Good morning, and welcome to Mersana Therapeutics Second Quarter 2019 Conference Call. [Operator Instructions]. I would now like to turn the call over to Sarah Carmody, Executive Director, Investor Relations and Corporate Communications. Please proceed..

Good morning. Welcome to Mersana's Second Quarter 2019 Conference Call. We issued a press release earlier this morning reviewing our second quarter 2019 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 to 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. These are not statements of historical facts and are based on management's beliefs and assumptions and on information currently available.

They are subject to risks and uncertainties that could cause the actual results and implementation of the company's plans to vary materially, including the risk that our early encouraging preclinical results for XMT-1536 are not necessarily predictive of the results of our ongoing and future discovery programs or clinical studies that the development and identification of the company's product candidates and new platforms will take longer and/or cost more than planned, and that our clinical trials will not be completed on schedule, if at all.

These risks are discussed in the company's SEC filings, including, without limitation, the company's annual report on Form 10-K filed on March 28, 2018, and subsequent filings. 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.

And with that, I'll turn the call over to Anna Protopapas, Mersana's Chief Executive Officer..

Thank you, Sarah. Good morning, everyone, and welcome to our Financial and Corporate update call for the second Quarter of 2019.

Joining me today with prepared remarks are Dirk Huebner, our Chief Medical Officer; Tim Lowinger, our Chief Scientific Officer; and our newest addition to the team, Brian DeSchuytner, our Senior VP of Finance and Product Strategy.

We are also joined by Eva Jack, Co-Chief Business Officer; and Michael Kaufman, our Senior Vice President of Manufacturing, who will be available for questions and answers. Before I begin, I would like to take a moment to introduce Brian, who joined us in July and is overseeing finance, investor relations and product strategy at Mersana.

Brian brings over two decades of experience spanning corporate strategy, finance, product development and commercialization. Most recently, he was Vice President responsible for U.S. and global secular commercialization in ovarian cancer at TESARO. Prior to that, he was Vice President responsible for the NINLARO global launch at Takeda Oncology.

Early his career, Brian held corporate development and strategy roles of increasing responsibility at Takeda Oncology and was the leader in the life sciences practice of L.E.K. Consulting.

Brian's broad business experience as well as his deep understanding of oncology, in general, and ovarian cancer, more specifically, will be key as we advance XMT-1536 and our pipeline candidates through clinical development. We're very excited to have him on the team. I'll now turn to the business update.

We continue to make important progress executing on our 2019 goals for both our clinical and discovery stage programs. I'll begin with 1536, our wholly-owned Dolaflexin ADC, targeting NaPi2b. Let me start by reminding you of some of the unique features of the program.

First, NaPi2b is a highly attractive ADC target, given its expression in ovarian cancer and lung adenocarcinoma and extremely limited expression in healthy tissues. NaPi2b is a clinically validated target, and we have demonstrated improved efficacy and tolerability preclinically.

It is rare in today's competitive oncology environment to have a first and potentially best-in-class molecule against a validated target. Second, the two key indications for XMT-1536, ovarian and lung adenocarcinoma represents significant unmet medical needs.

We are initially focused on platinum-resistant ovarian cancer and recurrent lung adenocarcinoma. These late-stage cancers are uniformly played out under current treatment options. And the patients living with these cancers have few therapeutic options with limited efficacy and significant toxicities.

Within this context, we are very pleased with the emerging profile of XMT-1536, as presented at ASCO. Dirk will provide more details on the early signs of efficacy, favorable safety and tolerability and promising duration of treatment that was seen in this heavily pretreated advanced cancer patient population.

We and our investigators are encouraged by what we see, are keen to move forward and are hopeful we can make a difference for these patients and their families. As a result, we are executing an aggressive plan to reach proof-of-concept in platinum-resistant ovarian cancer and lung adenocarcinoma progressing after chemotherapy and anti-PD-1 treatment.

We're on the cusp of selecting a dose and initiating the expansion cohorts. We have also done considerable work in validating our proprietary diagnostic to measure NaPi2b expression, an important tool in better defining patient selection strategies in preparation for our pivotal trials.

We look forward to updating you on our progress as the study proceeds. Turning now to our research and discovery efforts. As Tim will discuss later on, we continue to make significant progress in advancing our next ADC clinical tragedy.

We plan to disclose more information on this candidate around the end of the year and are targeting the filing of an IND in the first half of 2020. We are well capitalized with $128 million in cash, cash equivalents and marketable securities, which provides us a financial runway through mid-2021.

We intend to drive significant progress in the next 6 to 12 months. Lastly, and before I turn the call over to the rest of the team, I would like to take a moment to recognize Tim Lowinger and announced a change in his title to Chief Scientific and Technology Officer.

Tim joined Mersana as the Chief Scientific Officer, almost at inception, and he has been a key architect of our innovative ADC platform technologies and our pipeline, including advancement of our liver Dolaflexin platform and the creation of our unique DolaLock technology.

Under Tim's leadership, and a strong belief that the development of ADCs is not a one-size-fits-all approach, he and his team are rapidly developing additional innovative ADC platforms, including Dolasynthen, Immunosynthen and Alkymer platforms.

We are excited about the emerging date of these additional platforms as they provide us with the opportunity to further expand the scope and potential of our ADCs to deliver clinically meaningful benefits for a broad population of cancer patients. Tim's commitment to science and the patient is truly unparalleled.

Based on his contributions to both our science and our technology, Tim's new title of Chief Scientific and Technology Officer better describes his role and his significant contributions at Mersana. With that, I will now turn the call over to Dirk Huebner to discuss the 1536 data disclosed at ASCO and the Phase I clinical trial..

Thanks, Anna, and good morning, everyone. As Anna mentioned, we were excited to present interim data from the Phase I dose escalation study of XMT-1536 in patients with solid tumors likely to express NaPi2b at the ASCO Annual Meeting in June. Most of these patients have platinum-resistant ovarian cancer.

So before I discuss the data, it is important to characterize the severity and the unmet medical need in this setting. With current treatment regimens, platinum-resistant ovarian cancer is uniformly terminal with a median overall survival of less than a year. Generally, standard of care of single agent chemotherapies, which were approved decades ago.

Of late, there have been several recent randomized Phase III studies in this setting in which these chemotherapies fought the control arms. Across these studies, single agent chemotherapies showed response rates between 4% and 12%, and a median PFS of 3 to 4 months.

Even the combination with bevacizumab and chemotherapy in early lines of platinum-resistant ovarian cancer shows a response rate of 27% with additional side effects. As lines of therapy increased overall response rates and disease control rate decreased substantially. We are encouraged to see early signs of benefit from XMT-1536 in these patients.

The data presented at ASCO were as of May 10 of this year and included the evaluation of 37 patients, including 22 ovarian cancer patients, 4 NLCLC patients and the remainder were patients with more rare tumors potentially expressing NaPi2b.

Further, the data included the once every 3 week regimen as well as Once every four week regimen up to and including 30-milligram per square meter dose. Patients were heavily pretreated with a median of 4 prior lines of therapy for all patients, ranging between 1 and 30.

And then the median of high lines of prior therapy in ovarian cancer patients and they range between 1 and 11 prior lines. The data show that XMT-1536 was well tolerated at doses up to 30 milligrams per square meter with observation of objective responses at 20-milligram per square meter and higher.

The most common treatment-related adverse events were grade 1 and 2 nausea, fatigue and headache and the most frequent grade 3 treatment-related adverse events were isolated and transient AST elevations, which returned to baseline or grade 1 before the next dose.

Furthermore, severe treatment-related AEs typically associated with other ADC platforms, such as neutropenia, neuropathy and ocular toxicities were not observed.

In terms of early signs of efficacy in patients with tumor type selected for the planned expansion phase, including platinum-resistant ovarian cancer and NSCLC adenocarcinoma, the data show that 18 patients treated at 20-milligram per square meter and above, 3 achieved -- confirmed partial responses and additional 8 patients achieved stable disease, including 2 patients with NSCLC.

Of these 18 patients, half were on treatment lasting more than 16 weeks. 16 weeks is an important landmark during the median PFS of single agent chemotherapies of less than 4 months. As a reminder, these patients were not preselected for NaPi2b expression.

Further, to help to put this patient population in context, I'll share with you a case study from our 3 ovarian cancer patients who received partial responses in this study. This patient is a 70-year-old woman with platinum-resistant ovarian cancer.

She had 11 prior lines of therapy and had progress without response on the previous therapy, which was bevacizumab and cyclophosphamide. She had 2 target lesions and received XMT-1536 at 20-milligram per square meter every 4 weeks. We saw a 40% reduction in target lesions at the end of cycle 2 and 75% reduction at the end of cycle 3.

Beyond the ASCO data, we are finalizing the evaluation of 36 milligram per square meter dose cohort in this Phase I dose escalation study. We have not yet reached MTD, but we believe we are close to identifying a go-forward dose, which is tolerated and effective and will be either 30 or 36 milligram per square meter every 4 weeks.

We plan to initiate the dose expansion study in the third quarter of 2019, and as such, are in the process of bringing on additional sites for the enrollment of the ovarian cancer and NSCLC adenocarcinoma patient cohorts. In the first group, we enter more platinum-resistant ovarian cancer patients who have had no more than 3 lines of therapy.

In the second group, we aim to enroll NSCLC adenocarcinoma patients who have failed one prior line of platinum-based chemotherapy, either in combination or sequentially treated with an anti-PD-1 or anti-PD-L1 monoclonal antibody.

We also plan to enroll patients with oncogenic driver mutations such as EGFR or outmutations, we have had higher lines of targeted therapies and no more than one line of chemotherapy. In both expansion populations, patients will not be biomarker preselected.

A patient eligibility criteria will require archived tumor samples and fresh tumor biopsies are Medicaid feasible to further evaluate the correlation between NaPi2b expression and efficacy.

We look forward to initiating the dose expansion phase of this study in the third quarter of 2019 and the potential to provide enhanced therapeutic options for these patients. I will now turn it over to Tim Lowinger, our Scientific and Technology Officer, to discuss our preclinical and next-generation ADC platform work..

Thanks, Dirk. And thank you, Anna, for the kind words and acknowledgment. The entire team is excited to see XMT-1536 for each patients and potentially make a difference in their disease. Beyond XMT-1536, we've continued to make significant progress on our candidate nomination and discovery efforts.

We remain on track to disclose the details of our next candidate around the end of the year, and we plan to file an IND that initiate a Phase I study in the first half of 2020. In addition, we continue to progress ADCs for multiple additional targets matched to our innovative platform technologies.

We do believe that our platforms are meaningfully differentiated from other ADC approaches. As we have described before, our Dolaflexin platform allows us to conjugate 3 to 4x more payloads per antibody than typical ADC platforms and our proprietary payload has a unique DolaLock mechanism.

I would like to highlight a paper recently accepted to molecular Cancer Therapeutics written by Mark Barrack's [ph] group in Helsinki, Finland, in which they report that a Dolaflexin ADC show greater efficacy than a maytansin-based ADC for the same target.

In addition, they demonstrated that the Dolaflexin ADC maintained activity in tumor cells with primary or acquired resistance to the maytansin-based ADC in vitro as well as efficacy in vivo in a tumor xenograph that was resistant to the maytansin-based ADC. As a reminder, Pgp pumps play a significant role in acquired resistance in many tumors.

And our DolaLock technology controls the bystander effect through a metabolic step that locks the payload in target cells and avoids Pgp pump mediated eflux.

These findings from the Barrack Group independently substantiate the differentiation of the Dolaflexin platform and the potential for efficacy even in resistant tumors, consistent with the benefits of our DolaLock payload.

Beyond our DolaLock based antitubulin ADC platforms, we've also made significant progress in advancing our proprietary immunostimulatory platform, Immunosynthen.

The goal of the Immunosynthen platform is to take ADCs beyond traditional cytotoxic payloads to immunomodulatory payloads, which can be safely and efficiently delivered to the tumor and stimulate an antitumor innate immune response.

We plan to present more on our approach and provide some early data from our ongoing Immunosynthen platform optimization efforts at the 10th Annual World ADC Conference in San Diego, California in October. And with that, I'll turn the call over to Brian DeSchuytner, Mersana's SVP, Finance and Product Strategy..

Thank you, Tim. I'm thrilled to join the team at Mersana at this important stage in the company's growth.

The attractive combination of a first-in-class wholly-owned asset with demonstrated responses in heavily pretreated and unselected patients, a differentiated platform and an experienced management team is a tremendous opportunity to make a meaningful difference in the lives of people living with cancer.

On a personal note, I'm glad to be, again, working closely with the many investigators and clinicians that care for patients with ovarian cancer. Now let me turn to our second quarter financial results, and I'll start with our cash position. We ended the second quarter of 2019 with $128.2 million in cash, cash equivalents and marketable securities.

We used net cash of $14.2 million in operations in the second quarter of 2019. We expect that our current cash position will fund our operating plans through several key clinical milestones with cash into at least mid-2021. In May, we completed a non-dilutive debt financing with Silicon Valley Bank for additional financial flexibility.

The financing provides us with the ability to draw up to $20 million for general corporate and working capital purposes and the first tranche of $5 million was drawn down upon execution of the agreement. Under the terms of the agreement, we have the option to draw additional advances of up to $15 million through August 2020.

And now, I'll highlight some of the key data from our second quarter 2019 financial results. Collaboration revenue for the second quarter of 2019 was approximately $0.20 million compared to $4.2 million for the same period in 2018.

This decrease in collaboration revenue was primarily a result of the termination of the XMT-1522 collaboration with Takeda, the timing of efforts to support partner programs and the recognition of a milestone payment during the second quarter of 2018.

Research and development expenses for the second quarter of 2019 were approximately $13.8 million compared to $12.7 million for the same period in 2018. This was driven primarily by an increase in external costs for our next clinical candidate as well as an increase in headcount facilities costs.

This increase was offset by a decrease in external clinical and regulatory expenses due to the discontinuation of XMT-1522 and the timing of manufacturing costs for XMT-1536. General and administrative expenses for the second quarter of 2019 remained flat at $4.2 million compared to the same period in 2018.

Any increase in headcount was offset by a decrease in consulting and professional fees. Net loss for the second quarter of 2019 was $17.1 million or about $0.36 per share compared to a net loss of $12.4 million or $0.54 per share for the same period in 2018.

Weighted average common shares outstanding for the quarter ended June 30, 2019, and June 30, 2018, were approximately $47.7 million and $23 million, respectively. I will now pass the call back to Anna..

Thank you, Brian. This is a really exciting time at Mersana. We're on the cusp of initiating our expansion cohorts, and we look forward to keeping you up-to-date on our progress. Thank you for your continued support of Mersana. We will now open the call to Q&A..

[Operator Instructions]. Our first question will come from the line of Boris Peaker with Cowen..

I just want to know in lung cancer, I'm just curious, do we know how pretreatment with checkpoint inhibitors or chemo or anything else in early lines of therapy can impact the NaPi2b expression?.

Good question, Boris. We have done and will publish at some point soon with an academic collaborator of an analysis of a large sample of tissues, of line issues that are very well annotated and have determined that NaPi2b is broadly expressed in lung adenocarcinoma. And that has given us confidence to really go forward.

As Dirk indicated, we're focused on patients who have progressed on PD-1 and platinum therapy. And we've heard that there's a big -- we know there's a big unmet need for those patients because the options for those patients are very limited and have poor prognosis..

But I just want to clarify the work that you've done so far.

Was that inpatient, pre just treatment naive altogether during surgery? Or is there databases, kind of how this expression evolves with the treatment?.

Yes. So this is Dirk. So the work that we have done is mostly on archived tumor tissues. So in the research that Anna described that we will make public soon, as far as we're aware, there's no evidence that the -- that the NaPi2b expression would be iterated by the prior lines of therapy. So I think these are ongoing -- this is ongoing research, mainly.

And of course, I mean, we are talking about relatively new target and new therapies that are in the game here in lung adenocarcinoma and research needs to be done for a lot..

And our next question will come from the line of Jonathan Chang with SVB Leerink..

This is john Barrett on for Jonathan. Congrats on the progress. I just had one question.

Where are you in the 36 milligram dosing? And can you provide any color on how that cohort is progressing so far?.

So we are encouraged with the profile we're continuing to see on the program. We are very close, as I said, really, on the cusp of selecting the dose and moving forward. And I think kind of the second question is when are we going to disclose the data.

Once we get the expansion cohort up and running, I think, will determine the right forum to disclose the remaining dose escalation data as we wrap up that part of the study..

And our next question will come from the line of Debjit Chattopadhyay with H.C. Wainwright..

This is Earl DeSouza in for Debjit. So just 2 questions on our end. The first, the new PKPD data confer any significant advantage of dosing at the 36 -- or 30 mg dose versus the reported 42% or are recorded from discontinued Roche program? And the second one is -- go ahead, sorry..

Yes. So the pharmacokinetic data that we have so far, which we presented at the ASCO in the poster session basically suggests that we have a dose proportional increase in exposure as we move up the dosing. So in other words, yes, there's differences in terms of exposure related to Cmg and ADC as we move up on the dosing scale.

And that would include the 36 milligram..

Great.

And my follow-up is, are you planning on starting both the ovarian and lung cancer expansion cohorts simultaneously or are you staggering it? And if you're staggering it, will it be dependent on the emerging safety profile of the Q4w dose?.

First, as I mentioned, we are quite confident that we have the data to move forward. The profile looks good, both in terms of efficacy and tolerability. And we are starting both cohorts at the same time. We have said in the past that we expect ovarian to recruit quickly.

It's an artifact of the sites we're already at, the experience these sites have with ovarian. And we expect that to go faster than that, but we need to start these two cohorts and then be able to give you more definitive guidance..

[Operator Instructions]. And our next question will come from Jessica Fye with JPMorgan..

With these comments that you'll initiate the expansion cohorts and selected dose to move forward in the third quarter, with less than 2 months before the end of the quarter, what is the additional info that will become available in the coming weeks to help you make that decision between dose 30 and 36 you said for the go-forward dose? Or do you have the data you need and you just need to evaluate it?.

We have a lot of the data we need. And we're literally on the cusp of moving forward, Jess..

Okay, great. And then just as a follow-up.

As we think about the data you've presented so far from dose escalation and the additional results that we might see in the future, can you just remind me in platinum-resistant ovarian cancer, how strong is the link between response rate and PFS? Trying to just think about with a lot of the stable disease and kind of duration that some of the patients are seeing on therapies, how important that response rate actually is..

So in terms of responses and how this correlates with PFS, may I just remind that the most important thing, the most critical aspects in order to determine your PFS is to prevent progression so that this can come in a number of different qualities. Response would be one of those.

So patients who were responding and keep responding, they are not progressing. So that has an influence on the PFS. But further, stable disease. So if you have someone who is stable, not progressing, would also impact positively PFS.

So that's why we are focused on the amount of responders that we see, but also very interested in what the stable disease and as you see in our poster, for example, that the patient population, we are interested in an ovarian cancer in an NSCLC adenocarcinoma. The disease control rate is in the range of about 60%.

So we feel very comfortable moving into those populations..

Okay. Great.

And can you just remind me, in the protocol for dose escalation, were patients allowed to stay on steady drug past progression if their doctor felt like they were benefiting from treatment?.

Yes. Generally, those patients come off when they start progressing..

And I'm showing no further questions in the queue. So now I'll hand the conference back over to Ms. Anna Protopapas for any closing comments or remarks..

So I just want to thank all of you for joining our call. We're encouraged with what we're seeing. Stay tuned as we disclose more information and move forward into an exciting phase for the program, the expansion cohorts. 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..