Good morning, and welcome to Mersana Therapeutics Second Quarter 2021 Conference Call and Webcast. [Operator Instructions]. I'd 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 2021 Conference Call. Earlier today, we issued a press release reviewing our second quarter financial results and business updates, which will be covered on this call. A replay of today's call will also be available on the Investor and Media section of our website.

After our prepared remarks, we will open the call for Q&A. Before we begin, I'd like to mention that our call will contain forward-looking statements within the meaning of federal securities laws. 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 the implementation of the company's plans to vary materially, including the risk that the results of our ongoing or future clinical studies may be inconclusive with respect to the efficacy of our product candidates; that we may not meet clinical endpoints with statistical significance or there may be safety concerns or adverse events associated with our product candidates; that preclinical testing or early clinical results may not be predictive of the results or success of our ongoing or later preclinical or clinical studies; that the identification, development and testing of the company's product candidates and new platforms will take longer and/or cost more than planned; and that our clinical studies may not be initiated or completed on schedule, if at all.

These risks are discussed in the company's SEC filings, including, without limitation, the company's quarterly report on 10-Q filed on May 10, 2021, and subsequent filings.

In addition, while we expect that the COVID-19 pandemic might adversely affect the company's preclinical and clinical development efforts, business operations and financial results, the extent of the impact on the company's operations and the value of and market for the company's comp and stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the severity of additional strains of the virus, travel restrictions, quarantines, physical distancing and business closure requirements in the U.S.

and in other countries and the effectiveness of actions taken globally to contain and treat the disease. 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 President and Chief Executive Officer..

overall efficacy observed in a biomarker-selected population; and two, the bar necessary for commercial success, given the current and emerging treatments. Turning now to the pipeline. I will start with XMT-1592, our Dolasynthen ADC targeting NaPi2b.

Remember that our strategy to develop XMT-1592 as a second shot on goal is based on the differentiated profile seen in preclinical studies in lung models. As we communicated previously, we have exceeded the MTD and continued the ongoing exploration of different doses and regimens and our work to fully characterize the profile of the agent.

We expect to complete our evaluation of XMT-1592 and disclose top line data around year-end. Finally, with respect to the pipeline, we have continued to advance our 2 first-in-class preclinical ADCs addressing areas of high unmet need through IND-enabling studies.

For 1660, our B7-H4 Dolasynthen ADC, in parallel to the IND-enabling studies, we have initiated early diagnostic development work, much like we did with UpRi for NaPi2b. We believe this is an important step to ensure that the diagnostic is developed in tandem with the development of XMT-1660.

For XMT-2056 our first Immunosynthen STING-Agonist ADC, I am very excited to announce that Tim Lowinger, our Chief Science and Technology Officer, has been invited to present on this program at the upcoming virtual 2021 Triple meeting in October as part of the plenary session on drug conjugates.

During his presentation, Tim plans to provide further promising preclinical data for XMT-2056 and disclose the target. We look forward to sharing this information and expect to provide more details around the clinical development plan for 2056 later this year. With that, I'll turn the call over to Brian for an overview of our financial results..

Thank you, Anna. Good morning, everyone, and thank you for joining us. I'll now review some of the key financial highlights from our second quarter 2021 results, and I'll start with our cash position. We ended the second quarter of 2021 with $227.4 million in cash and cash equivalents.

During the second quarter, we sold approximately 2.3 million shares through our at-the-market, or ATM, facility at an average price per share of approximately $15, raising net proceeds of $33.3 million. Net cash used in operating activities in the second quarter was $34.5 million.

In addition to our current cash position, we have the option to draw funds through the debt financing agreement with Silicon Valley Bank refinanced in August of last year. We expect that our available funds will allow us to meet our current operating plan commitments for approximately the next 2 years.

And now some of the key highlights from our second quarter 2021 financial results. Research and development expenses for the second quarter of 2021 were approximately $32 million compared to $15.4 million for the same period in 2020.

The difference was primarily due to an increase in UpRi manufacturing, clinical and regulatory expenses, an increase in manufacturing activities for our preclinical and discovery stage programs, an increase in headcount and advancement of the diagnostic development efforts for the NaPi2b biomarker.

Noncash stock-based compensation expense included in the research and development expenses increased by $1.7 million related to growth in headcount and an increase in the valuation of stock-based awards as a result of stock price appreciation.

General and administrative expenses for the second quarter of 2021 were approximately $8.9 million compared to $5.2 million in the same period in 2020. The increase was primarily due to an increase in headcount and consulting and professional fees.

Noncash stock-based compensation expense included in these general and administrative expenses increased by $1.2 million related to growth in headcount and an increase in the valuation of stock-based awards as a result of stock price appreciation.

Net loss for the second quarter in 2021 was $40.9 million or $0.59 per share compared to a net loss of $19.8 million or $0.33 per share for the same period in 2020. Weighted average common shares outstanding for the quarters ended June 30, 2021, and June 30, 2020, were approximately 70 million and 61 million, respectively.

I'll now turn the call back to Anna..

Thank you, Brian. At the beginning of the year, we communicated our vision of building UpRi as a foundational therapy in ovarian cancer. Since then, we have made significant progress in executing against that plan. UPLIFT provides the potential to benefit platinum-resistant patients in desperate need of better options.

UPGRADE is designed to leverage the differentiated profile of UpRi to explore the potential benefit to a substantially larger number of patients at an earlier stage of their disease and for longer in combination, followed by continuation.

These are critical steps in achieving our aspiration of establishing UpRi as a foundational therapy in ovarian cancer. Based on the progress we have made to date on all of our programs, we remain on track to execute against the goals and milestones, including for UpRi.

We expect to provide an update on the ovarian expansion cohort this year, and we expect to complete enrollment in the UpRi lung adenocarcinoma expansion cohort, disclose top line data and determine our next step in this indication in the fourth quarter of this year.

For XMT-1592, we expect to complete our evaluation and disclose top line data around year-end.

And for our earlier stage programs, we plan to disclose the XMT-2056 target at the upcoming Triple meeting in October, and we are working towards the completion of IND-enabling studies for both XMT-1660 and XMT-2056 in a time frame that we expect will allow us to initiate clinical studies in early 2022.

With that, I will turn the call over to the operator for Q&A..

[Operator Instructions]. Our first question comes from the line of Jonathan Chang from SVB Leerink..

First question, it looks like you're now guiding to another update in the UpRi ovarian cancer expansion cohort this year.

Can you talk about what drove this decision and help set investor expectations for this?.

Yes. Thank you, Jonathan, for the question. So as you know, over the past - throughout 2020, we had four different disclosures. So we have been very proactive in sharing data with investors.

I think now that we've closed the expansion cohort and closed enrollment to the expansion cohort, we really have an opportunity to consider the timing for that disclosure. I think the exact timing, the venue is still being considered, but we are committed to doing that this year. And for - as I mentioned, we have almost 100 patients enrolled.

So we think this is a very data-rich set of information that will be helpful as we really mine this information to understand the full profile of the agent and will be very - of course, at the right appropriate time, we will share that with investors..

Understood.

And second question, can you talk about the enrollment progress that you're experiencing for UPLIFT? When might we see the results from this study? And I'm curious to know if you've received any feedback from the sites on your biomarker testing strategy?.

We're very much - it's still early. So I think we're cautious about giving guidance at this early stage. But I can tell you that overall, the feedback is positive. The engagement with sites is high, both here and outside the U.S. And we are very much on track for the plans that we had put in place.

But again, too early to be giving guidance at this point.

Arvin, anything to add on the diagnostics?.

Thank you, Anna. So just in regards to the diagnostic, the sites have been quite encouraged by the approach we're taking from the standpoint that, remember, we test once patients come on study.

So there is no turnaround in relationship to testing results in order for patients to come on, so which really allows for the acceleration and the ability for patients to come on swiftly.

And so this also then supports what we've talked about as our 2 shots on goal in relationship to the potential for UPLIFT as far as in a biomarker selective population as well as a potential intention to treat that broader population..

And your next question comes from the line of Tom Shrader from BTIG..

This is Kaveri, on Tom's line.

For the STING ADC, if safety allows, will you - or can you start in earlier lines, maybe somewhere where I/O monotherapy is frontline?.

I think it's a little early for us to share development strategies. I think, we will, as we advance this program closer to IND. As we indicate - as I indicated, we will have an opportunity to outline our development strategy..

And just to add to that briefly from the standpoint, remember, STING offers an opportunity in relationship to a space that checkpoint inhibitors have not been able to address, really through the innate immune system relative to the checkpoint inhibitor.

So just providing context in relationship to the differentiation of STING versus the checkpoint inhibitors..

Got it. And for non-small cell lung cancer, these patients are often treated with tubulin targeting chemotherapies in earlier lines.

Do you think that can impact the efficacy of your ADC?.

So remember, I mean, the ADCs do allow for targeting specifically of a more potent payload. So the question is obviously not determined yet just in relationship to whether or not the tubulin can impact the impact of - or efficacy of UpRi.

But keep in mind that in ovarian cancer, we have achieved proof of concept, right? We have demonstrated significant activity in these populations where they're also receiving multiple lines of prior chemotherapies, including potential tubulin inhibitors..

And your next question comes from the line of Boris Peaker from Cowen..

I'd like to ask a question about the UPGRADE study.

I'm just curious, what are the key efficacy parameters that we should be focused in the UpRi combo with platinum? Is it response rate? Is it durability of response? And can you kind of put it in context for us what is the normal response rate and durability of responses for second-line and third-line patients?.

So I could start out and, obviously, Tim can add on in regards to the treatment landscape.

But the primary efficacy in a single-arm study is response rate as it is the most primary measure, recognizing that event-driven endpoints, such as PFS and overall survival, typically, it's better to measure them in a randomized fashion in order to compare with the control.

But certainly, the response rate and the duration of response, the depth of response, meaning the CR and the PR, these are all type of efficacy endpoints that would be evaluated to better understand the profile of, again, UpRi, which offers not only the potential for greater activity, but also a safety profile that we've seen in regards to the lack of the severe neutropenia, ocular toxicity and peripheral neuropathy, which would support, again, the combinations and ability for effective combinations with platinum as well as potential other agents..

And Boris, maybe I can just comment on the historical benchmarks in this space. There are two benchmark studies in the space that studied the addition of Avastin to platinum-based chemotherapy. Those studies are OCEANS and GOG-0213.

The control arms of those studies are informative, but I would just caution that these were in the pre-frontline PARP and pre-frontline BEV treatment landscape. So today, patients are more heavily pretreated.

And there's some evidence that treatment with PARP will affect platinum responsiveness in later lines, but the response rate in the control arms for both of those studies were in the 50% range..

Got it.

And just lastly, can you just remind us exactly what is the mechanistic difference in 1592 and UpRi?.

Tim, could you take that?.

Sure. So mechanistically, Boris, they both share the same antibody and the same payload. Really, the difference with 1592 is it's a fully homogeneous ADC, which, in head-to-head comparison, we saw was two to fourfold more efficacious as well as better tolerated in the nonclinical models..

[Operator Instructions]. Next question comes from the line of Jessica Fye from JPMorgan..

Just a few here.

So while you're not talking about the timing for enrollment completion for UPLIFT or the timing for data, can you maybe just remind us how soon from enrollment completion you will be able to report top line results, so just what that kind of gap would be? Second, can you elaborate a little bit on the dose exploration work you're doing with 1592? I think you've previously talked about data there in the back half and now it's around year-end.

So hoping you can just share a little more detail to help us understand what you're evaluating in this additional dose exploration.

And last one, just this quarter's R&D, is that a good run rate going forward or was it maybe inflated a little bit by the UpRi manufacturing you mentioned?.

I'll take the 1592 quickly, and I'll ask Arvin to take - and Brian to take the others. So our focus in the dose escalation portion is really to find the optimal dosing regimen to go forward, the one that delivers the best efficacy with the best tolerability.

If you recall back to - I would draw a parallel with UpRi, if you recall, we were dose escalating on a once every 3-week regimen and then analyzed the data and decided through the clinical data and some additional work we did preclinically that going to a 4-week schedule was worth exploring.

We tried that and really ended up with that being the optimal schedule. So without getting into the specifics until we have the complete data set, I would point to a parallel here where we are exploring how to find the optimal regimen before we can decide how to best go forward with the next step..

Great. And maybe just, Jessica, good hearing from you. Briefly, just in regards to the UPLIFT, as far as enrollment moving forward, what would be quite standard is just in relationship to after that last patient has received first dose therapy, you need to have a certain amount of follow-up.

And so 6 months follow-up for that patient would likely be sufficient in a way to follow them for durability and treatment, which would then lead to the top line..

And maybe I can just speak to the point that you raised about the operating expenses. So as you noticed, our operating expenses have recently gone through an inflection point as a result of our increased investment, including growth of the organization, to support building UpRi and building out the pipeline.

As you wisely commented, manufacturing can be really chunky because it generally starts and ends in 1 quarter. But we would expect the rate of growth to moderate from here.

And we have a very lean cost structure and remain nimble and disciplined in our capital allocation decisions as we really advance the molecule that we think could be transformative in ovarian cancer and the number of first-in-class pipeline assets..

Great. And can I just follow up on the comments on 1592. It sounded like in the past, there was going to be sort of an interplay around the UpRi data you're generating in lung and comparing that to some of the initial 1592 data in lung.

So is the 1592 data still necessary to make a decision on how to proceed with UpRi in lung?.

Yes, it is. I think there is an interrelationship between the two. Couple of reasons; one, I think we understand the prevalence of NaPi2b by studying UpRi in lung, and where is expression and what is the level of expression, so that's one.

In the dose escalation and dose exploration work we're doing, we are very focused on getting to the right dose quickly. So I have to say that a lot of the patients are ovarian. We have not chosen to just focus on lung because what we are trying to understand is really the optimal dosing regimen there.

And it gives us an opportunity to compare a number of factors with what we learned on UpRi exposure, side effect profile, efficacy profile. So the 2 data sets need to come together to make a decision as to where we go next..

And your next question comes from the line of Colleen Kusy from Baird..

This is Benjamin Paluch, on for Colleen. Just a few questions for us. As it relates to the UPGRADE study in earlier ovarian cancer, I believe you're not preselecting for NaPi expression.

Would you expect a potentially different NaPi2 cutoff for the chemo combo? And then do you see potential for efficacy in patients regardless of the NaPi2 expression or would you expect you'll use a different NaPi2 cutoff?.

So this is Arvin. Thanks for the question. So we will not be selecting patients by NaPi2b status for the UPGRADE carboplatinum combination. And that's in order for us to understand really the role of NaPi2b when combined with monotherapy.

We've had a robust program in relationship to defining the cutoff of NaPi2b in the monotherapy program, which we've previously described the process and the robustness and relationship that's defining that cutoff.

But we do want to better understand when combined with chemotherapy, whether or not NaPi2b plays a large role just in relationship to optimizing the benefit risk for these patients..

Perfect. And then I'm just curious, for the UPGRADE study, have you had any conversations with physicians as to not including paclitaxel? How comfortable do you think the physicians are with only dosing carbo in the earlier lines of ovarian? I don't know if there's any examples you may be able to speak to..

I would just say that this is the trial the investigators were most excited about as we were getting input on our whole plan for UpRi. I mean, I think they were - this was a top priority..

Agreed. And just to add the clinical elements to it is that, as we described earlier, UpRi provides an efficacy profile, we believe, the active, but also, in addition, has a safety profile with, again, without that neuropathy, the ocular toxicities and so forth. And so it could be foundational just in relationship to combination with carboplatinum.

So the idea there is that could it potentially replace paclitaxel is one of the statements we've made..

And an important but maybe subtle point here is that this affords the opportunity for continuation therapy. So one of the challenges with platinum plus taxane has been that it can really only be dosed for a fixed number of cycles before the cumulative toxicities become overwhelming.

There had been studies quite some time ago now that looked at longer duration taxane therapy, so 12 cycles instead of 6 cycles. And what it showed was you could really increase PFS, if you did that. But the patients were so beat up at the end that all of that benefit was lost in the subsequent lines.

So that - this has been an objective of the KOL community for quite some time.

Question is, what is a tool? What is a transformative medicine that could actually allow it to occur?.

And there are no further questions at this time. I'll turn the call back over to Anna..

Well, I just want to thank everyone for listening to our call, and we all look forward to updating you as we advance UpRi and the rest of the pipeline..

And this concludes today's conference call. Thank you for participating. You may now disconnect..