRi's efficacy and confirm its safety and tolerability, while also generating data across a broad range of ovarian cancer settings.

And beyond UpRi, we're actively diversifying our clinical pipeline in a thoughtful and strategic manner with XMT-1660 And XMT-2056, both of which recently cleared INDs. Arvin will share more information on these efforts in just a moment.

In summary, this has been another very productive period for Mersana. We make substantial progress in our UPLIFT clinical trials and our position for the top line data readout and potential BLA filing next year.

We are advancing to exciting and highly differentiated molecules with XMT-1660 and XMT-2056, and we are substantially strengthening our balance sheet through the partnership with GSK. We look forward to continuing this momentum in the second half of the year, as we approach what we anticipate to be a transformative 2023.

With that, I will ask our Chief Medical Officer, Arvin Yang to delve more deeply into our clinical progress and plans.

Arvin Yang

Thank you, Anna, and good afternoon, everyone. Thanks to in part a strong support from both the GOG and ENGOT. We continue to make meaningful progress in advancing UpRi's development across the ovarian cancer treatment.

Let me start with UPLIFT. As Anna mentioned, enrollment in this registrational trial has been robust, and we remain on track to complete enrollment around the end of the third quarter.

Turning to our Phase 3 UP-NEXT trial, we're excited by its potential to serve as a post approval confirmatory trial in the U.S. to support global registrations, and to expand UpRi's earlier lines of therapy.

Despite the relatively recent approval of PARP inhibitors and Bevacizumab, there remains a high unmet medical needs in the maintenance setting following platinum therapy.

UP-NEXT is designed to address the needs of three primary groups of patients were underserved by today's standard of care. The first are patients who have progressed on PARP inhibitors and Bevacizumab, whether taken in combination or in sequence.

Second, are patients who are poorly served by today's maintenance agents, and are resorting to watch and wait as their best option. And the third are patients who achieve stable disease on platinum who are excluded from the PARP maintenance studies and consequently are excluded from treatment in the PARP inhibitor labels.

UP-NEXT provides the potential to establish UpRi as the first ADC maintenance therapy in the platinum-sensitive space. There's an even larger patient population that has been evaluated in UPLIFT.

Initial clinical sites for UP-NEXT have been activated and patient screening is underway. Ultimately, we are targeting the enrollment of approximately 350 patients worldwide in this trial.

In addition to UPLIFT and UP-NEXT, we are seeking to bring UpRi into earlier lines of therapy through UPGRADE. As Anna mentioned, the first portion of this trial is investigating UpRi in combination with carbo platinum.

We're in early dose escalation at this stage and plan to provide a first look at the safety and tolerability of UpRi in combination with carbo platinum with the initial interim dose escalation data during the fourth quarter of this year. We believe we will gain even more valuable insights into the potential efficacy and tolerability of this combination through the dose expansion portion of the trial.

Now, let's move on to our earlier stage candidates, XMT-1660 and XMT-2056. As a reminder, 1660 is our B7-H4 directed Dolasynthen ADC with a precise target-optimized drug to antibody ratio of six and Mersana???s clinically validated DolaLock microtubule inhibitor payload with a controlled bystander effect.

DolaLock of course, already has shown its potential to drive efficacy and heavily pretreated ovarian cancer patients without severe neutropenia, peripheral neuropathy or ocular toxicity. And we see B7-H4 as a compelling target, given its limited expression and healthy tissue, and its high expression in a range of cancers including breast cancer, endometrial and ovarian cancer.

In triple-negative breast cancer, where PD-1 agent is approved, may be an even greater unmet need, as there appears to be an apparent lack of overlap between B7-H4 expression and PD-L1 expression.

We've generated promising preclinical efficacy and tolerability data for 1660. And we're happy to report that our IND for this candidate was recently cleared by the FDA. Initial Phase 1 clinical sites have been activated and dosing is expected to begin imminently.

This Phase 1 trial will investigate 1660 in solid tumors including breast, endometrial and ovarian cancer. And then, there's XMP-2056, which we will expect will enter the clinic in the second half of this year.

2056 is directed at HER2, which of course is a very well established target and it's over expressed in breast, non small cell lung cancer, gastric cancer, among others. This molecule has been tested extensively in preclinical models with impressive results.

We have observed 2056 activity as a single agent in both HER2 high, and HER2 low expressing models. It's also shown synergistic activity when used in combination with checkpoint inhibitors, and with other HER2 standard of care agents in breast cancer, such as in HER2.

This has been possible because 2056 targets are HER2 epitope that is distinct from trastuzumab and Pertuzumab. And notably, 2056 has demonstrated the potential for a very wide therapeutic index in preclinical models. And so, we're excited to have these three programs in motion, and we're looking forward to generating clinical data from all three of our ADC platforms.

With that, let's turn the call over to our Chief Financial Officer, Brian DeSchuytner. Brian?

Brian DeSchuytner

Thank you, Arvin. Let's begin by sharing some additional context about our collaboration with GSK, which we view is a significant achievement for Mersana. This global collaboration provides GSK with an exclusive option to co-develop and commercialize XMT-2056 for an upfront option purchase fee of $100 million.

For GSK choose to exercise its option, we will be entitled to receive an additional $90 million payment and up to approximately $1.3 billion in development, regulatory and commercial milestone payments.

As Anna indicated, if GSK opts in, they will fund a majority of the development costs for XMT-2056, and our cash contribution would be generally offset by development milestone and other features.

We also have the ability to benefit from the potential longer term value of this exciting program. For instance, the deal structure allows us to retain options for profit share, and to co promote XMT-2056 in the U.S. If we opt into the profit share, we would receive royalties on net sales outside of the U.S.

If we do not opt in, we would receive tiered double digit royalties ranging up to the mid 20 on global net sales. Further information is contained in the 8-K that we just filed with the SEC.

This agreement follows our research collaboration with Janssen earlier this year, and demonstrates once again how we can leverage our platforms and product candidates as tools within our financing arsenal.

So let's talk about our financial resources to fund our operating plan. We ended the quarter with approximately $225 million in cash, cash equivalents and marketable security.

Additionally, our line of credit with Oxford and SVB provides us with the opportunity to draw down an additional $35 million in low cost capital at our option. When combined with the $100 million upfront payment from GSK, we believe we have the financing required to fund our operating plan commitments into the first half of 2024.

And now for a brief recap of our P&L for the second quarter. Collaboration revenue for the second quarter of 2022 was $4.3 million, compared to an immaterial amount in the same period in 2021. The year-over-year increase was related to revenue recognized under our collaboration agreement with Janssen.

Research and development expenses for the second quarter of 2022 were $41.2 million, compared to $32 million for the same period of 2021. Non-cash R&D related stock based compensation expense for the second quarter of 2022 was $2.7 million.

The year-over-year increase in R&D was primarily driven by clinical and manufacturing costs for XMT-1660 and Dolasynthen platform, higher UpRi manufacturing and clinical costs and an increase in headcount.

As we previously described, we expect to incur non-recurring costs in the near term related to antibody manufacturing runs for UpRi and anticipation of a potential BLA filing, and our efforts to ensure long term supply of Dolasynthen and conjugation components for both XMT-1660 and our Janssen collaboration.

General and administrative expenses for the second quarter of 2022 were $14.8 million, compared to $8.9 million in the same period in 2021. Non cash G&A related stock-based compensation expense for the second quarter of 2022 was $2.6 million.

The year-over-year increase in G&A was primarily related to an increase in consulting and professional fees and increased headcount. Mersana???s net loss for the second quarter of 2022 was $52.2 million, or $0.55 per share, compared to a net loss of $40.9 million, or $0.59 per share for the same period in 2021.Finally, net cash used in operating activities was $44.7 million for the second quarter of 2022.

Now Anna will close our formal remarks before we take your questions. Anna?

Anna Protopapas

Thanks, Brian. We're incredibly proud of all the progress we have made thus far in 2022. From working to build UpRi, the foundational medicine in ovarian cancer, with UPLIFT, UP-NEXT and UPGRADE, our progress with 1660 and 2056 and the meaningful new strategic partnerships with Janssen and GSK. Simply put, we're excited about our prospects and believe we're in a strong position to execute on our plans.

With that, let's open the call to your questions. Operator, would you please provide the instructions.

Question-and-Answer Session

Operator

[Operator Instructions] First question is from the line of Jonathan Chang with SVB Securities. Please go ahead.

Jonathan Chang

Hi, guys, congrats on the partnership. And thanks for taking my questions. First question on XMT-2056. Just for clarity. Are you guys still running the Phase 1 study? And how are decisions on data disclosure made?

Arvin Yang

Brian will take that.

Brian DeSchuytner

Yes, absolutely. We continue to run the Phase 1 study, in fact, XMT-2056, remains wholly owned by Mersana. That Phase 1 will be a fairly typical first inhuman dose escalation design with an eye towards enriching for breast cancer.

Anna Protopapas

And it???s thus, the completion of gut [ph] where GSK has an option to obtain, Jonathan.

Jonathan Chang

Got it. So the option exercise is, I guess -- sorry, just any additional color on the timelines for the option exercise?

Anna Protopapas

It's too early for us to really provide timelines. But I think we've given you a sense of how far we need to -- we will take the program.

Jonathan Chang

Got it. And on the Immunosynthen platform more broadly. You guys have efforts here beyond HER2. How should we thinking about the strategy here and potential business development opportunities beyond 2056 specifically?

Anna Protopapas

Yes. Well, we're in a very fortunate position, as you know, to have three platforms, all of which are supported by substantial data. Soon, all three will be in the clinic. And that puts us in a position to leverage these platforms to bring additional exciting products forward. And frankly, there's more than here in potential that we could take for any one company can take advantage and harness. So partnerships remain a very important part of our strategy, whether they be platform deals like the one we did with Janssen, or whether they are asset deals like the one we've done with GSK. So, we are continue to engage in discussions and the interest in the ADC space is quite high at this point. And we find ourselves really in a great position to leverage that interest.

Jonathan Chang

Understood. Congrats again.

Anna Protopapas

Thanks, Jonathan.

Operator

Your next question is from the line of Colleen Kusy with Baird. Please go ahead.

Colleen Kusy

Hi, good afternoon. Congrats on the partnership as well, and thanks for taking your questions. Starting with 2056, was there any new data that was shared with GSK in the diligence process? And I know you mentioned enriching for breast cancer. So is it a fair interpretation that GSK has prioritized that indication? And will you still enroll the other gastric and lung in that study as well?

Anna Protopapas

So, as you can imagine, the diligence was very, very comprehensive involved, not only the data we have shared publicly, but a lot of the other data we have been generated to support the potential of 2056 and Immunosynthen platform, very comprehensive, including a review of the IND that we have recently cleared with the FDA. As for the development program, I think GSK shares our vision that 2056 has very broad potential in HER2 expressing tumors, which include lung, but also includes other indications, include gastric -- include breast and other indications. So breast happens to be the largest indication. So we want to make sure that our dose escalation includes sufficient number of breast cancer patients, but our interests are very broad.

Colleen Kusy

Great. That's helpful. Thank you. And just a follow-up. For the UPGRADE data that we'll see in the fourth quarter of this year. Can you help us set expectations on how many patients and maybe how much follow up we could see?

Anna Protopapas

Arvin, do you want to?

Arvin Yang

Yes, sure. So, thanks, Colleen, for the question. And so, this will be our initial interim data. Just in relationship to UPGRADE be really from the standpoint of following that hypothesis that there's non overlapping toxicities in relationship to these compounds in a way that's prevented other combinations from effectively being developed. And so, this would be an eye toward that safety and tolerability knowing that the efficacy is intended to be characterized further when we have the expansion data.

Colleen Kusy

Okay, great. Thank you.

Operator

[Operator Instructions] And at this time, there appear to be no further questions. I will return the call back to CEO, Anna Protopapas for closing remarks.

Anna Protopapas

Thank you, operator. And thanks to all of you who turn in for this conference calls and your continued support. We look forward to seeing many of you at the BTIG Biotech Conference tomorrow and the Wedbush PacGrow Healthcare Conference. We hope everyone enjoys the rest of their summer, and we look forward to keeping you updated on our progress.

Operator

Thank you all for joining today's conference call. You may now disconnect.