MRSN - NASDAQ

Good morning, and welcome to Mersana Therapeutics Second Quarter 2024 Conference Call and Webcast. [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 related to our platforms, product candidates, business strategy, clinical trial execution and data, 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 May 9, 2024, 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 today’s call, 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. The second quarter of 2024 was a time of continued progress at Mersana, as we advanced dose escalation in Phase 1 clinical trials of XMT-1660, our lead Dolasynthen ADC candidate, and XMT-2056, our lead Immunosynthen ADC candidate. At the same time, we made further progress in our collaborations, while also benefiting from our efforts to reduce our operating expenses last year. We believe these collective accomplishments have put us in a strong position as we approach our initial clinical data readout for XMT-1660, which is planned for the second half of this year. Let's begin with that program. XMT-1660 is an ADC we developed using Dolasynthen, our next-generation cytotoxic ADC platform. This candidate targets B7-H4, a cell surface protein within the B7 family that can suppress anti-tumor immunity and can serve as a negative prognostic indicator for multiple tumor types. In the dose escalation portion of our ongoing Phase 1 clinical trial, we are enrolling patients with tumor types that most commonly express high levels of B7-H4. These include patients with recurrent triple negative and hormone receptor-positive breast cancers, as well as endometrial and ovarian cancers, all areas with high unmet medical need. For instance, as many know, Trodelvy and/or Enhertu, are being used to treat the vast majority of recurrent triple negative breast cancer patients in the US today. Emerging clinical data continue to suggest that patients can develop resistance to ADCs with Topo-1 inhibitor payloads. As a result, we are hearing an increasing call among treating physicians for new ADCs with alternative payloads that aren't subject to Topo-1 or PGP efflux resistance mechanisms. XMT-1660 fits this profile, and we are enrolling many patients who have received a prior Topo-1 ADC in our trial. Dose escalation remains ongoing, and we still have not established a maximum tolerated dose. In fact, we are currently at a dose of 80 mg/m² in escalation. This is well beyond the dose levels we were able to reach clinically with any of our prior ADCs. We believe our ability to continue to dose escalate can be attributed to two factors. The first is Dolasynthen’s ability to reduce toxicities commonly associated with other ADC platforms like neutropenia, neuropathy, and ocular toxicity, as well as those that were seen with our first-generation platform, Dolaflexin. And the second factor is that based on data that has been reported to date, there does not appear to be an obvious on-target liability with B7-H4. In parallel with our dose escalation work, which includes the enrollment of backfill cohorts, we are also proactively exploring different dosing schedules with XMT-1660, with the aim to optimize efficacy and safety. This has included every four weeks, as well as more frequent dosing regimens. At the same time, we also are progressing our biomarker strategy in preparation for expansion and potential later stages of development. All this work is aimed at building a robust data set that can inform important strategic decisions as we seek to position XMT-1660 as a potential best-in-class asset, one that we believe may have the opportunity to serve both as a monotherapy and in combination with standards of care that may be inaccessible for the other B7-H4 ADCs in development. We continue to expect that we will be in a position to announce our initial clinical data and initiate expansion in the second half of this year. This readout will include safety, tolerability, efficacy, and biomarker data. Now, let's turn to Immunosynthen and XMT-2056. Immunosynthen is an innate immune-stimulating ADC platform. Last month, we were pleased to publish preclinical data in Nature Communications regarding some of the key mechanistic underpinnings of our approach to activate STING in a targeted manner using an ADC. This included in vitro and in vivo data demonstrating a one-two punch consisting of target-dependent STING activation in both tumor cells and tumor-resonant immune cells. The data also showed increased anti-tumor efficacy and reduced serum cytokine elevations in comparison to a free STING agonist. XMT-2056 is our lead STING agonist ADC candidate that we developed using Immunosynthen. It targets a novel HER2 epitope that we believe could enable it to not only be an effective monotherapy, but also could allow for eventual combinations with a range of other agents, including other HER2-targeted therapies. The dose escalation portion of our Phase 1 trial is advancing and is enrolling patients with HER2 positive tumors, including breast, gastric, colorectal, and non-small cell lung cancer. We expect to make good progress in escalation this year. And finally, I'm pleased to report that we continue to advance our discovery collaborations with Johnson & Johnson and Merck KGaA. In fact, we have been performing CMC activities to support J&J, and earlier this month, we earned another milestone, this one for $8 million related to that Dolasynthen collaboration. Payment of this milestone is due in the third quarter of 2024. Now, let's turn things over to Brian for our Q2 financial update.

Thank you, Marty. Let's get into the financial highlights for the second quarter of 2024, starting with our balance sheet. We ended the second quarter with $162.7 million in cash, cash equivalents, and marketable securities. We continue to expect our available funds will support our operating plan commitments into 2026. Please note that our cash runway guidance does not assume any future milestone payments that we may earn from our current collaborations, or proceeds that we may realize from future collaborations. Net cash used in operating activities for the second quarter of 2024 was $21.8 million, down significantly from the $61.8 million in net cash used during the year ago quarter. This decrease primarily reflects the portfolio reprioritization efforts and OpEx reductions we implemented in the second half of 2023. Turning to our income statement, collaboration revenue for the second quarter of 2024 was $2.3 million compared to $10.7 million for the same period of 2023. The year-over-year change was primarily related to reduced collaboration revenue recognized under our Johnson & Johnson and Merck KGaA collaboration agreements. Research and development expenses for the second quarter of 2024 declined significantly to $17.2 million, compared to $49 million for the same period in 2023. For the most recent quarter, approximately $2.4 million in this spending was related to non-cash stock-based compensation. The year-over-year decline in R&D expenses was primarily related to reduced costs associated with manufacturing and clinical activities for our discontinued ADC UpRi, and reduced employee compensation expense following the restructuring we completed in 2023. General and administrative expenses for the second quarter of 2024 declined significantly to $10.5 million, compared to $18.2 million during the same period in 2023. Approximately $2 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 was primarily related to reduced consulting and professional services fees and reduced employee compensation expenses following our restructuring. And finally, Mersana’s loss for the second quarter of 2024 was $24.3 million, compared to a net loss of $54.3 million for the same period in 2023. That concludes our business update. Operator, would you please open the call for questions from the audience?

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

Hi. Good morning, everyone. So, I was hoping you could give us maybe a qualitative measure of how patients are doing in the trial. I mean, you previously noted that responses are being observed, but have you observed more or deepening since then? And for safety, other than no MTD being reached, are you happy with the level of grade three events that you're seeing? Thanks.

Thank you, Tara. While we're not giving any details on the 1660 clinical data, I think there are a couple of points is, one, we are at 80 mg/m², and this is a dose that equates to roughly 2.2 milligrams per kilogram, which is much higher than we've previously gone on the platform. So, while we're not talking about details of grade three, et cetera, events, we are comfortable that we're able to escalate to this dose range. We're not getting into any details on the responses at this point in time. That information will be included in our second half data disclosure.

Okay, thanks so much.

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

Good morning. Thanks for taking my questions. First question on 1660, can you discuss the progress you're making on the biomarker front and how much and what biomarker data we could see in the second half disclosure? And second question, can you provide any more granularity on when and how you plan to disclose the initial 1660 clinical data? Thank you.

I'm going to cover the biomarker answer, and then I'm going to turn it over to Jason regarding the future disclosure. With regards to biomarker, just to remind everybody, we selected patient populations that - with the tumor types, triple negative breast cancer, hormone receptor positive breast cancer, endometrial ovarian, that all have higher levels of expression of B7-H4. However, within those populations, we are not requiring a patient to be biomarker positive to be enrolled. In other words, we're enrolling all comers across that. We are capturing tissue, which we are analyzing retrospectively for the expression of B7-H4. So, what our plan would be in the initial data and disclosure is to provide some information that would allow us - we'll share with you kind of our thinking on, do we believe a biomarker will be necessary for patient selection going forward or not. As of today, we have not made that decision, but will continue to gather data on biomarker negative and positive to inform that decision.

Yes, and Jonathan, on additional color, we really don't have additional color to share at this stage. We're keeping the guidance at second half. If that could be a company event or it could be a medical Congress, at this stage, we haven't defined that.

Got it. If I could just maybe fill in one more follow-up question here, also on 1660. Just to clarify, have you already committed to this expansion portion of the study? I guess, what do you need to see and address before initiating the expansion portion of the study? Thank you.

We have built the expansion cohorts into the existing protocol. So, that work has all been done. The step we're left is the identification of a recommended Phase 2, at least one recommended Phase 2 dose to take forward into the expansion. And as we have not yet defined an MTD, we are not at ready to declare a recommended Phase 2 dose at this point in time.

Understood. Thank you.

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

Hi guys. Thanks for taking my question. In the press release, you called out the 80 mg dose every four weeks, which seems to be less frequent dosing compared with some of the data we've seen from your peers in the B7-H4 space. I'm just curious how important you think dosing frequency could be as a potential differentiator? And on a similar point, I think in the past you've talked about the need to sort of work through the exposure optimization. I'm wondering if you could share any color on where you are in that process and how close you are to figuring out optimal exposure. Thank you.

Thank you for the question. First of all, we have spoken about the every four weeks, and one of the reasons we're able to explore the every four-week schedule is because our molecule and we have shared preclinical data, shows an extended half-life compared to other molecules. We have antibody-like half-life for our Dolasynthen ADCs. So, when you have that long a half-life, that allows you to explore these longer schedules, which we do think could be a potential advantage in the clinic. But at the same time, it may be more effective to have more frequent dosing to decrease Cmax relative to AUC and maintain more exposure over time. That is an unknown - that's a question we don't have an answer for, and that's one of the reasons we made the decision to proactively explore the every four-week schedule dose escalation in parallel to more frequent dose - more frequent schedules. So, we are generating data on both on every four-week, as well as shorter intervals, and we should have that data as part of the second half presentation, which would then allow us, as part of the recommended Phase 2 dose, to define not only what that dose is, but also the appropriate schedule.

Okay. Got it. If I could ask one follow-up. I think you alluded in the past to maybe needing to establish a Phase 2 dose before sharing the data with us. Is it also necessary to establish an MTD as per the primary endpoint of the study before you show the data, or is that that not necessary? Thank you.

An MTD is not critical. We don't necessarily have to get to an MTD. I think we want to, before we declare recommended Phase 2 dose though, is have some understanding of kind of where is the upper bound that you can get to, whether that's a formal protocol-specified MTD, or just a general observation of you're starting to see payload effects. So, I think we want to be a little careful saying, we have to see an MTD, but I think given the fact that ADCs historically have had relatively narrow therapeutic indices, I think we do want to see kind of where is that upper bound before we make a call on which dose we're taking to expansion.

Got it. Thank you very much.

The next question comes from Michael Schmidt with Guggenheim. Please go ahead.

Hey, good morning. Thanks for taking my questions. I was wondering if you could comment a bit more on whether you have observed a dose response in the every four weeks dosing cohort so far. I know you've commented on seeing responses earlier than the 80 milligrams dose. So, just curious. And then also, what magnitude of increase in those exposure one would expect perhaps with a more frequent dosing schedule.

Thank you, Michael. We're not sharing any further color on exposure response relationships. I think we did disclose that we had responses at doses previously before we got to 80. So, I think what - we can be explicit that we have seen responses at doses lower than 80, and that was in our previous disclosure. And with regards to exposure response relationships, it would be premature at this point in time, and that will be part of the second half data disclosure. The second part of your question was the …

I think that was it on that topic. And the other question I had is, as we monitor forthcoming data from other companies pursuing B7-H4, for example, Astra

Yes, Michael, you're coming in and out. Are you asking for some speculation about A

Yes, I'm just curious as we kind of look forward to ESMO, where they have an update on their data, how investors should interpret their results and how it may read through to your program, if that

Sure. Michael, maybe I can handle that. From a safety and tolerability perspective, we would expect to see the typical Topo-1 platform toxicity. Those include things like myelosuppression. I think that's relevant because it speaks to which combination opportunities may be more or less challenging for an asset like that. From an efficacy standpoint, to the extent that A

Great. Thank you so much.

[Operator instructions]. The next question comes from Charles

Good morning, everyone, and thanks for taking the questions. Given that your XMT-1660 protocol allows for pretty sizable backfilling, how are you thinking or have been thinking about prioritizing enrollment towards further advancing dose escalation/exploration versus collecting more data at any given backfill cohort? And has this thinking evolved as you've continued to advance further into clinically relevant doses and schedules? Thank you.

Well, first of all, yes, the protocol, just to remind you for everybody, allows up to 12 patients at a given dose, as well as at a given indication. So, it does give us a lot of flexibility to get significant patient numbers at a given dose and tumor type. How do we think about that? I think we've probably been fairly explicit that TNBC is probably the one we spend the most time talking about as it's the area of highest unmet medical need. So, I do think what we would look toward in this data set is how - one, we're getting TNBC patients, high unmet medical need. B7-H4 is fairly frequent there. A second scenario, as Brian alluded to in the differentiation from the others, looking at a US-based population where most TNBC patients will have seen Trodelvy and/or Enhertu, is a great place to explore the hypothesis that our ADC with its novel scaffolding or payload, will have an opportunity to show activity in settings where Topo payloads are unlikely to be effective. So, think for us, while we're not giving details of exactly what patient types, the way the protocol is designed, we can enroll, expand backfills with TNBC or other Topo types, and really try to answer that question of, what's the activity in this kind of post Topo environment? So, that would be one of the data sets that we should - or one of the data points we should be able to include in our second half disclosure.

Got it. And maybe if I could just ask one follow-up on that, just given the FDA Project Optimus environment and what sounds like your intention to take one go-forward dose as opposed to more than one, I guess then, is it fair to assume then that you would've backfilled across or backfilled enough patients at each given dose level to have made that determination by end of this year? Thank you.

I think one of the things we're careful and we need at least one recommended Phase 2 dose, and we want to be careful, it could be two. The way expansion is written in the protocol, it gives us the flexibility to take one or two. We do recognize that with the way Project Optimus is rolling out, at some point in time, we will formally - we will likely formally have to study two doses. But if you look at the precedence here and some of the guidance from the agency, having meaningful backfill patients at multiple doses does go in the direction of help answering questions for Project Optimus. So, hopefully it'll minimize the number of doses we would have to take into the actual pivotal programs. I mean, there are folks out there today who are taking three or four doses and schedules into large registration-enabling or registration-targeted programs. And we think there is an opportunity based on precedent to narrow it down. Are we going to have to study two doses in the pivotal? Potentially, but the more information we get out of these backfills at multiple doses, the better will inform that discussion with the agency.

Understood. Thanks for taking the questions,

The next question comes from Colleen Kusy with Baird. Please go ahead.

Thanks. Good morning, and thanks for taking our questions. On the upcoming 1660 readout, can we expect biomarker data from all patients enrolled in escalation backfill, and will that be a meaningful enough data set to determine an ORR in that biomarker positive subgroup? And then for the expansion cohorts that you plan to open the second half of this year, would you be looking to open one or multiple tumor-specific expansion cohorts?

With regards to the biomarker, I mean, one of the challenges of a retrospective analysis is, since you don't require the patient to have a documented positive before they enroll, you will have samples that will be invaluable for the biomarker. So, it would be presumptuous for me to sit here and say we're going to have 100% of the data on that topic. But what we - and the second thing - remember, these are backfills. This is not a full expansion. So, your confidence intervals around any point estimate, and by the way, this applies to the CGM dataset, as well as the (A

Great. That's helpful. Thank you. And then just on the expansion cords, if you had opened one or multiple in the second half.

We have all four written in - at least four written into the protocol. However, based - we'll probably make some decisions on which ones we prioritize based on the data from the Phase 1. We can flexibly either do them or stage them or however, and that'll be a data-driven decision at that point in time.

Great. That makes sense. Thanks for taking our questions.

The next question comes from Brian Cheng with J.P. Morgan. Please go ahead.

Hey guys. Hey Marty, thanks for taking our question this morning. Just want to follow up on your comment earlier. Do you need to reach MTD to declare the recommended Phase 2 dose and then move into expansion? And then secondly is related to your ongoing work around more frequent dosing, is that just a typical part of any development plan to satisfy perhaps some of the requirement by Project Optimus, or is that actively driven by your observation to date in the clinics? Thanks.

With regards to the first question on MTD, I think what we want to say is, in a perfect world, we would actually define a formal MTD and know what that is before we pick a recommended Phase 2 dose. The one thing we'd like to highlight on, especially when we see these ADCs, is sometimes you can have toxicities that don't achieve the level of a formal protocol-specified MTD, but patients aren't able to stay on that dose for more than a couple of cycles. And then you end up in this Project Optimus situation where late in your program, you get taken to a lower dose. So, part of it is we want to understand, we say - we want to make sure our recommended Phase 2 dose has an opportunity to be truly tolerable, which means the vast majority of patients can stay on that dose throughout their treatment cycle, but it may not be a formal MTD protocol. That's where I want to clarify. We do want to see where does toxicity become dose limiting. With regards to your second question, was the …

Was the more frequent …

Oh, frequent, yes. If you look at data on ADCs, and we looked at data from the CGM platform with the VCM MAE, there's this observation that certain toxicities tend to be Cmax-related. We made the decision with the initial delay that we announced in Q2, that instead of doing a sequential, see how high we can go with an every three or four week schedule, and then at that point, going back and seeing, could we increase exposure by doing a more frequent dosing, we made the decision to explore in parallel. So, today, we don't know if dose-limiting toxicity is going to be Cmax or AUC-related for this platform. One of the things we like to remind people, this is the first molecule on this platform that we've been able to get into this dose range. So, we are still learning how the platform behaves. As you recall, for our initial molecules, the 1592, the NaPi2b, the dose-limiting toxicity was driven by on-target toxicity. And that's where we saw the NaPi2b mediated ILD. In the so far, B7-H4, not just when we look at the competitors, has not really shown target mediated dose-limiting toxicity. So, this is an opportunity for us to really learn about our platform in these higher doses and exposures.

Got it. And maybe just one more follow-up if I may. I think it's interesting that you talk about the Cmax, your thoughts around Cmax and how you're thinking about evaluating it to make sure that you have the optimal profile. Just going back to your comments and your press release, I think you emphasize a lot on your current efforts in understanding how to optimize the frequent dosing. So, as you think about your current progress to date, are you close in understanding how high you can go with 1660 or this platform? Thanks.

Yes, I think, Brian, we've probably said as much as we can, and we are still in dose escalation, have not hit an MTD, and we'll just have to leave it at that for the time being.

Great. Thank you, Jason.

[Operator instructions]. The next question comes from Asthika Goonewardene with Truist. Please go ahead.

Hey, good morning, guys, and thanks for taking the question. So, I appreciate that you might be taking more than one dose level into the expansion cohort and that makes sense, but would you be conducting expansion cohorts with multiple frequencies running in parallel? So, maybe a Q2W, Q3W running in parallel at the same dose cohort - at the same dose level. And then, Marty, would you not be able to meet Project Optimus's requirements with the expansion cohorts? Let's say if you were to recruit maybe 30 to 40 patients in each cohort at a couple of different dose levels, would that not meet the FDA’s requirements, or do you think you need to do that pivotal phase study? And then have a quick follow-up.

With regards to your first question, yes, when I say dose or recommended Phase 2 dose, I probably should be more explicit, it's recommended Phase 2 dose and schedule. And yes, it is possible that you would take two different dose schedules forward if that's the question is you really want to answer. But at this point in time, it would be premature to speculate on how we're going to do that. Just the protocol is written. So, we have the flexibility that if we want to take a more frequent dose versus a less frequent dose forward, we could do that. With regards to your second question, we are now getting purely into speculation as we have not had - we're not coming forward with a specified registration-enabling study. So, I want to be clear, what I'm giving you is a theoretical. To your point, generally most people are having to do some form of randomization for dose in the current environment. I think if you look at all the precedents out there today in the ADC space, they're doing randomization somewhere. I don't think there's a strong rule on whether you do that as part of expansion or whether you do that as part of your pivotal. Ultimately, you're going to need some data justifying the therapeutic index, the benefit risk of your dose versus an alternative dose. And I think what that becomes a matter of, to be frank, of efficiency of execution, et cetera. And those are all details that when we start talking about our expansion to registration plans, which we're not doing at this time, will go into our thinking there.

Got it. And then if you're in the enviable situation where you have pushed the dose and de-escalation and you're not seeing a big signal that you're approaching dose limiting, that that's going to be dose limiting, would you continue the escalation while also running the expansion at at a couple of cohorts?

I mean, it is possible if we get into that scenario. We do not - as we said, we don't have to get to an MTD to declare a recommended Phase 2 dose to move forward. And that can be part of our judgment as the data emerges. If we're comfortable that we've got enough confidence in the dose and we want to continue to escalate and initiate expansion parallel, that isn't option for us. We have not made that decision today, and that will be based on data.

Great. Thanks guys.

The next question comes from Justin

Good morning and thanks for taking the question. With a discussion of unmet need for Topo summaries experience in resistant patients, can you talk to your confidence of differential activity of 16 of these patients?

Yes, maybe I can take that. I think there are a number of hypotheses that would maybe lend themselves to think that our payload might not be subject to the same resistance mechanism. So, as you're probably well aware, there have been a number of real-world data sets retrospective analysis of single sites that have shown that Topo isomers ADCs used after other Topo isomers ADCs, have a substantial degradation in time to event endpoints. And this data really started to come out last ESMO and it's been reinforced at ASCO and SABCS and other places. There are papers out there that really speak to the mechanisms for how that resistance might occur. It might be related to the switch of Topo-1 enzyme complexes to Topo-2, which don't share sort of a chemical similarity, or could also be upregulation of PGP pumps. That's a pretty common resistance mechanism in cancer, just reducing drug concentrations in the cancer cells themselves. Our payload, a novel or a statin with a controlled bystander effect, is not subject to either of those mechanisms. It's not acting on Topo isomers. It's not acting on DNA. It's acting on the microtubules. And once metabolized, that payload is not a PGP pump substrate. So, those are at least theoretically reasons we would think that you might see some differential activity.

Great. Thanks for taking our question.

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

Thank you, operator, and thanks, everyone, for dialing in. We'll be seeing some of you in New York at the Wedbush Healthcare Conference, and hope the rest of you enjoy the rest of your summer. This concludes the call, Operator. Thank you.