Mersana Therapeutics, Inc.

Good morning and welcome to Mursana Therapeutics' second quarter 2021 conference call and webcast. Currently, all participants are in a listen-only mode. There will be a question and answer session at the end of this call. I'd now like to turn the call over to Sarah Carmody, Executive Director, Investor Relations Incorporate Communications. Please proceed.

Good morning. Welcome to Mursana'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 law. 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 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 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 US 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 Protopopis, MRSANA's President and Chief Executive Officer. Thank you, Sarah.

Good morning and welcome to our second quarter 2021 Corporate and Financial Update Call. Joining me today with prepared remarks is Brian Descheidner. I am also joined by the rest of the executive team who will be available for your questions. At Mursana, our key focus for the first half of this year has been executing on our goals. Our goals associated with building UPRI as a foundational medicine in ovarian cancer and building out our innovative pipeline of ADCs addressing areas of high unmet medical need. I am very pleased to report that we have made significant progress on both UPRI and the pipeline. Let me begin with the agenda for today's call. I will start with UPGRADE, our upper recombination trial in platinum sensitive ovarian cancer that has just initiated. Then I will brief you on UPLIFT, a single arm registration strategy in platinum resistant disease. I will also be providing updates on the upper ovarian cancer expansion cohort, the upper lung cancer expansion cohort, as well as XMT-1592, 1660, and 2056. Let me start with UPGRADE. Just last week, we announced that we reached another significant milestone in the development of UPRI with the initiation of patient dosing in UPGRADE, a phase one umbrella study designed to evaluate UPRI in combination with other ovarian cancer therapies. This study will further explore the role of UPRI in platinum-sensitive disease. We're starting the study in combination with platinum, as platinum therapy is currently the mainstay therapy in earlier line platinum-sensitive ovarian cancer, a large opportunity. Moving UPRI earlier, sorry, moving part, UPRI into earlier line of therapy could significantly expand the number of patients with ovarian cancer that could benefit from UPRI and the duration of time over which we can impact their disease. In the current standard of care, platinum and taxane are administered for a fixed number of cycles due to the cumulative toxicities, including alopecia, peripheral neuropathy, and neutropenia. In fact, many ovarian cancer patients have continuing peripheral neuropathy as a result of repeated cycles of the platinum and taxane regimen. This phase one open-label dose escalation portion of the study will determine the maximum tolerated dose and safety and tolerability of a Q4 weekly administration of APRI in combination with carboplatin for six cycles and then continuation with APRI monotherapy in platinum-sensitive patients with high-grade serous ovarian cancer who have received one or two prior platinum-based regimens. This design allows us to assess the advantages of combining with carboplatin and replacing patetaxel, an agent that carries significant toxicities. As a reminder, APRI's current tolerability profile has not included severe peripheral neuropathy or neutropenia which is promising for combination with platinum. We believe this is a key differentiator from other ADC platforms and an important prerequisite for moving into earlier lines of therapy. Importantly, the design of upgrade will also allow us to evaluate the additional benefit of continuing treatment with UPRI as a single agent beyond the six cycles of combination therapy, potentially providing access to a larger population of patients receiving longer durations of therapy. As a reminder, the dose escalation portion of the combination study has the potential to move more rapidly because we know the active doses of platinum and we know the active doses of apri as monotherapy. While it is premature to provide guidance on enrollment timelines at this stage, we do believe that the design of this study could generate a significant amount of data during 2022. We are excited to have this important study underway and look forward to updating you on our progress. Now let me turn to Uplift, a single arm registration strategy in platinum-resistant ovarian cancer. We are encouraged with the interest in the study to date and the engagement of both the US and the EU cooperative groups. As a reminder, we began dosing patients in April with relatively rapid conversion of sites already involved in the expansion cohort. New sites in the US, EU, and other geographies are coming online to further support enrollment projections. The design of Uplift focuses both on increasing the potential for label differentiation and the probability of success. We believe UPLIFT is enrolling a broader patient population than other studies in this space, with more prior lines, more flexible inclusion of prior pervasism of treatment, consistent with the pervasism of label, and with more underlying comorbidities, like baseline peripheral neurography. UPLIFT also offers two shots of gold with a primary endpoint in the nabby to behind population, and a secondary endpoint in the overall population, allowing us to fully evaluate the role of the biomarker in enriching for patient outcomes. In addition, we believe we have carefully designed and executed on the work necessary to be able to embark on uplift with the right diagnostic in place. You will recall from our webinar in April that we have taken a systematic approach to the development of a robust, predictive, and reproducible biomarker. The tumor proportion score of equal or greater to 75 biomarker enriches for responders and has attractive features relative to other kind of approaches to ensure reproducibility anywhere in the world across different labs and pathologies when deployed as a commercial diagnostic. Overall, we're encouraged by the current pace of enrollment in uplift, but we'll refrain from providing further guidance on timing of completion of enrollment. Uplift and upgrade are critical steps in evaluating the potential of UPRI to benefit both patients with recurrent platinum-sensitive ovarian cancer as well as platinum-resistant ovarian cancer. Remember that annually in the U.S., there are approximately 22,000 women newly diagnosed with ovarian cancer. That's not to mention those with fallopian tube or primary peritoneal cancer treated using the same algorithm. Unfortunately, even after frontline therapy, 80% of these patients with relapse, most with platinum-sensitive disease. Ultimately, 14,000 women die of the disease each year. Uplift, our fast-to-market registration strategy, focuses on those 14,000 women in the terminal phase of the disease. With upgrade, we have the potential to address the needs of a larger number of patients earlier in the disease, where we believe we have the potential to deliver longer benefit with increased treatment duration as combination followed by continuation. We believe these studies provide the roadmap for establishing a brief as a foundational therapy in ovarian cancer. Finally, for upper ovarian, let me update you on the status of the expansion cohort. We recently closed enrollment in the ovarian cancer expansion portion of the Phase I clinical study. Given the continued support of investigators, enrollment momentum continued, and we have close to 100 patients enrolled in the expansion cohort. Mining this substantial data set will give us a robust understanding of the profile of UPRI and help us continue to optimize our development strategy. Our goal is to provide an update on the ovarian expansion cohort this year at the appropriate time. Lastly, on UPRI, we are approaching completion of enrollment in the UPRI lung adenocarcinoma expansion cohort. We plan to wait for the entire expansion cohort to be enrolled, evaluable, and mature, and expect to disclose the top-line data and determine our next steps in lung in the fourth quarter. We want to ensure we understand the NAPI-2B status of these patients in order to determine the patient selection strategy, acknowledging that the bar for investment in development of OPRI as a single agent is is high due to the intensely competitive landscape in lung. As we have indicated before, the prevalence of NAPI to be high, as we defined in ovarian cancer cohort, that's the tumor proportion score greater than 75, is substantially lower than in ovarian cancer. It appears only about a third of patients with lung cancer have a TPS equal or greater than 75. This compares to a prevalence of approximately two-thirds for ovarian cancer. In lung, an even higher TPS cutoff might be necessary to achieve the desired response rate, which could further focus the eligible population. Our decision as to the next step will be based on two considerations. 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 XMT1592, our dollar synth and ADC targeting NAPI2B. Remember that our strategy is to develop XMT1592 as a second shot on goal based on the differentiated profile seen in preclinical studies in lung models. As we communicated previously, we have exceeded the MTD and continue 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 XMD1592 and disclose top-line data around year-end. Finally, with respect to the pipeline, we have continued to advance our two first-in-class preclinical ADCs addressing areas of high unmet need through IND-enabling studies. For 1660, our B7H4 doulas synth and ADC, in parallel to the IND-enabling studies, we have initiated early diagnostic development work, much like we did with APRI for NAPI2B. We believe this is an important step to ensure that the diagnostic is developed in tandem with the development of XMT1660. For XMT2056, our first immune of Synth and Sting agonist ADC, I'm very excited to announce that Tim Loinger, 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 a 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 two 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 up-re-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 NAPI 2B biomarker. Non-cash, stock-based compensation expense included in these 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. Non-cash, stock-based compensation expense included in these general and administrative expenses increased by $1.2 million related to growth and 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 59 cents per share compared to a net loss of $19.8 million or 33 cents per share for the same period in 2020. Weighted average common shares outstanding for the quarters ended June 30th, 2021 and June 30th, 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 AFRI 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 APRI. We expect to provide an update on the ovarian expansion cohort this year, and we expect to complete enrollment in the APRI 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 timeframe that we expect would allow us to initiate clinical studies in early 2022. With that, I will turn the call over to the operator for Q&A.

And as a reminder, to ask a question, you will need to press star 1 on your telephone. And to withdraw your question, press the pound key. Your first question comes from the line of Jonathan Chang from SVB Lyrinc. Your line is now open.

Good morning and thanks for taking my questions. First question, it looks like you're now guiding to another update in the upper ovarian cancer expansion cohort this year. Can you talk about what drove this decision and help set investor expectations for this?

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

Got it.

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 we'll be very, you know, 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.

Sure. You know, 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're very much on track for the plans that we had put in place. But again, too early to be giving guidance at this point. Arvind, anything to add on the diagnostic?

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's 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 two shots on goal in relationship to the potential for uplift, as far as in a biomarker-selected population, as well as a potential intention to treat that broader population.

Understood. Thanks for taking the questions.

And your next question comes from the line of Tom Schrader from BTIG. Your line is now open.

Hi, this is Kaveri on Tom's line. Thanks for the update and thanks for taking our questions. For the STINK-ADC, if safety allows, will you or can you start in earlier lines, maybe somewhere where IO monotherapy is front line?

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 I indicated, we will have an opportunity to outline our development strategy.

And just to add to that briefly is 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 inhibitors. 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 treatment?

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.

Makes sense. Well, thank you.

And your next question, going from the line of the forward speaker, from Colin. Your line is now open.

Good morning. I'd like to ask a question about the upgrade study. I'm just curious, what are the key efficacy parameters that should be focused in the upgrade combo with platinum? Is it response rate? Is it durability of response? 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?

Right. So I can start out, and obviously the team can add on in regards to the treatment landscape. But the primary efficacy in a single-arm study is response rate is the most primary measure, recognizing that event-driven endpoints, such as PFS and overall survival, are Typically, it's better to measure them in a randomized fashion in order to compare with a control. But certainly, the response rate and the duration of response, the depth of response, meaning the CR and the PRs, these are all type of efficacy endpoints that would be evaluated to better understand the profile of, again, a opry, 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 GOG213. 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 four-fold more efficacious as well as better tolerated in the non-critical model.

Got it. Thank you very much for taking my question.

And again, if you would like to ask a question, press store, then the number one on your telephone keypad. Your next question comes from the line of Jessica from JP Morgan. Your line is now open.

Hey, guys. Good morning. Thanks for taking my questions. 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? 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 upgrade in manufacturing you mentioned? Thanks.

I'll take the 1592 quickly, and I'll ask Arvind to take and Brian to take the others. So our focus in the dose escalation portion is really to find the optimal dose and 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 APRI, If you recall, we were dose escalating on a once-every-three-week regimen and then analyzed the data and decided through the clinical data and some additional work we did preclinically that going to a four-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're exploring how to find the optimal regimen before we can decide how to best go forward with the next step.

Great. Thanks, Anna. 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 six 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. As you notice, 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 one quarter, but we would expect the rate of growth to moderate from here, and you know, we have a very lean cost structure and remain nimble and disciplined in our capital allocation decisions as we really advance a molecule that we think could be transformative in ovarian cancer and a 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 up-read data you're generating in long-term 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. A couple of reasons. One, I think we're understanding the prevalence of NAPI-2B by studying upper 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're 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 two data sets need to come together to make a decision as to where we go next.

Okay, thank you.

And your next question, going from the line of Colleen Cousy from Baird, your line is now open.

Hello, this is Benjamin Colu, John for Colleen. Just a few questions for us. As it relates to the upgrade study in earlier ovarian cancer, I believe you're not pre-selecting for NAPI expression. Would you expect a potentially different NAPI 2 cutoff for the chemo combo? And then do you see potential for efficacy in patients regardless of the NAPE2 expression, or would you expect you'll use a different NAPE2 cutoff? Thank you.

So this is Arvind. Thanks for the question. So we will not be selecting patients by NAPE2V status for the upgrade carboplatinum combination. And that's in order for us to understand really the role of NAPE2V when combined with monotherapy. We've had a robust program in relationship to defining the cutoff of NAPB2V in the monotherapy program, which we've previously described the process and the robustness in relationship to defining that cutoff. But we do want to better understand when combined with chemotherapy whether or not NAPB2V plays a large role just in relationship to optimizing the benefit-risk for these patients.

Perfect. Thank you so much. 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. Thank you.

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 this was the 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, to active, but it also, in addition, has a safety profile with, again, without that neuropathy issue, the ocular toxicities and so forth. And so it could be foundational just in relationship to combination with carboplatinum. And so the idea there is that could it potentially replace pacotoxal is one of the statements we've made.

Yeah. 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 BFS 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 this has been an objective of the KOL community for quite some time. The question is, what is a tool, what is a transformative medicine that could actually allow it to occur?

Terrific. Thank you so much for your comments.

If 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 outreach and the rest of the pipeline.

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