MRSN - NASDAQ

Good morning, and welcome to the Mersana Therapeutics Fourth Quarter 2023 Conference Call and Webcast. Currently, all participants are in listen-only mode. There will be a question-and-answer session, at the end of this call. [Operator Instructions]. Please note, this call is being recorded. I would now like to turn the call over to Jason Fredette, Senior Vice President, Investor Relations and Corporate Communications.

Thank you, operator, and good morning, everyone. Before we begin, please note that this call will contain forward-looking statements within the meaning of Federal Securities Laws. These statements may include, but are not limited to those relating to our platforms, product candidates, business strategy, clinical trial execution and results, business development efforts and cash runway. 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 our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2023, 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. On the call today, we have Mersana's President and Chief Executive Officer, Dr. Marty Huber, and our Chief Operating Officer and Chief Financial Officer, Brian DeSchuytner. With that, let me turn the call over to Marty, to begin our discussion.

Thank you, Jason, and good morning everyone. It's great to be speaking with you again. Let's start today's call off, with a brief description of our high-level aim here at Mersana. Although ADCs, have firmly established a position at the forefront of oncology, there are significant platform, and payload limitations that we believe, are preventing this therapeutic class from realizing its full potential. At Mersana, we're focused on bringing forward innovations, to address these limitations, to meaningfully improve the efficacy, and safety of ADCs. Our goals are, first, to minimize dose-limiting platform toxicities. We believe the achievement of this goal could allow us to maximize the monotherapy potential of cytotoxic ADCs and also allow them to be used effectively in combination with other standard of care treatments, something that simply isn't possible with many of today's ADCs. Second, we aim to avoid resistance mechanisms that appear, to be hampering certain ADCs. And third, we're striving to extend the field well beyond cytotoxics, and establish an entirely new class of ADC therapies that, elicit a targeted innate immune response to combat cancer. With that as a backdrop, let's turn our attention to the progress, we're making in accomplishing these objectives. And let's begin with our proprietary, auristatin payload that's being used in our next generation cytotoxic ADC platform, Dolasynthen. When we developed this payload, one of our core objectives was to avoid the dose-limiting neutropenia and peripheral neuropathy that is reported with ADCs based on vcMMAE platform and other first-generation ADC platforms. Our payload has controlled bystander effect, meaning that it initially is membrane permeable and capable of bystander killing. However, it has also been designed to be enzymatically converted to an active metabolite that is much less membrane permeable, resulting in its accumulation in the tumor and avoid of off-target toxicity. While we view our payload as a core differentiator and advantage. The same can be said for the platform we're using to deliver that payload, Dolasynthen. We have presented extensive preclinical data in the past demonstrating important advantages for Dolasynthen ADCs against ADCs produced using our own first-generation platform, Dolaflexin, and other platforms like vcMMAE. 2024 provides us with the opportunity to begin presenting the clinical data. Next week in Barcelona at the European Society of Gynecological Oncology, otherwise known as ESGO, clinical data will be presented for two discontinued product candidates, UpRi and XMT-1592. Both of these candidates utilize the same NaPi2b antibody and the same proprietary payload with controlled bystander effect. However, UpRi was developed using Dolaflexin and 1592 was developed with Dolasynthen. We believe these clinical data help to affirm that the severe neutropenia, peripheral neuropathy and ocular toxicity that is frequently observed in trials of ADCs based on other platforms and payloads are uncommon with our payload. We also believe they clearly show that Dolasynthen, further reduces platform toxicities, compared with Dolaflexin. Following these presentations in mid-2024, we plan to share our initial clinical data for XMT-1660, our B7-H4 targeting Dolasynthen ADC. We continue to be pleased, with the progress we're making in our Phase 1 trial of validating the safety and tolerability of XMT-1660 as a single-agent in patients with solid tumors, including triple negative and estrogen receptor positive breast cancer, as well as ovarian and endometrial cancers. The dose escalation portion of the trial is ongoing. In fact, we just recently escalated to a dose of 59 milligrams per meter squared, which is the highest dose that we have investigated clinically with Dolasynthen ADC. A maximum tolerated dose for XMT-1660 still has not been established. In addition, the continuing escalating dose, we are also continuing to enroll patients in backfill cohorts, to optimize dose and schedule. As is typical for Phase 1, we're enrolling a heavily-pretreated patient population. Today, single-agent chemotherapy is the standard-of-care for these types of patients, and their prognosis is exceedingly poor. For instance, the objective response rate in late-stage triple-negative breast cancer, is estimated to be approximately 5% or less, with a duration of response that is less than four months. Today, most breast cancer patients here in the U.S. are receiving in HER2 and TRODELVY early in their treatment. An increasing amount of data, is emerging that shows patients, are developing resistance following their first TOPO1-ADC treatment. These factors are presenting an urgent unmet need, for new ADCs with alternative payloads that, do not share these resistance mechanisms. We are enrolling many patients who have previously received at least one, of these TOPO ADCs in our Phase 1 clinical trial. And we're looking forward, to sharing initial data midyear, so we can begin to clinically characterize, XMT-1660's efficacy and safety profile. Now while we're very excited about XMT-1660 and Dolasynthen, we believe IO may be the next significant frontier for ADCs. Our immunosystem platform is designed to harness the power of STING and overcome the historic limitations of free systemic STING agonists and intratumoral injections. This platform has the potential to deliver a targeted and impactful 1-2 punch by activating STING in a target-dependent manner in tumor cells and in tumorresident myeloid and dendritic cells, while also minimizing the risk of systemic exposure. XMT-2056 is our lead Immunosynthen ADC. We're currently in the process of restarting our Phase 1 trial of this HER2 targeting ADC following a list of the clinical holds on this trial by the FDA in the fourth quarter of 2023. In Phase 1, we plan to enroll patients with a range of different HER2-positive tumors, including breast, gastric, colorectal and non-small cell lung cancer, and we're looking forward to advancing dose escalation in 2024. In addition to our independent programs, over the past two years, we also have entered into collaboration agreements, with Johnson & Johnson, Merck KGaA and GSK. We remain very much engaged with these companies, as we seek to maximize, the potential of our ADC platforms, and product candidates. So in summary, Mersana entered 2024 with energy and excitement. We have two differentiated ADC platforms, platforms that we think could address, significant limitations for today's ADCs. We also have two differentiated clinical-stage assets and upcoming data readout on XMT-1660, and a strong balance sheet. On this latter point, let me turn the call over to our Chief Operating and Financial Officer, Brian DeSchuytner to share more detail.

Thank you, Marty. Let's begin with the financial highlights for the fourth quarter of 2023. We ended the year with approximately $209 million in cash, cash equivalents and marketable securities. Net cash used in operating activities, was approximately $32 million for the fourth quarter of 2023, which is down significantly from prior quarters, thanks to our restructuring and UpRi wind-down efforts. From a cash expenditure standpoint, we expect to continue realizing benefits, from these efforts in 2024. As a result, our capital resources, are expected to be sufficient, to support our current operating plan commitments into 2026. Please note that our cash runway guidance, does not assume any potential milestone payments, from our current collaborations, or proceeds that we may realize, from future collaborations. Turning to the income statement. Collaboration revenue for the fourth quarter of 2023 was $10.7 million, compared to $14.7 million, for the same period in 2022. The year-over-year change, was primarily related to the timing of research activities, for the Johnson & Johnson collaboration and achievement of a Johnson & Johnson early development milestone in the fourth quarter of 2022. Research and development expenses for the fourth quarter of 2023 were $21.5 million, compared to $45.7 million, for the same period in 2022, approximately $2.2 million in non-cash stock-based compensation expenses, and $3.7 million of external costs, related to our UpRi wind-down efforts were included in the R&D line in the most recent quarter. The year-over-year decline in R&D was primarily related to reduced, manufacturing and clinical costs, related to UpRi and XMT-2056, and reduced employee compensation costs, partially offset, by increased clinical costs, related to XMT-1660. General and administrative expenses for the fourth quarter of 2023, were $10.1 million, compared to $14.8 million, during the same period in 2022. Approximately $1.9 million in non-cash stock-based compensation expenses, were included in G&A for the most recent quarter. The year-over-year decline in G&A expenses, was primarily related, to reduced consulting and professional fees, and reduced employee compensation as a result of the restructuring plan, we announced in July 2023. Mersana's net loss for the fourth quarter of 2023 was $19.5 million, compared to a net loss of $44.9 million, for the same period in 2022. That concludes our business update. Operator, would you please open the call to questions from the audience.

Thank you. [Operator Instructions] The first question comes from Tara Bancroft with TD Cowen. Please go ahead.

Hi. Good morning. So maybe you could go into specific expectations, for the midyear 1660 update. And specifically, given the 1592 data that are coming next month. What takeaways can we use, from that to take forward and increase our confidence in the 1660 data, based on the new platform technology? Thanks.

Thanks, Tara. So this is Jason. I'll start that. The midyear data will be efficacy and safety tolerability data. We haven't specified exactly what we'll show just yet, but midyear is the guidance, as you noted. Maybe I'll turn it over to Marty for the second part of the question.

And just so I make sure I answer your questions, I understand is what can we learn from the ESGO data set on 1592. I think, as we had noted was it's the same NaPi2b antibody, the same payload, the only difference is the scaffold, Dolaflexin, versus the Dolasynthen. And what we will show, is the safety data from 1592 demonstrates, what we would expect to see, with our platform-related effects. And what we observed, or will show in the data is that, one, we continue to show an absence of peripheral neuropathy, absence of neutropenia, absence of ocular toxicity. But in addition, we plan to show the - that the data with 1592, the Dolasynthen, also has lower risk of some of the other platform toxicities that were observed with UpRi. And those details will be apparent between the two presentations.

Okay. Thank you.

The next question comes from Jonathan Chang with Leerink Partners. Please go ahead.

Hi, guys. Good morning. Thanks for taking my questions. First question, can you just remind us the decision-making process behind what happened with the second-gen NaPi2b program? And then, just following up on the previous question, what the lessons there could be for the ongoing B7-H4 program? And then the second question, can you provide any color on, how enrollment has progressed on the B7-H4 study, and where you are in dose optimization? Thank you.

Thank you, Jonathan. That sounds like three questions, but we'll take them in turn. So with respect to 1592, the original premise, for that program was in lung cancer. And over the course of our explorations in lung cancer, we came to realize that the prevalence, of the biomarker is much lower, in lung cancer than was reported by the literature and was reported in ovarian cancer as well. And so that very much, given our cost of capital, and the other opportunities available to us in our portfolio, drove the decisions around strategic reprioritization for 1592. I think I'll pass it, to Marty with respect to the 1660 question.

And with regards to learnings for B7-H4, one of the important observations from both 1536 and 1592, is that there was pneumonitis that we believe, is associated with the presence of NaPi2b on type 2 pneumocytes that are in the lung. One of the things we've learned, as we look at B7-H4, there is not that same level of expression, or any expression on the pneumocytes for B7-H4. And one of the reasons we were pleased to see ESMO, from Seagen and from Hansoh at ESMO, the last data set, they showed no evidence of target-mediated toxicity. So I think an important learning for us is that for the pneumonitis that we observed with NaPi2b, is most likely on target, and we look forward to our data set in with 1660. With regards to your enrollment question, I think we've essentially now escalated, beyond dose level 6. We are now at 59 milligrams per liter squared. We are continuing to enroll in the backfills. As we've noted, it's up to 12 patients are in these backfills, at dose levels. I think the other thing we've highlighted that, we are looking at potential Q3, as well as alternative Q4 schedules. And so, we remain - we believe we're continuing, to optimize dosing schedule for 1660.

Got it. Thank you.

Thank you. The next question comes from Ashiq Mubarack with Citi. Please go ahead.

Hi, guys. Thanks for taking my questions, and congrats on the progress. I guess a couple from me. You said you're starting expansion cohorts for XMT-1660 in the second quarter. I guess when those cohorts get up and running, will you share, which specific tumor types are, being moved into the expansion phase? And also at that point, will you share what the go-forward dose will be? Or will we need to wait those details at the midyear data update? Thanks.

Yes. Good questions. So, we haven't predefined that, I would say so stay tuned on that front. We're operating in a competitive environment in the B7-H4 space. So TBD on that.

Okay. Understood. And then maybe one more on 2056. It sounds like you're getting that study up and running again, but I'm just wondering what the gating factor is to getting dosing going or am I misunderstanding and that's already happened?

We're taking the steps required to get the trial back underway as soon as possible. This includes reengaging with our trial sites. So it's the internal process around IRB. But also when we changed the dose and made some other adjustments, that was a protocol amendment and then that has knock-on effects on databases and CROs, et cetera. So, we're - it's kind of the normal logistical stuff associated with a study restart. Those are underway.

Got it. That's very helpful. Thanks very much.

[Operator Instructions] The next question comes from Colleen Kusy with Baird. Please go ahead.

Hi. Good morning. Thanks for taking our questions. Can you remind us how you're dealing with the B7-H4 biomarker in the Phase I/II dose escalation? Are you measuring it at baseline, but not preselecting patients? And then would we expect any of the biomarker data in the midyear update?

This is Marty. At this point in time, we are gathering data pretreatment on B7-H4 expression. However, we are not using that to select for patients. Patients are enrolled regardless of the outcome of the test. With regards to data display, as Jason noted, we are in a highly competitive environment. Of note, neither Pfizer nor Hansoh shared their biomarker data, and so we will have to make a judgment call at the midyear data presentation will we or will we not share that data.

Great. That's helpful. Thank you. And then on 2056, how involved is GSK at this point and kind of restarting the study?

Well, maybe I'll take that. So the product is - has an option with GSK, as you will recall. And they have not exercised that option. And so we retain decision-making control over what we do in that product. But that said, GSK has been very engaged in the process. And we're very pleased with the partnership.

Great. Thanks for taking the questions.

Thank you. The next question comes from Kaveri Pohlman with BTIG. Please go ahead.

This is Christian. I'm on for Kaveri today. So actually, the previous question answered parts of what I was wondering. But for the Phase 1 trial for 1660, how much overlap do you expect to see between B7-H4 and some of the other ADC targets such as TRP-2, folate receptor alpha and CDH6. And my second question is for the STING ADC. Could you tell us how you're thinking about 2056 potentially fitting into the current treatment landscape? Is it mostly going to be a combination drug?

It's Marty. With regards to 1660, while we don't have detailed data on that yet, one thing we do know is there's a trend for B7-H4 and PD-L1 on the tumor to not be overlapping. The Venn diagram of those two population tends to be fairly separate. With regards to folate receptor alpha, do not have any specific data available at this point in time. And I wouldn't want to speculate on that. But there is no - we're not aware of any overlap in biology between the two targets, but as far as specific data that says whether the populations overlap or not, I can't give you that answer today.

Okay.

And with regards to the STING, we are certainly thinking in terms of combinations for 2056. We think one of the advantages of having a locally tumor-directed STING agonist is that, that would allow you to do combinations with other systemic treatments. For example, you could give potentially an anti-PD-1 in a setting where you normally would not be able to systemic STING activation, combined with the PD-1, would just be really too toxic for patients. So that is one of our long-term strategies is surely want to show activity monotherapy, but ultimately, we think it will be a combination agent. And one last point on that, the actual epitope for HER2 is different than the HER2. So you could, in theory, actually do a HER2 combo.

Okay. Got it. Thank you. And if I can just throw one last one in there. Sorry if I missed this, but how many patients will be in the upcoming data for 1592 next week?

For 1592, I think now the ESGO abstract is available. And so in that data set, there were 31 patients.

Okay. Thank you.

Thank you. [Operator Instructions] We have the next question from Michael Schmidt with Guggenheim. Please go ahead.

Hi, guys. Good morning. Thanks for taking my questions. Just a couple more on 1660. In the Phase 1 study, could you comment on how the tumor histologies in the study compare perhaps to what Seagen, Pfizer have shown in their Phase 1? And I think they had a pretty decent signal in breast cancer. Is that - is the overlap in sort of patient types in your study and theirs? And then just as we think high level, you mentioned your planning to initiate the expansion cohort soon. Any views on just general positioning longer term relative to the Seagen ADC in terms of differentiation, perhaps? Is it mainly lower tox on your end or increased efficacy, or both perhaps? And then how do you think about differential development opportunities versus what they have been doing? Thanks so much.

Good morning, Michael. I'm going to take the first part of your question, and then I'm going to turn it over to Brian to kind of talk to you about how we're thinking about the molecule longer term. With regards to the current data, we are enrolling patients with triple-negative breast cancer, hormone receptor-positive breast cancer, endometrial cancer and ovarian cancer. So as part of the dose escalation, any one of those four histologies is eligible for the study. Once we get into backfill, we can be a little more specific. And while we have not given detailed information on who we are enrolling, I think a couple of points can be made is, clearly, triple-negative breast cancer is an area of high unmet medical need, in which, after patients progress on TRODELVY and/or in HER2, there's essentially nothing for those patients. So you will - I mean, while we're not giving the details of how many of each, that is a patient population that we will have in our data set.

And if I can just expand on your question about differentiation and positioning, as Marty remarked earlier, one of the things that we're looking for in the ESMO data with any indication of a B7-H4 on-target types, you didn't see that, which is a nice validation both the safety and the efficacy from those abstracts. As a reminder, we've compared Dolasynthen ADCs versus vcMMAE ADCs extensively preclinically. And we show that our platform preclinically can deliver payload to the tumor much more efficiently and effectively. In addition, we've shown in our past clinical presentations for other product candidates that our payload appears to avoid the severe neutropenia or peripheral neuropathy that tend to be dose-limiting with MMAE. And so when you think about what that means, it's about expanding what an ADC can do in the clinic and whether that's combinations or earlier lines to create very strong regimens. I think if you contrast with the Hansoh, GSK and sort of the TOPOs in general, keep in mind that our payload is very much orthogonal to that class. And many patients in this setting are receiving prior TOPO ADCs. And so we believe this could be consideration in the future landscape, and you see echos of that in sort of commentary around the Hansoh data. And the Hansoh program also seems to have relatively profound myelosuppression that raises similar considerations about combinations and moves into earlier lines. So we think that the landscape that's been established by that ESMO data disclosure leaves opportunity.

Great. Thanks so much.

Thank you. The next question comes from Asthika Goonewardene with Truist. Please go ahead.

Good morning. And thanks for taking my question. You guys just very nicely laid out how some of the design features for 1660 could be making a difference. And we look at things like duration of response and duration of therapy as good measures just to confirm if that's actually had their clinical difference. So maybe I'll ask you guys this. Given what we know about some of the B7-H4 ADCs, what kind of duration of response or duration of therapy would you be looking for in 1660 to say, aha, this is actually makes a difference in the clinic but with the patients treated with 1660?

It's Marty. One, I would like to put a little caveat on looking at duration of response in Phase 1 data sets even with pretty robust fulsome data sets is always challenging just because the number of responders to get a precise point estimate is always relatively limited. So we want to be a little careful about getting too obsessed on that early on in the development program. However, we do agree it's a very important question. And if you think about it, the standard of care, chemotherapy has a 5% objective response rate. And by the way, that's not even in a - that's the control arm from the current ADCs. That's not post TRODELVY or post in HER2. And importantly, the duration of response for that control arm was less than four months. So I think a DOR, usually, when we think about these things, you'd like to see a 5, 6. One of the things that we were very excited about from UpRi is, while overall, the response rate was lower, the - one of the things you'll see in the data is that the duration of response for those patients who did respond to UpRi was over seven months. So we think there's an opportunity to increase DOR. I think it's just going to be challenging to clearly demonstrate that in the initial data set.

Got it. That's very helpful. I'm also wondering, you talked about how resistance emerging from prior payload exposure is an issue that's emerging a lot more in the breast cancer patient population. Will the Phase 1 data set -- the dose escalation data set give us any sort of clues or be able to parse out when patients who are developing resistance to prior payloads and show us what the efficacy of 1660 looks like in that? Or is that just too much to try and piece out of that data set that's coming up?

Yes. So this is Jason again. So again, I think it would be a little premature for us to pigeonhole ourselves into specific cuts of the data at this stage. We did note neither Hansoh nor Seagen showed any responses transparently, at least in post-TOPO treated patients. But again, we're not going to commit to that today.

Got it. Thanks for taking my questions, guys.

Thank you. We have the next question from the line of Brian Cheng with JPMorgan. Please go ahead.

Great. Thanks for taking our questions this morning. Maybe first one is on from a modeling perspective, how should we think about the expense trajectory given your plan to move forward into potentially larger studies across a number of indications? And I have a quick follow-up. Thank you.

Sure. Well, our cash runway guidance is based on our current operating plan commitment. That does include the early clinical development of both 1660 and 2056. But if I sort of double-click on your question, as you know, we don't provide forward-looking financial guidance, but you'll note in our press release and our remarks in the K that we've reported a significant reduction in OpEx in Q4 and have since then substantially completed our UpRi wind-down. So we think this meaningfully simplified cost structure is going to enable our available funds to support our operating plan commitments into 2026.

Great. And then second is on the dose escalation work that you're doing for 1660. How does the latest escalation to 59 mg per meter square compare to your peers who are also targeting B7-H4? Maybe you can also provide some color on the expected therapeutic window that you expect to see compared to your peers. Thank you.

We want to be careful on directly comparisoning across the ADCs, for there are several differences in these molecules. I mean not only do they have different amounts of payload, we have DAR 6, but in addition, the potency of the payload is different. And then one fundamental difference is because of our scaffold, our Dolasynthen platform, with the approved drug-like properties and an antibody like half-lives, we end up having - allowing a less frequent dosing either Q3 or Q4. But what that's associated with, and you think about it is, it's a slower clearance of the molecule because it has an antibody like half-life. So it gets very complicated to try to do a direct detailed comparison until we get the full data disclosure, and then we can start having that conversation.

Great. Thank you, Marty. Thanks.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Marty Huber for any closing remarks.

Thank you, operator, and thanks, everyone, for dialing in. We hope to see some of you in the next couple of weeks at ESGO as well as Cowen and at Leerink. So that concludes the call, operator. Thank you.