Earnings Transcript for MACK - Q2 Fiscal Year 2018

Executives: Geoff Grande - Senior Director, Communications Richard Peters - President and Chief Executive Officer Jean Franchi - Chief Financial Officer

Analysts: Marc Frahm - Cowen & Company Tessa Romero - JPMorgan Chase & Co.

Operator: Good morning and welcome to the Merrimack Pharmaceuticals Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open up the call for your questions. I would now like to introduce your host for today's call, Geoff Grande, Senior Director of Communications at Merrimack.

Geoff Grande: Thanks, operator. Good morning, everyone and thank you for joining us on today’s call to discuss our second quarter 2018 financial results and recent progress. A press release detailing our results became available at 7

Richard Peters: Thanks, Geoff, and thank you all for joining us today. I am happy to update you on our recent progress including the triggering of an $18 million milestone payment from Shire. But first, let me remind you of our corporate strategy. At Merrimack, we are committed to developing a focused pipeline of targeted novel therapeutics for the treatment of cancer. Each of our candidates is specifically designed to match our understanding of cancer pathways and drug metabolism and is tested in biomarker defined populations. This biomarker driven strategy employees smaller, shorter more personalized trials, which lower the cost of development and accelerate the timeline to clinically meaningful data. We conduct trials like this at least in part because they allow us to quickly identify which programs may work and allocate resources accordingly. I would like to emphasize that it was this strategy of implementing efficient trial designs which enabled a decision to seize development of MM-141 following the CARRIE studies Phase II results in late June and allowing us to focus our resources on our other programs. The study which evaluated MM-141 in frontline metastatic pancreatic cancer patients did not need its primary or secondary efficacy endpoints and the data were therefore able to provide a clear signal that MM-141 did not offer a clinical benefit to patients. Despite our confidence in this decision, we are deeply disappointed to discontinue a potential treatment for patients facing this difficult to treat disease. To that end, we remain strongly committed to the development of our broader pipeline as we await critical readouts from MM-121 and MM-310 expected later this year. And we have strengthened our cash position with two non-dilutive events. The triggering of the $18 million milestone payment from Shire that we have announced today as well as the financing we secure from Hercules Capital in July. We believe that these two events will extend our runway into at least the first quarter of 2020. Thus in an improved financial position with key readouts are coming and our robust discovery engine advancing towards the clinic, we remain focused on delivering targeted therapies to patients with biomarker defined cancers and are well situated to execute on our corporate goals. Turning now to our pipeline. Let me begin with an overview of our lead clinical program MM-121. So MM-121 otherwise known as seribantumab is are fully human monoclonal antibody, targeting the HER2 receptor. And it is in development for heregulin positive cancers which represent around 50% of solid tumors. In indications in which high expression of heregulin is prevalent, heregulin positive patients tend to progress more rapidly and when heregulin balance to HER3 receptor it have been shown to drive tumor cell resistance to a broad spectrum of antitumor therapies. MM-121 is designed to block the HER3 pathway in order to reduce this effect and is currently being evaluated in two ongoing randomized Phase II trials. SHERLOC is our ongoing Phase II trial evaluating MM-121 in patients with heregulin positive adenocarcinoma of the lung who have progressed after a platinum-based chemotherapy regimen and may also have received a prior immunooncology therapy. SHERLOC is as an open-label, randomized study, assisting progression free survival in patients who have received MM-121 in combination with docetaxel compared to docetaxel alone. We anticipate reporting topline data including the event-based progression free survival efficacy endpoint later this year. As a reminder, MM-121 was also granted orphan drug designation by the FDA in November 2017 for the treatment of heregulin positive non-small cell lung cancer. This orphan drug designation provides a well defined path towards registration. MM-121 is also being evaluated in the second trial the SHERLOC study. Our ongoing Phase II trial in patients with heregulin positive hormone receptor positive and HER2 negative postmenopausal metastatic breast cancer who have progressed after receiving a cyclin-dependent kinase inhibitor based therapy. SHERBOC is assisting progression free survival in patients who have received MM-121 in combination with fulvestrant compared to fulvestrant alone. Enrollment in this trial is ongoing and we plan to offer guidance on the anticipated timing of data as enrollment progresses further. At the American Society of Clinical Oncology, also referred to as ASCO. At the Annual Meeting in June, we presented an analysis of pharmacokinetic and safety data comparing different dosing regimens from previous Phase I and Phase II studies of MM-121. The date support the dosing regimen currently being evaluated in both the SHERLOC and the SHERBOC trials. In conjunction with [indiscernible] companion diagnostics to accurately and efficiently [Audio Gap] is an antibody directed nanotherapeutic that took the ephrin A2 receptor and contains a novel chemotherapeutic agent. The ephrin A2 receptor is overexpressed in 50% to 100% of many solid tumor types, including ovarian, bladder, gastric, pancreatic and lung cancers. MM-310 is currently being studied in an open-label dose escalating Phase I trial evaluating safety, pharmacology and preliminary activity in solid tumors. We expect to report safety data and maximum tolerated dose from this study later this year after which we intend to test the drug in tumor types associated with overexpressed ephrin A2 receptors. I will also remind you of our discovery engine. Across the board, we are encouraged by the progress we have seen from these programs which target three distinct areas of focus, growth factor pathways, cellular proliferation and repair and immunooncology. Ultimately these programs reflect Merrimack’s broader commitment to research and development and our ability to repopulate our clinical pipeline as our current assets mature. I will now turn the call over to Jean Franchi, our Chief Financial Officer for a review of our financial results.

Jean Franchi: Thank you, Richard. Before reviewing our June 30 financials, I want to briefly touch on a few recent highlights. As Richard mentioned, Shire has achieved a commercial milestone, the sale of ONIVYDE in two additional major European countries, which triggers an $18 million payment to Merrimack. In addition, we announced in July that Merrimack secured a debt facility with Hercules Capital. The total loan commitment is up to $25 million with $15 million received at July’s closing and in an aggregate of $10 million available to Merrimack in two equal tranches, subject to certain condition. Both events occurred in July, following the closing of our quarter two financial results and therefore reported our subsequent events. When combined with the $60 million of cash, cash equivalents and marketable securities at June 30, the $15 million upfront from Hercules and the $18 million milestone triggered from Shire, resulting approximately $93 million in available cash before considering cash burn for the third quarter. We would like to remind you of the milestone payments. Merrimack still remains eligible to receive from Shire, which are not considered in our cash runway until achieved. First, $5 million related to the sale of ONIVYDE in the first major non-European, non-Asian country, and $10 million for the first patient dosed in a pivotal clinical trial in an indication other than pancreatic cancer. Also pursuant to Merrimack's asset sale in 2017, Merrimack is eligible to receive up to an aggregate of $450 million in milestone payments from Ipsen, which we plan to pass through to stockholders, net of any taxes owed and subject to there being sufficient surplus at that time. I’ll now provide a summary of our financial highlights for the second quarter, which I outlined in greater depth in today's press release and our related 10-Q filing. Our total operating expenses for the second quarter ended June 30, 2018 were $17.2 million compared to $34.5 million for the same period last year. This represents a material expense reduction of $17.3 million. This decline in expense is primarily due to Merrimack’s refocused clinical and preclinical pipeline announced last year. As a result, we believe that our cash, cash equivalents and marketable securities of $60 million as of June 30, 2018 combined with the subsequent capital events including the $15 million from the Company's non-dilutive debt financing with Hercules Capital and the $18 million milestone triggered from Shire will be sufficient to fund our planned operations into at least the first quarter of 2020. I’ll now hand the call back to Richard for concluding remarks.

Richard Peters: Thank you, Jean. We are pleased to report on Merrimack’s recent progress as we remain focused on our prioritized pipeline and are capitalized to deliver on our anticipated clinical readouts to recap across the nine wholly-owned programs in our pipeline. We have three ongoing clinical trials, two of which are expected to readout later this year. We expect topline data from the randomized Phase II SHERLOC study of MM-121 in non-small cell lung cancer and we expect to have safety data and the maximum tolerated dose from our Phase I study of MM-310 in solid tumors. With that, I'd like to thank you all for joining today's call. And we will now open the line to any questions. Operator?

Operator: Thank you. [Operator Instructions] Our first question comes from Marc Frahm with Cowen & Company. Your line is now open.

Marc Frahm: Thanks for taking my questions. Just wondering if you could just give a kind of enrollment update on SHERLOC, where you are in completing enrollment? And then what type of percent I/O experience you're kind of expecting at this point in that trial? And then finally on that point, where your latest thoughts are on? What the PFS might be within that subsets and say that's an evolving area of science?

Richard Peters: Thanks, Marc. This is Richard Peters. So on the SHERLOC trial, the trial continues to progress very nicely. As you recall, we awhile back announced the sizing up of the study because the trial was occurring so fast. We were able to increase the number of patients to be enrolling the study. So that we can strengthen the statistics and do that without changing our timeline for topline results as well as without changing our budgets, so we thought it was a really a win-win. It's an event based trial. So the primary endpoint is progression free survival. Looking at the percent of patients who are alive and without their cancer progressing, and so we have to wait for a certain number of events. And an event is defined in the study as a patient who is progressing or a patient who passes away from whatever cause. And then they call that cause as an event. So we need to connect enough events before we are able to really analyze the data and report on it. And based on the progress of the study, we are again reconfirming today that we expect the top level results later this year. That’s as much as we can share right now in terms of SHERLOC. In terms of the proportion of immunooncology or prior immunooncology, patients are being exposed to prior immunooncology drug, I think we were – we had the foreside when we designed a study to realize the landscape we're going to change in lung cancer. So of course, all patients have to be exposed to a platinum containing chemotherapy regimen, that's a required perquisite. But we realized that – we feel that immunooncology was going to evolve in lung cancer. So we allowed for patients who had received a prior immuno checkpoint inhibitor to be eligible for the study. That have been incredibly well received by our investigators and because there is a high unmet need for patients who progressed after an immunooncology checkpoint inhibitor. And the fact that we have to companion diagnostic measure heregulin fits also very nicely within the treatment pathway for oncologist. They're really measuring PD-L1 expression, so they can measure as well hergulin expression. And so we are able to capturing this trial, sizeable number of prior immunooncology exposure, and so it would be very interesting to look at the results both for the total population right as well as the subset that will have received not only platinum containing agent, but also immune checkpoint inhibitor. With regard to the PFS in that subset, I think that will have to wait right, because this is something that is not exactly known. This is a feel that’s evolving. We do have the overall – for the overall population or estimation of the progression free survival in second and third line patients who get docetaxel, which is the control treatment, is median PFS progression free survival of three months. We're shooting for a doubling of the progression free survival for the overall population. As far as the – in the subset of the immuno checkpoint inhibitors, I think that's something we’ll have to really figure out when we get results. The trial would be interesting because it was certainly provided a very clear answer on the benefit of MM-121 in heregulin positive second and third line adenocarcinoma of the lung, but also inform the feel about how do patients perform post progression after an immuno checkpoint inhibitor.

Marc Frahm: Great. And then maybe – can you also give an update on kind of where you are enrollment with SHERBOC and do you think that data is likely be 2019 or could it be into 2020?

Richard Peters: Yes. So thank you Marc for that question. So SHERBOC is the breast cancer study. That trial we started enrollment this year. We dosed the first patient in February. So clearly that trial is later than the SHERLOC study. SHERLOC study was already well ongoing when we started SHERBOC the breast cancer study. We are still activating sites, so we are still early in the lifecycle of this trial. As you know, we activate multiple sites and then once the sites are activated they start enrolling patients. We continue to enroll patients in that study. As we are activating sites, we will get a better feel for the total accrual curves and what our run rate will be in terms of accrual of patients, the patients screening and prescreening. And so once we have lipid visibility in terms of that performance, we would be able to provide more guidance in terms of when we might expect the top level results. At this stage, we are not able to predict it, but once we have a better feel for the total accrual curves than we'll certainly provide more clarity around that. I'd like to point out that the SHERBOC study is an interesting one because it’s in breast cancer in HER2 negative patients. As I mentioned in my introductory remarks, in patients who have progressed on the cyclin-dependent kinase inhibitor, and they all have to have heregulin in their tumor cells in the tumor – both 50% of patients in our experiences qualify with this heregulin. It's a high end mathematical need. What we are hearing from the oncologist – best oncologist is that as a patient progresses on their CDK4, CDK6 inhibitor, they are not quite sure what to do with these patients. And so having a trial that is offering an anti-hormonal fulvestrant or the anti-hormonal plus MM-121 that could be overcome potential resistance since the HER3 pathway is a well known described pathway that provides resistance too many therapeutic agents. That's something that oncologist are really welcoming and forced in fact that we have a companion diagnostics to help select patients is also something that they very much welcoming.

Marc Frahm: Okay, great.

Operator: Thank you. [Operator Instructions] Our next question comes from on Anupam Rama with JPMorgan. Your line is now open.

Tessa Romero: Hi, guys. This is Tessa on for Anupam this morning. Thank you for the update here on the quarter and for taking our question. Maybe one from us also on the SHERLOC study here, we know you have recently presented at ASCO some of the Phase I/II data in solid tumors. Any other suggestion, feedback that you have heard that provides contacts or what else you are looking for an efficacies and safety beyond PFS here and in the indication since you said you would be presenting a rent free survival as well. And then what other color can provide just generally on what will be included within the topline and what we will have to wait for a future update. Thanks so much, guys.

Richard Peters: Thank you. Good morning. This is Richard Peters, again. So again on SHERLOC, primary endpoints is first the lung cancer, certainly the primary endpoint will be progression free survival. We also have a number of secondary endpoints, the typical efficacy endpoint that you measure response rates, duration of treatment, but also overall survival. So we capturing in a trial as well overall survival and of course it’s not powered for overall survival, but it is something that we are going to be looking at as well. The trial is enrolling adenocarcinoma of the line, which is the most common histology in non-small cell lung cancer. We wanted to have a very cohesive well defined patient population. Again this is the approach that we take with our proof-of-concept trials. The idea is as you run the trials in well defined patient population, well defined tumor histology, and well defined in this case a regular in biomarker. So that we have a more homogeneous patient population and we can get a clear signal of course with the active compactor, which is in this case would be docetaxel or Taxotere. So having the concurrent active comparator is also very impactful because then we can really look at the data and ask our direct to perform on the efficacy front. On the safety front, we have a vast amount of data already and as you mentioned as I would presented data from prior Phase I and Phase II studies at the American Society of Clinical Oncology meeting in Chicago. We have the total I think about over 700 patient experiences with MM-121, so it's a drug that has been well tested in humans so those safety database is very robust. We also have a lot of information on the dosing and that’s one that abstract was about looking at a fixed dosing so sometimes you can dose oncology drugs on the weight basis or you can go sometimes on the fixed dosing which is easier actually to implement in the clinic and that abstract documented that that to six dosing that we're implementing in all studies is very appropriate. And so again we very much eagerly await the results of this study later this year. And on the top level results is what kind of top level results would be sharing certainly the primary endpoint but any other efficacy endpoints that we can share will be made available and of course we're always committed to presenting the full dataset to add and following oncology meeting you know Congress.

Tessa Romero: Great. This has been super helpful. Appreciate it. Thank you so much guys.

Richard Peters: Welcome. End of Q&A

Operator: Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Geoff Grande for any further remarks.

Geoff Grande: Great. Well thank you all for your continued interest in Merrimack, we looks forward and we will be presenting at the Baird Global Healthcare Conference on September 6, and we look forward to you updating you on our progress in the months ahead and good morning.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude today’s program. And you may all disconnect. Everyone have a wonderful day.