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Mersana Therapeutics(MRSN) - 2020 Q4 - Annual Report

Part I Business Mersana Therapeutics is a clinical-stage biopharmaceutical company developing antibody-drug conjugates for cancer, leveraging proprietary platforms and strategic partnerships Overview and Strategy 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 needs18 - 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 partnerships18 Our Technologies and Platforms 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 efficacy23 - The Dolaflexin platform utilizes a Fleximer polymer to achieve a high drug-to-antibody ratio (DAR) of approximately 10, expanding addressable tumor targets2627 - The Dolasynthen platform enables precise control of DAR (from 2-24) and site-specific bioconjugation for ADC optimization2831 - The Immunosynthen platform is designed for targeted stimulation of the innate immune system by delivering a novel STING agonist3031 Our Product Candidates 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 20214143 - 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 model4446 - Early-stage programs include XMT-1660 (B7-H4 targeted) and XMT-2056 (Immunosynthen STING-agonist ADC), both in IND-enabling studies4749 Unmet Need and Epidemiology 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 - 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%5354 Strategic Partnerships 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 received575859 - The company licensed the NaPi2b antibody for UpRi and XMT-1592 from Recepta Biopharma, with potential milestones up to $65.5 million and tiered royalties6364 - 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 target66 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 facilities68 - Supply chains for UpRi and XMT-1592 use commercialization-capable vendors, though one component for XMT-1592 still requires a qualified commercial vendor68 Government Regulation 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 approval717273 - The FDA offers expedited programs like Fast Track, Breakthrough Therapy, and Priority Review, and the company may utilize Accelerated Approval based on surrogate endpoints878891 - The company's activities are subject to numerous healthcare laws, including federal anti-kickback statutes, false claims acts, HIPAA, and the Sunshine Act127293 - Operations are also subject to data privacy laws such as GDPR in Europe and CCPA in California, governing personal data processing and imposing significant penalties119137138 Intellectual Property 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 applications144 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 2029150 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 space156 - Key competitors in the ADC technology space include Daiichi Sankyo, ImmunoGen, Gilead (Immunomedics), Pfizer, and SeaGen, among others157248 Employees, Human Capital, and Facilities 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&D159 - The company's corporate headquarters are in a leased 35,000 square foot office and laboratory space in Cambridge, Massachusetts161332 Risk Factors 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 efficacy164165166 - Financial Risks: The company reported a net loss of $88.0 million in 2020, expects continued losses, and will require significant additional financing198203 - 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 risks212217 - Commercialization Risks: Future success depends on market acceptance, adequate reimbursement, and building sales infrastructure, with potential for smaller-than-estimated market opportunities230233239 - Intellectual Property Risks: Success depends on obtaining and defending patents, which is uncertain and subject to challenges, invalidation, or insufficient protection253254 - Pandemic Risk: The COVID-19 pandemic poses risks of disruption to clinical trials, manufacturing, regulatory timelines, and capital raising ability323324325 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None331 Properties 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, Massachusetts332 Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently party to any material legal proceedings333 Mine Safety Disclosures This item is not applicable to the company - Not applicable334 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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 - The company has never declared or paid cash dividends and does not intend to in the foreseeable future338 Selected Financial Data 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 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 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 agreements377 - 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 compensation378 Liquidity and Capital Resources 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 equivalents391 - 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 program388 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 years398 Quantitative and Qualitative Disclosures About Market Risk 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 portfolio427 - The company is not currently exposed to material foreign currency exchange rate risk428 Financial Statements and Supplementary Data 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 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 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 agreements530535 - 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, 2020553561 - 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 offering565566 - 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 assets598599 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None614 Controls and Procedures 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, 2020616 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO 2013 framework619 - 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, 2020620624 Other Information The company reports no other information for this item - None631 Part III Directors, Executive Officers and Corporate Governance 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 statement633 Executive Compensation 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 statement634 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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 statement635 Certain Relationships and Related Transactions, and Director Independence 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 statement636 Principal Accounting Fees and Services 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 statement637 Part IV Exhibits, Financial Statement Schedules 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 report640 - No financial statement schedules have been submitted641 Form 10-K Summary The company reports no summary for this item - None643