Earnings Transcript for MACK - Q2 Fiscal Year 2017

Executives: Geoff Grande - Senior Director of Communications Richard Peters - President and Chief Executive Officer Sergio Santillana - Chief Medical Officer John Green - Controller and Acting Principal Accounting Officer

Analysts:

Operator: Good morning and welcome to the Merrimack Pharmaceuticals Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for your questions. I would now like to introduce you to your host for today's call Geoff Grande, Senior Director of Communications at Merrimack.

Geoff Grande: Thanks, Kevin. Good morning everyone and thank you for joining us on our call to discuss our second quarter 2017 financial results and recent progress. A press release detailing our results became available at 7

Richard Peters: Thank you, Geoff, and thank you all for joining the call today. I’m pleased to report on our progress this quarter. On our last call, we laid out a number of goals both clinical and corporate, which our team has dedicated itself to focus on. I'm thrilled today to be able to point towards our execution of last quarter's guidance, specifically in June we announced that we completed enrollment in our ongoing CARRIE study, a Phase 2 double-blind, placebo-controlled, trial of MM-141 added to standard of care in patients with metastatic pancreatic cancer with high levels of the biomarker IGF-1 or insulin-like growth factor 1. MM-141, one of our three lead clinical assets is a bi-specific antibody targeting the IGF-1 and HER3 receptors. This completion of enrollment puts us on track to report top line data in the first half of 2018. Also in June, we bolstered our senior management team adding Alan Forrest, Head of Human Resources and Dr. Sergio Santillana, Chief Medical Officer, who we will introduce on this call. Additionally, we are delighted to welcome Tom Needham, who joined us recently as our new Chief Business Officer. Tom will be focused on driving value from our clinical and preclinical assets throughout licensing efforts and R&D strategic partnerships. Tom brings remarkable expertise from his experience in strategic business development roles at leading biotech companies both public and private. This key executive hires reinforce our sharpened focus and support our refined corporate strategy to focus on research and clinical development, to take our wholly-owned programs through clinical proof-of-concept, and to build value through partnerships that drive our mission forward. We're excited to have a proven leadership team in place with the expertise to deliver for patients and shareholders. With that, I would now like to offer an update on our clinical programs. As indicated previously, following the sale of our commercial business to Ipsen, we focused our development efforts primarily on three clinical programs, MM-121, MM-141 and MM-310. For each program a cornerstone of our strategy is to demonstrate value through proof of concept studies in well defined biomarker enriched patient populations. Such studies are smaller, shorter and more personalized with the purpose of demonstrating a larger treatment effect size. Let me start with MM-121, a first-in-class fully human monoclonal antibody targeting the HER3 receptor. MM-121 is currently being studies in the SHERBOC trial in prospectively selected heregulin positive patients with non-small cell adenocarcinoma of the lung that has progessed on a platinum-containing regimen. This is an open-label randomized Phase 2 study in combination with docetaxel versus docetaxel alone, which is expected to deliver top line data in the second half of 2018. Later this year, we expect to initiate a second trial of MM-121, a randomized Phase 2 double-blind placebo-controlled study of MM-121 in combination with fulvestrant versus fulvestrant along. The study is called SHERBOC. This study will enroll prospectively selected heregulin positive, hormone receptor positive and HER2 negative postmenopausal metastatic breast cancer patients, who have progressed on a prior cyclin-dependent kinase inhibitor. We plan to provide additional guidance on the timing of data for the SHERBOC study once it has started. In both studies, we are using heregulin which binds to the HER3 receptor as a qualifying biomarker. Our research indicates heregulin driven drug resistance pathway are prevalent in 30% to 50% of patients with these conditions. Next, as we mentioned earlier, MM-141 is a bispecific antibody targeting the IGF-1 and HER3 receptors, which converge at a common pathway for cancer cell survival. The ongoing Phase 2 CARRIE study in frontline metastatic pancreatic cancer completed enrollment in June and we expect it to readout in the first half of 2018. In this trial, patients have been screened for the free IGF-1 biomarker which our research indicates is prevalent in approximately 50% of pancreatic cancer patients. High IGF-1 has been shown to correlate with more aggrieve pancreatic cancer and the high prevalence of this biomarker could represent a significant opportunity to improve the poor outcome seen in this patient population. This is what we hope to address MM-141. Lastly, we have MM-310, an antibody-directed nanotherapeutic or AND that contains a novel prodrug of docetaxel encapsulated in a nanoliposome. The nanoliposome is decorated with antibodies that target the EphA2 receptor. The potential significance of this candidate is twofold. It’s target the EphA2 receptor is highly prevalent as surveys suggest it is highly over expressed on major solid tumor types including prostate, ovarian, bladder, gastric, pancreatic and lung cancers. And by encapsulating this docetaxel prodrug, MM-310 maximizes the exposure of the drug in the tumor to allow for a slow and sustained release, thereby potentially reducing toxic exposure. In March, we initiated a Phase 1 open-label study of MM-310 to assess the safety, pharmacology and preliminary activity in patients with solid tumors for which enrollment is ongoing. We expect to report safety data for this study in the second half of 2018. Before we move onto the financials, I want to take a moment to introduce Dr. Sergio Santillana, our new Chief Medical Officer, who will discuss our differentiated and efficient approach. We are thrilled to welcome Sergio, who joins us most recently from Ariad Pharmaceuticals where he served as Chief Medical Officer. Prior to Ariad, Sergio was a practicing medical oncologist for 15 years before transitioning to oncology clinical development leadership roles at top pharma companies including GlaxoSmithKline and Eli Lilly. Sergio?

Sergio Santillana: Thank you, Richard. On a personal note, I’m very excited to join the efforts of Merrimack to develop novel anticancer agents in their precision medicine in oncology. As Richard mentioned, Merrimack’s focus is to translate our understanding of the underlying biology of different tumors to the development of new anticancer agents based on a biomarker driven approach. The goal of this approach is to efficiently deliver clinically meaningful readouts for highly specific patient groups. As American oncologists initially treating cancer patients and now focus on developing new therapeutic options in oncology, I’d like to emphasize the tremendous need that exist to develop [indiscernible] treatments. Our development activities in pancreatic cancer with MM-141 are a good example of a biomarker driven approach that we use for each of our current clinical programs. Our understanding of the role of cooperation between IGF-1 and HER2 receptors in driving cells growth in these indications help us to indentify a potential new therapeutic approach. Based on this knowledge, our scientists design a biospecific antibody MM-141 that blocks both IGF-1 and HER3 receptors. We also identified free IGF-1 as a candidate biomarker to select the patient population for treatment with MM-141 and this has shown to be correlated with a more aggressive form of pancreatic cancer. In the United States, approximately 50,000 pancreatic cancer patients are diagnosed per year. Of them, approximately 35,000 have metastatic disease. Based on our initial data, we expect that approximately half of the front line advanced pancreatic cancer patients will experience high levels of IGF-1. Testing MM-141 in combination with the standard of care gemcitabine plus nab-paclitaxel in such valuable market defines subgroup of patients’ offers a potential path for improvement in the outcomes for these patients. As explained by Richard, we are using a similar biomarker driver strategy MM-121 and MM-310, to identify the patients that we believe can get the most benefit for our drugs. I think it’s also important to point out that in making the decision to join Merrimack, I was equally attracted to the company’s robust preclinical discovery engine. Program such MM-161, a monoclonal antibody targeting the fibroblast growth factor receptors with highest specificity of which we present data at the American Association of Cancer Research this year. The TRAIL ligand fusion targeting the death receptors DR4 and DR5 and the Stabilized Immuno-Ligand platform or STIMULI, which is focused on multi-specific TNF receptor agonists. We believe that this and other promising programs utilizing our biomarker driven approach will provide opportunities in the future to enter the clinical and help cancer patients in need. In conclusion, these are very exciting times for Merrimack, as our research engine advances, we are moving forward as planned with the progression of our trials already in the clinical. We [indiscernible] in the fully enrolled CARRIE study in front line advanced pancreatic cancer, the continuation of enrolling of lung cancer patients in the SHERLOC for MM-121, the progression of our Phase 1 study of MM-310 in solid tumors and the initiation of the SHERBOC study of MM-121 in metastatic breast cancer patients. And with that, I will give the floor back to Richard.

Richard Peters: Thank you, Sergio. We are thrilled to have you abroad and look forward to the continued progress of our clinical and preclinical programs under your leadership. Next with our search progress for a CFO ongoing, I’d like to turn the call over to John Green, our Controller and Acting Principal Accounting Officer, who has graciously stepped in to take us through the financials.

John Green: Thank you, Richard. As noted in our earnings release, research and development expenses from continuing operations were $19.7 million in the second quarter, a decrease of $1.9 million from the first quarter of 2017 primarily due to the transition to our refocus clinical and preclinical pipelines and an onetime charge related to the stock-based compensation. General and administrative expenses from continuing operations were $14.8 million in the second, an increase of $9.2 million from the first quarter of 2017 primarily due to the cost associated with the transition following the asset sale including legal expenses and stock-based compensation. Given the completion of asset sale on April 3, the retirement of the long-term debt and the payment of the special dividend in May, we ended the quarter with approximately $135.5 million… ***00-16 ***16-end*** Given the completion of the asset sale on April 03, the retirement of the long term debt in the payment of the special dividend in May, we ended the quarter with approximately $135.5 million of unrestricted cash and cash equivalents on hand. This represented an increase of $118.3 million compared to the balance of $17.2 million as of March 31, 2017. We believe our cash position along with the net milestone payment anticipated from Shire will provide the company with sufficient runway to fund our planned operations into the second half of 2019. I’ll now hand the call back to Richard for concluding remarks and to highlight our upcoming milestones. Richard Peters Thank you, John. This quarter marked the conclusion of a critical yet productive transition for Merrimack with the sale of dividing rearview mirror and refined objectives ahead. Before we wrap up, I want to quickly recap the key anticipated milestones that we believe can drive value for our stockholders. Later this year, we expect to initiate the Sarbox study of MM-121 in heregulin positive metastatic breast cancer patients. In the first half of next year, we expect top line results from the CARRIE study of MM-141 in frontline pancreatic cancer. In the second half of next year, we anticipate reporting top line data for the SHERLOC study of MM-121 in non-small cell lung cancer and also in the second half of next year we expect to have safety data for our Phase 1 study of MM-310 in solid tumors. As we march towards the close of 2017 with our leadership team and our corporate strategy aligned, we are poised to execute on these goals in the near term and beyond. And with that, I'd like to thank you all for being here and we will now open up the line to any questions. Operator?

Operator: [Operator Instructions] Our first question comes from Anupam Rama with J.P. Morgan.

Unidentified Analyst: Hi all, this is Tessa [ph] filling in for Anupam this morning. Thank you for taking my questions. Firstly, can you please provide us an update on the CFO hiring process and the timeline to completion? Are there any other key outstanding management positions that need to be hired post that CMO and CBO hiring? And then secondly, for the Sarbox study in breast cancer for MM-121, is there any additional color that you can provide on expectations for the enrollment curve and timeline as well as timelines to deal ahead of the initiation. Thanks so much.

Richard Peters: Thank you, Tessa [ph], for these questions. This is Richard. I’ll answer them. So, on the Chief Financial Officer search, it's going very well. The type of candidate we've been looking to bring into our organization is someone who has very strong Corporate Finance experience as well as strong public markets experience, and also someone who has good knowledge of the biotechnology field. So we are moving the process quickly and we want to complete it as soon as possible and at that moment we’ll make an announcement. With regard to the second part of your questions was, do you have any additional or other key senior management hires, I think we have really strengthened our management team. We already have a very good team of leaders here with Jeff Munsie, our General Counsel and Head of Corporate Operations; and Dr. Daryl Drummond, our Head of Research, who are both long-term Merrimack employees and have that strong history. And then we've added to that team this past quarter as I mentioned earlier Ellen Forest, Head of Human Resources, who comes from Baxalta; Sergio Santillana, Chief Medical Officer, coming from ARIAD Pharmaceuticals and more recently Tom Needham as our Chief Business Officer who has deep experience in biotech both public and private companies. So with the addition of the CFO, this would then complete our Senior Management team and I think we are very well poised to then execute on the refined strategy that we've mapped out for you all. And then with regard to the Sarbox timelines, as I mentioned, we're looking forward to activate the study this year and then once the study has been activated then we will be able to provide some more clarity and transparency with regard to the expectations but we have to wait for the study to activate and watch the study progressing a little bit before we can declare more specific timelines.

Unidentified Analyst: Okay, excellent. Thank you for taking my questions.

Richard Peters: Anybody there?

Unidentified Analyst: No, I already did my question button thing. Hello, I'm sorry I must be the next caller to ask a question but I can't hear the Operator. This is Laura [ph] from Cowen. I have a couple of questions for you guys. Thanks for taking my question. One is just about the rate limiting steps to those of your first patient in the Sarbox trial and what your expectations are for activating?

Richard Peters: Thank you, Laura [ph]. This is Richard again. So those are rate limiting steps and we first have to go through [indiscernible] site initiation, right? So activating the sites and once the sites are activated then the first patient gets screened and then get dosed. And this is proceeding as planned so there is no limitations that we see from our side but it's just a step wise process. What I can tell you is that we've received great interest from investigators. They see MM-121 added to standard-of-care in patients who have a very significant high unmet medical need. These are hormone receptor positive patients that are HER2 negative and we don't select patients who have a high heregulin in their tumor. And these are patients who have progressed on cyclin-dependent kinase inhibitors CDK4, CDK6. So the options for them are not great and so adding MM-121 to fulvestrant versus fulvestrant alone is seen by breast oncologists as a great study to participating. So we've seen very nice investigator interest just a matter of other clinical operations and deploying the study, but as I said we are looking forward to providing more clarity around this later this year and Sarbox study this year.

Unidentified Analyst: Wonderful. That’s helpful. And then my follow-up question is just about the Shire payment. I'm wondering if you're still anticipating that come in Q3 or if you’ve pending communication with Shire about how they're progressing in terms of getting their first sales in both European and non-European, non-Asian countries and dosing their first patient on [indiscernible] trial.

Richard Peters: Thank you, Laura [ph] for that question, so you are referring to the Shire milestone related to the antibody direct that we saw to Ipsen. We are still entitled to receive milestones from performance both as you highlighted a commercial performance which are related to sale of our device in additional markets as well as milestone related to a clinical development milestone in terms of starting a wide pivotal study in small cell lung cancer. And so with regard to the timing because we’re depended on Shire executing on these initiatives but we expect them to – we expect to receive them during our cash runway which takes us through the second half of 2019.

Unidentified Analyst: Okay, so before 2019 but no specific quarter in mind in terms of when the payments will be coming?

Richard Peters: That's correct, Laura [ph].

Unidentified Analyst: Okay. Thank you. That's helpful.

Operator: Ladies and gentlemen, that concludes today’s Q&A session. I would now like to turn the call back over to management.

Richard Peters: Great, well, thank you, everyone, for joining us. Just a quick plug, we will be attending the Baird Healthcare Conference on September 07 in New York. Hope to see you there and we look forward to updating you again next quarter.

Operator: Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.