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Mersana Therapeutics(MRSN) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (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 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 offerings1427 Condensed Consolidated Statements of Operations and Comprehensive Loss 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 partnership2664 Condensed Consolidated Statements of Cash Flows 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)22174 Notes to Condensed Consolidated Financial Statements - 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 NaPi2b2425 - Collaboration agreements with Takeda were terminated in Q1 2019, leading to the recognition of the remaining $39.97 million in deferred revenue during that period64 - 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 balance78 - 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 20208991 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses ADC platform development, noting decreased collaboration revenue, increased operating expenses, and strengthened liquidity from recent equity offerings 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 therapies121 - 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 2020124125 Impact of COVID-19 on Our Business - The company has implemented work-from-home for non-lab employees and staggered schedules for lab staff to mitigate COVID-19 risks136 - 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-19136 - 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 studies136 Results of Operations 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-1536150151 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 agreements159 Liquidity and Capital Resources - As of September 30, 2020, the company had cash and cash equivalents of $270.9 million170 - 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 June166 - Management believes that currently available funds are sufficient to fund the company's operating plan and cash flow requirements for more than two years176 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 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 bonds183 - 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 value183 Controls and Procedures 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, 2020186 - 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 reporting187 PART II - OTHER INFORMATION Legal Proceedings 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 business189 Risk Factors 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, 2020190 Exhibits 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