Financial Performance - Mersana reported a net cash used in operating activities of $168.9 million for the full year 2023, with $32.0 million used in the fourth quarter[10][11]. - Collaboration revenue for the fourth quarter of 2023 was $10.7 million, down from $14.7 million in the same period of 2022, while full year collaboration revenue increased to $36.7 million from $26.6 million in 2022[11][15]. - The net loss for the fourth quarter of 2023 was $19.5 million, or $0.16 per share, compared to a net loss of $44.9 million, or $0.44 per share, for the same period in 2022[11][12]. Expenses - Research and development (R&D) expenses for the fourth quarter of 2023 were $21.5 million, significantly lower than $45.7 million in the same quarter of 2022, with full year R&D expenses totaling $148.3 million compared to $173.4 million in 2022[11][15]. - General and administrative (G&A) expenses for the fourth quarter of 2023 were $10.1 million, down from $14.8 million in the same period of 2022, with full year G&A expenses at $59.5 million compared to $57.0 million in 2022[11][15]. - Mersana incurred $8.7 million in restructuring expenses in the second half of 2023, primarily related to severance and contract termination costs[15]. Capital Resources - Mersana continues to expect that its capital resources, totaling $209.1 million as of December 31, 2023, will support its current operating plan commitments into 2026[11][15]. - Total assets as of December 31, 2023, were $226.1 million, down from $334.3 million in 2022, with total stockholders' equity at $36.9 million compared to $92.1 million in the previous year[17]. Clinical Trials - The Phase 1 clinical trial of XMT-1660 is ongoing, with a recent dose escalation to 59 mg/m², and initial clinical data is expected to be disclosed in mid-2024[4][6]. - The Phase 1 clinical trial of XMT-2056 has restarted following the lifting of a clinical hold by the FDA, with plans to advance dose escalation in 2024[5][6].

Financial Data and Key Metrics Changes - The company ended Q3 2023 with approximately $241 million in cash, cash equivalents, and marketable securities, down from approximately $281 million at the end of 2022 [5] - Net cash used in operating activities was approximately $46.1 million for Q3 2023, while collaboration revenue increased to $7.7 million from $5.6 million in the same period of 2022 [14][33] - Research and development expenses decreased to $30.5 million in Q3 2023 from $50.6 million in Q3 2022, primarily due to reduced manufacturing and clinical costs [14][33] - The net loss for Q3 2023 was $41.7 million, compared to a net loss of $59.8 million for the same period in 2022 [33] Business Line Data and Key Metrics Changes - The company is focusing on XMT-1660, developed using the Dolasynthen platform, which is expected to demonstrate advantages over the first-generation ADC platform [3][29] - XMT-2056, the first Immunosynthen ADC candidate, is now reinitiating enrollment after the FDA lifted the clinical hold, with a lower starting dose being implemented [31][32] Market Data and Key Metrics Changes - The company is advancing XMT-1660 in the dose escalation phase of its Phase I trial, with plans to complete dose escalation by the end of the year and dose expansion planned for 2024 [29][30] - The collaboration with Janssen focuses on discovering novel Dolasynthen ADCs for up to three targets, indicating strong market interest [30] Company Strategy and Development Direction - The company is transitioning from a previous business strategy to focus on next-generation platforms, specifically XMT-1660 and XMT-2056, which are seen as having significant potential [39] - The management emphasizes the importance of differentiating their platforms in the competitive landscape, particularly in the B7-H4 space, where they believe their technology can deliver payloads more efficiently [36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's financial position and potential, highlighting the importance of their innovative platforms and strong team [2][3] - The company plans to share more about its outlook for 2024 and key upcoming milestones in January [32] Other Important Information - The company underwent a significant restructuring, including a workforce reduction of approximately 50%, to simplify its cost structure for 2024 [5] - Noncash R&D-related stock-based compensation expense for Q3 2023 was $2.2 million, and general and administrative expenses decreased to $12.9 million from $14.6 million in the same period of 2022 [33] Q&A Session Summary Question: When might we see initial XMT-1660 clinical data? - The company is making good progress in the dose escalation phase and has begun enrolling patients in backfill cohorts [7] Question: Are you changing the enrollment criteria for the STING study? - The primary change is lowering the starting dose, with minimal other changes [10] Question: Can you discuss the HER2 epitope validation for XMT-2056? - The HER2 epitope targeted by XMT-2056 is distinct from those targeted by existing therapies like pertuzumab and Herceptin [23] Question: How is the company differentiating its program in the B7-H4 landscape? - The company believes its platform can deliver payloads more efficiently and avoid severe side effects seen in other ADC programs [36] Question: What does the 2026 cash runway include? - The cash runway guidance is based on current operating plan commitments and does not assume milestone payments from collaborations [38]

[PART I – FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a decrease in total assets and total stockholders' equity from December 31, 2022, to September 30, 2023, primarily driven by a reduction in marketable securities and an increase in accumulated deficit, despite an increase in cash and cash equivalents | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $186,283 | $128,885 | | Short-term marketable securities | $54,703 | $151,827 | | Accounts receivable | $— | $30,000 | | Total current assets | $249,738 | $319,219 | | Total assets | $262,904 | $334,340 | | Total current liabilities | $67,933 | $91,533 | | Total liabilities | $210,709 | $242,283 | | Total stockholders' equity | $52,195 | $92,057 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported a reduced net loss for both the three and nine months ended September 30, 2023, compared to the prior year, driven by increased collaboration revenue and decreased research and development expenses, despite new restructuring expenses | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenue | $7,698 | $5,573 | $26,154 | $11,893 | | Research and development | $30,531 | $50,639 | $126,774 | $127,676 | | General and administrative | $12,894 | $14,573 | $49,409 | $42,158 | | Restructuring expenses | $8,214 | $— | $8,214 | $— | | Total operating expenses | $51,639 | $65,212 | $184,397 | $169,834 | | Net loss | $(41,656) | $(59,811) | $(152,126) | $(159,288) | | Net loss per share (basic and diluted) | $(0.35) | $(0.61) | $(1.33) | $(1.75) | [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from December 31, 2022, to September 30, 2023, primarily due to the accumulated net loss, despite increases in common stock and additional paid-in capital from equity offerings | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Common stock (shares) | 120,548,980 | 105,144,864 | | Additional paid-in capital | $858,999 | $746,889 | | Accumulated deficit | $(806,817) | $(654,691) | | Total stockholders' equity | $52,195 | $92,057 | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash used in operating activities increased significantly, but was offset by a substantial increase in cash provided by investing activities (primarily marketable securities maturities) and continued cash generation from financing activities, resulting in an overall increase in cash and cash equivalents | Cash Flow Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(136,920) | $1,866 | | Net cash provided by (used in) investing activities | $99,735 | $(107,290) | | Net cash provided by financing activities | $94,583 | $111,559 | | Increase in cash, cash equivalents and restricted cash | $57,398 | $6,135 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures and explanations for the condensed consolidated financial statements, covering the company's business, accounting policies, collaboration agreements, fair value measurements, cash and marketable securities, accrued expenses, debt, stockholders' equity, stock-based compensation, net loss per share, commitments, and recent restructuring activities [Note 1. Nature of business and basis of presentation](index=12&type=section&id=Note%201.%20Nature%20of%20business%20and%20basis%20of%20presentation) Mersana Therapeutics is a clinical-stage biopharmaceutical company focused on developing Antibody-Drug Conjugates (ADCs) for cancer, leveraging its Dolasynthen and Immunosynthen platforms. The company has incurred significant net losses since inception, with an accumulated deficit of $806.8 million as of September 30, 2023, and expects to continue incurring operating losses for the foreseeable future - Company is a clinical-stage biopharmaceutical company developing ADCs for cancer, utilizing proprietary Dolasynthen and Immunosynthen platforms[29](index=29&type=chunk) - Key product candidates include XMT-1660 (Dolasynthen ADC in Phase 1) and XMT-2056 (Immunosynthen STING-agonist ADC in Phase 1, clinical hold lifted in October 2023)[30](index=30&type=chunk) - The UpRi program was discontinued following the failure of its Phase 2 UPLIFT clinical trial to meet its primary endpoint, leading to winding down of related development activities[31](index=31&type=chunk) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(41.7) million | $(59.8) million | $(152.1) million | $(159.3) million | | Accumulated Deficit (as of Sep 30, 2023) | | | $(806.8) million | | [Note 2. Summary of significant accounting policies](index=13&type=section&id=Note%202.%20Summary%20of%20significant%20accounting%20policies) The company's unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP, consolidating its wholly-owned subsidiary. Management makes estimates for revenue recognition, accrued expenses, and stock-based awards. The company operates as a single segment and uses a three-level fair value hierarchy for financial instruments, primarily classifying cash equivalents and marketable securities as Level 1 or Level 2 - The company operates and manages its business as a **single operating segment** focused on discovering and developing ADCs[41](index=41&type=chunk) - Fair value measurements are categorized into a three-level hierarchy: **Level 1** for quoted prices in active markets, **Level 2** for observable inputs for similar assets/liabilities, and **Level 3** for unobservable inputs[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - Cash equivalents are highly-liquid investments with original or remaining maturities of **three months or less**, primarily in money market funds, commercial paper, and government agency securities[48](index=48&type=chunk) [Note 3. Collaboration agreements](index=15&type=section&id=Note%203.%20Collaboration%20agreements) The company has significant collaboration agreements with GSK, Janssen, and Merck KGaA, generating revenue from upfront fees, development activities, and milestones. Deferred revenue from these agreements represents substantial unsatisfied performance obligations - GSK Agreement (August 2022) includes a **$100.0 million upfront fee** and a potential **$90.0 million option exercise payment** for XMT-2056[51](index=51&type=chunk)[52](index=52&type=chunk) - Janssen Agreement (February 2022) involved a **$40.0 million upfront payment**, with a revised total transaction price of **$48.0 million** as of September 30, 2023[59](index=59&type=chunk)[65](index=65&type=chunk) - 2022 Merck KGaA Agreement (December 2022) provided a **$30.0 million upfront payment** for Immunosynthen platform ADCs[70](index=70&type=chunk) | Collaboration | Q3 2023 Revenue (in thousands) | Q3 2022 Revenue (in thousands) | 9M 2023 Revenue (in thousands) | 9M 2022 Revenue (in thousands) | | :--- | :--- | :--- | :--- | :--- | | GSK Agreement | $500 | $700 | $1,800 | $700 | | Janssen Agreement | $4,900 | $4,900 | $14,000 | $10,900 | | 2022 Merck KGaA Agreement | $2,300 | $— | $7,900 | $— | | Asana BioSciences (milestone/services) | $— | $— | $2,500 | $300 | | Deferred Revenue (Contract Liabilities) | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | GSK Agreement | $96,200 | $98,000 | | Janssen Agreement | $9,900 | $15,800 | | 2022 Merck KGaA Agreement | $23,100 | $30,000 | | 2014 Merck KGaA Agreement & Supply Agreement (aggregate) | $3,900 | $3,900 | | **Total Deferred Revenue** | **$133,096** | **$147,653** | [Note 4. Fair value measurements](index=20&type=section&id=Note%204.%20Fair%20value%20measurements) The company's assets measured at fair value, primarily cash equivalents and marketable securities, are classified within Level 1 and Level 2 of the fair value hierarchy, indicating valuation based on quoted prices in active markets or observable inputs | Asset Type (in thousands) | September 30, 2023 Total | Level 1 | Level 2 | | :--- | :--- | :--- | :--- | | Money market funds | $137,795 | $137,795 | $— | | U.S. treasury securities | $29,811 | $29,811 | $— | | U.S. government agency securities | $24,892 | $— | $24,892 | | **Total Marketable Securities** | **$54,703** | **$29,811** | **$24,892** | | Asset Type (in thousands) | December 31, 2022 Total | Level 1 | Level 2 | | :--- | :--- | :--- | | Money market funds | $50,471 | $50,471 | $— | | U.S. government agency securities | $9,993 | $— | $9,993 | | **Total Cash Equivalents** | **$60,464** | **$50,471** | **$9,993** | - The carrying value of the company's long-term debt under the New Credit Facility approximated fair value (**Level 2**) as of September 30, 2023, and December 31, 2022[94](index=94&type=chunk) [Note 5. Cash, cash equivalents, and short-term marketable securities](index=21&type=section&id=Note%205.%20Cash,%20cash%20equivalents,%20and%20short-term%20marketable%20securities) The company's total cash, cash equivalents, and restricted cash increased significantly for the nine months ended September 30, 2023, while its marketable securities portfolio decreased, with some unrealized losses attributed to rising market interest rates | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents (beginning of period) | $128,885 | $177,947 | | Cash and cash equivalents (end of period) | $186,283 | $184,082 | | Restricted cash (beginning & end of period) | $478 | $478 | | **Total cash, cash equivalents and restricted cash (end of period)** | **$186,761** | **$184,560** | | Marketable Securities (in thousands) | September 30, 2023 Fair Value | December 31, 2022 Fair Value | | :--- | :--- | :--- | | U.S. treasury securities | $29,811 | $107,810 | | U.S. government agency securities | $24,892 | $44,017 | | **Total** | **$54,703** | **$151,827** | - As of September 30, 2023, the debt security portfolio had **$29.9 million in unrealized losses** due to market interest rate increases, with the company intending and having the ability to hold these securities until recovery[100](index=100&type=chunk) [Note 6. Accrued expenses](index=22&type=section&id=Note%206.%20Accrued%20expenses) Accrued expenses significantly decreased from $43.2 million at December 31, 2022, to $29.3 million at September 30, 2023, primarily due to reductions in accrued clinical, payroll, and manufacturing expenses, partially offset by newly accrued restructuring expenses | Accrued Expense Type (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accrued clinical expenses | $8,544 | $14,822 | | Accrued payroll and related expenses | $7,168 | $11,558 | | Accrued manufacturing expenses | $4,250 | $11,536 | | Accrued restructuring expenses | $4,190 | $— | | Accrued research and non-clinical expenses | $3,062 | $2,767 | | Accrued professional fees | $1,583 | $1,865 | | Accrued other | $524 | $636 | | **Total Accrued Expenses** | **$29,321** | **$43,184** | [Note 7. Debt](index=22&type=section&id=Note%207.%20Debt) The company has drawn $25.0 million under its New Credit Facility as of September 30, 2023, with no additional borrowing amounts available. The company was in compliance with all debt covenants and reported increased interest expense for both the three and nine months ended September 30, 2023, compared to the prior year - The company has drawn **$25.0 million** under the New Credit Facility as of September 30, 2023, with no additional borrowing amounts available[103](index=103&type=chunk) - As of September 30, 2023, the company was in compliance with all covenants under the New Credit Facility[104](index=104&type=chunk) | Interest Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Interest expense related to New Credit Facility | $1,017 | $880 | $3,025 | $2,364 | [Note 8. Stockholders' equity](index=23&type=section&id=Note%208.%20Stockholders'%20equity) The company's common stock authorized shares increased in June 2022. It utilized ATM equity offering programs, with the November 2022 ATM having $55.9 million remaining for sale as of September 30, 2023. All outstanding warrants expired in September 2023 - The number of authorized common stock shares increased from **175,000,000 to 350,000,000** in June 2022[112](index=112&type=chunk) - Under the November 2022 ATM, the company sold **14,208,145 shares** for net proceeds of **$92.2 million** during the nine months ended September 30, 2023, with approximately **$55.9 million remaining unsold**[110](index=110&type=chunk) - All outstanding warrants to purchase common stock expired on September 27, 2023, with none remaining as of September 30, 2023[111](index=111&type=chunk) | Shares Reserved for Issuance | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Stock options | 12,178,126 | 10,051,283 | | Restricted stock units | 4,122,365 | 1,870,791 | | Warrants | — | 22,590 | | **Total** | **16,300,491** | **11,944,664** | [Note 9. Stock-based compensation](index=24&type=section&id=Note%209.%20Stock-based%20compensation) The company's stock-based compensation expense for the nine months ended September 30, 2023, increased to $17.1 million, primarily from stock options and restricted stock units (RSUs). Significant amounts of unrecognized compensation expense remain for unvested options and RSUs - The 2017 Stock Incentive Plan had **864,450 shares available** for future issuance as of September 30, 2023, after an increase of **4,205,794 shares** on January 1, 2023[118](index=118&type=chunk) - During the nine months ended September 30, 2023, **3,972,166 stock options** and **3,982,567 RSUs** were granted[124](index=124&type=chunk)[129](index=129&type=chunk) | Stock-based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Stock options | $3,211 | $3,901 | $11,718 | $11,952 | | Restricted stock units | $694 | $1,365 | $4,647 | $3,832 | | Employee stock purchase plan | $96 | $109 | $686 | $424 | | **Total operating expenses** | **$4,001** | **$5,375** | **$17,051** | **$16,208** | - As of September 30, 2023, there was **$18.7 million of unrecognized stock-based compensation expense** for unvested stock options (weighted-average period of **1.8 years**) and **$15.1 million** for unvested RSUs (weighted-average period of **2.5 years**)[133](index=133&type=chunk) [Note 10. Net loss per share](index=28&type=section&id=Note%2010.%20Net%20loss%20per%20share) Basic and diluted net loss per share were identical for all periods presented because all potentially dilutive securities, such as stock options, unvested RSUs, and warrants, were anti-dilutive due to the company's net loss - Stock options, unvested restricted stock units, and warrants were excluded from the diluted net loss per share calculation because their effect would be anti-dilutive[138](index=138&type=chunk) | Potentially Dilutive Securities Excluded (shares) | September 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Stock options | 12,178,126 | 10,524,780 | | Unvested restricted stock units | 4,122,365 | 1,870,682 | | Warrants | — | 22,590 | | **Total** | **16,300,491** | **12,418,052** | [Note 11. Commitments](index=28&type=section&id=Note%2011.%20Commitments) The company recorded no research and development expense related to non-refundable license payments or development milestones during the three and nine months ended September 30, 2023, in contrast to prior periods - No research and development expense was recorded for non-refundable license payments during the three and nine months ended September 30, 2023[140](index=140&type=chunk) - No research and development expense was recorded for development milestones during the three and nine months ended September 30, 2023[141](index=141&type=chunk) [Note 12. Restructuring](index=29&type=section&id=Note%2012.%20Restructuring) In July 2023, the company initiated a restructuring, including a 50% workforce reduction, following the failure of the UpRi clinical trial. Total restructuring costs incurred to date are $8.2 million, primarily for severance and employee-related costs, with $4.2 million accrued as of September 30, 2023 - On July 27, 2023, the company announced a restructuring plan, including a reduction of approximately **50% of its employee base**, following the discontinuation of the UpRi clinical development program[143](index=143&type=chunk) - The company expects to incur approximately **$7 million** for severance and benefits and **$2 million** for contract terminations related to the restructuring[144](index=144&type=chunk) | Restructuring Costs (in thousands) | Cumulative Costs to Date | | :--- | :--- | | Severance & Employee Related Costs | $6,425 | | Contract Termination and Other Costs | $1,789 | | **Total Costs** | **$8,214** | - Accrued restructuring costs totaled **$4.19 million** as of September 30, 2023[145](index=145&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and liquidity. It highlights the strategic shift to focus on next-generation ADC platforms following the discontinuation of the UpRi program, the associated restructuring, and the financial impact of these changes, including revenue from collaborations and ongoing operating losses [Overview](index=31&type=section&id=Overview) Mersana Therapeutics, a clinical-stage biopharmaceutical company, is focusing on its next-generation ADC platforms, Dolasynthen and Immunosynthen, after discontinuing the UpRi program due to a failed Phase 2 trial. This strategic shift led to a 50% workforce reduction and continued development of XMT-1660 and XMT-2056, despite significant cumulative operating losses - The company is a clinical-stage biopharmaceutical company focused on developing ADCs for cancer using proprietary Dolasynthen and Immunosynthen platforms[150](index=150&type=chunk) - The Phase 2 UPLIFT clinical trial of UpRi did not meet its primary endpoint, leading to the discontinuation of UpRi-related development activities and termination of Phase 3 trials[152](index=152&type=chunk)[153](index=153&type=chunk) - A restructuring plan was announced on July 27, 2023, involving a reduction of approximately **50% of the employee base**, expected to be substantially complete by the end of 2023[153](index=153&type=chunk) - Development continues for XMT-1660 (Dolasynthen ADC, Phase 1, Fast Track designation for TNBC) and XMT-2056 (Immunosynthen STING-agonist ADC, Phase 1, clinical hold lifted in October 2023)[154](index=154&type=chunk)[155](index=155&type=chunk) - The company incurred a net loss of **$152.1 million** for the nine months ended September 30, 2023, and had an accumulated deficit of **$806.8 million** as of that date[159](index=159&type=chunk) [Financial Operations Overview](index=32&type=section&id=Financial%20Operations%20Overview) The company's revenue is entirely derived from strategic collaborations, with significant contributions from new agreements with Merck KGaA and Janssen. Operating expenses include substantial R&D costs for product candidates and platforms, general and administrative expenses, and new restructuring expenses from the workforce reduction. The company anticipates continued operating losses as it advances its pipeline - All revenue to date has been generated from strategic collaborations, with no product sales[158](index=158&type=chunk) | Collaboration Revenue (9M 2023, in millions) | | :--- | :--- | | 2022 Merck KGaA Agreement | $7.9 | | Janssen Agreement | $14.0 | | GSK Agreement | $1.8 | | Asana BioSciences | $2.5 | - Research and development expenses include employee-related costs, third-party research/preclinical/manufacturing/clinical trial costs, laboratory supplies, facility costs, and upfront/milestone payments[166](index=166&type=chunk) | External R&D Expenses (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | UpRi external costs | $45,208 | $48,023 | | XMT-1660 external costs | $11,241 | $10,879 | | XMT-2056 external costs | $4,614 | $2,334 | | Preclinical and discovery costs | $4,062 | $13,265 | | XMT-1592 external costs | $434 | $3,198 | | Internal research and development costs | $61,215 | $49,977 | | **Total research and development costs** | **$126,774** | **$127,676** | - Restructuring expenses of **$8.2 million** were recognized during the three and nine months ended September 30, 2023, primarily for severance and contract termination costs[175](index=175&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) For the three months ended September 30, 2023, collaboration revenue increased, and operating expenses decreased, leading to a reduced net loss. For the nine months, collaboration revenue also increased, while R&D expenses slightly decreased, and G&A expenses increased, resulting in a lower net loss compared to the prior year | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Dollar Change | | :--- | :--- | :--- | :--- | | Collaboration revenue | $7,698 | $5,573 | $2,125 | | Research and development | $30,531 | $50,639 | $(20,108) | | General and administrative | $12,894 | $14,573 | $(1,679) | | Restructuring expenses | $8,214 | $— | $8,214 | | Net loss | $(41,656) | $(59,811) | $18,155 | | Total other income (expense), net | $2,285 | $(172) | $2,457 | - The decrease in R&D expense for the three months was primarily due to a **$14.8 million decrease** in UpRi activities and a **$1.8 million decrease** in XMT-2056 activities[184](index=184&type=chunk) | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Dollar Change | | :--- | :--- | :--- | :--- | | Collaboration revenue | $26,154 | $11,893 | $14,261 | | Research and development | $126,774 | $127,676 | $(902) | | General and administrative | $49,409 | $42,158 | $7,251 | | Restructuring expenses | $8,214 | $— | $8,214 | | Net loss | $(152,126) | $(159,288) | $7,162 | | Total other income (expense), net | $6,117 | $(1,347) | $7,464 | - The decrease in R&D expense for the nine months was primarily due to reduced manufacturing for XMT-1660/Dolasynthen (**$3.1 million**), UpRi (**$2.8 million**), and XMT-2056 (**$1.8 million**), partially offset by increased employee compensation and consulting fees prior to restructuring[188](index=188&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily supported by strategic collaborations, equity offerings, and debt financing. As of September 30, 2023, it held $241.0 million in cash, cash equivalents, and marketable securities, which are projected to fund operations into 2026. Future capital requirements are expected to increase with ongoing R&D and potential commercialization efforts - Operations are financed primarily through strategic collaborations, private placements of preferred stock, and public offerings of common stock, including ATM equity offering programs[192](index=192&type=chunk) - During the nine months ended September 30, 2023, the November 2022 ATM generated **$92.2 million in net proceeds** from **14.2 million shares sold**, with **$55.9 million remaining available**[195](index=195&type=chunk) - As of September 30, 2023, the company had **$241.0 million** in cash, cash equivalents, and marketable securities, believed to be sufficient to fund operations into **2026**[197](index=197&type=chunk)[204](index=204&type=chunk) | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(136,920) | $1,866 | | Net cash provided by (used in) investing activities | $99,735 | $(107,290) | | Net cash provided by financing activities | $94,583 | $111,559 | | **Increase in cash, cash equivalents and restricted cash** | **$57,398** | **$6,135** | [Critical Accounting Estimates](index=43&type=section&id=Critical%20Accounting%20Estimates) There were no material changes to the company's critical accounting estimates as reported in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to critical accounting estimates were reported since the Annual Report on Form 10-K for the year ended December 31, 2022[211](index=211&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk due to its investments in cash equivalents and marketable securities, and its floating-rate credit facility. It currently has no material exposure to foreign currency exchange rate risks - The company is exposed to interest rate risk on its **$241.0 million** in cash, cash equivalents, and marketable securities, primarily invested in U.S. Treasury obligations, commercial paper, corporate bonds, and U.S. government agency securities[212](index=212&type=chunk) - The New Credit Facility has a floating interest rate (greater of **8.50%** or prime rate + **5.25%**) on its **$25.0 million** outstanding balance, but a potential change in rates is deemed immaterial to operations[213](index=213&type=chunk) - The company is not currently exposed to market risk related to changes in foreign currency exchange rates[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023, and reported no material changes in internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023[216](index=216&type=chunk) - No change in internal control over financial reporting occurred during the quarter ended September 30, 2023, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[217](index=217&type=chunk) [PART II - OTHER INFORMATION](index=45&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings and does not anticipate any existing claims to have a material adverse effect on its business - The company is not currently party to any material legal proceedings[218](index=218&type=chunk) - The company does not believe any existing claims or litigation would individually or in the aggregate have a material adverse effect on its business[218](index=218&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks and uncertainties that could significantly impact the company's business, financial condition, and operational results. These risks span across drug development and regulatory approval, financial stability, reliance on third parties, commercialization challenges, intellectual property protection, legal and regulatory compliance, general business operations, and factors affecting common stock [Risks Related to Development and Approval of Our ADC Product Candidates](index=45&type=section&id=Risks%20Related%20to%20Development%20and%20Approval%20of%20Our%20ADC%20Product%20Candidates) The company faces high risks in developing its limited number of ADC product candidates, XMT-1660 and XMT-2056, given the recent discontinuation of the UpRi program due to trial failure and a prior clinical hold on XMT-2056. Adverse events, trial delays, and the inherent uncertainty of preclinical and clinical results pose significant threats to regulatory approval and commercial viability - XMT-1660 and XMT-2056 are currently the company's only product candidates in clinical trials, increasing business risk if either fails[220](index=220&type=chunk) - The UpRi program was discontinued in July 2023 after its Phase 2 UPLIFT clinical trial failed to meet its primary endpoint, and related Phase 3 trials were terminated[220](index=220&type=chunk)[222](index=222&type=chunk) - The Phase 1 clinical trial of XMT-2056 was on clinical hold from March to October 2023 due to a fatal serious adverse event (SAE), with enrollment resuming at a lowered starting dose[220](index=220&type=chunk)[223](index=223&type=chunk) - Drug discovery and development is a complex, time-consuming, and expensive process with a high rate of failure; promising early results are not predictive of later-stage success[221](index=221&type=chunk)[222](index=222&type=chunk) [Risks Related to our Financial Position and Need for Additional Capital](index=51&type=section&id=Risks%20Related%20to%20our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) The company has a history of net losses and a substantial accumulated deficit, with no product sales revenue to date. It requires significant additional financing to fund ongoing R&D and potential commercialization, and failure to obtain this capital could force delays or termination of development efforts. Future equity or debt financing may lead to stockholder dilution or restrictive covenants - The company has incurred net losses since inception, with a **$41.7 million net loss** for the three months ended September 30, 2023, and an accumulated deficit of **$806.8 million**[244](index=244&type=chunk) - No revenue has been generated from product sales to date, and none is expected in the foreseeable future[244](index=244&type=chunk) - Substantial additional financing will be required to achieve goals, and a failure to obtain necessary capital could force delays, limits, reductions, or termination of product development or commercialization efforts[251](index=251&type=chunk) - Current cash, cash equivalents, and marketable securities of **$241.0 million** (as of September 30, 2023) are believed to be sufficient to fund operations into **2026**, but these estimates are subject to change[254](index=254&type=chunk) [Risks Related to Our Reliance on Third Parties](index=54&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) The company heavily relies on third-party manufacturers, suppliers, and strategic collaborators for preclinical and clinical development, manufacturing, and revenue generation. This reliance introduces risks such as supply limitations, quality control issues, non-compliance with regulations, and potential non-performance or termination of agreements by collaborators, which could severely impact product development and financial performance - The company relies on third-party contract manufacturers for preclinical and clinical trial product supplies and lacks internal commercial-scale manufacturing capabilities[257](index=257&type=chunk) - Reliance on third parties to conduct preclinical studies and clinical trials for product candidates means less direct control over conduct, timing, and completion, with risks of delays or unsuccessful trials[261](index=261&type=chunk)[263](index=263&type=chunk) - Strategic collaborations (e.g., with GSK, Janssen, Merck KGaA) are crucial for research, development, and commercialization, but collaborators may not perform as expected, terminate agreements, or pursue competing products[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) - A substantial portion of the company's revenue has historically come from a small number of collaborators, making it vulnerable to the loss or non-performance of any of these partners[269](index=269&type=chunk)[270](index=270&type=chunk) [Risks Related to Commercialization of Our ADC Product Candidates](index=58&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Our%20ADC%20Product%20Candidates) Commercial success of approved ADC product candidates is highly dependent on market acceptance by physicians, patients, and payors, which can be influenced by efficacy, safety, and cost. The company faces uncertainties regarding target patient populations, challenges in establishing its own sales and marketing infrastructure, and significant competition from other biotechnology and pharmaceutical companies, as well as potential price controls and biosimilar competition - Future commercial success depends on significant market acceptance of approved ADC product candidates among physicians, patients, and health care payors, influenced by efficacy, safety, cost, and alternative treatments[273](index=273&type=chunk)[274](index=274&type=chunk) - The precise incidence and prevalence of target patient populations for drug candidates are uncertain, potentially leading to smaller addressable markets than estimated[277](index=277&type=chunk) - The company lacks a sales or marketing infrastructure and experience, and building one is expensive and time-consuming, with risks of delays or reduced profitability if relying on third parties[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[283](index=283&type=chunk) - Sales of approved products will depend on coverage and reimbursement by third-party payors, with cost-control initiatives and adverse pricing limitations potentially hindering profitability[285](index=285&type=chunk)[288](index=288&type=chunk) - The biotechnology and biopharmaceutical industries are highly competitive, with numerous companies developing ADCs and other cancer therapies, many possessing greater financial resources and expertise[290](index=290&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk) [Risks Related to Our Intellectual Property](index=63&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) The company's success hinges on its ability to obtain, maintain, and enforce intellectual property rights globally, which is uncertain due to complex legal and factual considerations. Risks include patents failing to issue, being challenged or invalidated, difficulties in detecting and proving infringement, and potential loss of rights if license obligations are breached. Trade secret protection is also challenging to enforce, and third-party claims of misappropriation or infringement could lead to costly litigation and hinder development efforts - The issuance, scope, validity, enforceability, and commercial value of the company's patent rights are highly uncertain, and patents may be challenged or found invalid/unenforceable[298](index=298&type=chunk)[299](index=299&type=chunk) - Failure to comply with obligations under license or collaboration agreements could result in damages and loss of intellectual property rights essential for developing and protecting ADC product candidates[306](index=306&type=chunk)[307](index=307&type=chunk) - The company may become involved in expensive, time-consuming, and potentially unsuccessful lawsuits to protect or enforce its intellectual property or to defend against third-party infringement claims[312](index=312&type=chunk)[314](index=314&type=chunk)[317](index=317&type=chunk) - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may not offer the same extent of protection as U.S. laws, and enforcement can be difficult[319](index=319&type=chunk)[320](index=320&type=chunk) - Confidentiality agreements may not prevent unauthorized disclosure of trade secrets and other proprietary information, potentially impairing the company's competitive position[323](index=323&type=chunk)[324](index=324&type=chunk) [Risks Related to Regulatory Approval and Other Legal Compliance Matters](index=72&type=section&id=Risks%20Related%20to%20Regulatory%20Approval%20and%20Other%20Legal%20Compliance%20Matters) The regulatory approval process for product candidates is expensive, lengthy, and uncertain, with no guarantee of success in the U.S. or abroad. The company faces risks from ongoing legal challenges (e.g., mifepristone litigation), post-approval regulatory compliance, potential limitations of expedited designations (e.g., Fast Track, Orphan Drug), and disruptions from government agencies. Compliance with extensive healthcare, anti-corruption, and data privacy laws is critical, with non-compliance potentially leading to substantial penalties and operational disruptions - The regulatory approval process is lengthy, expensive, and uncertain, with no guarantee of obtaining marketing approval for product candidates in the United States or other countries[333](index=333&type=chunk)[334](index=334&type=chunk) - Ongoing litigation challenging FDA approval of mifepristone could create regulatory uncertainty, potentially delaying or undermining the development, approval, and distribution of new drug products[336](index=336&type=chunk)[337](index=337&type=chunk) - Any product candidate that obtains marketing approval will be subject to ongoing regulatory requirements and review, with potential for restrictions or withdrawal from the market if compliance fails[345](index=345&type=chunk)[347](index=347&type=chunk) - The company is subject to extensive federal and state healthcare, anti-corruption (e.g., FCPA), data privacy (e.g., HIPAA, CCPA, GDPR), and consumer protection laws, with non-compliance potentially leading to substantial penalties[377](index=377&type=chunk)[378](index=378&type=chunk)[380](index=380&type=chunk)[398](index=398&type=chunk)[410](index=410&type=chunk) - Current and future healthcare legislation (e.g., ACA, IRA) may increase the difficulty and cost of obtaining reimbursement for product candidates, impose price controls, and adversely affect future profitability[381](index=381&type=chunk)[389](index=389&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) [Risks Related to our Business and Industry](index=92&type=section&id=Risks%20Related%20to%20our%20Business%20and%20Industry) The company's ability to succeed depends on attracting and retaining key personnel, a challenge exacerbated by its recent 50% workforce reduction, which may not yield anticipated savings and could disrupt operations. Managing growth, product liability lawsuits, and potential disruptions from system failures or serious disasters also pose significant risks to business continuity and financial stability - The company's ability to compete depends on attracting and retaining highly qualified managerial, scientific, and medical personnel, a challenge intensified by intense competition and recent executive departures[419](index=419&type=chunk)[420](index=420&type=chunk) - The July 2023 restructuring, involving a **50% workforce reduction**, may not result in anticipated savings, could incur greater costs, disrupt operations, and harm the ability to attract and retain talent[421](index=421&type=chunk)[422](index=422&type=chunk) - The company faces an inherent risk of product liability lawsuits from clinical testing and potential commercialization, which could result in substantial liabilities, limit commercialization, and damage its reputation[424](index=424&type=chunk)[425](index=425&type=chunk) - Internal information technology systems and those of third-party collaborators are vulnerable to security breaches and service interruptions, potentially leading to material disruptions, data loss, and increased costs[429](index=429&type=chunk)[431](index=431&type=chunk) [Risks Related to Our Common Stock](index=95&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) The company's stock price has been and may continue to be volatile, influenced by clinical trial results, regulatory actions, and market conditions. The company does not expect to pay cash dividends, and its corporate governance provisions and Delaware law may discourage acquisitions, potentially limiting stockholder returns - The company's stock price has been and may continue to be volatile, influenced by factors such as clinical trial results, regulatory developments, financial performance, and general market conditions[432](index=432&type=chunk)[435](index=435&type=chunk) - The company does not anticipate paying any cash dividends in the foreseeable future, requiring investors to rely on stock price appreciation for returns[436](index=436&type=chunk) - Provisions in the company's amended certificate of incorporation, by-laws, and Delaware law (Section 203 DGCL) may have anti-takeover effects, discouraging acquisitions even if beneficial to stockholders[437](index=437&type=chunk)[439](index=439&type=chunk)[441](index=441&type=chunk) [General Risk Factors](index=100&type=section&id=General%20Risk%20Factors) General risks include the potential for the company's 'smaller reporting company' status to deter investors, adverse impacts from unfavorable global economic or geopolitical conditions (e.g., inflation, conflicts), and disruptions from serious disasters that could affect facilities, operations, and financial stability - As a 'smaller reporting company,' the company may take advantage of certain exemptions from reporting requirements, which could make its common stock less attractive to investors[453](index=453&type=chunk)[454](index=454&type=chunk) - Unfavorable global economic or geopolitical conditions, including inflation, interest rates, and international conflicts, could adversely affect the company's business, financial condition, or results of operations[455](index=455&type=chunk)[456](index=456&type=chunk) - The company and its third-party dependencies are vulnerable to serious disasters (e.g., floods, fires, epidemics), which could disrupt operations, increase costs, and harm research and development programs[457](index=457&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds were reported[459](index=459&type=chunk) [Item 6. Exhibits](index=102&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate organizational documents, amendments to collaboration agreements, executive employment-related documents, and various certifications - Exhibits include the Fifth Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, amendments to the Janssen collaboration agreement, and executive retirement/offer letters[461](index=461&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350) are included[461](index=461&type=chunk) [Signatures](index=103&type=section&id=Signatures) The report is duly signed by Martin Huber, President and Chief Executive Officer, and Brian DeSchuytner, SVP, Chief Operating Officer and Chief Financial Officer, on November 7, 2023 - The Quarterly Report on Form 10-Q was signed by Martin Huber, President and Chief Executive Officer, and Brian DeSchuytner, SVP, Chief Operating Officer and Chief Financial Officer, on November 7, 2023[467](index=467&type=chunk)

Financial Performance - For the six months ended June 30, 2023, the company reported a net loss of $110.5 million, compared to a net loss of $99.5 million for the same period in 2022, resulting in an accumulated deficit of $765.2 million as of June 30, 2023[160]. - Net loss for Q2 2023 was $54.31 million, compared to a net loss of $52.22 million in Q2 2022, reflecting a decrease of $2.09 million[178]. - Total research and development costs rose to $48.97 million in Q2 2023 from $41.23 million in Q2 2022, an increase of $7.74 million[178]. - General and administrative expenses increased by $3.38 million from $14.80 million in Q2 2022 to $18.18 million in Q2 2023, primarily due to higher employee compensation[182]. - Research and development expenses for the six months ended June 30, 2023, increased by $19.21 million to $96.24 million from $77.04 million in the same period of 2022[187]. - Collaboration revenue for the six months ended June 30, 2023, increased by $12.14 million to $18.46 million from $6.32 million in the same period of 2022[186]. - Collaboration revenue increased by $6.4 million from $4.3 million in Q2 2022 to $10.7 million in Q2 2023, driven by increases from the Janssen Agreement and Merck KGaA Agreement[179]. - Total other income (expense), net improved by $5.01 million from $(1.18) million in the six months ended June 30, 2022, to $3.83 million in the same period of 2023[191]. Research and Development - The company is winding down development activities related to UpRi after the Phase 2 UPLIFT trial did not meet its primary endpoint, which was an objective response rate (ORR) in the NaPi2b-positive population[153][154]. - The company is currently enrolling patients in a Phase 1 trial for XMT-1660, which has received Fast Track designation from the FDA for advanced or metastatic triple-negative breast cancer[155]. - XMT-2056, another ADC candidate, is currently on clinical hold due to a Grade 5 serious adverse event, and the company is working to address this hold with the FDA[156]. - The company has entered into a global collaboration with GSK for the co-development and commercialization of XMT-2056, providing GSK with an exclusive option[158]. - The company has established strategic collaborations with Janssen and Merck KGaA for the development of additional ADC product candidates[158]. - Significant external costs for research and development include $19.25 million for UpRi and $6.90 million for XMT-1660 in Q2 2023[172]. - The company expects to incur significant research and development expenses over the next several years for clinical development and manufacturing of XMT-1660 and other product candidates[174]. Cash Flow and Financing - As of June 30, 2023, the company had cash, cash equivalents, and marketable securities totaling $286.6 million[198]. - Net cash used in operating activities for the six months ended June 30, 2023, was $90.8 million, compared to $52.7 million for the same period in 2022[200]. - Net cash used in investing activities decreased significantly to $4.0 million in the first half of 2023 from $90.8 million in the same period of 2022[201]. - Net cash provided by financing activities was $94.7 million for the six months ended June 30, 2023, compared to $100.9 million in 2022[202]. - As of June 30, 2023, approximately $55.9 million remained unsold and available for sale under the November 2022 ATM equity offering program[195]. - The New Credit Facility has an outstanding balance of $25.0 million as of June 30, 2023, with interest rates sensitive to changes in the prime rate[212]. - The company believes its available funds will be sufficient to support its operating plan commitments into 2026[204]. Future Outlook - The company expects cash expenditures to increase due to ongoing research, development, and clinical trials for product candidates[203]. - The company anticipates significant commercialization expenses if marketing approval is obtained for any product candidates[203]. - Future capital requirements will depend on various factors, including the progress of drug discovery and clinical trials[205]. - The company has incurred significant cumulative operating losses since inception, with expectations to continue incurring significant expenses over the next several years[160]. - The company is eligible to earn milestone payments under collaboration agreements with GSK, Janssen, Merck KGaA, and Asana Biosciences, contingent on successful development activities[198].

Financial Data and Key Metrics Changes - The company ended Q1 2023 with approximately $274 million in cash, cash equivalents, and marketable securities, and has a line of credit available [5] - General and administrative expenses for Q1 2023 were $18.3 million, up from $12.8 million in Q1 2022, primarily due to increases in medical affairs and pre-commercial activities [6] - Net loss for Q1 2023 was $56.2 million compared to a net loss of $47.3 million for the same period in 2022 [6] - Research and development expenses for Q1 2023 were $47.3 million, compared to $35.8 million in Q1 2022, driven by higher manufacturing and clinical costs related to UpRi [81] Business Line Data and Key Metrics Changes - The UPLIFT trial is a single-arm registration trial in platinum-resistant ovarian cancer, with rapid enrollment of approximately 270 patients [57] - The UPGRADE-A trial is a Phase 1 combination trial of UpRi with carboplatin, which has completed dose escalation and is moving into dose expansion [62] Market Data and Key Metrics Changes - The company is focusing on the unmet medical need in platinum-resistant ovarian cancer, with a significant patient population that is heavily pretreated [57][60] - The UPLIFT trial aims to exclude the 12% objective response rate for single-agent chemotherapy from the 95% confidence interval, indicating a high bar for efficacy [61] Company Strategy and Development Direction - The company is positioning UpRi as a foundational medicine for ovarian cancer, with plans for potential commercialization following topline data readout and a BLA submission [58][71] - The strategy includes establishing partnerships for UpRi in Europe and other regions globally, recognizing the concentrated nature of the European market [24][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the robust activity seen in the expansion cohort of UpRi and the significant unmet medical need for new agents in ovarian cancer [87] - The company anticipates sharing topline data from the UPLIFT trial mid-year, with a potential BLA submission planned for around the end of the year [82] Other Important Information - The company is working to ensure that diagnostic tests are available on day one of product launch, emphasizing the importance of NaPi2b as a biomarker [121] - The FDA placed a clinical hold on the Phase 1 trial of XMT-2056 due to a serious adverse event, which the company is addressing [103] Q&A Session Summary Question: How does the recent MIRASOL results impact your thinking on the UpRi opportunity and strategy? - Management indicated that they expect to complete dose escalation by the end of the year and are excited about the program, viewing it as a great target for an ADC [11] Question: Will you report data in the overall patient population for the UPLIFT readout? - Management confirmed that they expect to share data not only in the NaPi2b positive population but also in the overall population as a key secondary endpoint [91] Question: What are your expectations for the UPGRADE-A data? - The primary focus will be on safety, with efficacy data presented as available, recognizing that safety is the primary concern in a Phase 1 study [113]

Financial Performance - For the three months ended March 31, 2023, the net loss was $56.2 million, compared to $47.3 million for the same period in 2022, with an accumulated deficit of $710.9 million as of March 31, 2023[157]. - Collaboration revenue increased by $5.8 million, from $2.0 million in Q1 2022 to $7.8 million in Q1 2023, driven by $3.1 million from the Merck KGaA Agreement and $2.5 million from a milestone with Asana Biosciences[178]. - Net cash used in operating activities was $29.0 million in Q1 2023, compared to $8.0 million in Q1 2022, reflecting a net loss of $56.2 million[192]. - Total other income (expense), net improved by $2.3 million to $1.6 million in Q1 2023, primarily due to increased interest income from marketable securities[183]. Research and Development - The company expects to continue incurring significant expenses and operating losses over the next several years, particularly related to ongoing clinical development and manufacturing activities for UpRi and XMT-1660[158]. - Research and development expenses are expected to increase significantly as the company progresses its clinical development programs[167]. - Research and development expenses included $22.1 million in internal costs and $25.2 million in external costs for various product candidates in Q1 2023[171]. - The company expects an increase in research and development expenses as it continues clinical development for UpRi and XMT-1660[173]. - UpRi is currently being evaluated in a registrational trial (UPLIFT) with approximately 270 patients enrolled, and top-line data is expected in mid-2023[150]. - XMT-1660 has received Fast Track designation from the FDA for the treatment of advanced or metastatic triple-negative breast cancer, with patient dosing initiated in August 2022[151]. - XMT-2056's Phase 1 trial was placed on clinical hold by the FDA due to a Grade 5 serious adverse event, which is currently under investigation[153]. Financial Resources and Funding - Cash, cash equivalents, and marketable securities totaled $273.9 million as of March 31, 2023[189]. - The company has drawn $25 million from its New Credit Facility as of March 31, 2023, which provides up to $100 million in credit[188]. - The company has the option to borrow an additional $15 million under the New Credit Facility until June 30, 2023[196]. - The company plans to finance cash needs through strategic collaborations, licensing arrangements, equity offerings, and debt financings[198]. - The company may need to rely on additional financing to achieve business objectives, as substantial product revenues are not expected for many years[197]. - The company anticipates that its financial resources will be adequate to support operations into the second half of 2024, although this is subject to risks and uncertainties[196]. Operational Expenses - Total research and development costs rose to $47.3 million in Q1 2023, up $11.5 million from $35.8 million in Q1 2022[180]. - General and administrative expenses increased by $5.5 million, from $12.8 million in Q1 2022 to $18.3 million in Q1 2023, primarily due to higher consulting and professional services costs[182]. - The company expects its cash expenditures to increase due to ongoing research, development, and commercialization efforts for its product candidates[195]. Legal and Contractual Obligations - There were no material changes to the company's contractual obligations as reported in the Annual Report for the year ended December 31, 2022[200]. - The company is not currently party to any material legal proceedings that could adversely affect its business[209].

UpRi (Upifitamab Rilsodotin) Development - Mersana expects top-line data from the registrational UPLIFT trial in platinum-resistant ovarian cancer in mid-2023, with a potential BLA submission targeted around the end of 2023[3],[19] - The ongoing UP-NEXT Phase 3 trial in recurrent platinum-sensitive ovarian cancer has the potential to support global registrations[7] - Mersana initiated a Phase 3 UP-NEXT trial and is conducting the UPGRADE-A Phase 1 combo trial in platinum-sensitive ovarian cancer[15],[7] - In a prior phase 1b clinical trial, 67% of patients with NaPi2b-positive ovarian cancer had a target lesion reduction from baseline[76] - In the same trial, the ORR in the NaPi2b-positive population in dose group 36 was 39%[76] - Approximately 58.9% NaPi2b positivity (TPS≥75) rate in 397 ovarian cancer tumor samples[71] Pipeline and Platform Innovation - Mersana's Dolasynthen platform is utilized for XMT-1660, and Janssen collaboration[13] - Mersana's Immunosynthen platform is utilized for XMT-2056 (GSK option), XMT-2068, XMT-2175, Merck KGaA, Darmstadt, Germany collaboration[13] - XMT-2056 targets a novel HER2 epitope and has received FDA Orphan Drug designation for gastric cancer[7],[40] - XMT-1660 has been granted Fast Track designation in the United States for advanced or metastatic triple negative breast cancer (TNBC)[12],[107] Business Development and Financials - Mersana secured collaborations in 2022, including $170 million in upfront payments and over $3 billion in potential milestones[3] - Collaborations include Janssen ($40 million upfront, >$1 billion in potential milestones + royalties), Merck KGaA, Darmstadt, Germany ($30 million upfront, up to $800 million in potential milestones + royalties), and GSK ($100 million upfront, up to $1.3 billion in potential payments + royalties/profit share)[11],[12],[15],[68] - Capital resources are expected to support operating plan commitments into the second half of 2024[12]

Financial Data and Key Metrics Changes - The company ended 2022 with approximately $281 million in cash, cash equivalents, and marketable securities, up from $178 million at the end of 2021 [33] - Research and development expenses for Q4 2022 were $45.7 million compared to $37.4 million for the same period in 2021, primarily due to higher manufacturing and clinical costs [34] - The net loss for Q4 2022 was $44.9 million, compared to a net loss of $49 million for the same period in 2021 [55] Business Line Data and Key Metrics Changes - The company advanced enrollment in the UP-NEXT Phase 3 clinical trial of UpRi as a monotherapy maintenance treatment in recurrent platinum-sensitive ovarian cancer [21] - The UPLIFT trial has enrolled approximately 270 patients, with a primary endpoint of objective response rate (ORR) [25] - In the dose expansion trial, UpRi generated an ORR of 34% in NaPi2b positive patients with a duration of response of approximately five months [27] Market Data and Key Metrics Changes - The company entered into three new collaborations in 2022, including agreements with Janssen, GSK, and Merck KGaA, indicating a high level of interest in antibody-drug conjugates (ADCs) [23] - Collaboration revenue for Q4 2022 was $14.7 million, compared to an immaterial amount for the same period in 2021, primarily due to the Janssen and GSK agreements [54] Company Strategy and Development Direction - The company aims to solidify its role as a leader in the ADC space and is focused on advancing its clinical pipeline and business development [20] - Plans for 2023 include significant advancements in UP-NEXT enrollment and reporting interim data from UPGRADE-A [37] - The company is evaluating new collaboration opportunities to expand the reach of its platforms and generate non-dilutive capital [37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the progress made in 2022 and highlighted the potential for multiple significant milestones in 2023 [20][56] - The company is preparing for the top-line data readout from UPLIFT in mid-2023, with plans to file a Biologics License Application (BLA) if results are positive [56] Other Important Information - The company received a $30 million upfront payment from Merck and is eligible for up to $800 million in development, regulatory, and commercial milestones [14] - General and administrative expenses for Q4 2022 were $14.8 million, up from $10.7 million in the same period in 2021, primarily due to increased consulting and professional fees [16] Q&A Session Summary Question: What are the expectations for duration of response for UPLIFT? - Management believes that a duration of response of five months is clinically meaningful based on discussions with clinical investigators [44] Question: How does the company view the bar to beat the maintenance for UP-NEXT? - The best comparison is with niraparib in the NOVA study, which demonstrated a PFS of approximately 4.5 months in the placebo arm [77] Question: Will the FDA consider UP-NEXT data when reviewing UPLIFT? - Management speculated that the FDA may look at UP-NEXT data, but emphasized that UP-NEXT is in a different line population compared to UPLIFT [69] Question: What data will be available when UPLIFT results are disclosed? - The company expects to disclose overall response rate, safety, and duration of response metrics after major medical conferences in June [70][71] Question: What other companies are pursuing the B7-H4 target? - At least two other companies are working on the B7-H4 target, including Seattle Genetics and AstraZeneca, with the company differentiating itself through its Dolasynthen platform [73]

Table of Contents UNITED STATES OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-38129 Mersana Therapeutics, Inc. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022. Indicate by check mark if the registrant is not required to file reports pursuant ...

Financial Data and Key Metrics Changes - The company ended the quarter with $290 million in cash, cash equivalents, and marketable securities, with an additional $35 million available through a line of credit [19] - Collaboration revenue for Q3 2022 was $5.6 million, a significant increase from an immaterial amount in the same period of 2021, attributed to agreements with Janssen and GSK [21] - Research and Development expenses for Q3 2022 were $50.6 million, up from $35.3 million in Q3 2021, driven by costs related to UpRi antibody manufacturing and increased clinical costs [22] - General and Administrative expenses for Q3 2022 were $14.6 million, compared to $10.1 million in Q3 2021, primarily due to increased consulting fees and headcount [23] - The net loss for Q3 2022 was $59.8 million, or $0.61 per share, compared to a net loss of $45.5 million, or $0.63 per share in Q3 2021 [23][24] Business Line Data and Key Metrics Changes - The UPLIFT trial in platinum-resistant ovarian cancer was fully enrolled within one year, with approximately 270 patients enrolled, exceeding initial targets [7][13] - The UP-NEXT trial is currently enrolling patients with NaPi2b-positive tumors, aiming for approximately 350 patients worldwide [14] - The company has initiated a Phase 1 trial for XMT-1660, targeting B7-H4 in various cancers, and expects to begin patient dosing for XMT-2056 later this quarter [10][18] Market Data and Key Metrics Changes - The company noted a significant unmet need in the platinum-sensitive recurrent space, with ongoing excitement from investigators regarding additional treatment options [42] - The prevalence of NaPi2b high patients is substantial, with data indicating 59% to 64% of patients in relevant studies [48] Company Strategy and Development Direction - The company aims to leverage its differentiated platforms for expanding its pipeline through collaborations, as demonstrated by recent agreements with Janssen and GSK [10][20] - The focus remains on advancing clinical trials and generating data, with expectations for a transformative 2023 highlighted by potential BLA submissions [11][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the progress made across key areas, including the completion of enrollment in UPLIFT and the initiation of new clinical trials [11][25] - The company anticipates a robust top-line data readout in mid-2023, with potential BLA submission by the end of next year [8][11] Other Important Information - The company received Fast Track designation from the FDA for XMT-1660 for treating advanced or metastatic triple-negative breast cancer [10] - The management emphasized the importance of collaborations as a core part of the company's strategy moving forward [11][20] Q&A Session Summary Question: Clarification on UPLIFT study enrollment - Management confirmed that the minimum target number of NaPi2b-positive patients has been exceeded, with ongoing evaluations for full patient numbers [28] Question: Safety data in UPGRADE study - Management indicated that safety data from the 12 enrolled patients is encouraging, but more robust data will be shared later [30] Question: Success criteria for UPLIFT trial - The success bar is based on overall response rate (ORR) compared to single-agent chemotherapy, with a maximum response rate of 12% [32] Question: Dose levels in UPGRADE study - Multiple dose levels have been evaluated, with plans to initiate expansion cohorts in Q1 of the following year [33] Question: Biomarker strategy for 1660 study - The strategy includes evaluating B7-H4 expression while enrolling patients across various cancer types [34] Question: Rationale for UP-NEXT dosing - A lower dose of 30 mg/m² was selected to optimize disease control in the maintenance setting [37] Question: Interest in NaPi2b high patients - NaPi2b is highly expressed in ovarian cancer, and the company aims to optimize the treatment profile based on this expression [41] Question: Enrollment trends in UP-NEXT - There is excitement among investigators for the UP-NEXT trial, driven by the unmet need in the platinum-sensitive recurrent space [42] Question: FDA perspective on UPLIFT trial endpoints - Sufficient benefit must be demonstrated in both NaPi2b high and low populations to support a broad indication [46] Question: Commercial targeting based on NaPi2b status - The prevalence of NaPi2b high patients is significant, indicating potential benefits for a large portion of the platinum-resistant ovarian cancer population [48]