Earnings Transcript for MACK - Q4 Fiscal Year 2017

Executives: Geoff Grande - Senior Director of Communications Richard Peters - President and CEO Sergio Santillana - Chief Medical Officer Jean Franchi - CFO

Analysts: Mike Ulz - Robert W. Baird

Operator: Good morning and welcome to the Merrimack Pharmaceuticals Fourth Quarter and Full Year 2017 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 to your questions. I would now like to introduce your host for today's call, Mr. 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 fourth quarter and full year 2017 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. On today’s year-end call, we stand at an inflection point between Merrimack’s transformative 2017 and a data rich year ahead. As you all know, Merrimack’s transition began over a year ago with an in-depth strategic review, the results of which prioritized our development efforts around the three most promising assets in our clinical pipeline; MM-121, MM-141 and MM-310 and the Robust Discovery Engine in line behind them. Following the Ipsen transaction we acted swiftly to reset the company’s foundation. We cleaned up the balance sheet and quickly built out a team equipped to execute on our refined corporate strategy, which used to take off wholly owned programs through clinical proof-of-concepts and build value through partnerships. In the fourth quarter, we added Dr. George Demetri to our Board of Directors. Dr. Demetri is a world renowned expert in the clinical translation of innovative treatment strategies for cancer and replaces Dr. John Mendelsohn. We thank Dr. Mendelsohn for his many contributions and his service to the board since he joined in 2012. In February, we also announced the formation of the new scientific advisory board composed of a distinguished group of experts in precision oncology, bio-engineering, drug discovery and clinical development. Their strategic guidance will be an invaluable resource to me and to our management teams as we advanced our novel precision therapeutics in biomarker defined cancers. Additionally, Tom Needham is stepping down as Chief Business Officer to return to his roots in Venture Capital. We have decided not to backfill Tom’s role as this time instead have the business development function report directly to me. We will also continue to rely on support from our seasoned executive team for our business development efforts. With our robust pipeline of wholly owned programs, business development will remain an important piece of our strategy. Today’s Merrimack is a different company than it was a year ago. We had 10 programs across our clinical and pre-clinical pipeline. We have four ongoing clinical trials with three expected to read out in 2018 including randomized Phase 2 data from both of our leased programs. And we had one unified focus of targeting biomarker defined cancers. We are supported by a strong cash balance that we anticipate will get us into the second half of 2019, and we are poised to execute on our pipeline readouts, and deliver on the promise of the new Merrimack as the fruits of this transition come to bear. I would now like to hand the call off to Dr. Sergio Santillana, our Chief Medical Officer who will walk us through the expansion of our SHERLOC trial which we announced this morning in a separate release, and offer a pipeline update. Sergio?

Sergio Santillana: Thank you, Richard. Before diving into a pipeline update, I want to add that at the center of all what we have achieved since embarking on this transformation, is our singular focus on biomarker defined concepts. As we have highlighted previously in selecting our targets, we spend a great deal of time and energy trying to achieve a fundamental understanding of Cancer pathways and drug metabolism. In formed by this understanding, then we engineer antibodies and antibody-directed nanotherapeutics with pharmacological properties to match the problem that we are trying to solve. Ultimately, we test our candidates in biomarker defined homogenous populations. These three-pronged strategy results in a smaller, shorter more personalized studies lowering development cost and accelerating the timeframe to clinically meaningful data. In addition, in an area of precision oncology we believe that the smart design and development of novel therapeutics targeting biomarker defined concepts will deliver optimal patient outcomes. Now let me begin with an update of our three clinical programs; MM-121, MM-141 and MM-310, each of which is expected to report data in 2018. MM-121 is our fully human monoclonal antibody targeting the HER3 receptor which is designed to overcome cancer cells resistance to the effects of anti-tumor therapies. MM-121 is currently being evaluated in two randomized Phase 2 trials in as biomarker defined population in non-small cell lung cancer and breast cancer. The SHERLOC trial is our ongoing Phase 2 trial of MM-121 in patients with heregulin positive non small cell lung cancer. Patients must have received a prior platinum based therapy as well as prior immune oncology therapy where available as clinically indicated. SHERLOC is a sign of an open label randomized study assessing progression-free survival in patients who have received MM-121 in combination with docetaxel compared with docetaxel alone. This morning, we announced and strengthening of the study with expansion of SHERLOC target patients pool from 80 to 100 patients in response to rapid enrollment of robust clinical interest. As a result, this study will help now and improve the statistical result with an alpha of 0.025 a target hazard ratio of 0.5 and an [Indiscernible] PFS assumption of six months for the experimental arm versus three months for the control arm. This expansion of enrolment will enable us to maximize the insights garnered for this study. It also does not alter our previous timing guidance, as we continue to expect to report topline data for this event driven study in the second half of 2018. In summary, the clinical interest we have seen over the past year has surpassed our expectations and we believe reflects the significant unmet medical need among this patient population. As a reminder, last November MM-121 was granted orphan drug designation by the FDA for the treatment of heregulin positive non-small cell lung cancer which offers eligibility for up to seven years of marker exclusivity in this indications if approved, as well as other development assistance and financial incentives. The FDA also previously granted MM-151 fast track designation in non-small lung cancer which expedites the development of the view of drugs that fill an unmet medical needs. We plan to use all these benefit that this designation offers in support of MM-121 development on this patient population. In late February, we announced that the first patient was dosed with a SHERBOC study, our second randomized Phase 2 trial of MM-121 in patients with heregulin positive, hormone receptor positive and HER2 negative postmenopausal metastatic breast cancer, who have previously received and progress after cyclin-dependent kinase inhibitor base therapy. Several design resembles that of the SHERBOC study and that it is assisting progression free survival in patients who have received MM-121 in combination with a standard-of-care in this case for fulvestrant. At this time, we don’t plan to offer guidance on timing of data from the SHERBOC study until we have a better sense of how patient’s enrollment is progressing. MM-141 our second clinical candidate a bispecific antibody targeting the IGF-1 and HER2 receptors. These two pathways corporate to drive cancer cells grow and our research suggest that blocking both pathways with a single drug will be more effective than doing so with two drugs acting separately. MM-141 is currently being evaluated in the carrier study, a double-blind placebo controlled randomized Phase 2 trial in patients with frontline metastatic pancreatic cancer who have been screening for high serum levels of free serum IGF-1 which is associated with more aggressive forms of pancreatic cancer. CARRIE is a study in progression free survivals in patients who have received MM-141 against the standard of care with objective response rate, disease control rate, duration of response and overall survival as secondary measures. The CARRIE study completed enrollment last June and we continue to expect to report topline data for this event driven trial in the first half of this year. Finally, MM-310 is an antibody directed nanotherapeutic that targets EphA2 receptor; an over expressed protein in many solid tumors, and delivers a novel prodrug of docetaxel encapsulated in nanoliposome. Docetaxel is a highly effective chemotherapy; however, it is accompanied by its significant toxicity, hereby limiting optimal exposure. MM-310 design allows for sustained release, which we believe reduce toxicity and improve efficacy. MM-310 is currently being evaluated in dose escalation Phase 1 trial evaluating safety, pharmacology and preliminary activity in solid tumors. We expect to report safety data at the maximum tolerated dose for this study in the second half of this year. Meanwhile, as our trials progress in the clinic, our research engine continues to advance with six promising programs at different stages of preclinical development, we are targeting three different areas of focus; growth factor pathways, cellular proliferation and repair and immune oncology. So we are well positioned to advance our wholly-owned clinical pipeline as our asset material. We look forward to our several upcoming data readouts and to continue the execution in 2018. And with that, I will now turn the call over Jean Franchi, our Chief Financial Officer.

Jean Franchi: Thank you, Sergio. I’ll now summarize our financial highlights, as our detailed financial results were covered in today’s press release. As Richard noted earlier, 2017 focused on resetting our foundation to a research and clinical development-stage company. During 2017, we have operated with the financial disciplined focused on our prioritized clinical program. This discipline is reflected in our fourth quarter operating expenses and our full-year operating results. Our operating expense from continuing operations for the three months ended December 31, 2017 was $17.1 million, compared to $41.5 million for the three months ended December 31, 2016, a $95.8 million for the year ended December 31, 2017 compared to $147.3 million for the year ended December 31, 2016. This represents an expense reduction of $24.4 million compared to the fourth quarter of 2016, and $51.5 million year-over-year. This is primarily due to the Merrimack's refocused clinical and pre-clinical pipeline, reduced corporate expenses and reduced headcount. On last quarter’s call we discussed the settlement agreement we reached to resolve litigation with certain convertible note holders. In connection with that settlement, we commenced a tender offer to purchase any outstanding convertible notes at an identical rate, which expired on November 10, 2017. As a result, we extinguished our debt. We are pleased to emerge from 2017 with the clean balance sheet. We ended the quarter with approximately $93.4 million of cash and cash equivalents on hand. This represents a decrease of $13.8 million compared to the balance of $107.2 million as of September 30, 2017. This is primarily due to expenses associated with advancing our clinical programs. Year-over-year this represents an increase of $71.9 million compared to the balance of $21.5 million as of December 31, 2016, primarily due to the proceeds from the asset sales. As a result, we continue to believe that our cash and cash equivalents of $93.4 million as of December 31, 2017 and potential net milestone payments anticipated from Shire will be sufficient to fund our plan 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, Jean. I want to take a moment to congratulate our team regarding the important changes in the SHERLOC lung cancer study that Sergio has just described. It is indeed not every day that a company announces the strengthening of the clinical study and does so while maintaining the original timelines for data readout in the financial cash runway that Jean just mentioned. Our decision to strengthen SHERLOC illustrates the excitement that we have in the program and emphasizes the discipline that we having still across the whole company both in terms of project execution and expense management. Following our transformative 2017, we look forward to a data-rich year ahead. To recap our upcoming milestones across the 10 wholly-owned programs in our pipeline we have four ongoing clinical trials, three of which we expect to readout this year. In the first half of this year we expect to report topline data from a randomized Phase 2 CARRIE study evaluating MM-141 in frontline metastatic pancreatic cancer. In the second half of this year we expect to report topline data from the randomized Phase 2 SHERLOC study of MM-121 in non-small cell lung cancer. Also in the second half of this year we expect to have safety data from our Phase 1 study of MM-310 in solid tumors. We remain focused on our mission to transform cancer care for patients with biomarker defined cancers for the smart design and development of targeted solutions based on a deep understanding of cancer pathways and biological markers. 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 Mike Ulz of Robert W. Baird.

Mike Ulz: Hey, guys. Thanks for taking the question. So, just with respect to 121 and the SHERLOC study, you guys are expanding enrollment in the study, but you’re still maintaining your second half 2018 timeframe for data. Should we think that Moore’s [ph] 4Q versus a 3Q event?

Sergio Santillana: This is Sergio. Thank you for the question, Mike. As we announced today we are expanding the SHERLOC Phase 2 study for 80 patients to 100 patients to strength our statistical design. And our current guidance is that we will deliver topline results as previously announced in second half of 2018. But we cannot make more precision to that. This is a dynamic study. We continue to have the guidance for the second half of this year.

Richard Peters: Mike, this is Richard. It’s an event driven trial, right. So we had to wait for the events. But what’s very clear from the fact that Sergio and his team have been able to increase the size of that study is that there’s obviously a great interest by investigators in the trial. It’s been accruing incredibly rapidly and also highlights the high unmet medical need for this biomarker driven approach that we’re taking there.

Mike Ulz: Okay. Got it. Thanks guys.

Operator: Our next question comes from Anupam Rama with JPMorgan.

Unidentified Analyst: Hi, guys. This is Tessa on for Anupam this morning. Thanks for the update here on the quarter and for taking our questions. So, looking towards SHERLOC is there any additional color that you can provide on the topline release expectations now that the trial has added these 20 additional patients? Will you guys be able to report on mature PFS here? And then I think you mentioned in your prior remarks that trial is powered from median POS [ph] of six months in the active arm versus three months for the control arm. Could you just elaborate on this for us and just confirm that? And how quickly do you expect you’re able to enroll these additional 20 patients? Thank so much, guys.

Sergio Santillana: Thank you for the questions. As we just comment, we are strengthening this study. We are increasing 200 patients in order to strength the statistical analysis. Our current assumption of efficacy – hazard ratio of 0.05 which as you mentioned is assumption of PFS of six months versus three months. And the power remains unchanged in 80%. So this is an event driven study. We will need to wait for the dynamics of the enrollment and the events itself before we can provide more clear guidance, but as mentioned we are target for second half of 2018.

Richard Peters: And Tessa, this is Richard. Thank you for those questions. You had more round how quickly do we think we can enroll these 20 additional patients. That’s the 25% increase in the number of patients, right in the study from 80 to 100. But as Sergio mentioned the trial has been really accruing very fast, actually faster than our most aggressive internal projections, and so we expect this trial to continue to perform very well. And that's why we are able not to change our guidance with regard to when we might expect the top level results. Once we get those top level results you can expect a press release, as well as of course presentation of the full data set at the subsequent congress -- scientific meeting.

Unidentified Analyst: Terrific. Thank you very much. Thanks guys. Appreciate it.

Richard Peters: Thank you.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to management for closing remarks.

Geoff Grande: Great. Well, thank you all for joining us and for your continued interest in Merrimack. As a reminder, we’ll be presenting at the Cowen Health Care Conference tomorrow March 13 and we look forward to updating you on our progress in the months ahead. Take care.

Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.