Eva Jack - CBO Anna Protopapas - CEO Tim Lowinger - CSO David Spellman - CFO.

Boris Peaker - Cowen Jonathan Chang - Leerink Partners David Nierengarten - Wedbush Securities Jessica Fye - JPMorgan.

Good morning and welcome to the Mersana Therapeutics’ Fourth Quarter and Full Year 2017 conference call. Currently, all participants are in a listen-only mode. There will be a question-and-answer session at the end of this call. I would now like to turn the call to Mersana team. Please proceed..

Good morning. This is Eva Jack, Chief Business Officer at Mersana Therapeutics. Welcome to our fourth quarter and full year 2017 conference call. We issued a press release earlier this morning, reviewing our fourth quarter and full year 2017 results and business updates, which will be covered on this call.

A replay of today's call will be available on the Investors and Media section of our website. After our prepared remarks, we will open the call for Q&A. This presentation contains forward-looking statements within the meaning of federal securities law.

These are not statements of historical facts and are based on management’s beliefs and assumptions and on information currently available. They're subject to risks and uncertainties that could cause the actual result and the implementation of the company's plans to vary materially.

These risks are discussed in the company's SEC filings, including without limitation, the Form 10-Q filed November 13, 2017. 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 will turn the call over to Mersana’s Chief Executive Officer, Anna Protopapas..

Good morning, everyone and thank you for joining us on our corporate update call. With me today are several members of Mersana’s leadership team. In addition to Eva Jack, our Chief Business Officer, I'm joined by Tim Lowinger, our Chief Scientific Officer and David Spellman, our recently appointed Chief Financial Officer.

This past year, Mersana has made great strides towards achieving our goals of developing novel ADC Therapeutics for cancer patients with substantial unmet medical need. We progressed our two lead program candidates into the clinic, continued the development of our preclinical pipeline and advanced our pioneering ADC platforms.

Let me now review our 2017 achievements and our goals for 2018. Since our last update in January, we have enhanced the strength of our business with the addition of two new team members. Earlier this month, we welcomed David Spellman to the team as our Chief Financial Officer.

David joins Mersana from Vertex where he has spent the last 12 years in various roles of increasing responsibility in finance and accounting. Most recently, he served as Vice President of Corporate, Commercial and International Finance responsible for financial planning across the company.

David's leadership and experience in rapidly growing biotechs will be critical to Mersana, as we move our pipeline forward and scale up our organization. Additionally, we recently welcomed Dr. Will Dere to our Board of Directors. Will is a professor at the University of Utah Health Sciences Center and a former Chief Medical Officer of Amgen.

Will spent 25 years in leadership positions at both Amgen and Eli Lilly where he played a critical role in the development and registration of numerous products across multiple therapeutic areas. Will brings to our company deep early and late stage experience, which will be helpful to us as we grow our pipeline.

So, let me now move on to our pipeline programs. We’re developing a pipeline of novel ADC drug candidates based on our proprietary Dolaflexin platform. Our Dolaflexin platform is differentiated in two very important ways. It has a drug to antibody ratio of 10 to 15 or five times more than the traditional approach and that drives increased potency.

Secondly, it has a unique proprietary payload with the Dolalock technology for increased safety and tolerability. Both our lead programs address significant unmet medical needs. Our first program, XMT-1522, is a Dolaflexin ADC, targeting HER2-expressing breast cancer, non-small cell lung cancer and gastric cancer.

We are leveraging the unique properties provided by our Dolaflexin platform to address the needs of patients not currently addressed by the existing approved HER2 therapies.

For example, over 50% of breast cancer patients expressed HER2 at the one plus and two plus level and are considered not to be HER2 positive and 50% of non-small cell lung cancer expresses HER2. In 2017, we initiated our ongoing Phase 1 dose escalation study for XMT-1522.

As a reminder, the trial design comprises two parts, including an initial dose escalation portion until we reach the maximum tolerated dose. Following dose escalation and establishment of a Phase 2 dose, we plan to begin enrolling the expansion cohorts, which are designed to achieve clinical proof of concept in multiple indications.

We have completed dosing of six cohorts in the dose escalation study. We’re currently enrolling patients at the seventh dose and the maximum tolerated dose has not yet been achieved. We have submitted an abstract to ASCO of this preliminary dose escalation data. And if accepted, we plan to report data there.

Our second candidate, XMT-1536, is currently enrolling in Phase 1 dose escalation study. It is a first-in-class Dolaflexin ADC targeting an antigen called NaPi2b. NaPi2b is a clinically validated ADC target broadly expressed in epithelial ovarian cancer and non-squamous non-small cell lung cancer as well as several more rare tumor types.

As in the case of XMT-1522, this molecule is persistent with our strategy of focusing on areas of very high unmet patients need. Following the dose escalation phase would be the enrollment of expansion cohorts. To date, we have completed enrolment of three dose cohorts.

Once we reach a maximum tolerated dose, the expansion cohorts have been designed to achieve clinical proof of concept in multiple indications, including platinum resistant ovarian cancer, non-squamous non-small cell lung cancer and a basket of more rare NaPi2b expressing tumors, such as salivary duct and papillary thyroid.

We will not prescreen for prescreen expression levels as the antigen is expressed in over 85% of tumors of interest, but we will retrospectively test the tumors against a proprietary assay transferred and validated at the lab with extensive experience.

Efficacy data presented at the triple meeting last October reinforce the potential for XMT-1536 to have broad activity in epithelial ovarian cancer. We have seen a high level of enthusiasm by investigators for both programs, given the strength and differentiation of our preclinical data and the validation of the targets that we are pursuing.

Finally, our partnerships with key pharma players continue to validate our approach and our platforms. This year, Takeda announced the selection of their first Dolaflexin ADC for the initiation of IND-enabling studies has put terms of our partnership.

With that, I would now like to turn the call over to Tim, our Chief Scientific Officer to discuss our preclinical and platform updates..

Hi, everyone and thank you for joining us. I'll begin with a review of Dolaflexin, Mersana’s lead platform. Dolaflexin is designed to increase the potency and efficacy of ADCs while simultaneously increasing safety and tolerability.

This is due in part to our use of our biodegradable, biocompatible and highly water soluble polymer, Fleximer, as the backbone for our ADCs.

Our proprietary auristatin drug payload is attached to the polymer rather than directly to the antibody and because of the excellent physical chemical properties of this polymer backbone, we can create ADCs with substantially higher drug-antibody ratios than typical ADCs.

This improvement results in the potential for much more efficient payload delivery to the tumor cells, which could be instrumental in achieving efficacy against tumors with low target antigen expression levels.

Our Dolaflexin technology also incorporates our proprietary Dolalock technology, which allows us to create a controlled bystander effect providing the potential to improve efficacy and tolerability.

The initial drug released from a Dolaflexin ADC is freely cell permeable, allowing for diffusion to adjacent tumor cells and is capable of bystander killing, which can be beneficial for efficacy.

In addition, using our Dolalock technology, this initially released drug incorporates the metabolic trigger to result in the payload losing its ability to freely cross the cell membrane, locking it into the cell in which it’s formed, thereby, increasing tolerability.

We will be presenting data describing the Dolalock technology in further detail at the upcoming AACR Annual Meeting in April this year. On top of that, we have been doing some exciting new work on novel platform development.

We are incorporating our learnings in ADCs to develop innovative, complementary scaffolds and payloads to expand therapeutic benefit. We plan to reveal details on these new platform initiatives at a scientific meeting in the second half of 2018.

And with that, I'll turn the call over to David Spellman, Mersana’s Chief Financial Officer, for an overview of our fourth quarter and full year 2017 financial results..

Thank you, Tim. 2017 was a strong year from a financial perspective, highlighted by the completion of our initial public offering in June. Starting with our cash position, cash, cash equivalents and marketable securities as of December 31, 2017 were 125.2 million compared to 100.3 million as of December 31, 2016.

We expect that this financial position will fund our operating plan through mid-2019. Now, on to our full year operating results for 2017. Collaborative revenue for the full year 2017 was approximately 17.5 million, compared to 25.2 million for the full year 2016.

Driven by initiating two Phase 1 programs, research and development expenses for the year of 2017 increased to approximately 46.7 million, up from 32 million for the full year 2016.

General and administrative expenses scaled up in 2017 to approximately 10.5 million compared to 7 million for the full year 2016, in efforts to support being a growing public R&D company. Net loss for the full year of 2017 was 38.7 million or $3.22 per share compared to a net loss of 13.7 million or $10.82 per share for the full year of 2016.

Finally, weighted average common shares outstanding for the periods ending December 31, 2017 and December 31, 2016 were 12,022,733 and 1,266,758, respectively. And now, I will welcome back our CEO, Anna Protopapas, to conclude our call..

Thank you, David. To wrap up our discussion, I want to give a brief overview of our goals and vision for the year ahead. First, our clinical pipeline. In 2018, we plan to continue our XMT-1522 dose escalation study to establish a maximum tolerated dose and present the dose escalation data at a scientific conference.

As we mentioned, we have already submitted an abstract to ASCO and if accepted, we plan available data from the trial then. In addition, we expect the data to mature over the course of the year and we’ll provide updates as appropriate in connection with subsequent medical meetings.

We also expect to select the recommended Phase 2 dose based on this data and substantially enroll our dose expansion cohorts. For XMT-1536, we plan to continue our dose escalation study as part of the process of establishing a maximum tolerated dose.

If MTD is established this year, we plan to select a Phase 2 dose and initiate enrolment of expansion cohorts for that product as well. We're also very excited about our preclinical programs and intend to select our next ADC clinical candidate during 2018.

We tend to continue our rapid pioneering progress on our novel platforms and intend to disclose new proprietary platform technologies at the scientific meeting later this year. Finally, as evidenced by a productive start to 2018, we continue to recruit top talent in pursuit of Mersana’s mission to help patients.

We will maintain our cultural of scientific excellence, focused execution and the prioritization of patient needs. Thank you all for joining us today and thank you for your interest and support. We will now open the call to questions..

[Operator Instructions] And our first question will come from the line of Debjit Chattopadhyay with H.C. Wainwright..

This is [indiscernible] in for Debjit. So we have a few questions from our end.

So first, given the compelling data with DS-8201, what is the internal hurdle for XMT-1522?.

Thank you for the question. This is obviously a molecule that we are following closely. There are some similarities between XMT-1522 and DS-8201. But, there are also some differences. Both our HER2 ADCs, both have a high DAR. As you know, the DAR with the Daiichi molecule is 8.

With us, it’s between 10 and 15 with an average of 12 and we have a payload that is significantly more potent than the payload on the Daiichi molecule.

Other differences involve the fact that we have the controlled Dolalock technology which we believe contributes to tolerability as well as the mechanism of the payload, ours being an anti-tubulin while the Daiichi molecule is a DNA damaging agent.

So, similarities, similarities that could confirm the very compelling efficacy that we've seen preclinically in our molecules translate into efficacy in the clinic, but also some differences and we'll see how those differences evolve in the overall profile of the molecule.

That being said, I think it does -- the Daiichi molecule does set a high compelling -- has had a compelling overall efficacy profile and it's one that we will have to watch closely as we get more data on the profile of XMT-1522..

Thank you. Okay. So our next one is for -- HER2 positive patients develop resistance to Kadcyla through excessive efflux.

So, can resistance to a maytansinoid payload also impact the auristatin payload in XMT-1522?.

[indiscernible] can answer that question..

Yes. With our payload, what we have determined is that the auristatin F payload is not a P-gp substrate. It is not subject to active efflux, which we do think is a key differentiator of ours and part of our Dolalock technology..

Since XMT-1522 uses a novel HER2 targeting antibody, what is your confidence level versus others using herceptin backbone..

Again, with -- as you pointed out, we do use a novel antibody with Herceptin. Herceptin was not initially developed to be used for an ADC, so we made the deliberate decision to seek an antibody that we thought was ideal for HER2 targeted ADC.

When we've made comparisons head to head with – on Dolaflexin ADCs on trastuzumab versus our novel antibody, we see better efficacy with our antibody. It is an epitope which does not compete with either pertuzumab or trastuzumab. So we think that it offers advantage, with little to no additional risk..

Great. I know Anna touched on this earlier, but from a regulatory standpoint and maybe some additional clarification. If you were to selectively enroll high NaPi2b expresses, is there an accelerated pathway toward approval? Similarly, like to a def of AML which was approved on objective responses in combination with an assay..

So we believe that in each of the patient groups we're studying, if we can translate the compelling preclinical data we saw into the clinic, there are opportunities based on both unmet medical need and precedent to have to move forward with accelerated paths..

Thank you. And our next question will come from the line of Boris Peaker with Cowen..

So my question is on XMT-1522. I mean, you mentioned you're on a seventh cohort. I'm just curious at which dosing cohort do you believe you've reached the therapeutic dose and why is it important to find maximum tolerated dose and not just move forward with the therapeutic dose if it is well tolerated..

We believe we're in a therapeutically relevant range. As you might recall, we did indicate early on that we were seeing early signs of efficacy and obviously efficacy develops and matures over time with additional dosing. So we believe we're in the range.

We do believe that given the mechanism of an ADC, we will -- it will be important to drive to maximum tolerated dose and really get delivered to the side of the tumor as much of the payload as possible. We believe that could impact the depth and durability of our responses..

Right. And maybe a follow-up question on 1536, you mentioned epithelial, ovarian and non-squamous, non-small cell lung cancer as expansion and indication and also in the press release, you mentioned some other smaller rare tumor types.

Could you comment what those additional tumor types would be?.

Yeah. They are salivary duct, epithelial papillary thyroid, papillary renal and endometrial. All of these, Boris, expressed the target at fairly high levels..

Thank you. And our next question will come from the line of Jonathan Chang with Leerink Partners..

First question.

Can you help set investor expectations ahead of the XMT-1522 ASCO presentation?.

Well, all I could say is that, we are still awaiting response from ASCO on the abstract. That’s one. Second, as we're in the midst of dose escalation, we expect that any disclosure will include patient -- no more than 20 to 25 patients and will include up to the seventh cohort..

Okay. And can you just talk about what kind of follow-up and is there also going to be efficacy data in addition to safety data in that dataset..

So, this is a three plus three design. We treat the patients that have clinical benefit. We continue to treat them to progression. We get obviously the safety profile, which is the main objective of the dose escalation.

We have the data almost immediately after initiating dosing, but the efficacy data lacks the safety data, is that is measured every six weeks. So we will have some direction of efficacy data, but the dose escalation, as you can appreciate, was not designed to give a definitive efficacy read that will come with the dose expansion..

And then just a follow-up on an earlier question, can you talk about what the key learnings are from the Daiichi’s HER2 ADC DS-8201 in terms of not just data we've seen from the program, but also the development program -- development plans disclosed on that program? Thanks..

Obviously, we only know what has been communicated publicly. I think we -- I think we see the compelling, the high overall response rates seen with the Daiichi molecule is really validated.

The hypothesis upon which Mersana was built, the fact that the higher the DAR, the drug to antibody ratio, the more drugs that can be delivered to the side of the tumor, the more you can drive efficacy response rate and deep response rate. So I think we see that as very positive and supporting our thesis.

We have, I think, the side effect profile of the Daiichi molecule is still emerging. As you probably are aware, their main registration trial on HER2 positive patients involves an upfront three-stage dose finding.

I believe there will be -- patients are randomized to three doses and then from those three doses, there is second randomization to two doses before the efficacy portion of the trial is initiated. So I think we're encouraged with the high response rates.

I think, we are -- it obviously sets a high bar and it's exciting to see that this molecule has this kind of efficacy to help patients in need. But we're also looking to better understand the overall profile as more data is disclosed..

Thank you. And our next question will come from the line of David Nierengarten with Wedbush Securities..

I have a little bit more scientific or theoretical question. Is there a possible or is there an upper limit for a drug that you deliver by your antibody to the tumor -- to the actual tumor cells.

And then, is it dependent on when we’re looking at the other ADCs out there, so depending on toxin or type of toxin or is it dependent on linker, is there anything new on that front that you're seeing? And then the second question is given the experience so far with 1522, have you been able to think about accelerating the dose escalation for 1536?.

I will answer the second question first and then I'll ask Tim to answer your first question, David. We have accelerated the dose escalation of 1536. First of all, we started at a higher dose. The first two cohorts were accelerated cohorts, meaning one patients per dose level.

So by the time we initiate, as we initiate the fourth cohort for XMT-1536, we will be at about the same approximate dose as the sixth cohort for 1522..

And then David, regarding the scientific questions about the importance of different components in delivering drug to the tumor, I do think there are several different features. One of course is antigen expression level, because one relies on that targeting and internalization to deliver the payload.

We've demonstrated with the Dolaflexin platform and higher DAR that we have a much lower threshold of antigen expression to achieve significant efficacy preclinically. Secondly, I do think the antibody makes a difference in the epitope to which that antibody is directed.

As I already mentioned, in head to head comparisons between Dolaflexin ADC using trastuzumab versus our proprietary antibody, we see better tumor delivery with our proprietary antibody. And then with the linkers, I think that also plays a role upon internalization, one, then relies on how efficiently the drug is released.

We see very efficient release from the Dolaflexin platforms.

And then finally, I would add the benefits of our Dolalock technology where we have both the bystander capability, which contributes to efficacy, but we have this feature that locks the payload in the tumor cell, both from passive diffusion as well as from active efflux, because it is not a P-gp substrate and I think all of those factors together contribute to better delivery of drug to the tumor cell and again as demonstrated preclinically, greater efficacy with excellent tolerability..

I guess maybe a quick follow up, is there any just kind of change in how you think about prioritizing or which one of those components is more important or less important when you compare and look at data from your other ADC candidates out there like the Daiichi compound.

Is there anything new or there are too many variables to really pen down or order them when you think about developing new candidates?.

No. I think we don't believe in one size fits all. So we look in details for each of ours, but I think what especially distinguishes us is again the higher payload, the higher drug-antibody ratios.

I think we're still the highest in the field and match that though with that Dolalock technology, the unique attributes of those payloads I think together is very important..

Thank you. And our next question will come from the line of Jessica Fye with JPMorgan..

First one, quickly, I apologize if I missed this, but did you confirm that dose escalation for 1536 should still complete by year end? And then the second two are on 1522. I think you confirmed that you've completed dosing for the sixth cohort, but that was also the update at JP Morgan in early January.

Should we take this to mean you still have not completed dosing the seventh cohort and can you remind me how long the protocol requires you to wait after completing dosing of one cohort before you can even start the next one? Thank you..

Jessica, we are -- the first question was whether we will complete dose escalation on 1536 by the end of the year. I think our -- that is our projection, but obviously, we'll have to see how the profile of the drug develops and how -- when we reach maximum tolerated dose.

So that is our projection at this time that we will dose escalate through much of this year. On the second question, we are, as I said, we are -- what we've said is that we are in the seventh cohort and the disclosure at ASCO will most probably include data up to the seventh cohort..

Okay. Great.

And just that protocol question, how long do you have to wait after you dose the last patient in a given cohort before you can move to the next one?.

It's typically three weeks and obviously there's some additional time for assembling the data and discussing it with the safety review committee. There's obviously a lot to collect the data from the labs and analyze it..

Thank you. And there are no further questions in the queue. So it’s my pleasure to hand the conference back over to the Mersana Therapeutics management team for some closing comments and remarks..

Well, thank you all for participating in our first actual call since becoming a public company. We're very excited with the progress we've made on our two programs and look forward to sharing more data with you at ASCO or subsequent scientific conferences this coming year. Thank you..

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody, have a wonderful day..