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Mersana Therapeutics, Inc. (NASDAQ:MRSN)
Q1 2019 Earnings Call
May 9, 2019, 5:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning and welcome to the Mersana Therapeutics first quarter 2019 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 over to Sarah Carmody, Executive Director of Investor Relations and Corporate Communications. Please proceed.

Sarah Carmody -- Executive Director of Investor Relations and Corporate Communications

Good morning. Welcome to Mersana's first quarter 2019 conference call. We issued a press release earlier this morning reviewing our first 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 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're subject to risks and uncertainties that could cause the actual results and implementation of the company's plans to differ materially, including the risk that our early encouraging free clinical results for XMT-1536 are not necessarily predictive of the results of our ongoing or future discoveries or clinical studies, that the development and identification of the companies' 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 28th, 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.

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

Anna Protopapas -- Chief Executive Officer

Thank you, Sarah. Good morning, everyone and welcome to our financial and corporate update call for the first quarter of 2019. Joining me today with prepared remarks are Dirk Huebner, our Chief Medical Officer, Tim Lowinger, our Chief Scientific Officer, and Dave Spellman, our Chief financial Officer. We're also joined by Eva Jack, our Chief Business Officer, and Michael Kauffman, our Senior VP of CMC who will be available for questions and answers. I'll begin today with a high-level business update and then turn the call over to Dirk, Tim, and Dave to provide more details.

Since the beginning of the year, we have continued to make important progress in advancing our clinical candidate, XMT-1536, furthering our early stage pipeline and ensuring that we have the resources necessary to execute on our business goals.

XMT-1536, our lead asset, is a wholly owned Dolaflexin ADC targeting NaPi2b-expressing tumors, such as ovarian and lung cancer adenocarcinoma. XMT-1536 is a first-in-class molecule with a clinically validated target and a pre-clinical demonstration that we have a highly differentiated molecule with the potential for enhanced efficacy and tolerability.

Let me start with the status of the Phase 1 dose escalation. Remember, in this portion of the study, we are evaluating ovarian, lung adenocarcinoma, and certain rare tumors that are likely to express NaPi2b. These are heavily pre-treated patients, not pre-selected for NaPi2b expression that have exhausted all other options.

The safety, efficacy, and duration of treatment of XMT-1536 to date gives us and our investigators the confidence to move forward with the dose-expansion phase of the trial. For this reason, as Dirk will explain, once we complete the evaluation of the current dose cohort, we plan too start the expansion portion of the study.

One of the expansion groups will evaluate XMT-1536 in platinum-resistant ovarian cancer. As you're aware, these patients have limited treatment options and poor outcomes. The approved therapies for platinum-resistant ovarian cancer result in a 10% to 15% response rate and a PFS of three to three and a half months.

The second expansion cohort will evaluate XMT-1536 in lung adenocarcinoma patients. Although PD-1 therapies have changed the non-small-cell lung cancer landscape in frontline therapy, they remain limited options to patients who do not respond or who progress. Again, these options result in poor outcomes. We look forward to advancing XMT-1536 in these patients and evaluating its potential to provide improved patient outcomes.

We're also pleased to announce that our XMT-1536 dose escalation data abstract submitted to ASCO for the upcoming annual meeting has been accepted. Dirk will also provide more color on the ASCO poster in his update.

Regarding our future programs, we continue to make significant progress in advancing our next ADC clinical candidate. We are on track to disclose this candidate in the first quarter of 2019 and are targeting the filing of an IND in the first half of 2020.

Lastly, in early March, we strengthened our balance sheet through a successful public equity offering that provided us with approximately $98 million in gross profits and more recently, we completed a $20 million non-dilutive debt financing. Debts allow us to run the business and execute on our near to midterm goals to reach certain important value-enhancing milestones.

With that, I will now turn the call over to Dirk, our Chief Medical Officer, to discuss XMT-1536 dose escalation and dose expansion in more detail.

Dirk Huebner -- Chief Medical Officer

Thank you, Anna. As Anna mentioned, we are excited to announced that our abstract titled "Phase 1 Dose Escalation Study of XMT-1536, a Noval NaPi2b-Targeting Antibody Drug Conjugate in Patients with Solid Tumors Likely to Express NaPi2b" will be presented in a poster display and a poster discussion format at the upcoming ASCO annual meeting on June 1st.

The presentation will include the evaluation of patients treated in the once every three-week dosing schedule as well as the once every four-week dosing schedule in patients up to and including 30 mg per square meter dose.

The poster and the discussion will focus on the safety, tolerability, efficacy, and duration of treatment with 1536 and will include incremental data beyond the submitted abstract. The abstract will be released by ASCO on May 15th, 2019 and information on the logistics and our poster and poster discussion will be announced closer to the ASCO meeting date.

The encouraging safety and tolerability data as well as the early signs of efficacy we have seen and will be reviewing at ASCO provides us with the confidence we need to move XMT-1536 forward into the expansion portion of the study. Immediately upon completion of the current dose escalation cohort of 36 mg/square meter.

We are in the process of site selection and initiation to evaluate XMT-1536 as a single agent in two distinct patient populations. In the first group, we aim to enroll platinum-resistant ovarian cancer patients who have had no more than three lines of therapy. In the second group, we aim to enroll NSCLC adenocarcinoma patients who have failed treatment of an anti-PD-1 or anti-PD-L1 monoclonal antibody and platinum-based therapy, whether taken in combination or sequentially.

We will also be enrolling patients with EGFR mutations who have had prior lines of targeted therapies and no more than one line of chemotherapy. As Anna mentioned, all of these patient groups have limited treatment options and poor prognosis.

Our objective for the expansion phase of the study to characterize efficacy and safety in the safety profile of XMT-1536 to evaluate duration of response and to determine the relationship to NaPi2b expression. In both expansion populations, patients will not be preselected but patient eligibility criteria will require archived tumor samples and fresh tumor biopsy when medically feasible to further evaluate the correlation between NaPi2b expression and efficacy.

We are designing the expansion cohort to be robust enough in size to give us a clear understanding of the profile of the drug and the data necessary to decide on a registration strategy. Our current plan is to enroll around 40 to 45 patients in each indication, although this could change as we accumulate more data. We expect the ovarian cancer patient cohort to enroll more quickly than the NSCLC adenocarcinoma patient cohorts.

There remains a significant unmet medical need of patients suffering from platinum-resistant ovarian cancer and NSCLC adenocarcinoma. We are very encouraged by the emerging profile of XMT-1536 and look forward to initiating the dose expansion phase of the study being able to pursue a potentially exciting therapeutic option for these patients.

I will now turn the call over to Tim Lowinger, our Chief Scientific Officer, to discuss our pre-clinical and next generation ADC platform work.

Tim Lowinger -- Chief Scientific Officer

Thanks, Dirk. We've continued to make significant progress on our candidate nomination and our discovery efforts. I'll start with our work on expanding our pipeline of innovative ADC candidates. We've continued to advance our next ADC clinical candidates and have generated compelling pre-clinical data for a number of ADCs, utilizing both Dolaflexin and Dolasynthen platforms.

We remain on track to disclose the details of our next candidate in the fourth quarter of 2019 and we've initiated pre-clinical development efforts consistent with our plan to file an IND and initiate a Phase 1 study in the first half of 2020.

We've also continued our work to validate Dolasynthen, our novel, fully synthetic, structurally homogenous drug conjugation platform, which allows attunable drug to antibody ratio from 2 to 24. Dolasynthen utilizes our innovative [inaudible] payload and retains the favorable properties of Dolaflexin, including excellent physical, chemical, and PK properties, and also allows for further optimization of the therapeutic index for a given antibody through the precise control of optimal DAR matched with a specific target as well as site-specific bioconjugation to provide completely homogenous ADCs.

We recently presented exciting pre-clinical data from our Dolasynthen platform at AACR, where we showed the flexibility and precision offered by the Dolasynthen platform allowed us to quickly and efficiently create a number of ADCs with variations in DAR, bioconjugation site, and bioconjugation method. Subsequent evaluation of these ADCs and head to head studies to evaluate efficacy, tolerability, and drug-like properties allowed us to quickly identify the optimal candidate among the ADCs tested.

We believe these data demonstrate the significant potential for clinical application and the ability of our Dolasynthen platform to identify the optimal ADC for a given target and antibody as opposed to one-size-fits-all approach. We are excited about the potential of this platform and look forward to providing more details on its applications throughout the year.

We also presented a poster at AACR that focused on our work on a prototype dual payload ADC, which contains both a microtubular inhibitor and a DNA alkylator. Cancer is a disease commonly treated with combinations and a dual-payload ADC can enable the efficient delivery of two payloads with different mechanisms of action that have precisely defined stoichiometry directly to the targeted tumor cell.

Our AACR poster showed how we used our modular Synthemer platform to engineer a dual-payload ADC, employing two mechanically distinct payloads with a combined DAR of approximately 20. In vitro characterization of this ADC demonstrated potent cytotoxicity and equally importantly the characteristic phenotypes of both expected mechanisms of action were observed in target cells.

We believe this demonstrates the flexibility of our modular Synthemer approach and its potential to enable our continued efforts to innovate in the ADC field. All the data I described is available on the publications page of our website.

With that, I'll turn the call over to Dave Spellman, Mersana's Chief Financial Officer.

Tim Lowinger -- Chief Scientific Officer

Thank you, Tim. I'll start today with our cash position. Through 2019, we have taken important steps to ensure that we are well-capitalized. In the first quarter, we completed a successful public equity offering that provided us with gross proceeds of approximately $98 million, allowing us to close the quarter with $137.3 million compared to $70.1 million as of December 31st, 2018.

We expect our current cash position will fund our operating plans through several key clinical milestones with cash into at least mid-2021. Additionally, we have entered into a non-dilutive debt financing with Silicon Valley Bank for up to $20 million, further strengthening our available cash. The first trench of $5 million was funded upon execution of the agreement and we have at our option the ability to draw on this facility through August 31st, 2020.

We believe these financing activities provide us with the flexibility to continue to invest appropriately in advancing XMT-1536 and our earlier stage ADC programs through important value-enhancing milestones.

And now some of our key highlights of our first quarter 2019 financial results -- collaboration revenue for the first quarter 2019 was approximately $41 million, compared to $3.1 million in the same period in 2018. The increase in collaboration revenue was primarily due to the recognition of $40 million in deferred revenue due to the discontinuation of the XMT-1522 program and the Takeda collaboration as announced in January of 2019.

Research and development expenses for the first quarter 2019 were approximately $15.1 million compared to $12.3 million for the same period in 2018, driven primarily by an increase in external costs for the manufacturing of XMT-1536 and our next clinical candidate as well as an increase in headcount facilities cost.

First quarter 2019 R&D expenses also included a one-time manufacturing line for our partner, Merck, for which we were fully reimbursed. The increase was offset by an increase in external clinical and regulatory program expenses due to the discontinuation of XMT-1522.

General and administration expenses for the first quarter 2019 were approximately $4.4 million compared to $3.6 million for the same period in 2018. The increase is driven by an increase in headcount and professional fees. Net income for the first quarter of 2019 was $21.9 million or $0.72 a share compared to a net loss of $12.4 million or $0.54 a share for the same period in 2018.

Net income in the first quarter was driven by the recognition of the remaining $40 million in deferred collaboration revenue as previously discussed. Weighted average common shares outstanding for the years ended March 31st, 2019 and March 31st, 2018, were approximately $30.3 million and $22.8 million, respectively.

We will now open the call to Q&A.

Questions and Answers:


Ladies and gentlemen, at this time, if you do have a question, please press * and the number 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key.

Our first question comes from the line of Jonathan Chang of SVB Leerink. Your line is open.

Jonathan Chang -- SVB Leerink -- Analyst

Thanks for taking my questions. First question -- any color on how the 36 mg every four-week dosing cohort is shaping up? It sounds like you haven't reached an MTD yet. Also, just to confirm, data from that cohort won't be at ASCO? Should we expect a planned dose expansion cohort to be at the 36 mg dose level?

Anna Protopapas -- Chief Executive Officer

So, Jonathan, thanks for the question. The profile we're seeing to date seems promising. We like what we're seeing from a tolerability, from a safety, and an efficacy standpoint. We have not fully evaluated the 36. So, the abstract will have all the data through the end of the full evaluation of 30 but not the 36. Our thinking is that we're comfortable with what we're seeing, whether it's 30 or 36. Whether it's the complete evaluation of 36, we'll pick one of those two doses to go forward with the expansion cohort.

Jonathan Chang -- SVB Leerink -- Analyst

Got it. Thanks for the color. Second question -- on the dose expansion cohorts, one in ovarian and one in lung, I'm curious to know how much experience do you have in the dose escalation portion in lung cancer patients at this point?

Anna Protopapas -- Chief Executive Officer

That is a great question. Most of our experience is in ovarian, as we've said before. We will be accumulating, hopefully, more experience in lung. As we've said, we expect the ovarian to move much faster than the lung, mostly because we are a site that primarily recruit ovarian and we're getting additional sites up and running in order to increase our experience in lung.

Jonathan Chang -- SVB Leerink -- Analyst

Thanks. One last question from me -- on the additional site initiations, any color on how many more sites you're targeting for the expansion portion?

Anna Protopapas -- Chief Executive Officer

We're not in a position to give you more color. We will as we get the sites up and running and have a really firm plan.

Jonathan Chang -- SVB Leerink -- Analyst

Got it. Thanks for taking the questions.


Thank you. Our next question comes from the line of Jessica Fye of JP Morgan. Your line is open.

Jessica Fye -- JP Morgan -- Analyst

Great. Good morning, guys. Thanks for taking my questions. To the extent the 36-milligram dose ends up being the go-forward dose, but we won't see those patients at ASCO, when could we see the results from that cohort?

Anna Protopapas -- Chief Executive Officer

Good question. Once we complete the full evaluation, we're going to look for the right forum to share the data. Compared to the medical meeting, it could be in another forum.

Jessica Fye -- JP Morgan -- Analyst

When you talk about the ovarian expansion cohort enrolling platinum-resistant patients who have failed standard therapy, does that include Avastin and single-agent chemos and/or PARPs? Can you help us think more specifically about the enrollment criteria there and remind us if the dose escalation patients have had prior PARPs or prior Avasin?

Dirk Huebner -- Chief Medical Officer

This is Dirk. I'm happy to address that question, although we've got a fire alarm right now.

Sarah Carmody -- Executive Director of Investor Relations and Corporate Communications

We may have to cut it short, but try.

Dirk Huebner -- Chief Medical Officer

To answer your question, we're going to enroll patients up to three lines of prior therapy. So, usually, these patients got treatment with platinum-based and Taxol-based chemotherapy. We are not making any exclusions whether they have [inaudible] or other treatments. The only requirement that we implement into the protocol is they have to have actually three prior lines of therapy. They can't get more than that -- so, up to three prior lines of chemotherapy. PARPs, we don't account for the PARPs. As long as they are given in maintenance, they're fine. That wouldn't count as an additional line of therapy.

Anna Protopapas -- Chief Executive Officer

Maybe to add to what Dirk said, in the dose escalation, if I recall, we have some patients who have seen PARPs, but not all of them.


Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.

Duration: 24 minutes

Call participants:

Sarah Carmody -- Executive Director of Investor Relations and Corporate Communications

Anna Protopapas -- Chief Executive Officer

Dirk Huebner -- Chief Medical Officer

Tim Lowinger -- Chief Scientific Officer

Dave Spellman -- Chief Financial Officer

Jonathan Chang -- SVB Leerink -- Analyst

Jessica Fye -- JP Morgan -- Analyst

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