Mersana Therapeutics, Inc.

Good afternoon and welcome to Marsana Therapeutics' second quarter 2022 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. I would now like to turn the call over to Jason Fredette, Senior Vice President, Investor Relations and Corporate Communications. Please proceed.

Good afternoon, 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 relating to the company's business strategy, platform potential, clinical trial or preclinical study initiations, execution and data releases, regulatory plans and objectives, commercial opportunities, collaborations, and potential associated payments, operating expenses, and cash runways. Each of these forward-looking statements are 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 the company's quarterly report on Form 10Q, filed with the Securities and Exchange Commission on May 9, 2022, and in subsequent SEC filings. Our filings are available at sec.gov and on our website, mursana.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. With that, let me turn the call over to Anna Protopappas, our President and Chief Executive Officer.

Hello, everyone, and welcome to our conference call. Joining me today with prepared remarks are our Chief Medical Officer, Arvind Yang, and our Chief Financial Officer, Brian Descheidner. I'm also joined by a set of other members of management who will be available to answer your questions. At Mursana, we aspire to be the leader in the ADC space. And in recent months, we have made significant advances towards this vision as we approach enrollment completion in Uplift, our potential registration trial, initiated patient screening in UpNext, our potential confirmatory trial, cleared our IND with the FDA for XMT1660, cleared our IND for XMT2056, and announced that the FDA has granted orphan drug designation for this candidate in gastric cancer. And finally, as we just announced, we entered into yet another exciting strategic partnership that provides significant non-diluted capital to extend our cash runway while also allowing us to retain longer-term strategic and financial upside potential. Let me begin with this most recent accomplishment. We are excited to share the news after market today that we have entered into a global collaboration providing GSK with an exclusive option to co-develop and commercialize XMT2056, which is our first immunosynth in ADC. 2056 targets a novel epitope of HER2 and is designed to activate the innate immune system through sting signaling in both tumor resident immune cells and in tumor cells. There are several financial and strategic aspects that make this deal particularly noteworthy. First and foremost, from a financial perspective, this is a very meaningful deal for an early-stage ADC asset. We believe its magnitude serves as a recognition of our differentiated immunosymptom platform, the strengths of our preclinical data, and the transformational potential of XMP 2056. Secondly, the upfront option purchase fee of $100 million extends our runway into the first half of 2024, well beyond important inflection points. Thirdly, assuming GSK opts in, they will fund a majority of the development costs for 2056 And the deal is structured so that our cash contribution would generally be offset by development milestones and other features, all while retaining participation in the potential longer-term value of this exciting program. Brian will share some additional information on the financials in just a few minutes. We believe GSK would be an ideal partner for XMT 2056. given our shared vision for the potential of this program, their wealth of global development and commercial capabilities, and their deep experience in ADC, the I.O. space, and the STING pathway. And finally, from a strategic perspective, we view this agreement as a strong endorsement of the potential of our immunosymptom platform in XMT 2056. When coupled with the research collaboration that we formed with Janssen earlier this year, leveraging a dollar symptom platform, we believe it also reaffirms that Mursana is increasingly being viewed as a partner of choice during this momentous period in the broader ADC space. Now let's touch on the progress we have made recently in executing against our plan to position UPRI as a foundational medicine in ovarian cancer, which remains our top priority. We continue to be pleased by the pace of enrollment in Uplift, our single arm registration trial in platinum resistant ovarian cancer, and are on track to announce enrollment completion around the end of the third quarter. This would position us for a top line readout and potential BLA in this indication in 2023. Up next is our phase three clinical trial of upper immunotherapy maintenance in NAPI to be high recurrent platinum sensitive ovarian cancer. We are pleased to report that we recently initiated patient screening in this trial. And then there's upgrade, our phase one to umbrella combination trial in early-line platinum-sensitive patients. Dose escalation is underway, the first arm of the trial, which is looking at the combination of UPRI with carboplatin. These three ongoing clinical trials have the potential to demonstrate UPRI's efficacy and confirm its safety and tolerability while also generating data across a broad range of ovarian cancer settings. And beyond UPRI, We're actively diversifying our clinical pipeline in a thoughtful and strategic manner with XMT 1660 and XMT 2056, both of which recently cleared INDs. Arvind will share more information on these efforts in just a moment. In summary, this has been another very productive period for MERSANA. We made substantial progress in our uplink clinical trials and our position for the top-line data readout and potential BLA filing next year. We are advancing to exciting and highly differentiated molecules with XMT1660 and XMT2056, and we are substantially strengthening our balance sheet through the partnership with GSK. We look forward to continuing this momentum in the second half of the year as we approach what we anticipate to be a transformative 2023. With that, I will ask our Chief Medical Officer, Arvind Yang, to delve more deeply into our clinical progress and plans.

Thank you, Anna, and good afternoon, everyone. Thanks in part to strong support from both the GOG and MDOT, we continue to make meaningful progress. in advancing UPRI's development across the ovarian cancer treatment. Let me start with Uplift. As Anna mentioned, enrollment in this registrational trial has been robust, and we remain on track to complete enrollment around the end of the third quarter. Turning to our phase three UPNEXT trial, we're excited by its potential to serve as a post-approval confirmatory trial in the U.S. to support global registrations and to expand UPRI into earlier lines of therapy. Despite the relatively recent approval of PARP inhibitors and bevacizumab, there remains a high medical need in the maintenance setting following platinum therapy. Up next is designed to address the needs of three primary groups of patients who are underserved by today's standard of care. The first are patients who progress on PARP inhibitors and bevacizumab, whether taken in combination or in sequence. Second are patients who are poorly served by today's maintenance agents, and are resorting to watch and wait as their best option. And the third are patients who achieve stable disease on platinum who are excluded from the PARP maintenance studies and consequently are excluded from treatment in the PARP inhibitor labels. UPNEXT provides the potential to establish UPRI as the first ADC maintenance therapy in the platinum sensitive space. There is an even larger patient population that is being evaluated in UPLIFT. Initial clinical sites for UpNext have been activated and patient screening is underway. Ultimately, we are targeting the enrollment of approximately 350 patients worldwide in this trial. In addition to Uplift and UpNext, we are seeking to bring Upray into earlier lines of therapy through UpGrade. As Anna mentioned, the first portion of this trial is investigating Upray in combination with carboplatinum. We're in early dose escalation at this stage and plan to provide a first look at the safety and tolerability of Upreet in combination with carboplatinum with the initial interim dose escalation data during the fourth quarter of this year. We believe we will gain even more valuable insights into the potential efficacy and tolerability of this combination through the dose expansion portion of the trial. Now let's move on to our earlier stage candidates, XMT1660 and XMT2056. As a reminder, 1660 is our B7H4-directed Dolosynthin ADC with a precise target-optimized drug-to-antibody ratio of 6, and Mursana's clinically validated Dololoc microtubule inhibitor payload with a controlled bystander effect. Dololoc, of course, already has shown its potential to drive efficacy in heavily pretreated ovarian cancer patients without severe neutropenia, peripheral neuropathy, or ocular toxicity. And we see B7H4 as a compelling target, given its limited expression in healthy tissue and its high expression in a range of cancers, including breast cancer, endometrial, and ovarian cancer. In triple negative breast cancer, where PD-1 agent is approved, there may be an even greater unmet need, as there appears to be an apparent lack of overlap between B7H4 expression and PD-L1 expression. We've generated promising preclinical efficacy and tolerability data for 1660, and we're happy to report that our IND for this candidate was recently cleared by the FDA. Initial Phase I clinical sites have been activated, and dosing is expected to begin imminently. This Phase I trial will investigate 1660 in solid tumors, including breast, endometrial, and ovarian cancer. And then there's XMT 2056. which we will expect will enter the clinic in the second half of this year. 2056 is directed at HER2, which of course is a very well-established target, and it's overexpressed in breast, non-small cell lung cancer, gastric cancer, among others. This molecule has been tested extensively in preclinical models with impressive results. We have observed 2056 activity as a single agent in both HER2 high and HER2 low expressing models. It's also shown synergistic activity when used in combination with checkpoint inhibitors and with other HER2 standard of care agents in breast cancer, such as in HER2. This has been possible because 2056 targets a HER2 epitope that is distinct from trastuzumab and pertuzumab. And notably, 2056 has demonstrated the potential for a very wide therapeutic index in preclinical models. And so we're excited to have these three programs in motion, and we're looking forward to generating clinical data from all three of our ADC platforms. With that, let's turn the call over to our Chief Financial Officer, Brian De Scheidner.

Brian? Thank you, Arvind. Let's begin by sharing some additional context about our collaboration with GSK, which we view as a significant achievement for Mursana. This global collaboration provides GSK with an exclusive option to co-develop and commercialize XMT 2056 for an upfront option purchase fee of $100 million. Should GSK choose to exercise this option, we will be entitled to receive an additional $90 million payment and up to approximately $1.3 billion in development, regulatory, and commercial milestone payments. As Anna indicated, if GSK opts in, they will fund a majority of the development costs for XMT 2056. and our cash contribution would be generally offset by development milestones and other features. We also have the ability to benefit from the potential longer-term value of this exciting program. For instance, the deal structure allows us to retain options for profit share and to co-promote XMT 2056 in the U.S. If we opt into the profit share, we would receive royalties on net sales outside of the U.S. If we do not opt in, we would receive tiered double-digit royalties ranging up to the mid-20s, on global net sales. Further information is contained in the 8K that we just filed with the SEC. This agreement follows our research collaboration with Janssen earlier this year and demonstrates once again how we can leverage our platforms and product candidates as tools within our financing arsenal. So let's talk about our financial resources to fund our operating plan. We ended the quarter with approximately $225 million in cash, cash equivalents, and marketable securities. Additionally, our line of credit with Oxford and SBB provides us with the opportunity to draw down an additional $35 million in low-cost capital at our option. When combined with the $100 million upfront payment from GSK, we believe we have the financing required to fund our operating plan commitment into the first half of 2024. And now for a brief recap of our P&L for the second quarter. Collaboration revenue for the second quarter of 2022 was $4.3 million, compared to an immaterial amount in the same period in 2021. The year-over-year increase was related to revenue recognized under our collaboration agreement with JAN. Research and development expenses for the second quarter of 2022 were $41.2 million compared to $32 million for the same period in 2021. Non-cash R&D-related stock-based compensation expense for the second quarter of 2022 was $2.7 million. The year-over-year increase in R&D was primarily driven by clinical and manufacturing costs for XMT1660 and the Dolosynthin platform, higher up-free manufacturing and clinical costs, and an increase in headcount. As we have previously described, we expect to incur non-recurring costs in the near term related to antibody manufacturing runs for up-free in anticipation of a potential BLA filing and our efforts to ensure long-term supply of Dolosynthin conjugation components to support both XMT 1660 and our Janssen collaboration. General and administrative expenses for the second quarter of 2022 were $14.8 million compared to $8.9 million in the same period in 2021. Non-cash G&A related stock-based compensation expense for the second quarter of 2022 was $2.6 million. The year-over-year increase in G&A was primarily related to an increase in consulting and professional fees and increased headcount. Mursana's net loss for the second quarter of 2022 was $52.2 million, or $0.55 per share, compared to a net loss of $40.9 million, or $0.59 per share, for the same period in 2021. Finally, net cash used in operating activities was $44.7 million for the second quarter of 2022. Now Anna will close our formal remarks before we take your questions. Anna?

Thanks, Brian. We're incredibly proud of all the progress we have made thus far in 2022. From working to build UPRI as a foundation on medicine in ovarian cancer with Uplift, Upmix, and Upgrade, to our progress with 1660 and 2056 and the meaningful new strategic partnerships with Janssen and GSK. Simply put, we're excited about our prospects and believe we're in a strong position to execute on our plans. With that, Let's open the call to your questions.

Operator, would you please provide the instructions?

As a reminder, to ask a question, simply press star and then the number one on your telephone keypad. Once again, press star one on your telephone keypad if you would like to ask a question. First question is from the line of Jonathan Jang with SB Securities. Please go ahead.

Hi guys, congrats on the partnership and thanks for taking my questions. First question on XMT 2056. Just for clarity, are you guys still running the phase one study and how are decisions on data disclosure made?

Brian, we'll take that. Yeah, absolutely. We continue to run the phase one study. In fact, XMT2056 remains wholly owned by MRSADA. That phase one will be a fairly typical first in human dose escalation design with an eye towards enriching for breast cancer.

And it's the completion of that where GSK has an option to opt in, Jonathan?

Got it. So the option exercise is... I guess... Sorry, just any additional color on the timelines for the option exercise?

It's too early for us to really provide timelines, but I think we've given you a sense of how far we will take the program.

Got it. And... On the immunosynthin platform more broadly, you guys have efforts here beyond HER2. How should we be thinking about the strategy here and potential business development opportunities beyond 2056 specifically?

Yeah. Well, we're in a very fortunate position, as you know, to have three platforms, all of which are supported by substantial data. Soon all three will be in the clinic. And that puts us in a position to leverage these platforms to bring additional exciting products forward. And frankly, there's more than here in potential that we could take it for any one company can take advantage and harness. So partnerships remain a very important part of our strategy. whether they be platform deals like the one we did with Janssen or whether they are asset deals like the one we've done with GSK. So we continue to engage in discussions and the interest in the ADC space is quite high at this point. And we find ourselves really in a great position to leverage that interest.

Understood. Congrats again. Thanks, Jonathan.

Your next question is from the line of Colleen Cousy with Baird. Please go ahead.

Hi. Good afternoon. Congrats on the partnership as well, and thanks for taking our questions. Starting with 2056, was there any new data that was shared with GSK in this diligence process? And I know you mentioned enriching for breast cancer, so is it a fair interpretation that GSK has prioritized that indication, and will you still enroll the other gastric and lung in that study as well?

So, as you can imagine, the diligence was very, very comprehensive, involved not only the data we have shared publicly, but a lot of the other data we have been generated to support the potential of 2056. and immunosymptom platform, very comprehensive, including a review of the IND that we have recently cleared with the FDA. As for the development program, I think GSK shares our vision that 2056 has very broad potential in HER2-expressing tumors, which include lung, but also include other indications. include gastric, include breast and other indications. So breast happens to be the largest indication. So we want to make sure that our dose escalation includes sufficient number of breast cancer patients. But our interests are very broad.

Great. That's helpful. Thank you. And just a follow-up. For the upgrade data that we'll see in the fourth quarter of this year, Can you help us set expectations on how many patients and maybe how much follow-up we could see?

Arvind, do you want to? Yeah, sure. So thanks, Colleen, for the question. And so this will be our initial interim data just in relationship to Upgrade B, really from the standpoint of following that hypothesis that there's non-overlapping toxicities in relationship to these compounds in a way that's prevented other combinations from effectively being developed And so this would be an eye toward that safety and tolerability, knowing that the efficacy is intended to be characterized further when we have the expansion data.

Okay, great. Thank you.

Once again, ladies and gentlemen, to ask a question, simply press star, then the number one on your telephone keypad. And at this time, there appear to be no further questions. I will return the call back to CEO Anna Protopappas for closing remarks.

Thank you, operator, and thanks to all of you who turned in for this conference call and your continued support. We look forward to seeing many of you at the BTIG Biotech Conference tomorrow and the Webb Bush Pack Growth Healthcare Conference. We hope everyone enjoys the rest of their summer, and we look forward to keeping you updated on our progress.

Thank you all for joining today's conference call. You may now disconnect.