Mersana Therapeutics Q3 2023 Earnings Call Transcript

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November 7, 2023

Key Takeaways

  • Dolasynthen platform demonstrated superior pharmacokinetics, tumor delivery and toxicity profiles versus first-generation Dolaflexin in preclinical models, enabling precise control over drug-to-antibody ratio and site-specific conjugation.
  • XMT-1660 B7-H4 ADC is advancing through dose escalation with backfill cohorts enrolling now, with dose escalation expected to complete by year-end and dose expansion slated for 2024.
  • XMT-2056 STING agonist ADC had its FDA clinical hold lifted after data review, the protocol has been amended for a lower starting dose, and enrollment at clinical sites is set to resume.
  • Restructuring actions, including a ~50% workforce reduction and R&D reprioritization, have simplified the cost structure and, with $241 million in cash, fund operations into 2026.
  • Analysis of Uplift ovarian cancer trial results is nearing completion, with data planned for presentation at a medical meeting in the first half of 2024.
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Earnings Conference Call
Mersana Therapeutics Q3 2023
00:00 / 00:00

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Operator

Good morning, and welcome to the Mersana Therapeutics third quarter 2023 conference call and webcast. Currently, all participants are in listen-only mode. There will be a question-and-answer session at the end of this call. Please note this call is being recorded. I would now like to turn the call over to Jason Fredette, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead.

Jason Fredette
Jason Fredette
SVP, Investor Relations and Corporate Communications at Mersana Therapeutics

Thank you, operator, and good morning, everyone. Before we begin, please note that this call will contain forward-looking statements within the meaning of Federal Securities Laws. These statements may include, but are not limited to, those related to our platforms, product candidates, business strategy, clinical trial, execution and results, business development efforts, and cash runway. Each of these forward-looking statements is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. These risks and uncertainties are discussed in our quarterly report on Form 10-Q, filed with the Securities and Exchange Commission on August 8, 2023, and in subsequent SEC filings. Our filings are available at sec.gov and on our website, Mersana.com. Except as required by law, we assume no obligation to update forward-looking statements publicly, even if new information becomes available in the future.

Jason Fredette
Jason Fredette
SVP, Investor Relations and Corporate Communications at Mersana Therapeutics

On the call today, we have Mersana's President and Chief Executive Officer, Dr. Marty Huber, and our Chief Operating Officer and Chief Financial Officer, Brian DeSchuytner. With that, let me turn the call over to Martin to begin our discussion.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Thank you, Jason, and good morning, everyone. It's a pleasure to be speaking with you about eight weeks into my tenure as Mersana's CEO. Over the course of these two months, many investors and analysts have asked why I chose the role. So let's start there. It's really because of our people, platforms, product candidates, and our financial position. Having served as a Mersana board member since 2020, and having worked with several of our executives in a prior role, I knew this was a high caliber, high functioning team that was driven by a mission to make a real difference for patients. In addition, my role as a director provided a clear view that from an innovation standpoint, we had advanced well beyond Dolaflexin, our first generation ADC platform, and that we were making meaningful progress with our next generation platforms, Dolasynthen and Immunosynthen.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Not only that, but thanks in part to the difficult decisions that were made in the wake of UPLIFT, we also have a balance sheet providing an opportunity to accomplish our objectives. My time in the CEO role has only strengthened my conviction about these factors and my excitement about Mersana's potential. Now, let's move on to our core areas of focus. The first is XMT-1660, which was developed utilizing Dolasynthen, our next-generation cytotoxic ADC platform. Our preclinical work has shown that Dolasynthen has numerous potential advantages over Dolaflexin, our first-generation ADC platform that was utilized to develop UpRi. Like many first-generation platforms, Dolaflexin produced a heterogeneous population of ADCs. Published data from other platforms have shown that some species within heterogeneous ADC mixtures, specifically hydrophobic high DAR subpopulations, can negatively impact safety and tolerability while having limited to no contribution in terms of efficacy.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

We spent years developing a technology that improved upon both first-gen platforms and Dolaflexin. Specifically, we wanted the ability to identify an ADC outperformer and then produce that outperformer in a completely homogeneous fashion. We believe this would result in improved drug-like properties, the potential for enhanced efficacy and further reduction in off-target toxicity. Additionally, we wanted the ability to optimize both drug to antibody ratios and site-specific conjugation approaches. Dolasynthen is the result of that effort. Across preclinical models, when we compare Dolasynthen ADCs to those from Dolaflexin and first-gen platforms like vc-MMAE, we see clear benefits in terms of pharmacokinetics, tumor delivery, efficacy, and toxicity. XMT-1660, our lead Dolasynthen ADC, now provides a near-term opportunity to demonstrate these advantages clinically.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

XMT-1660 is a DAR6 ADC targeting B7-H4, a member of the B7 family of immune checkpoint markers that's been shown to have limited expression in healthy tissue and overexpression in multiple tumor types with high unmet medical need, including breast, ovarian, and endometrial cancers. At ESMO last month, initial clinical data were shared by others in the field, helping to validate B7-H4 as an intriguing target. In light of these early data, we believe there are opportunities to differentiate XMT-1660 from others in this space. We continue to advance 1660 in the dose escalation portion of our phase I trial. Additionally, we have begun to enroll patients in backfill cohorts at clinically relevant doses as part of our dose escalation design. By the end of this year, we expect to complete dose escalation, with dose expansion planned for 2024.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

It also is worth noting that we have been making good progress in our collaboration with Janssen that focuses on discovering novel Dolasynthen ADCs for up to three targets. Janssen has shared publicly that it chose Dolasynthen following a comprehensive review of the ADC landscape. Now let's move on to XMT-2056 and Immunosynthen. As many of you know, the ADC field has focused almost exclusively on attacking tumors with cytotoxic payloads for the past two decades. Several years ago, we began to explore how we might be able to leverage the benefits of an ADC approach to activate an innate immune response selectively in the tumor microenvironment. Immunosynthen is the result of this effort. Immunosynthen is an entirely unique platform that leverages a STING agonist payload with the goal of activating STING signaling in both tumor-resident immune cells and in antigen-expressing tumor cells.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

We initiated a phase I clinical trial of XMT-2056, our first Immunosynthen ADC candidate, earlier this year. This trial was placed on clinical hold following a Grade 5 adverse event in one of the initial patients that had been dosed. This served as an unfortunate reminder that when developing truly novel mechanisms, the translation from preclinical to clinical can sometimes be less predictable. We dove deeply into cytokine, pharmacokinetic, and other clinical data from the patients dosed in this trial. The findings from the initial patients dosed in our phase I clearly indicated that XMT-2056 is a much more potent innate immune stimulator in humans than we'd seen preclinically. As a result, we developed a response to the FDA that included a lowered starting dose in our phase I dose escalation design.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

We were very pleased to share the news last week that the clinical hold on the phase I trial of XMT-2056 has been lifted by the FDA. Our attention has now turned to re-engaging with clinical sites to reinitiate enrollment. Finally, I would also like to mention that our analysis of the results from UPLIFT in ovarian cancer is nearing its completion. We plan to present the data at a medical meeting during the first half of 2024. In summary, I'm proud of all the recent progress that has been made by the Mersana team, and my excitement about what lies ahead for the company continues to build.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

With highly differentiated platforms and clinical stage molecules, strong collaborations, a great team, and a healthy balance sheet, Mersana has an opportunity to make a difference for patients with a range of cancers, and we are working hard to deliver on this promise. We look forward to sharing more with you about our outlook for 2024 and key upcoming milestones in January. With that, let's turn things over to you, Brian.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

Thank you, Martin. Let me begin this portion of the call with a brief update on the restructuring and reprioritization actions we've announced in July. These actions included a workforce reduction of approximately 50% and a wind down of UpRi-related development activities. I'm pleased to report that the vast majority of our workforce reduction is already complete and that the remainder of our restructuring and UpRi wind down efforts will be substantially completed by the end of the year. This will set us up for a meaningfully simplified cost structure in 2024. We ended the third quarter of 2023 with approximately $241 million in cash, cash equivalents, and marketable securities, which compares with a balance of approximately $281 million as of the end of 2022.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

Thanks in part to our restructuring and reprioritization efforts, we expect our available funds to support our operating plan commitments into 2026. Please note that our cash runway guidance does not assume any potential milestone payments from our current collaborations or proceeds that we may realize from future collaborations. Turning to the income statement, I would like to begin with a reminder that the third quarter was a time of transition from our previous business strategy that focused heavily on UpRi, to our current strategy that focuses on our next generation platforms, XMT-1660, XMT-2056, and our collaborations. Net cash used in operating activities was approximately $46.1 million for the third quarter of 2023. Collaboration revenue for the third quarter of 2023 was $7.7 million, compared to $5.6 million for the same period in 2022.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

The year-over-year increase was primarily related to a greater contribution from our Immunosynthen collaboration with Merck KGaA. Research and development expenses for the third quarter of 2023 were $30.5 million, compared to $50.6 million for the same period in 2022. This decline was primarily related to reduced manufacturing and clinical costs related to UpRi and XMT-2056 and reduced employee compensation. Non-cash R&D-related stock-based compensation expense for the third quarter of 2023 was $2.2 million. General and administrative expenses for the third quarter of 2023 were $12.9 million, compared to $14.6 million during the same period in 2022. The year-over-year decline was primarily related to reduced consulting and professional service fees and reduced employee compensation.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

Non-cash G&A-related stock-based compensation expense for the third quarter of 2023 was $1.8 million. During the third quarter, we incurred $8.2 million in restructuring charges related primarily to severance-related costs and contract termination expenses. Mersana's net loss for the third quarter of 2023 was $41.7 million, compared to a net loss of $59.8 million for the same period in 2022. That concludes our business update. Operator, will you please open the call to questions from the audience?

Operator

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Jonathan Chang of Leerink Partners. Please go ahead.

Jonathan Chang
Jonathan Chang
Senior Managing Director and Senior Research Analyst at Leerink Partners

Good morning, and thanks for taking my questions. First question, can you give us a sense of when we might see initial XMT-1660 clinical data? And second question, the comment about enrolling patients in backfill cohorts for 1660, can you give us some color around that? How is enrollment progressing on the study, and are you still dose escalating? Thank you.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Thank you, Jonathan. We're making good progress in the dose escalation phase of the trial and have begun to enroll these patients in the backfill cohorts. What I'd like to point out is the design of this, while we're not getting into details, is consistent with other standard kind of phase I designs now, where you expand the group of patients at a dose or doses in order to get a better understanding for your recommended phase II dose. Importantly, these patients are the same population as we're enrolling in the study, which is restricted to a subset of patients with TNBC, hormone receptor-positive breast cancer, and other specific tumor types. What we plan to share is a robust data set that will help differentiate XMT-1660 within the broader B7-H4 landscape. We plan to share our specific goals on that for 2024, and the milestones in January.

Jonathan Chang
Jonathan Chang
Senior Managing Director and Senior Research Analyst at Leerink Partners

Understood. Thanks for taking the questions.

Operator

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

Colleen Kusy
Colleen Kusy
Senior Research Analyst of Biotechnology at Baird

Great. Thanks. Good morning. Thanks for taking our questions, and congrats on the progress. In the XMT-1660 study, I know you've done some work on expression level of B7-H4 in different tumor types. Are you measuring B7-H4 expression in the patients enrolled in the study? And would that biomarker data be available whenever you report initial data next year?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

We are selecting data on B7-H4 expression. Importantly, we are not selecting patients, though, on B7-H4 expression, so it's all patients, regardless of the level of expression. With regards to reporting of that data, it's certainly a factor we're considering, but at this point in time, we're giving no further details on exactly what will be in our disclosure.

Colleen Kusy
Colleen Kusy
Senior Research Analyst of Biotechnology at Baird

That's helpful. Thank you. And on XMT-2056, just after all the work you've done and the data you've been able to gather, can you talk a little bit more about your latest understanding of what caused the patient death? And can you talk a little bit about the next steps between the recent lift of the clinical hold and then restarting of the enrollment?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Sure. Well, what we did is we looked deeply into our, you know, what we had for the cytokine data. We looked at our pharmacokinetics and essentially looked across the board for the clinical data, as well as in comparison to our preclinical data. One of the things we realized that XMT-2056 was a much more potent innate immune stimulator in humans than we had thought based on the preclinical data. While we're not going into the granular details, going to a lower dose was an appropriate strategy, and importantly, it shifts our whole way we look at the therapeutic index. Importantly, we still think we're going to be able to achieve a positive therapeutic index in patients going forward.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

With kind of regards to the details, it is an amendment to the protocol, so in addition to reengaging the sites to start enrolling, there are some technical details when you amend a protocol for, you know, things like lab kits and things like that, that you have to update, as part of that amendment process.

Colleen Kusy
Colleen Kusy
Senior Research Analyst of Biotechnology at Baird

That's helpful. Thank you. And then just last one from us. When you restart the STING study, are you changing the enrollment criteria at all?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

The primary effect was on lowering the starting dose. There are some minimal changes, but really it's about the starting dose.

Colleen Kusy
Colleen Kusy
Senior Research Analyst of Biotechnology at Baird

Great. Thanks for taking our questions.

Operator

Once again, if you would like to ask a question, please press star then one. Our next question will come from Ashiq Mubarack of Citi. Please go ahead.

Ashiq Mubarack
Ashiq Mubarack
VP and Biotechnology Equity Research Analyst at Citi

Hi, guys. Thanks for taking my questions. I guess maybe first, you alluded to, you made some comments alluding to the idea of a differentiation for your program in the B7-H4 landscape. I think it might be helpful to kind of review how you're differentiated from a clinical profile perspective, but also how you expect to be differentiated on a clinical development profile. Any color that would be helpful. Thanks.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Sure.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

Maybe I can take that. You know, I think there's two companies in that are out there in the B7-H4 space, Seagen and GSK and Hansoh. So, you know, when you think about Seagen and the classical first-generation ADC platforms, we've compared Dolasynthen ADCs versus the vc-MMAE ADCs extensively preclinically. And have shown preclinically that our platform can deliver payload to the tumor much more efficiently and effectively. And in addition, we've shown in our past clinical presentations that our payload appears to avoid the severe neutropenia and peripheral neuropathy that does tend to be dose limiting, across MMAE programs. When you move to Hansoh and GSK, and AZ, frankly, those are all using TOPO-I payloads.

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

There's increasing evidence from conferences just this year that TOPO-I pretreated patients can develop resistance to TOPO-I payloads. And when you look at this landscape and in particular sort of the faster market and largest opportunities in breast cancer with HER2 and Trodelvy becoming standard of care, we believe this could be a consideration. And frankly, I think we believe this is also evidenced by some commentary about focusing on gynecologic tumors for that ADC. You know, I think another consideration is just the hematologic toxicities that you see for TOPO-I's that are dose-limiting in similar ways.

Ashiq Mubarack
Ashiq Mubarack
VP and Biotechnology Equity Research Analyst at Citi

Got it. That's very helpful. Maybe one more on XMT-2056. You're obviously reducing the dose. I guess, what gives you confidence you'll be able to strike a sort of balance between HER2 coverage, but not overstimulating the STING pathway, which might of course cause some immunologic safety issues? I guess some color on your thoughts on the therapeutic window might be helpful here.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

We're not, we're not gonna go into detail here, but I think what's important is, when we look at the amount of STING agonist and the effects downstream, in human systems, it's much more sensitive. So essentially, the idea is that you'll shift it, but we believe that evidence of activation at the tumor cell level will also be shifting as well, so that it should move the, so basically, the therapeutic index shouldn't fundamentally change. It just should shift to a lower dose range. But we're at this point in time, some of that data, I mean, we need to discuss how we're gonna have that data available. That'll be part of our January discussion.

Ashiq Mubarack
Ashiq Mubarack
VP and Biotechnology Equity Research Analyst at Citi

Okay, got it. Thank you very much.

Operator

The next question comes from Kaveri Pohlman of BTIG. Please go ahead.

Kaveri Pohlman
Kaveri Pohlman
Director and Biotechnology Analyst at BTIG

Yeah, good morning. Thanks for taking my questions. Can you provide any additional color on what your 2026 cash runway includes? Does it include any additional trials beyond dose expansion for 1660 and phase I for 2056?

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

So, thank you, Kaveri. Our cash runway guidance is based on our current operating plan commitments, which include the early clinical development of both 1660 and 2056.

Kaveri Pohlman
Kaveri Pohlman
Director and Biotechnology Analyst at BTIG

Got it. And for 2056, can you tell us about the HER2 epitope, how validated it is? And, you know, Perjeta doesn't work well if patients are re-treated with it. Is it something that's known for 2056 epitopes?

Brian DeSchuytner
Brian DeSchuytner
SVP, COO and CFO at Mersana Therapeutics

So maybe I'll take that. The HER2 epitope is distinct from that targeted by either pertuzumab or Herceptin. But it's obviously on HER2. Yeah.

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

It does not, it does not cross-react with those sites.

Karina Rabayeva
Karina Rabayeva
VP Biotech Equity Research at Truist

Correct. But is it known, you know, is it known about Perjeta or what, you know, that it doesn't really work in patients if you re-treat it, whereas Herceptin, you can keep giving patients, even if they progress, they still respond. Is it something known? Why is that, and if your epitope has similar biology as Herceptin?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Yeah. Well, we intentionally targeted a different HER epitope, because in principle, we should be able to target patients who have previously undergone treatment with a HER2 paradigm. So it was part of the thinking, was to intentionally go to a different part of the antigen.

Karina Rabayeva
Karina Rabayeva
VP Biotech Equity Research at Truist

Got it. Thanks for taking my question.

Operator

The next question comes from Boris Peaker of Cowen. Please go ahead.

Boris Peaker
Boris Peaker
Managing Director at Cowen

Great. My first question on 1660. Can you discuss the concept of target optimized drug to antibody ratio? I just want to understand, how do you know what the ideal drug to antibody ratio is for a specific target?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Thank you. What we've done as part of our preclinical program, and this is, this is public data, is for a given target, we create a molecule with a range of DAR species. And then what we can look at is, for example, if you look at DAR-2 versus DAR-12 versus DAR-6, DAR-6 is optimal for a given target. So this is basically experimentally derived for each one of our targets.

Boris Peaker
Boris Peaker
Managing Director at Cowen

Gotcha. I guess, for 2056, so I understand the goal is to deliver the immune stimulator to the tumor microenvironment. I'm curious, is it possible somehow to tell if the activity that you're seeing is systemic in nature? Let's say the payload is coming off or just working systemically, or is it actually starting in the local tumor microenvironment?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Based on the limited data we have to date, we cannot draw a conclusion on that.

Boris Peaker
Boris Peaker
Managing Director at Cowen

Great. Thank you very much for taking my questions.

Operator

Again, if you would like to ask a question, please press star, then one... Our next question comes from Asthika Goonewardene of Truist. Please go ahead.

Karina Rabayeva
Karina Rabayeva
VP Biotech Equity Research at Truist

Hi, this is Karina for Asthika. I had a question on the B7-H4 competitor data that was presented at ESMO. Does that make you more inclined to pursue certain indications? Endometrial, for example, had only a 6% RR, but this was a CR. Can you just share color on that, please?

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Sure. I think we want to be a little careful in drawing conclusions prematurely about the specific tumor types outside of breast, because the numbers were fairly limited across the board. We also know in some of those other tumor types, the levels of B7-H4 expression may not be quite as common as it is, for example, in triple-negative breast. So we, at this point in time, while breast cancer, especially triple-negative, is probably one of the places where it's going to be the easiest to get a clear understanding of the data, the other tumor types, we would say, it's a little bit premature. We do think they're still interesting, so we still think there's an opportunity for 1660 in tumor types beyond triple-negative breast.

Karina Rabayeva
Karina Rabayeva
VP Biotech Equity Research at Truist

Okay, thank you.

Operator

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

Martin Huber
Martin Huber
President and CEO at Mersana Therapeutics

Thank you, operator, and thanks everyone for dialing in. We hope to see some of you later this week in New York at the Truist Biopharma Symposium, and I'm looking forward to keeping everyone apprised of our progress. That concludes our call, operator.

Operator

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

Executives
    • Brian DeSchuytner
      Brian DeSchuytner
      SVP, COO and CFO
    • Jason Fredette
      Jason Fredette
      SVP, Investor Relations and Corporate Communications
    • Martin Huber
      Martin Huber
      President and CEO
Analysts
    • Ashiq Mubarack
      VP and Biotechnology Equity Research Analyst at Citi
    • Boris Peaker
      Managing Director at Cowen
    • Colleen Kusy
      Senior Research Analyst of Biotechnology at Baird
    • Jonathan Chang
      Senior Managing Director and Senior Research Analyst at Leerink Partners
    • Karina Rabayeva
      VP Biotech Equity Research at Truist
    • Kaveri Pohlman
      Director and Biotechnology Analyst at BTIG
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