Mersana Therapeutics, Inc. (NASDAQ:MRSN) Q3 2021 Earnings Conference Call November 9, 2021 8:00 AM ET

Company Participants

Sarah Carmody - Executive Director, IR & Corporate Communications
Anna Protopapas - President, CEO & Director
Arvin Yang - SVP & Chief Medical Officer
Timothy Lowinger - Chief Science & Technology Officer
Brian DeSchuytner - SVP & CFO

Conference Call Participants

Boris Peaker - Cowen and Company
Kaveri Pohlman - BTIG
Daniel Wolle - JPMorgan Chase & Co.
Colleen Kusy - Robert W. Baird & Co.

Operator

Good morning, and welcome to Mersana Therapeutics' Third Quarter 2021 Conference Call Webcast.

I would now like to turn the call over to Sarah Carmody, Executive Director, Investor Relations and Corporate Communications. Please proceed.

Sarah Carmody

Good morning. Welcome to Mersana's third Quarter 2021 Conference Call. Earlier today, we issued a press release reviewing our third quarter financial results and business updates, which will be covered on this call. A replay of today's call will also be available on the Investors and Media section of our website. After our prepared remarks, we will open the call for Q&A. Before we begin, I'd like to mention that our call will contain forward-looking statements within the meaning of federal securities laws, including with respect to the company's business strategy and the design, progression and timing of its clinical or preclinical studies and the release of data from those studies, the ability of the single-arm UPLIFT cohort to enable registration, the development and potential of our pipeline of innovative ADC candidates, the commercial opportunity of our product candidates; expectations regarding future clinical trial results, including with respect to the timing of the commencement and future disclosures; and the sufficiency of the company's cash on hand and funds available through its debt financing agreement with Oxford Finance and Silicon Valley Bank.

Each of these forward-looking statements are 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 on August 6, 2021, and subsequent filings, which are available at www.sec.gov and on our website at www.mersana.com. Except as required by law, the company assumes no obligation to update these forward-looking statements publicly even if new information becomes available in the future.

With that, I'll turn the call over to Anna Protopapas, Mersana's President and Chief Executive Officer.

Anna Protopapas

Thank you, Sarah. Good morning, and welcome to our third quarter 2021 corporate and financial update call. Joining me today with prepared remarks are Arvin Yang, our Chief Medical Officer; Tim Lowinger, the Chief Science and Technology Officer; and Brian DeSchuytner, our Chief Financial Officer. I'm also joined by the rest of the executive team who will be available for your questions, including our newest members, Tushar Mishra, our Chief Manufacturing Officer, who joined us in August and Mohan Bala, who joined us in October to take on the newly created role of Senior VP strategic product planning and program leadership. We continue to make significant progress towards our vision of building UpRi into a foundational medicine in ovarian cancer and advancing a diverse pipeline addressing areas of high unmet medical need.

As 2021 comes to a close, let's take a step back and consider what Mersana plans to achieve over the course of next year. We expect UPLIFT, our single-arm registration study to be fully enrolled. We expect UP-NEXT, our first Phase III study to be initiated and enrolling. We expect UPGRADE to be charting the path for operating combinations, and we expect to have 2 additional assets in the clinic, XMT-1660 and XMT-2056. Of note, with 3 innovative platforms, Dolaflexin, Dolasynthen , Immunosynthen, a strategy for ADC innovation is supported by efficient product engines creating value now and in the future. Let me start by describing our progress in building UpRi into a foundational medicine for patients in ovarian cancer. In September, we disclosed further data from almost 100 patients with ovarian cancer enrolled in the expansion cohort of the UpRi Phase I study. This data gives us confidence in the design of UPLIFT, our ongoing single-arm registration study in platinum-resistant ovarian cancer.

Specifically, we believe the robust and consistent activity seen in heavily pretreated patients, the ability to further enrich outcomes for NaPi2b high, representing about 2/3 of all patients as well as a differentiated tolerability profile without the severe neutropenia, neuropathy or ocular toxicity seen with other ADCs will translate into both a successful uplift registration study and a robust commercial launch. In addition to UPLIFT, we intend to expand the opportunity for UpRi to address a broader ovarian cancer population through our UP-NEXT and upgrade studies. UP-NEXT is a Phase 3 study of UpRi monotherapy maintenance, and we believe has the potential to establish UpRi as the preferred agent for maintenance therapy, NaPi2b-high patients in the platinum-sensitive ovarian cancer setting. It's worth spending a minute going into more detail on why we believe UP-NEXT will enable a substantial additional commercial opportunity for UpRi. PARP inhibitors were approved in the U.S. as ovarian cancer maintenance agents in 2017. The 3 PARP inhibitors approved now have combined revenues in this setting of about $1 billion in the U.S. and about $2 billion worldwide. And yet, despite the substantial revenue figures, PARP inhibitor use is limited to only a portion of the ovarian cancer population.

As Arvin will explain, with UP-NEXT, we have the potential to address the substantial unmet needs in maintenance beyond those addressable by PARP inhibitors.

Shifting gears to UPGRADE, a study evaluating the combination of UpRi with platinum followed by continuation of UpRi. This is a setting even earlier in disease that UPLIFT or UP-NEXT. This study has the potential to generate proof-of-concept data that could lead to establishing an improved standard of care in platinum-sensitive disease. Platinum and paclitaxel, a tubulin inhibitor, is the standard of care in platinum-sensitive disease, but carries substantial toxicities and as a result, has limited treatment duration. Replacing paclitaxel with UpRi has the potential for improved efficacy, tolerability and treatment duration. We are following a well-proven and common theme in oncology, where replacing chemotherapy with a targeted agent has led to positive impact on efficacy, tolerability and duration of treatment with the goal of translating those improvements into greater clinical benefit and ultimately improve survival.

Moving into platinum combinations by replacing paclitaxel could unlock opportunities much larger than those available to PARP inhibitors because PARP inhibitors cannot be feasibly combined with chemotherapy. Together, we believe UPLIFT, UP-NEXT and UPGRADE, provide the road map for establishing UpRi as a foundational therapy in ovarian cancer, addressing significant unmet needs.

Now let me turn to UpRi in non-small cell lung adenocarcinoma. We have completed enrollment and the evaluation of UpRi in carcinoma. We observed a modest single-agent activity, including confirmed objective responses, but the data did not meet our internal minimum threshold of 20% overall response rate for advancement in this continually evolving and competitive indication. For this reason, we have decided to deprioritize further clinical evaluation of UpRi in this indication. The safety profile of UpRi in non-adenocarcinoma was generally consistent with the favorable profile observed with UpRi at the 36 milligrams per meter square dose level selected for further advancement in ovarian cancer. With the completion of the evaluation of the lung adenocarcinoma cohort, we now have administered UpRi to almost 200 patients. The safety profile has remained generally consistent without the severe neutropenia, peripheral neuropathy or ocular toxicity seen with other ADC platforms.

We believe this data further supports our UPLIFT design and our expanded efforts with UP-NEXT and UPGRADE to build UpRi into a foundational therapy in ovarian cancer. We are committed to deploying our capital in an efficient manner in order to advance our pipeline rapidly in the places where it has the most substantial impact on patients with unmet needs. We think focusing our resources on the broad development of UpRi in ovarian cancer is the right thing to do for all stakeholders.

This brings me to our pipeline beyond UpRi, where I will start with XMT-1592, our Dolasynthen ADC targeting NaPi2b. Based on the observations of greater efficacy in preclinical models of lung cancer, we are continuing dose exploration to determine the recommended Phase II dose and plan for this to continue into 2022. XMT-1660, Dolasynthen B7-H4 targeted ADC, and XMT-2056 are HER2-targeted Immunosynthen agonist ADC are advancing through IND-enabling studies. Our goal for both programs is to initiate clinical studies in early 2022. Just recently, Tim Lowinger, our Chief Science and Technology Officer, presented exciting preclinical data supporting the robust efficacy, tolerability and differentiation of XMT-2056, and Tim will provide a summary of this compelling data in a few moments.

Lastly, on the corporate front, we have worked to strengthen the company's foundation through enhanced future capital flexibility and the expansion of our executive leadership team. In late October, we increased our access to capital and hence our strategic flexibility by partnering with Oxford and Silicon Valley Bank to enter into a new credit facility for up to $100 million. We have also continued to expand our executive leadership team with several key appointments, including bringing on Tushar Misra as Chief Manufacturing Officer upon Michael Kaufman's retirement and through the addition of Mohan Bala to the role of Senior Vice President of Strategic Product Planning and program leadership. Both Tushar and Mohan have extensive experience in their respective fields, and we're excited they will be working with us to advance UpRi towards commercialization and to build our maturing pipeline of innovative ADCs with the potential to address unmet medical needs across multiple different tumors.

To summarize, the past quarter has seen meaningful progress on the clinical development of UpRi as well as the pipeline, which could soon include 2 more clinical-stage product candidates with the potential to address large unmet needs for cancer patient. With that, I will turn the call over to Arvin to further discuss the broad opportunity for UpRi with UPLIFT, UP-NEXT and UPGRADE.

Arvin Yang

Thank you, Anna. We continue to make substantial progress in advancing UpRi across the ovarian cancer treatment landscape through our broad development program. First, deliver data intended to support an accelerated approval in platinum-resistant disease with UPLIFT. This study targets a broader population relative to any other in the space through a more flexible inclusion criteria with respect to lines of therapy and underlying co-morbidities, through the use of a more robust diagnostic assay, capturing 2/3 of the patients as NaPi2b high as well as a second channel goal in the overall population.

Second, we plan to advance UpRi into an earlier line platinum-sensitive patient population, a larger population that could be treated for longer with UpRi monotherapy in the maintenance setting with UP-NEXT. It is worth expanding further on the opportunity for UpRi to redefine the standard of care in ovarian cancer maintenance therapy in the UP-NEXT Phase 3 study. Despite the approval of PARP inhibitors and bevacizumab, the unmet medical need remains high for patients who have been treated with platinum doublet. The design of UP-NEXT is informed by constructive interactions with the FDA. There are 3 important patient populations that UP-NEXT has the potential to address, which PARP inhibitors cannot. First, there are patients who progress on PARP and bevacizumab, whether taken in combination or in sequence.

For these patients, there is no standard of care in the maintenance setting after relapse. As PARP inhibitors and bevacizumab move to frontline, this is becoming a growing patient group. UpRi has shown activity against bev and PARP inhibitor pretreated diseases, including complete responses. Second, patients who are poorly served by current maintenance agents and who resort to watch and wait as their best option may benefit from UP-NEXT. PARP inhibitors have significant tolerability challenges, including potentially life-threatening cytopenias. UpRi shows a differentiated tolerability profile.

Parp maintenance outcomes vary significantly based on biomarker status, with the best results being in tumors harboring the BRCA mutation, representing only 20% of the population. In contrast, our data suggests that NaPi2b-high biomarker represents 2/3 of the patients.

And third, recall that platinum and PARP inhibitor share common mechanism of action damage response. Platinum responsiveness predicts PARP responsiveness. It is for this reason that patients achieving stable disease to platinum were excluded from the PARP maintenance studies and consequently are excluded from the PARP inhibitor labels. This is a growing patient group given the emerging evidence that platinum sensitivity decreases with prior PARP treatment. Again, UpRi has activity, including complete responses in heavily pretreated patients.

Addressing the unmet needs of these patients could provide a very significant growth opportunity for UpRi and an opportunity beyond that which is accessible with PARP inhibitors today to enhance the potential for UpRi to deliver strong and durable benefit, we are focusing the study on NaPi2b high patients, about 2/3 of the ovarian cancer population and where we observed the strongest responses today. With [indiscernible], UpRi could become the first ADC available for patients with platinum-sensitive disease, building on UPLIFT in platinum-resistant disease with the potential to define UpRi as a foundational therapy in ovarian cancer.

Lastly, let me touch on UPGRADE, our umbrella combination study. With no severe neutropenia, ocular toxicities of peripheral neuropathy, our profile supports the potential for platinum combinations, which could fundamentally change treatment options for earlier line platinum-sensitive ovarian cancer patients and introduce targeted anti-tubulin therapy with the intention of improving both efficacy, tolerability, duration of therapy with the goal of translating these improvements into greater clinical benefit and ultimately improved survival. We thank GOG and ENGOT for their strong partnership in helping us develop these opportunities for UPGRADE to become foundational in the treatment of patients with ovarian cancer. And with that, I'll now turn the call over to Tim Lowinger to discuss XMT-2056 and the exciting preclinical data we presented in October at the triple meeting.

Timothy Lowinger

Thank you, Arvin, and good morning, everyone. As Anna mentioned, we have continued to make considerable progress in advancing XMT-2056 and XMT-1660 through IND-enabling studies with the goal of moving both of these candidates into the clinic in early 2022. Today, I'll focus on XMT-2056, our first Immunosynthen STING-agonist ADC candidate. At the Triple meeting in early October, I had the opportunity to present new exciting preclinical data that we believe demonstrates that XMT-2056 is not only a first-in-class STING agonist ADC but also has the potential to be best-in-class among HER2 immunostimulatory ADCs. We are very excited about the potential of XMT-2056. Let me outline why.

First, STING is a validated innate immune stimulatory pathways, and we believe that a well-designed ADC approach is well suited to harness the innate immune system in a targeted, safe and effective manner with potential advantages over intratumoral injections or untargeted systemic STING agonists. STING agonist ADCs are differentiated from TLR-based ADC approaches for innate immune activation because unlike TLRs, STING is expressed and can be activated in both tumor cells and tumor-resident immune cells providing a 1-2 punch potentially leading to greater efficacy. For XMT-2056, our HER2 immunosyntom program, we deliberately selected an antibody that targets a novel epitope of HER2 with differentiated binding from pertuzumab or trastuzumab, allowing for single-agent activity and the potential for broad combinability with approved and investigational HER2-targeted therapies.

We then specifically optimize the antibody to this novel epitope for application as an ADC. The new preclinical data presented at the Triple meeting demonstrated increased efficacy in both high and low HER2 tumor bearing mouse models compared to trastuzumab-TLR7/8 and systemic STING agonist benchmarks. XMT-2056 also showed excellent in vivo efficacy when combined with trastuzumab supporting our selection of an antibody that is highly combinable with standard of care agents. And from a safety perspective, XMT-2056 was well tolerated in nonhuman primate studies with no clinical signs and no adverse findings in clinical pathology or histopathology. Taken together, we believe XMT-2056 offers a differentiated and complementary approach to the treatment of HER2-expressing tumors, both as a single agent and in combination, and we look forward to advancing this promising candidate into the clinic as quickly as possible.

Lastly, before I turn the call to Brian, I would like to mention that this morning, abstracts were released for the upcoming SITC 2021 meeting and we will be presenting additional data relating to Immunosynthen, our immunostimulatory ADC platform. As we have shown previously, we have seen consistent robust results with Immunosynthen-base STING-agonist ADCs across multiple targets, and this poster is focused on our preclinical work targeting tumor-associated antigens in the tumor microenvironment where we have also demonstrated target dependent activity after a single low dose. This work further supports our belief that the target space for Immunosynthen STING agonist ADCs, including not only tumor antigens but tumor-associated antigens in the tumor microenvironment has the potential to be very broad and encompass many indications with high unmet medical need. With that, I will turn the call over to Brian for an overview of our financial results.

Brian DeSchuytner

Thank you, Tim. Good morning, everyone, and thank you for joining us. We ended the third quarter of 2021 with approximately $192 million in cash and cash equivalents. Net cash used in operating activities in the third quarter was approximately $36 million, and we expect that our available funds will allow us to meet our current operating plan commitments into the first half of 2023.

I will now review some of the key financial highlights from our third quarter 2021 results. Research and development expenses for the third quarter of 2021 were $35.3 million compared to $16.5 million for the same period in 2020. The difference was primarily due to an increase in manufacturing, clinical and regulatory expenses, an increase in head count and an advancement of the diagnostic development efforts for the NaPi2b biomarker. Noncash stock-based compensation expense included in these research and development expenses increased by $1.7 million. General and administrative expenses for the third quarter of 2021 were $10.1 million compared to $5.9 million in the same period in 2020. The increase was primarily due to an increase in head count and consulting and professional fees.

Noncash stock-based compensation expense included in these general and administrative expenses increased by $1.4 million. As Anna mentioned, in addition to our current cash position, we entered into a new credit facility at favorable terms for up to $100 million with Oxford Finance and Silicon Valley Bank, of which $60 million is available immediately, with the remaining balance available primarily upon the achievement of certain pipeline and UpRi-related milestones. In connection with this new facility, we retired the prior debt financing agreement with Silicon Valley Bank. We believe with this new facility and our existing cash balance, we have the resources we need to advance our pipeline through several important value-creating milestones. I'll now turn the call back to Anna.

Anna Protopapas

Thank you, Brian. Leveraging the learnings from our patient experience to date, we are advancing UPLIFT, UP-NEXT and UPGRADE with the objective of establishing UpRi as the foundational therapy in ovarian cancer, an opportunity to create value for patients and shareholders by addressing significant unmet medical needs. Over the course of next year, we expect to be fully enrolled in UPLIFT, have top line data showing the potential of UpRi to be combined with platinum through UPGRADE and have UP-NEXT well underway. At the same time, we're advancing our pipeline of innovative ADCs and expect that a year from now, we will have 2 additional first-in-class molecules, XMT-2056 and XMT-1660 clinical development. Our innovative platforms, Dolaflexin, Dolasynthen and Immunosynthen are efficient product engines that will continue to underpin the advancement of our strategy. With our expanded financial flexibility and the deepening of our leadership team, we are well positioned to deliver on the potential of UpRi and advance our innovative pipeline to make a difference for people living with cancer. We look forward to executing on these plans and creating substantial value for patients and shareholders over the months and quarters ahead. With that, I will turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Boris Peaker with Cowen.

Boris Peaker

I'm just curious, you've mentioned the discontinuation of UpRi in lung. What does that imply for 1592 in lung ? Or when should we see some of the lung data from 1592?

Anna Protopapas

So there are two parts to your question. On -- as you recall, with XMT-1592, we brought that forward to really evaluate the differentiation we saw preclinically, and we are continuing to do that. We are -- as we indicated previously, in dose exploration, and we haven't yet completed that evaluation. As soon as we do, we'll make a data-driven decision as to the next steps. Your second question was about disclosure of UpRi lung data, and we plan to disclose the full data set in a scientific forum or a publication in 2022.

Boris Peaker

Got it. And my second question is on 2056. Just curious, I mean, we obviously saw very strong data for HER2 versus . So is it reasonable to assume that the target patient population for this drug will ultimately be in HER2 pretreated? And if so, have you looked at any kind of post and HER2 models? Or what do you think of the post in HER2 patient population?

Brian DeSchuytner

Yes. Thanks, Boris, for the question. So we're still evaluating the population shift in relationship to the 2056 clinical development program. But I do want to highlight that the payload for 2056, it's Immunosynthen. So it's a very novel and differentiated platform. One of the things I would highlight there is that -- it is a unique epitope from the standpoint of the combined ability when we think about the different shots on goal and relationship to the potential for success for 2056, not only because of its differentiated platform but also its combined ability with approved and available HER2 targeting agents.

Timothy Lowinger

We can take the next question.

Anna Protopapas

Operator, I think we can see that there are questions. There are people interested in questions in the queue. [Technical Difficulty]. We're being told to hold. There's an issue with the operator, if you'd still like to ask a question, please hold on, and we'll be back as soon as possible.

Operator

Our next question comes from the line of Kaveri Pohlman from BTIG.

Kaveri Pohlman

Before the UPGRADE study, can you extend the carboplatin therapy beyond 6 cycle since you are not using paclitaxel?

Timothy Lowinger

Thank you for the question. So carboplatinum in standard of care is typically used up to the 6 cycles even in the monotherapy setting. And so the opportunity really is because of the improved safety profile of UpRi, from the standpoint of the lack of the neutropenia, peripheral neuropathy and the ocular toxicity to actually be able to continue that further in relationship to, again, treating patients for longer and potentially treating patients with greater benefit.

Kaveri Pohlman

Got it. And for pneumonitis, can you tell us whether this is a payload related or target-related toxicity? And for ovarian cancer, could that impact your combination strategy?

Timothy Lowinger

So I'll remind that pneumonitis in general, is a low grade, low frequency type of adverse event that has been manageable from the standpoint of either through dose delays or treatment with steroids as necessary. We have seen and potentially believe that it is target mediated from the standpoint of we do know that the pneumocytes do express NaPi2b. As I said earlier though from the standpoint of the combination -- or I'm sorry, as I've said earlier, just in relationship to pneumonitis. It is quite manageable. And so from the standpoint of we do think that the combinability of UpRi in relationship to standard of care agents to further expand the potential for UpRi to be foundational, it is quite substantial from the standpoint of, again, that improved favorable safety profile, again, with those lack of the severe neutropenias and other toxicities that may limit the potential for combined ability.

Operator

Our next question comes from Jessica Fye from JPMorgan.

Daniel Wolle

This is Daniel for Jessica Fye. Following the protocol amendment of uplift to exclude the 43-milligram per square dose, can you clarify for us whether the patients already treated at dose -- at that dose are evaluable for FDA registration purposes?

Timothy Lowinger

Thank you for the question. So recognizing that we have now moved to the 36-milligram per meter square dose moving forward. Obviously, all the patients will be utilizable from the standpoint of the totality of information for potential approval. From an efficacy perspective, Obviously, we're still evaluating just in relationship to the primary analysis population that would be utilized for efficacy purposes.

Daniel Wolle

Okay. And then given the modest single agent activity observed with our pre-in-lung cancer, is the combination approach viable for XMT-1592 as you go forward?

Anna Protopapas

These are all things we will explore based on data. We'll make data-driven decisions. At this point, we are continuing to evaluate XMT-1592 as a single agent as we explore the optimal dose. But all of these are options that we will make decisions based on data.

Daniel Wolle

Okay. Great. And one last one for me. You've described the safety profile of UpRi in the lung cancer as consistent with the 36-milligram per meter square dose in ovarian cancer. Maybe further digging into that, was there any pneumonitis observed? And if so, what grade and what rate?

Timothy Lowinger

Yes. So what I would say about the profile of UpRi within the non-small cell lung cancer, it was favorable from the standpoint of, again, consistent with that 36-milligram per meter squared. In general, it had those most common adverse events that were seen with UpRi in relationship to the transient AST elevations, the nausea that was associated with it. The pneumonitis frequency actually was quite low. There were only 2 out of the 50 that developed. And they were Grade 2 and Grade 3 and reversible from that standpoint. This actually may be due to the fact that, again, with non-small cell lung cancer, we have patients that obviously may have higher BSAs. And so in fact, actually, it may reflect, again, the safety profile of those patients that are receiving essentially a 36 mg/m2 dose regimen.

Operator

And our next question comes from Colleen Kusy from Baird.

Colleen Kusy

On the data for UpRi, are you able to comment on what the NaPi2b high expression percentage was? I know you said it's probably a little bit lower in lung versus ovarian. I want to just see what the enrollment looks like in the dose escalation portion.

Anna Protopapas

Yes. So if we define NaPi2b high in exactly the same way we have determined in ovarian, then it's only about 1/3 of the population compared to 2/3 in ovarian. So the prevalence of NaPi2b high is about half what it is in ovarian.

Colleen Kusy

Okay. And for XMT-1592, I think you had previously said you'll have an update on that data around the end of this year. So just curious on how that enrollment is going and kind of what we can expect from the upcoming readout in 2020.

Anna Protopapas

So we're continuing to really evaluate dose, and we will have an update on our plans around year-end. I think we -- our current view is that we will continue the dose exploration into 2022, and we'll be able to give a better -- an update on where we are and where we've been in a position to report data around year-end.

Operator

And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Anna Protopapas for closing remarks.

Anna Protopapas

Well, thank you all for listening in, and thank you for your patience -- your patience with the technical challenges we've had. We've had a great quarter. We expect to be -- continue to execute on a plan, and we're really well positioned for a very successful 2022. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the program, and you may all disconnect.