Mersana Therapeutics, Inc.

Good morning and welcome to the Mursana 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 Prudette, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator, and good morning, everyone. Before we begin, please note that this call will contain forward-looking statements within the meeting 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, 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. On the call today, we have Mursana's President and Chief Executive Officer, Dr. Marty Huber, and our Chief Operating Officer and Chief Financial Officer, Brian Descheitner. With that, let me turn the call over to Marty to begin our discussion.

Thank you, Jason, and good morning, everyone. It's a pleasure to be speaking with you about eight weeks into my tenure as Mursana'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 MRSANA 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 Doloflexin, our first-generation ADC platform. and that we were making meaningful progress with our next generation platforms, Dolosynthin and Aminosynthin. 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 Rosana's potential. Now let's move on to our core areas of focus. The first is XMT1660, which was developed utilizing Dolacinthin, our next-generation cytotoxic ADC platform. Our preclinical work has shown that Dolacinthin 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. We spent years developing a technology that improved upon both first-gen platforms and Doloflexin. 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 reductions in off-target toxicity. Additionally, we wanted the ability to optimize both drug-to-antibody ratios and site-specific conjugation approaches. Dolacentin is the result of that effort. Across preclinical models, when we compare dolosynthin ADCs to those from doloflexin and first-gen platforms like BCMMAE, we see clear benefits in terms of pharmacokinetics, tumor delivery, efficacy, and toxicity. XMT1660, our lead dolosynthin ADC, now provides a near-term opportunity to demonstrate these advantages clinically. XMT1660 is a DAR6 ADC targeting B7H4, 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 medical need, including breast, ovarian, and endometrial cancers. At ESMO last month, initial clinical data was shared by others in the field, helping to validate B7H4 as an intriguing target. In light of these early data, we believe there are opportunities to differentiate XMT1660 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. It also is worth noting that we have been making good progress in our collaboration with Janssen that focuses on discovering novel dole-sensitive ADCs for up to three targets. Janssen has shared publicly that it chose Dolescentin following a comprehensive review of the ADC landscape. Now let's move on to XMT2056 and Immunosynthin. 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. Immunosynthin is the result of this effort. Immunosynthin 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. We initiated a phase one clinical trial of XMT2056, our first immunosynthetic ADC candidate, earlier this year. This trial was placed on clinical hold following a grade five 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 delve deeply into cytokine, pharmacokinetic, and other clinical data from the patient's dose in this trial. The findings from the initial patient's dose in our Phase I clearly indicated that XMT2056 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. We were very pleased to share the news last week that the clinical hold on the phase one trial of XMT 2056 has been lifted by the FDA. Our attention has now turned to re-engaging with clinical sites to reinitiate enrollment. And 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 Mursana team, and my excitement about what lies ahead for the company continues to build. With highly differentiated platforms and clinical stage molecules, strong collaborations, a great team, and a healthy balance sheet, Mursana 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.

Thank you, Marty. Let me begin this portion of the call with a brief update on the restructuring and reprioritization actions we announced in July. These actions included a workforce reduction of approximately 50% and a wind down of upper 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 up and 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. 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 Opry 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. The year-over-year increase was primarily related to a greater contribution from our immunosynthetic 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 of 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. 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. Misana'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 for questions from the audience?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Jonathan Chang of WeRank Partners. Please go ahead.

Good morning, and thanks for taking my questions. First question, can you give us a sense of when we might see initial XMT1660 clinical data? And second question, the comment about enrolling patients in Baxill 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.

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 back foot cohorts. What I'd like to point out is the design of this, while we're not getting into the details, is consistent with other standard kind of phase one 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 two dose. Importantly, these patients are the same population as were enrolling in the study, which is restricted to a subset of patients with TMBC, hormone receptor-positive breast cancer, and other specific tumor types. What we plan to share is a robust data set that will help differentiate XMT1660 within the broader B7H4 landscape. We plan to share our specific goals on that 24-24 and the milestones in January.

Understood. Thanks for taking the questions.

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

Great. Thanks. Good morning. Thanks for taking our questions and congrats on the progress. In the XMT1660 study, I know you've done some work on expression level of B7H4 in different tumor types. Are you measuring B7H4 expression in the patients enrolled in the study, and would that biomarker data be available whenever you report initial data next year?

We are collecting data on B7H4 expression. Importantly, we are not selecting patients, though, on B7H4 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.

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?

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. And one of the things we realized that XMT2056 was a much more potent innate immune stimulator in humans than we had thought based on the preclinical data. So 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. So importantly, we still think we're going to be able to achieve a positive therapeutic index in patients going forward. 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 like lab kits and things like that that you have to update as part of that amendment process.

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

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

Great. Thanks for taking our questions.

Once again, if you would like to ask a question, please press star, then 1. And our next question will come from Ashik Milbarak of CIDI. Please go ahead.

Hi, guys. Thanks for taking my questions. I guess maybe first, you made some comments alluding to the idea of differentiation for your program and the B7H4 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.

Maybe I can take that. I think there's two companies that are out there in the B7H4 space. CGEN and GSK-AHANSO. So, you know, when you think about CGEN and the classical first-generation ADC platforms, we've compared dole-synthin ADCs versus the VC-MMAE ADCs extensively preclinically. And I've 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 HANSO GSK and AZ, frankly, those are all using TOPO1 payloads. There's increasing evidence from conferences just this year that TOPL1 pretreated patients can develop resistance to TOPL payloads. And when you look at this landscape, and in particular, sort of the faster market and largest opportunities in breast cancer within HER2 and TRODELVI 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 TOCO1s that are dose limiting in similar ways.

Got it. That's very helpful. Maybe one more on XMT2556. 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.

We're not going to go into detail here, but I think what's important is When we look at the amount of sting agonists 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 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, we're not, I mean, we need to discuss how we're going to have that data available. That will be part of our January discussion.

Okay, got it. Thank you very much.

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

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 those expansion for 1660 and phase one for 2056?

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

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

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.

It does not cross-react with those sites.

Correct. But is it known, you know, is it known about Progetto It doesn't really work in patients if you retreat it, whereas Herceptin, you can keep giving patients. Even if they progress, they still respond. Is it something now? Why is that? And if your epitope has similar biology as Herceptin?

We intentionally targeted a different Herceptin. 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.

Got it. Thanks for taking my question.

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

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?

Thank you. What we've done as part of our preclinical program, and 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 DAR2 versus DAR12 versus DAR6, DAR6 is optimal for a given target. So this is basically experimentally derived for each one of our targets.

And 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?

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

Great. Thank you very much for taking my questions.

Again, if you would like to ask a question, please press star, then one. And our next question comes from Astika Gunavarti of Truist. Please go ahead.

Hi, this is Karina for Astika. I had a question on the B7H4 competitor data that was presented at ESMO. Does that make you more inclined to pursue certain indications? And Dimitri, for example, had only a 6% ORR, but this was a CR. Can you just share a call on that, please?

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 B7H4 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 is 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.

Okay, thank you.

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

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.

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