Mersana Therapeutics, Inc. (NASDAQ:MRSN) Q2 2021 Earnings Conference Call August 6, 2021 8:00 AM ET Company Participants Sarah Carmody - Executive Director, IR & Corporate Communications Anna Protopapas - President, CEO & Director Brian DeSchuytner - SVP, Finance & Product Strategy Timothy Lowinger - Chief Science & Technology Officer Arvin Yang - SVP & Chief Medical Officer Conference Call Participants Jonathan Chang - SVB Leerink Kaveri Pohlman - BTIG Boris Peaker - Cowen and Company Jessica Fye - JPMorga ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Address of principal executive offices) (Zip Code) (617) 498-0020 (Registrant's telephone number, including area code) Commission file number 001-38129 Mersana Therapeutics, Inc. (Exact name of regist ...

Mersana Therapeutics, Inc. (NASDAQ:MRSN) Q1 2021 Earnings Conference Call May 10, 2021 4:30 PM ET Company Participants Sarah Carmody - Executive Director, Investor Relations and Corporate Communications Anna Protopapas - President and CEO Arvin Yang - Chief Medical Officer Tim Lowinger - Chief Science and Technology Officer Brian DeSchuytner - Senior Vice President, Finance and Product Strategy Alejandra Carvajal - Chief Legal Officer Conference Call Participants Jonathan Chang - SVB Leerink Daniel McElligo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-38129 Mersana Therapeutics, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 04-3562403 (I ...

Financial Data and Key Metrics Changes - The company ended 2020 with $255 million in cash and cash equivalents, with net cash used in operating activities in Q4 2020 amounting to $17.3 million [44] - Research and development expenses for Q4 2020 were approximately $22.9 million, up from $12.4 million in Q4 2019, primarily due to increased clinical expenses for UpRi and XMT-1592 [46] - General and administrative expenses for Q4 2020 were approximately $5.9 million, compared to $4.2 million in Q4 2019, driven by increased consulting fees and facility-related costs [47] - The net loss for Q4 2020 was $28.8 million, or $0.42 per share, compared to a net loss of $16.2 million, or $0.34 per share, in the same period of 2019 [48] Business Line Data and Key Metrics Changes - The company is focused on building UpRi and expanding its innovative pipeline, with plans to initiate the UPLIFT study for UpRi in March 2021 [12][19] - The pipeline includes two NaPi2b targeted agents in lung adenocarcinoma, UpRi and XMT-1592, with ongoing evaluations [27] - XMT-1660 and XMT-2056 are expected to advance into clinical studies early in 2022 [28][40] Market Data and Key Metrics Changes - The company aims to establish UpRi as a foundational medicine in ovarian cancer, targeting heavily pretreated patients with unmet medical needs [11][17] - The UPLIFT study is designed to enroll platinum-resistant patients who have received up to four lines of therapy, differentiating it from other studies [20] Company Strategy and Development Direction - The company aspires to become a leader in antibody-drug conjugates (ADCs) by leveraging innovative platforms to address high unmet medical needs in cancer treatment [11] - The strategic focus for 2021 includes building UpRi and expanding the pipeline, with a goal of achieving significant enrollment in pivotal studies and launching the first commercial ADC [14][50] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the momentum behind UpRi and the potential for substantial enrollment in the UPLIFT study within a year [60] - The company is focused on getting UPLIFT up and running while also preparing for lifecycle management studies to enhance UpRi's market position [72] Other Important Information - The company is finalizing the cutoff for higher NaPi2b expression and plans to share data related to this as part of its diagnostic strategy [86] - The potential for using UpRi as a maintenance therapy is under consideration, with a focus on maximizing patient benefits [102] Q&A Session Summary Question: Expected timelines for UPLIFT trial enrollment and data readout - Management is optimistic about enrollment momentum but refrained from providing specific guidance at this time [60] Question: Will there be separate top-line data readouts for higher NaPi2b population and overall population? - Both endpoints are expected to be reported at the same time [62] Question: What is the bar for a go/no-go decision in lung cancer? - The decision will be based on the totality of data, including activity and tolerability profiles [67] Question: Current enrollment in ongoing expansion cohorts and future data disclosures - Enrollment momentum is encouraging, and data disclosures will be considered as the expansion cohort transitions to UPLIFT [72] Question: Companion versus complimentary diagnostic approaches - Companion diagnostics are used to identify patients for treatment, while complimentary diagnostics provide supportive information without being mandatory [82] Question: Will UPGRADE study focus on finding a combination for future pivotal studies? - The design of confirmatory trials is being finalized, with a focus on earlier lines of therapy [83] Question: Potential for maintenance therapy in UPGRADE study - The possibility of maintenance therapy is under consideration, with a focus on maximizing patient benefits [102]

Part I [Business](index=4&type=section&id=ITEM%201.%20BUSINESS) Mersana Therapeutics is a clinical-stage biopharmaceutical company developing antibody-drug conjugates for cancer, leveraging proprietary platforms and strategic partnerships [Overview and Strategy](index=4&type=section&id=Overview%20and%20Strategy) Mersana's strategy focuses on advancing lead ADC candidates, expanding its pipeline with innovative platforms, and forming strategic partnerships to address unmet cancer needs - The company's primary goal is to become a leading oncology company by developing and commercializing ADC product candidates that address unmet medical needs[18](index=18&type=chunk) - Key strategic components include rapidly advancing **UpRi** and **XMT-1592** through clinical trials, expanding the pipeline with new candidates like **XMT-1660** and **XMT-2056**, and building strategic partnerships[18](index=18&type=chunk) [Our Technologies and Platforms](index=6&type=section&id=Our%20Technologies%20and%20Platforms) Mersana's proprietary ADC platforms, including DolaLock, Dolaflexin, Dolasynthen, and Immunosynthen, enhance efficacy, control bystander effects, and enable precise drug-to-antibody ratios - The **DolaLock** payload is a proprietary auristatin designed to control the bystander effect, enhancing safety and efficacy[23](index=23&type=chunk) - The **Dolaflexin** platform utilizes a Fleximer polymer to achieve a high drug-to-antibody ratio (DAR) of approximately **10**, expanding addressable tumor targets[26](index=26&type=chunk)[27](index=27&type=chunk) - The **Dolasynthen** platform enables precise control of DAR (from **2-24**) and site-specific bioconjugation for ADC optimization[28](index=28&type=chunk)[31](index=31&type=chunk) - The **Immunosynthen** platform is designed for targeted stimulation of the innate immune system by delivering a novel STING agonist[30](index=30&type=chunk)[31](index=31&type=chunk) [Our Product Candidates](index=9&type=section&id=Our%20product%20candidates) Mersana's pipeline features lead candidates **UpRi** and **XMT-1592** in clinical trials for ovarian cancer and NSCLC, alongside preclinical programs **XMT-1660** and **XMT-2056** Mersana's Product Pipeline Status | ADC Program | Target | Indication | Platform | Discovery | Preclinical | P1 Dose Escalation | P1 Proof of Concept | |---|---|---|---|---|---|---|---| | **upifitamab rilsodotin (UpRi)** | NaPi2b | Ovarian Cancer, NSCLC | Dolaflexin | ✓ | ✓ | ✓ | ✓ | | **XMT-1592** | NaPi2b | Ovarian Cancer, NSCLC | Dolasynthen | ✓ | ✓ | ✓ | | | **XMT-1660** | B7-H4 | Multiple Solid Tumors | Dolasynthen | ✓ | ✓ | | | | **XMT-2056** | Undisclosed | Undisclosed | Immunosynthen | ✓ | ✓ | | | - **UpRi (XMT-1536)** received FDA Fast Track Designation in August 2020, with plans to initiate the **UPLIFT** registration study and **UPGRADE** combination study in 2021[41](index=41&type=chunk)[43](index=43&type=chunk) - **XMT-1592**, a Dolasynthen ADC, is in a Phase 1 dose escalation study for ovarian cancer and NSCLC, showing **four times greater efficacy** than UpRi in a preclinical lung tumor model[44](index=44&type=chunk)[46](index=46&type=chunk) - Early-stage programs include **XMT-1660** (B7-H4 targeted) and **XMT-2056** (Immunosynthen STING-agonist ADC), both in IND-enabling studies[47](index=47&type=chunk)[49](index=49&type=chunk) [Unmet Need and Epidemiology](index=13&type=section&id=Unmet%20Need%20and%20Epidemiology) Mersana targets ovarian cancer and NSCLC, both with significant unmet needs due to low response rates and limited treatment options for advanced or recurrent disease - Ovarian cancer, especially in platinum-resistant patients, presents a significant unmet need with single-agent chemotherapy response rates of only **4-12%**[51](index=51&type=chunk) - NSCLC is the deadliest cancer in the U.S., with a five-year survival rate below **20%**, and recurrent disease shows standard care response rates of **14-23%**[53](index=53&type=chunk)[54](index=54&type=chunk) [Strategic Partnerships](index=14&type=section&id=Strategic%20Partnerships) Mersana leverages strategic partnerships with Merck KGaA and Asana Biosciences, and in-licenses key IP from Recepta and Synaffix to advance its ADC platforms and pipeline - A collaboration with **Merck KGaA** for up to six ADC targets could yield up to **$777 million** in future milestones plus royalties, with **$15 million** already received[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - The company licensed the **NaPi2b antibody** for **UpRi** and **XMT-1592** from **Recepta Biopharma**, with potential milestones up to **$65.5 million** and tiered royalties[63](index=63&type=chunk)[64](index=64&type=chunk) - A commercial license with **Synaffix** provides site-specific conjugation technology for six targets, including **XMT-1592**, with potential milestones up to **$24.8 million** for the first target[66](index=66&type=chunk) [Manufacturing](index=16&type=section&id=Manufacturing) Mersana relies entirely on third-party Contract Manufacturing Organizations for all product candidate production, lacking in-house facilities or alternate commercial suppliers - The company relies entirely on **third-party Contract Manufacturing Organizations (CMOs)** for all product candidate manufacturing, with no plans for in-house facilities[68](index=68&type=chunk) - Supply chains for **UpRi** and **XMT-1592** use commercialization-capable vendors, though one component for **XMT-1592** still requires a qualified commercial vendor[68](index=68&type=chunk) [Government Regulation](index=16&type=section&id=Government%20Regulation) Mersana's operations are extensively regulated by the FDA and international authorities, covering all stages from R&D and clinical trials to manufacturing, marketing approval, and post-market compliance - In the U.S., ADC product candidates are regulated as biologics by the **FDA**, requiring a comprehensive process from preclinical studies to a **Biologics License Application (BLA)** for marketing approval[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The **FDA** offers expedited programs like **Fast Track**, **Breakthrough Therapy**, and **Priority Review**, and the company may utilize **Accelerated Approval** based on surrogate endpoints[87](index=87&type=chunk)[88](index=88&type=chunk)[91](index=91&type=chunk) - The company's activities are subject to numerous healthcare laws, including federal anti-kickback statutes, false claims acts, **HIPAA**, and the **Sunshine Act**[127](index=127&type=chunk)[293](index=293&type=chunk) - Operations are also subject to data privacy laws such as **GDPR** in Europe and **CCPA** in California, governing personal data processing and imposing significant penalties[119](index=119&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) [Intellectual Property](index=28&type=section&id=Intellectual%20Property) Mersana protects its technology through patents and trade secrets, holding 21 issued U.S. patents and in-licensing critical IP for its platforms and product candidates like **UpRi** and **XMT-1592** - As of January 31, 2021, the company owned **21 issued U.S. patents**, **12 pending U.S. applications**, **95 issued foreign patents**, and **102 pending foreign applications**[144](index=144&type=chunk) Key Patent Portfolio Expiration Dates | Platform/Product | U.S. Patent Status | Projected Expiration (excluding extensions) | |---|---|---| | Fleximer ADC Platform | 10 issued U.S. patents | 2032 | | Dolaflexin ADC Platform | 2 issued U.S. patents | 2034 and 2038 | | UpRi ADC | Pending applications | 2037 - 2039 | | Dolasynthen ADC Platform | Pending applications | 2037 - 2039 | | XMT-1592 ADC | Pending applications | 2041 | | Immunosynthen Platform | Pending applications | 2040 - 2041 | - The company exclusively in-licensed **four issued U.S. patents** and **one issued European patent** for the **NaPi2b antibody** from **Recepta**, projected to expire in **2029**[150](index=150&type=chunk) [Competition](index=32&type=section&id=Competition) Mersana faces intense competition in the biopharmaceutical and oncology sectors from large pharmaceutical and biotech firms developing various cancer treatments, including ADCs - The company faces substantial competition from large biopharmaceutical companies, specialty biotech firms, and academic institutions in the oncology space[156](index=156&type=chunk) - Key competitors in the ADC technology space include **Daiichi Sankyo**, **ImmunoGen**, **Gilead (Immunomedics)**, **Pfizer**, and **SeaGen**, among others[157](index=157&type=chunk)[248](index=248&type=chunk) [Employees, Human Capital, and Facilities](index=32&type=section&id=Employees%2C%20Human%20Capital%2C%20and%20Facilities) As of January 31, 2021, Mersana had 110 employees, primarily in R&D, operating from a 35,000 square foot leased facility in Cambridge, Massachusetts - As of January 31, 2021, the company had **110 full-time employees**, with **87** in R&D[159](index=159&type=chunk) - The company's corporate headquarters are in a leased **35,000 square foot** office and laboratory space in Cambridge, Massachusetts[161](index=161&type=chunk)[332](index=332&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20RISK%20FACTORS) Mersana faces significant risks including high clinical development failure rates, financial losses, reliance on third parties, commercialization challenges, intellectual property protection issues, and operational disruptions - **Development Risks:** Early positive results for **UpRi** and other candidates are not predictive of future success, and clinical trials may fail to demonstrate safety and efficacy[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - **Financial Risks:** The company reported a net loss of **$88.0 million** in 2020, expects continued losses, and will require significant additional financing[198](index=198&type=chunk)[203](index=203&type=chunk) - **Third-Party Reliance:** The company depends on third-party **CMOs** for manufacturing and **CROs** for clinical trials, exposing it to supply, quality, and data integrity risks[212](index=212&type=chunk)[217](index=217&type=chunk) - **Commercialization Risks:** Future success depends on market acceptance, adequate reimbursement, and building sales infrastructure, with potential for smaller-than-estimated market opportunities[230](index=230&type=chunk)[233](index=233&type=chunk)[239](index=239&type=chunk) - **Intellectual Property Risks:** Success depends on obtaining and defending patents, which is uncertain and subject to challenges, invalidation, or insufficient protection[253](index=253&type=chunk)[254](index=254&type=chunk) - **Pandemic Risk:** The **COVID-19** pandemic poses risks of disruption to clinical trials, manufacturing, regulatory timelines, and capital raising ability[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk) [Unresolved Staff Comments](index=72&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments from the SEC - None[331](index=331&type=chunk) [Properties](index=72&type=section&id=ITEM%202.%20PROPERTIES) The company's corporate headquarters and laboratory are located in a leased 35,000 square foot facility in Cambridge, Massachusetts - The company leases approximately **35,000 square feet** of office and laboratory space for its headquarters in Cambridge, Massachusetts[332](index=332&type=chunk) [Legal Proceedings](index=72&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any material legal proceedings - The company is not currently party to any material legal proceedings[333](index=333&type=chunk) [Mine Safety Disclosures](index=72&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[334](index=334&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=73&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on Nasdaq under 'MRSN', with no plans for cash dividends, retaining earnings for business growth - The company's common stock trades on The Nasdaq Global Select Market under the symbol '**MRSN**'[337](index=337&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[338](index=338&type=chunk) [Selected Financial Data](index=74&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) The company reported a net loss of **$88.0 million** in 2020, a significant increase from 2019, primarily due to decreased collaboration revenue, while total assets grew to **$273.4 million** Selected Historical Financial Data (in thousands, except per share data) | | 2020 | 2019 | 2018 | 2017 | 2016 | |---|---:|---:|---:|---:|---:| | **Statements of Operations Data:** | | | | | | | Collaboration revenue | $828 | $42,123 | $10,594 | $17,545 | $25,171 | | Research and development | $67,036 | $55,040 | $59,915 | $46,700 | $32,008 | | General and administrative | $21,902 | $17,283 | $16,334 | $10,462 | $6,984 | | Net loss | $(88,045) | $(28,208) | $(64,257) | $(38,707) | $(13,700) | | Net loss per share | $(1.43) | $(0.65) | $(2.79) | $(3.22) | $(10.82) | | **Balance Sheet Data (End of Period):** | | | | | | | Cash, cash equivalents and marketable securities | $255,094 | $99,790 | $70,131 | $125,216 | $100,297 | | Total assets | $273,399 | $107,541 | $78,502 | $130,715 | $105,087 | | Total stockholders' equity (deficit) | $228,087 | $78,318 | $8,795 | $69,994 | $(55,619) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=75&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Mersana's net loss increased to **$88.0 million** in 2020 due to decreased collaboration revenue and higher R&D, but liquidity significantly improved to **$255.1 million** cash from equity offerings [Results of Operations](index=80&type=section&id=Results%20of%20Operations) In 2020, collaboration revenue significantly decreased to **$0.8 million** due to Takeda agreement termination, while R&D and G&A expenses increased, leading to a higher net loss Comparison of Operations (2020 vs. 2019, in thousands) | | 2020 | 2019 | Dollar Change | |---|---:|---:|---:| | Collaboration revenue | $828 | $42,123 | $(41,295) | | Research and development | $67,036 | $55,040 | $11,996 | | General and administrative | $21,902 | $17,283 | $4,619 | | **Net loss** | **$(88,045)** | **$(28,208)** | **$(59,837)** | - The significant decrease in 2020 collaboration revenue was primarily due to the **$40.0 million** one-time recognition of deferred revenue in 2019 from the termination of the Takeda agreements[377](index=377&type=chunk) - The **$12.0 million** increase in R&D expense in 2020 was driven by a **$9.2 million** increase in **UpRi** manufacturing and clinical activities and a **$4.3 million** increase in employee compensation[378](index=378&type=chunk) [Liquidity and Capital Resources](index=83&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2020, the company had **$255.1 million** in cash, significantly bolstered by **$164.0 million** from a follow-on offering and **$63.0 million** from its ATM program, sufficient for two years - The company ended 2020 with **$255.1 million** in cash and cash equivalents[391](index=391&type=chunk) - Major financing activities in 2020 included raising net proceeds of **$164.0 million** from a follow-on offering and **$63.0 million** from the ATM program[388](index=388&type=chunk) Cash Flow Summary (in thousands) | | 2020 | 2019 | 2018 | |---|---:|---:|---:| | Net cash used in operating activities | $(74,696) | $(67,744) | $(55,216) | | Net cash provided by (used in) investing activities | $37,027 | $(27,293) | $87,195 | | Net cash provided by financing activities | $230,412 | $97,704 | $1,064 | - The company believes its available funds are sufficient to fund its operating plan for approximately the next **two years**[398](index=398&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate sensitivity on its investment portfolio, deemed immaterial due to its short-term, low-risk nature, with no significant foreign currency risk - The primary market risk is interest rate sensitivity on its investment portfolio[427](index=427&type=chunk) - The company is not currently exposed to material foreign currency exchange rate risk[428](index=428&type=chunk) [Financial Statements and Supplementary Data](index=90&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the company's audited consolidated financial statements for 2018-2020, including balance sheets, statements of operations, equity, and cash flows, with an unqualified opinion from Ernst & Young LLP [Consolidated Financial Statements](index=93&type=section&id=Consolidated%20Financial%20Statements) From 2019 to 2020, total assets increased to **$273.4 million** driven by cash, total liabilities rose to **$45.3 million**, and the net loss grew to **$88.0 million** Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | |---|---:|---:| | Cash and cash equivalents | $255,094 | $62,351 | | Total current assets | $258,580 | $101,326 | | Total assets | $273,399 | $107,541 | | Total current liabilities | $30,003 | $24,070 | | Total liabilities | $45,312 | $29,223 | | Total stockholders' equity | $228,087 | $78,318 | Consolidated Statement of Operations Highlights (in thousands) | | 2020 | 2019 | 2018 | |---|---:|---:|---:| | Collaboration revenue | $828 | $42,123 | $10,594 | | Total operating expenses | $88,938 | $72,323 | $76,249 | | Net loss | $(88,045) | $(28,208) | $(64,257) | [Notes to Consolidated Financial Statements](index=97&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including 2019 revenue from Takeda termination, the **$30.0 million** SVB debt facility, **$227.0 million** raised from 2020 equity offerings, and a full valuation allowance against deferred tax assets - **Collaboration Agreements (Note 3):** The company recognized **$0.8 million** in revenue from its **Merck KGaA** agreement in 2020, and **$40.0 million** in 2019 from the termination of **Takeda** agreements[530](index=530&type=chunk)[535](index=535&type=chunk) - **Debt (Note 8):** In August 2020, the company amended its credit facility with **Silicon Valley Bank** for up to **$30.0 million**, with **$5.2 million** outstanding as of December 31, 2020[553](index=553&type=chunk)[561](index=561&type=chunk) - **Stockholders' Equity (Note 9):** In 2020, the company raised net proceeds of approximately **$63.0 million** through its ATM program and **$164.0 million** from a follow-on public offering[565](index=565&type=chunk)[566](index=566&type=chunk) - **Income Taxes (Note 12):** The company has significant net operating loss (NOL) carryforwards (**$250.4 million** federal, **$184.8 million** state) but recorded a full valuation allowance of **$77.4 million** against deferred tax assets[598](index=598&type=chunk)[599](index=599&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=122&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[614](index=614&type=chunk) [Controls and Procedures](index=122&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[616](index=616&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the **COSO 2013** framework[619](index=619&type=chunk) - The independent registered public accounting firm, **Ernst & Young LLP**, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[620](index=620&type=chunk)[624](index=624&type=chunk) [Other Information](index=124&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information for this item - None[631](index=631&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=125&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information for this item is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[633](index=633&type=chunk) [Executive Compensation](index=125&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information for this item is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[634](index=634&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=125&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information for this item is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[635](index=635&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=125&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information for this item is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[636](index=636&type=chunk) [Principal Accounting Fees and Services](index=125&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information for this item is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement[637](index=637&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=126&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the consolidated financial statements included in the report and notes that no financial statement schedules have been submitted as they are not required or applicable - The consolidated financial statements are included in the report[640](index=640&type=chunk) - No financial statement schedules have been submitted[641](index=641&type=chunk) [Form 10-K Summary](index=126&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company reports no summary for this item - None[643](index=643&type=chunk)

Financial Data and Key Metrics Changes - The company ended Q3 2020 with approximately $271 million in cash and cash equivalents, compared to approximately $100 million at the end of 2019 [38] - Net cash used in operating activities in Q3 2020 was $20.2 million [38] - Net loss for Q3 2020 was $22.5 million or $0.33 per share, compared to a net loss of $16.8 million or $0.35 per share for the same period in 2019 [42] Business Line Data and Key Metrics Changes - Collaboration revenue in Q3 2020 was immaterial, down from $0.8 million in Q3 2019, primarily due to the completion of research services associated with a previous agreement [40] - Research and development expenses increased to approximately $16.5 million in Q3 2020 from $13.7 million in Q3 2019, driven by increased manufacturing activities and clinical expenses for XMT-1536 and XMT-1592 [41] - General and administrative expenses rose to approximately $5.9 million in Q3 2020 from $4.4 million in Q3 2019, mainly due to increased consulting fees and facility-related costs [42] Market Data and Key Metrics Changes - The company reported encouraging data from the XMT-1536 Phase 1 study, with an overall response rate of 34% and a disease control rate of 79% among late-stage ovarian cancer patients [14][15] - The FDA granted Fast Track Designation for XMT-1536, highlighting the high unmet medical need for treatments in platinum-resistant ovarian cancer [21] Company Strategy and Development Direction - The company plans to hold an Analyst and Investor Day around year-end to provide updates on XMT-1536 and its development candidates [25][44] - There is a focus on exploring combination therapies for XMT-1536 in earlier lines of ovarian cancer treatment [49] - The company is also advancing its B7-H4 DolaLock ADC development candidate, which targets both tumor cells and immunosuppressive tumor-associated macrophages [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing development of XMT-1536 and its potential to address significant unmet medical needs in ovarian cancer [46] - The company acknowledged the challenges posed by the COVID-19 pandemic but emphasized its commitment to advancing its clinical programs [6][46] Other Important Information - The company is preparing to meet with the FDA to discuss the path to registration for XMT-1536 [23] - The company has initiated new international sites for the lung adenocarcinoma cohort in the expansion portion of the Phase 1 study [27] Q&A Session Summary Question: Can you talk about your thoughts and strategy for 1536 in earlier lines of ovarian cancer and in combination settings? - The company is working on a plan for 1536 and will share it at the analyst and investor meeting around year-end, highlighting opportunities for combination therapies [49] Question: Can you talk about how you're thinking about the lung cancer opportunity for 1536 and 1592? - The company has characterized NaPi2b expression in lung adenocarcinoma and is encouraged by early data, continuing to recruit patients for further insights [50][51] Question: What do you think is the minimum meaningful durability of response for 1536? - The company is gathering data to determine overall durability of response and will assess it based on FDA interactions and totality of data [56] Question: How important is the delta in terms of response rate between NaPi2b high and NaPi2b low? - The company is encouraged by the overall response rate and is focused on understanding how patient selection impacts outcomes [60] Question: Are there newer or preclinical models where you think you can differentiate yourself from some of the other approaches in the STING program? - The company is excited about the data from its Immunosynthen platform and will provide more details at the upcoming webinar [66][68] Question: What is going to change over the next two months that prevents you from outlining data disclosure plans today for 1592? - The company prefers to wait for more information from ongoing dose escalation before outlining data disclosure plans [72] Question: Have the U.S. sites picked up in terms of enrollment for 1536? - The company has seen a pickup in enrollment across all sites, with international sites contributing positively [74] Question: How should we think about expenses rounding out the year and into 2021? - The company reiterated that its current cash position provides more than two years of runway on its operating plan [75]

[PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Unaudited financial statements reflect increased assets from financing activities and a higher net loss, primarily due to prior year's deferred revenue recognition [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2020 | December 31, 2019 | |:---|:---:|:---:| | **Assets** | | | | Cash and cash equivalents | $270,936 | $62,351 | | Total current assets | $274,934 | $101,326 | | Total assets | $290,128 | $107,541 | | **Liabilities and stockholders' equity** | | | | Total current liabilities | $21,070 | $24,070 | | Total liabilities | $36,820 | $29,223 | | Total stockholders' equity | $253,308 | $78,318 | | Total liabilities and stockholders' equity | $290,128 | $107,541 | - The significant increase in cash and cash equivalents from **$62.4 million** at the end of 2019 to **$270.9 million** as of September 30, 2020, was primarily driven by proceeds from stock offerings[14](index=14&type=chunk)[27](index=27&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |:---|:---:|:---:|:---:|:---:| | Collaboration revenue | $11 | $844 | $817 | $42,081 | | Research and development | $16,546 | $13,701 | $44,179 | $42,610 | | General and administrative | $5,881 | $4,436 | $15,988 | $13,072 | | **Net loss** | **($22,489)** | **($16,792)** | **($59,203)** | **($11,962)** | | **Net loss per share** | **($0.33)** | **($0.35)** | **($1.00)** | **($0.28)** | - The net loss for the nine months ended September 30, 2020, was significantly higher than the same period in 2019, primarily because the 2019 period included the recognition of **$39.97 million** in deferred revenue from the terminated Takeda partnership[26](index=26&type=chunk)[64](index=64&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | |:---|:---:|:---:| | Net cash used in operating activities | ($57,377) | ($55,168) | | Net cash provided by (used in) investing activities | $37,215 | ($43,793) | | Net cash provided by financing activities | $228,747 | $97,473 | | **Increase (decrease) in cash** | **$208,585** | **($1,488)** | - Net cash from financing activities was **$228.7 million** for the first nine months of 2020, mainly from a public offering (**$164.0 million**) and at-the-market (ATM) facility proceeds (**$63.0 million**)[22](index=22&type=chunk)[174](index=174&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company is a clinical-stage biopharmaceutical firm focused on developing Antibody Drug Conjugates (ADCs) with proprietary platforms like Dolaflexin, Dolasynthen, and Immunosynthen. Key product candidates are XMT-1536 and XMT-1592, both targeting NaPi2b[24](index=24&type=chunk)[25](index=25&type=chunk) - Collaboration agreements with Takeda were terminated in Q1 2019, leading to the recognition of the remaining **$39.97 million** in deferred revenue during that period[64](index=64&type=chunk) - In August 2020, the company amended its loan and security agreement with Silicon Valley Bank (SVB), allowing for borrowing up to **$30.0 million** in term loans. An initial **$5.2 million** was drawn to repay the existing balance[78](index=78&type=chunk) - The company raised approximately **$63.0 million** in net proceeds from its at-the-market (ATM) facility in April 2020 and an additional **$164.0 million** from a follow-on public offering in June 2020[89](index=89&type=chunk)[91](index=91&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses ADC platform development, noting decreased collaboration revenue, increased operating expenses, and strengthened liquidity from recent equity offerings [Overview](index=25&type=section&id=Overview) - Mersana is a clinical-stage biopharmaceutical company developing proprietary Antibody Drug Conjugates (ADCs) like Dolaflexin and Dolasynthen to improve efficacy, safety, and tolerability over existing therapies[121](index=121&type=chunk) - The lead product candidate, XMT-1536, targets NaPi2b and is in a Phase 1 clinical trial for ovarian cancer and NSCLC adenocarcinoma. A second candidate, XMT-1592, also targeting NaPi2b using the Dolasynthen platform, initiated a Phase 1 dose escalation study in Q2 2020[124](index=124&type=chunk)[125](index=125&type=chunk) [Impact of COVID-19 on Our Business](index=26&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Business) - The company has implemented work-from-home for non-lab employees and staggered schedules for lab staff to mitigate COVID-19 risks[136](index=136&type=chunk) - Patient enrollment continues for XMT-1536 and XMT-1592 trials, with measures like remote monitoring implemented. The company is initiating additional clinical sites to mitigate potential regional impacts from COVID-19[136](index=136&type=chunk) - Manufacturing operations through contract partners have not experienced COVID-related delays, and the company believes it has sufficient inventory of XMT-1536 and XMT-1592 for ongoing clinical studies[136](index=136&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Comparison of Results for the Three Months Ended September 30 (in thousands) | | 2020 | 2019 | Dollar Change | |:---|:---:|:---:|:---:| | Collaboration revenue | $11 | $844 | ($833) | | Research and development | $16,546 | $13,701 | $2,845 | | General and administrative | $5,881 | $4,436 | $1,445 | | **Net loss** | **($22,489)** | **($16,792)** | **($5,697)** | - R&D expense for Q3 2020 increased by **$2.8 million** year-over-year, primarily due to a **$2.7 million** increase in manufacturing, clinical, and regulatory activities for XMT-1536[150](index=150&type=chunk)[151](index=151&type=chunk) Comparison of Results for the Nine Months Ended September 30 (in thousands) | | 2020 | 2019 | Dollar Change | |:---|:---:|:---:|:---:| | Collaboration revenue | $817 | $42,081 | ($41,264) | | Research and development | $44,179 | $42,610 | $1,569 | | General and administrative | $15,988 | $13,072 | $2,916 | | **Net loss** | **($59,203)** | **($11,962)** | **($47,241)** | - The significant decrease in collaboration revenue for the nine-month period was primarily due to the recognition of **$40.0 million** in deferred revenue in Q1 2019 from the terminated Takeda agreements[159](index=159&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2020, the company had cash and cash equivalents of **$270.9 million**[170](index=170&type=chunk) - The company significantly boosted its liquidity in 2020 by raising net proceeds of **$63.0 million** from its ATM facility in April and **$164.0 million** from a follow-on offering in June[166](index=166&type=chunk) - Management believes that currently available funds are sufficient to fund the company's operating plan and cash flow requirements for more than two years[176](index=176&type=chunk) Cash Flow Summary for Nine Months Ended September 30 (in thousands) | | 2020 | 2019 | |:---|:---:|:---:| | Net cash used in operating activities | ($57,377) | ($55,168) | | Net cash provided by (used in) investing activities | $37,215 | ($43,793) | | Net cash provided by financing activities | $228,747 | $97,473 | [Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its short-term investments, with no material impact expected from a 1% rate change - The company's main market risk is interest rate sensitivity on its investments in U.S. Treasury obligations, commercial paper, and corporate bonds[183](index=183&type=chunk) - Due to the short-term duration of the investment portfolio, management believes a **1%** change in interest rates would not materially impact the portfolio's fair market value[183](index=183&type=chunk) [Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[186](index=186&type=chunk) - No changes occurred during the quarter ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[187](index=187&type=chunk) [PART II - OTHER INFORMATION](index=38&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently party to any claim or litigation that is expected to have a material adverse effect on its business[189](index=189&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the company's risk factors since previous disclosures in its Annual Report and Q1 2020 Quarterly Report - There have been no material changes to the company's risk factors since those disclosed in the Annual Report on Form 10-K filed on February 28, 2020, and the Q1 2020 Form 10-Q filed on May 8, 2020[190](index=190&type=chunk) [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the amended loan agreement, officer certifications, and iXBRL financial data - The exhibits filed with this report include the Second Amendment to the Loan and Security Agreement with Silicon Valley Bank, CEO and CFO certifications, and financial statements formatted in Inline eXtensible Business Reportable Language (iXBRL)[191](index=191&type=chunk)

Mersana Therapeutics, Inc. (NASDAQ:MRSN) Q2 2020 Earnings Conference Call August 7, 2020 8:00 AM ET Company Participants Sarah Carmody ??? Executive Director, Investor Relations and Corporate Communications Anna Protopapas ??? President and Chief Executive Officer Tim Lowinger ??? Chief Science and Technology Officer Brian DeSchuytner ??? Senior Vice President Finance and Product Strategy Conference Call Participants Jonathan Chang ??? SVB Leerink Boris Peaker ??? Cowen Tom Shrader ??? BTIG Mike Ulz ??? Bai ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-38129 Mersana Therapeutics, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Delaware 04-3562403 (I. ...