MERSANA THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes appearing elsewhere in
this Quarterly Report on Form 10-Q and the audited financial statements and the
accompanying notes included in our Annual Report on Form 10-K for the year ended
Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance on any forward-looking statements
made by us, which speak only as of the date they are made. We disclaim any
obligation, except as specifically required by law and the rules of the
Overview
We are a clinical-stage biopharmaceutical company focused on developing antibody-drug conjugates, or ADCs, that offer a clinically meaningful benefit for cancer patients with significant unmet need. We have leveraged over 20 years of industry learning in the ADC field to develop proprietary and differentiated technology platforms that enable us to develop ADCs designed to have improved efficacy, safety and tolerability relative to existing ADC therapies.
We believe that our innovative platforms, including Dolaflexin and Dolasynthen,
which deliver our proprietary auristatin DolaLock payload, as well as
Immunosynthen, which delivers our propriety stimulator of interferon genes, or
Our goal is to become a leading oncology company by leveraging the potential of our innovative and differentiated ADC technologies and the experience and competencies of our management team to identify, acquire and develop promising ADC product candidates and to commercialize cancer therapeutics that are improvements over existing treatments.
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Upifitamab rilsodotin, or UpRi, our first-in-class ADC targeting the
sodium-dependent phosphate transport protein NaPi2b, utilizes the Dolaflexin
platform to deliver approximately 10 DolaLock payload molecules per antibody. We
believe the NaPi2b antigen is broadly expressed in ovarian cancer and other
cancers with limited expression in healthy tissue. We are currently evaluating a
36 mg/m2 dose of UpRi every four weeks in platinum-resistant ovarian cancer in a
single-arm registrational trial, which we refer to as UPLIFT. We completed
enrollment of approximately 270 patients in UPLIFT in
We are also conducting a randomized, placebo-controlled Phase 3 clinical trial,
referred to as UP-NEXT, to investigate a 30 mg/m2 dose of UpRi as a single-agent
maintenance treatment in patients with recurrent platinum-sensitive ovarian
cancer that have high NaPi2b expression. We believe the UP-NEXT trial, if
successful, could serve as a post-approval confirmatory trial in
Additionally, we are conducting a Phase 1/2 combination trial, which we refer to as UPGRADE-A. In UPGRADE-A, we are exploring the combination of UpRi with carboplatin, a standard platinum chemotherapy broadly used in the treatment of patients with platinum-sensitive ovarian cancer. We are currently conducting the dose escalation portion of UPGRADE-A. We expect to enter the dose expansion portion of UPGRADE-A in the first quarter of 2023 and to present data from the trial in the second half of 2023. We may explore other combinations as part of a series of UPGRADE trials in the future. Together, data from our trials of UpRi have the potential to establish the safety and efficacy of UpRi across a wide range of ovarian cancer patients, from those who are platinum-resistant and heavily pre-treated to those in earlier lines of treatment for the disease.
The second product candidate we are developing is XMT-1660, a B7-H4-directed Dolasynthen ADC with a precise, target-optimized drug-to-antibody ratio, or DAR, of six and our clinically validated DolaLock microtubule inhibitor payload with controlled bystander effect. B7-H4 is overexpressed in a range of cancers, including breast, endometrial and ovarian cancers. In preclinical studies, XMT-1660 demonstrated robust anti-tumor activity after a single dose in multiple patient-derived tumor xenografts.
We are enrolling patients in a Phase 1 clinical trial investigating the safety, tolerability and anti-tumor activity of XMT-1660 in patients with solid tumors, including breast, endometrial and ovarian cancers. The initial dose escalation portion of this trial will evaluate the safety and tolerability of XMT-1660 as a single agent. The dose expansion portion of the trial will evaluate the safety, tolerability and efficacy of XMT-1660 as a single agent with primary efficacy-related endpoints of investigator-assessed objective response rate and duration of response.
The third product candidate we are advancing into clinical development is
XMT-2056, an Immunosynthen
We also have two earlier stage preclinical candidates, which we refer to as XMT-2068 and XMT-2175, that leverage our Immunosynthen platform and target tumor-associated antigens.
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In
We have entered into a global collaboration providing GlaxoSmithKline
Intellectual Property (No. 4) Limited, or GSK, an exclusive option to co-develop
and commercialize XMT-2056. In addition, we have established strategic research
and development partnerships with
Since inception, our operations have focused on building our platforms, identifying potential product candidates, producing drug substance and drug product material for use in preclinical studies, conducting preclinical and toxicology studies, manufacturing clinical trial material and conducting clinical trials, establishing and protecting our intellectual property, staffing our company and raising capital. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through our strategic partnerships, private placements of our convertible preferred stock and public offerings of our common stock, including through our at-the-market, or ATM, equity offering programs.
Since inception, we have incurred significant cumulative operating losses. For
the nine months ended
•continue clinical development activities for UpRi, XMT-1660 and XMT-2056;
•prepare for a potential BLA submission for UpRi by the end of 2023;
•continue diagnostic development efforts with respect to the NaPi2b biomarker;
•continue activities to discover, validate and develop additional product candidates, including XMT-2068 and XMT-2175;
•maintain, expand and protect our intellectual property portfolio; and
•hire additional research, development, general and administrative and commercial personnel.
Impact of COVID-19 on Our Business
We are continuing to monitor the impact of the ongoing COVID-19 pandemic on our operations and ongoing clinical and preclinical development, as well as discovery efforts. Mitigation activities to minimize COVID-19-related operational disruptions are ongoing and include:
•We are currently enrolling patients at clinical sites in different geographic
areas around the world in our ongoing clinical trials, though staffing
constraints have been an increasing challenge for the clinical sites with which
we work. If staffing challenges persist, we may experience associated delays in
trial enrollment. We are in the process of initiating additional clinical sites
both inside and outside
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•To the best of our knowledge, our contract research and manufacturing partners continue to operate their facilities at or near normal levels, though staffing constraints and sourcing of raw and other materials have been an increasing challenge for our vendors. If staffing and/or material sourcing challenges continue, we may experience associated delays in our laboratory, clinical or manufacturing services. We believe we currently have appropriate service support and sufficient inventory of UpRi, XMT-1660 and XMT-2056 to support our ongoing and planned clinical trials. We have planned research, clinical and manufacturing activities to address all currently anticipated future needs. We continue to monitor the research, clinical and manufacturing operations of our vendors.
The ultimate impact of the COVID-19 pandemic on our business operations is
highly uncertain and subject to change and will depend on future developments,
which cannot be accurately predicted. While the pandemic did not materially
affect our financial results and business operations in the third quarter ended
Financial Operations Overview
Revenue
To date, we have not generated any revenue from the sale of products. All of our revenue has been generated from strategic partnerships.
In
In
In
During the nine months ended
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Biosciences during the three months ended
For the foreseeable future, we expect substantially all of our revenue to be
generated from our collaboration agreements with GSK, Janssen, Merck KGaA and
Expenses
Research and development expenses
Research and development expenses include our drug discovery efforts, manufacturing, and the development of our product candidates, which consist of:
•employee-related expenses, including salaries, benefits and stock-based compensation expense;
•costs of funding research and development performed by third parties that conduct research, preclinical activities, manufacturing and clinical trials on our behalf;
•laboratory supplies;
•facility costs, including rent, depreciation and maintenance expenses; and
•upfront and milestone payments under our third-party licensing agreements.
Research and development costs are expensed as incurred. Costs of certain activities, such as manufacturing, preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and information provided to us by the third parties with whom we contract.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and manufacturing costs. We expect that our future research and development costs will continue to increase over current levels, depending on the progress of our clinical development programs. There are numerous factors associated with the successful development and commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at our current stage of development. Additionally, future commercial and regulatory factors beyond our control may impact our clinical development programs and plans.
We have not historically allocated all of our internal research and development expenses on a program-by-program basis as our employees and other resources are deployed across multiple projects under development. Internal research and development expenses are presented as one total. Our internal research and development costs are primarily personnel-related costs, stock-based compensation costs, and facility costs, including depreciation and lab consumables.
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We incur significant external costs for manufacturing our product candidates and
platforms and for clinical research organizations that conduct clinical trials
on our behalf. We capture these external expenses for each product candidate in
clinical development. Costs for our platforms with an associated product
candidate in clinical development are typically allocated to our most clinically
advanced product candidate based on that platform. In light of our decision to
discontinue further clinical development of XMT-1592 in the second quarter of
2022, all costs associated with our Dolasynthen platform have been re-allocated
to XMT-1660, which is now our lead Dolasynthen-based product candidate. All
external research and development expenses not attributable to our product
candidates in clinical development are captured within preclinical and discovery
costs. These costs relate to our product candidates XMT-2068 and XMT-2175 and
additional earlier discovery stage programs and certain unallocated costs. The
following table summarizes our external research and development expenses,
presented by program as described above, for each of the three and nine month
periods ended
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021
UpRi external costs $ 23,999 $ 14,688 $ 48,023 $ 34,736
XMT-1592 external costs 409 2,905 3,198 7,049
XMT-1660 external costs 4,158 - 10,879 -
XMT-2056 external costs 2,334 - 2,334 -
Preclinical and discovery costs 2,040 5,220 13,265 17,079
Internal research and development costs 17,699 12,462 49,977 35,781
Total research and development costs
The successful development of our product candidates is highly uncertain. As such, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of our product candidates. We are also unable to predict when, if ever, we will generate revenue from commercialization and sale of any of our product candidates that obtain regulatory approval. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
•successful completion of preclinical studies and IND-enabling studies;
•successful enrollment in and completion of clinical trials;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•commercializing the product candidates, if and when approved, whether alone or in collaboration with others; and
•continued acceptable safety profile of the drugs following approval.
A change in the outcome of any of these variables with respect to the development, manufacture or commercialization of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.
We expect our research and development expenses to increase as we continue our clinical development of UpRi, XMT-1660 and XMT-2056, advance our preclinical pipeline and invest in improvements in our ADC technologies.
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General and administrative expenses
General and administrative expenses consist primarily of salaries and other employee-related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development, legal operations, information technology and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.
We expect our general and administrative expenses to increase in the future to support continued research and development activities, including increased costs related to the hiring of additional personnel, fees to outside consultants and patent costs, among other expenses.
Other income (expense)
Other income (expense) consists primarily of interest expense related to borrowings under our credit facility and associated amortization of the deferred financing costs and the accretion of debt discount. Interest income includes interest earned on cash equivalents.
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
September 30,
(in thousands) 2022 2021 Dollar Change
Collaboration revenue $ 5,573 $ 11 $ 5,562
Operating expenses:
Research and development 50,639 35,275 15,364
General and administrative 14,573 10,124 4,449
Total operating expenses 65,212 45,399 19,813
Other income (expense):
Interest income 708 15 693
Interest expense (880) (98) (782)
Total other income (expense), net (172) (83) (89)
Net loss $ (59,811) $ (45,471) $ (14,340)
Collaboration Revenue
Collaboration revenue increased by
Research and Development Expense
Research and development expense increased by
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The increase in research and development expense was primarily attributable to the following:
•an increase of
•an increase of
•an increase of
•an increase of
•an increase of
These increased costs were partially offset by a decrease of
Stock-based compensation expense included in research and development expenses
increased by
General and Administrative Expense
General and administrative expense increased by
Total Other Income (Expense), net
Total other income (expense), net was
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Comparison of the nine months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
(in thousands) 2022 2021 Dollar Change
Collaboration revenue $ 11,893 $ 32 $ 11,861
Operating expenses:
Research and development 127,676 94,645 33,031
General and administrative 42,158 26,214 15,944
Total operating expenses 169,834 120,859 48,975
Other income (expense):
Interest income 1,017 36 981
Interest expense (2,364) (286) (2,078)
Total other income (expense), net (1,347) (250) (1,097)
Net income (loss) $ (159,288) $ (121,077) $ (38,211)
Collaboration Revenue
Collaboration revenue increased by
Research and Development Expense
Research and development expense increased by
The increase in research and development expense was primarily attributable to the following:
•an increase of
•an increase of
•an increase of
•an increase of
•an increase of
•an increase of
Stock-based compensation expense included in research and development expenses
increased by
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General and Administrative Expense
General and administrative expense increased by
Total Other Income (Expense), net
Total other income (expense), net was
Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations to date primarily through our strategic partnerships, private placements of our convertible preferred stock and public offerings of our common stock, including our initial public offering, our follow-on public offerings in 2019 and 2020 and our ATM equity offering programs.
In
In
On
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As of
Cash Flows
The following table provides information regarding our cash flows for the nine
months ended
Nine Months Ended
September 30,
(in thousands) 2022 2021
Net cash provided by (used in) operating activities $ 1,866 $ (97,588)
Net cash used in investing activities (107,290) (493)
Net cash provided by financing activities 111,559 34,851
Increase (decrease) in cash, cash equivalents and restricted cash
$ 6,135 $ (63,230)
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities was
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Funding Requirements
We expect our cash expenditures to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of potential collaborators.
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As of
•the scope, progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
•the scope, prioritization and number of our research and development programs;
•the costs, timing and outcome of regulatory review of our product candidates;
•our ability to establish and maintain collaborations on favorable terms, if at all;
•the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we obtain;
•the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•the extent to which we acquire or in-license other product candidates and technologies;
•the costs of securing manufacturing arrangements for clinical and commercial production; and
•the costs of establishing or contracting for sales and marketing capabilities if we obtain regulatory approvals to market our product candidates.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve drug sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, strategic partnerships and licensing arrangements. To the extent
that we raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of our common stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our common stockholders. We currently have
access to the New Credit Facility, as described above, along with funds to
potentially be earned in connection with our agreements with GSK, Janssen, Merck
KGaA and
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If we raise funds through additional strategic partnerships or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations
There were no material changes to our contractual obligations as reported in our
Annual Report on Form 10-K for the year ended
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with
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