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Merrimack Pharmaceuticals, Inc. (NASDAQ:MACK)

Q3 2013 Earnings Call

November 7, 2013 8:00 am ET

Executives

Geoff Grande - IR

Bob Mulroy - President & CEO

Bill Sullivan - CFO

Gavin MacBeath - Co-Founder & VP, Translational Research

Akos Czibere - Clinical Director, MM-121 Program

Analysts

Peter Lawson - Mizuho Securities

Geoff Meacham - JPMorgan

Gene Mack - Brean Capital

Eric Schmidt - Cowen & Company

Rachel McMinn - Bank of America Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the Merrimack Pharmaceuticals' Third Quarter 2013 Investor Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder this conference may be recorded.

I'd now turn the call over to your host, Geoff Grande with Investor Relations. Please go ahead.

Geoff Grande

Thank you, Stephanie. Good morning and thank you for joining us for Merrimack's third quarter 2013 investor conference call. Today I'm joined by Bob Mulroy, our President and CEO, Bill Sullivan, our Chief Financial Officer, Gavin MacBeath, one of our founders and Vice President of Translational Research and Dr. Akos Czibere, Medical Director of the MM-121 program.

This morning we will focus -- we will provide an update on development progress we have made across the pipeline. We issued a press release this morning which included an operating update and our third quarter financials. That release can be found in the Investors section of our website at www.merrimackpharma.com. We're broadcasting this call live and it will also be archived on our website for six weeks. We will be using slides for our call today, which can also be found in the Investor section of our website. We will end the formal portion for the call with an overview of the third quarter financials and then close with time for Q&A.

During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements about our future expectations and plans, clinical development timelines, the potential success of our product candidates and financial projections. These statements involve risks and uncertainties, which are described in the Risk Factors section of our most recent Form 10-Q and the other reports we file with the SEC, which are available online at sec.gov.

While these forward-looking statements represent our views as of today they should not be relied upon as representing our views in the future. We may update these statements in the future but we are not taking on an obligation to do so.

With that, I'd like to turn the call over to Bob.

Bob Mulroy

Well, thank you, Geoff, and good morning everyone. It's a pleasure to update you today on our ongoing efforts at Merrimack. The focus of our call today is to provide some additional clarity around the MM-121 Phase 2 results in ovarian cancer and provide an update on the MM-398 Phase 3 clinical trial in pancreatic cancer. We will also provide a general pipeline update.

For those of you following along on the slides posted on our website, I will begin on page 5 and highlight a couple of news items we noted in our press release issued earlier this morning. First we are updating the timing of our top-line data for the MM-398 NAPOLI-1 Phase 3 trial in second line pancreatic cancer. This trial met its enrollment target in August and our prior guidance was to expect data in the fourth quarter of 2013 or the first quarter of 2014.

As a reminder the primary endpoint of this study is overall survival. A blinded assessment of the overall survival of events in this study indicated that the event rates or patients deaths are occurring later than our forecast. As a result, we are revising our guidance for top-line data to the second quarter of 2014. While we are encouraged by the trends towards later events I would caution that the timing of event rates can be influenced by many factors aside from the study drug.

The second operational highlight from this quarter is that we met the key translational objective and the secondary endpoint of our Phase 2 study for 121 in second line platinum refractory ovarian cancer. This study identified a meaningful clinical benefit in MM-121 in a subset of patients who are identified by a pair of biomarkers. These biomarkers had been identified pre-clinically through our network biology platform and were pre-specified in the study protocol. The analytical process that identified the biomarker population was based on a predefined statistical analysis plan.

As we've stated previously, there were three underlying objectives of the study. One, to understand the subpopulation of patients whose tumors were utilizing ErbB3 based on a set of preselected and pre-clinically validated biomarkers; two, to identify the prevalence of ErbB3 signaling as a means of resistance to therapy; and three, to test the potential for MM-121 to provide clinical benefit in the subpopulation.

We are pleased that the data from this study support our hypothesis regarding the importance of ErbB3 signaling and the mechanisms that surround this activity. As we've reinforced in the past, Merrimack and others have identified ErbB3 as a pervasive mechanism of resistance across many types of solid tumors. However, as of today there is no identifying genomic marker for this potentially large patient population.

We have viewed the critical path for further development of MM-121 as requiring the confirmation of a biomarker hypothesis to enable future stratified trials. This trial result is a major step forward for us in that process. We are pleased that the results match our preclinical expectations and are working with our partner to assess the best development path going forward.

Last highlight for the quarter is that we continue to make strong progress in advancing our four other clinical stage product candidates. I will return later in the call to provide a further update on MM-398 and our other clinical candidates.

Right now, I would like to turn the call over to Gavin MacBeath, a Merrimack Co-Founder and our Vice President Translational Research, who will provide a more detailed update on the recent MM-121 translational study results in ovarian cancer.

Gavin MacBeath

Thank you, Bob. So if you turn to Slide 6 of the presentation, I want to start with a quick overview of ErbB3 and the central hypothesis underlying the MM-121 program. Research at Merrimack and elsewhere has shown that ErbB3 signaling is one important way in which cancer cell develop resistance to therapy. In particular, it has been shown that heregulin; the key ligand for ErbB3 is frequently increased in late stage cancer. As a receptor ErbB3 does not act on its own, it forms dimers with either EGFR or ErbB2.

These dimers activate survival signals in the cell that cause the cells to become resistant to therapy. MM-121 is a fully human monoclonal antibody that was designed to block heregulin binding to ErbB3. The clinical hypothesis is that MM-121 will provide benefit to patients by blocking ErbB3 signaling thereby restoring sensitivity to standard-of-care agents. Because only a subset of cancers use the ErbB3 pathway as a mechanism of resistance, we expect that only a subset of patients those with tumors in which ErbB3 is active will derive clinical benefit from co-treatment with MM-121. This is why the central focus of the MM-121 clinical program is to identify biomarkers that can be used to direct therapy to the appropriate patients.

If you turn to Slide 7, on Slide 7 I've summarized the translational focus of our Phase 2 studies and what we're learning from these studies. Before the trial began research at Merrimack have shown that ErbB3 signaling causes tumor cells to be resistant to chemotherapy. We had also found that five proteins in particular play an important role in determining the extent to which ErbB3 is activated. These proteins are EGFR, ErbB2 and ErbB3, the receptors that mediate signaling and heregulin and betacellulin, two important ligands that activate the receptors.

What we didn't know however was the prevalence of ErbB3 signaling in each indication and patient population that we were studying. We also didn't know which of these five biomarkers with the most important to measure in each patient population. So in collaboration with our partners at Sanofi, we designed a broad Phase 2 program in which we collected archive tissue specimens and fresh biopsies from virtually all the patients entering our trial, in order to determine which biomarkers best identified a patient to derive clinical benefit from MM-121.

You could turn to Slide 8; I want to focus on the ovarian cancer trial that we reported on last week. This slide provides an overview of the design of this trial, which was conducted in patients with advanced ovarian cancer resistant or refractory to platinum agents. Overall 223 patients were randomized in the study, 83 to the control arm, which was paclitaxel alone and 140 to the treatment arm, which was MM-121in combination with paclitaxel. The trial is truly unprecedented and that we received pre-treatment biopsies from every patient enrolled in this study. This enabled us to collect biomarker data for each of the five key biomarkers for MM-121 that were pre-specified in the clinical trial protocol.

Now, if you turn to Slide 9, I've summarized the analysis that was performed on the clinical and biomarker data emerging from the study. As outlined in the Statistical Analysis Plan, we began by determining which of the five pre-specified biomarkers had an effect on the treatment arm relative to the control arm. In other words, we determined if the hazard ratio, which is the chance of progressing on the treatment arm relative to the control arm, varied with biomarker levels.

Only those biomarkers that passed a pre-specified significance test were then assessed using two biomarker models. This procedure let us to the result we disclosed last week that a subpopulation of patients on this trial was identified using two biomarkers that demonstrated clinically meaningful benefits.

As you turn to Slide 10, I've summarized the results of our pre-specified biomarker analysis. So the first key result is that all of the biomarkers that showed a treatment effect were directionally consistent with our preclinical predictions. In other words, if our preclinical modeling and experiments indicated the benefit would be observed at high biomarker levels but not at low levels this is also what we observed clinically.

This result is important for us, because it gives us increased confidence in our network biology platform at Merrimack and could be used to guide development of the other drugs in our oncology pipeline as well.

With respect to the key biomarker results on this trial, we know that the overall hazard ratio in this trial was approximately one. In other words, the treatment arm and the control arm behaved similarly in the unselected patient population.

When we focused on the biomarker positive subpopulation however, a clinical meaningful benefit was observed. In this subpopulation the hazard ratio was 0.37 in favor of the treatment arm and the prevalence of the subpopulations was 34%. In other words, 34% of the patients were identified as being positive for ErbB3 signaling and these patients have less than half the risk of their cancer progressing when treated with MM-121 than when treated with paclitaxel alone.

At this point, the overall survival data from this trial is still immature with only about 30% of events occurring. With this caveat in mind, the overall survival data are trending in the same direction as the PFS data. The observation that biomarker positive patients did better on the treatment arm is consistent with what we expect, the blocking ErbB3 signaling in patients where this pathway is active or provide clinical benefit by enabling them to respond better to chemotherapy.

One question that arises from our results however is why the biomarker negative patients perform better on the control arm than on the treatment arm. In other words, why is the hazard ratio greater than one in the biomarker negative subpopulation? Research on this effect is still ongoing, but if you turn to Slide 11, you will see that this result is actually well precedented with this class of drug. So as you can see from the table, several other biologic drug that target receptor tyrosine kinases show a similar result.

For example, in the Phase 2 study of the cetuximab in which the KRAS biomarker was identified, the hazard ratio in the biomarker negative subpopulation was 1.72. This biomarker to cetuximab KRAS mutation status is now well established and cetuximab is approved in the study. The results we observed for MM-121, which is shown in red at the bottom of the table are in line with the direct -- with the general class effect for receptor tyrosine kinase inhibitor.

At this point, I'm going to turn the call over to Dr. Akos Czibere, who will provide an overview of the safety results obtained from this trial.

Akos Czibere

Thank you, Gavin. In the following I am providing you with additional information about the observed safety profile of the MM-121 paclitaxel combination as observed in our Phase 2 study in women with advanced platinum-resistant ovarian cancer. Slide 12 provides a summarized overview and detailed results will be presented at a major conference in 2014.

Please note that toxicities were captured for the combination of MM-121 and paclitaxel on the treatment arm and for paclitaxel alone on the control arm. This study did have an Independent Safety Monitoring Committee, which convened to review safety and efficacy. We already reported detailed safety and efficacy results for our Phase 1 study combining MM-121 with paclitaxel in women with gynecological or breast cancers at ESMO in 2012. The observed safety profile of MM-121 with paclitaxel combination was comparable to the expected toxicity profile of paclitaxel immunotherapy and these data observed as a baseline for the anticipated toxicities with this combination going forward.

On our current Phase 2 study, most toxicities reports were within the expected range for women receiving paclitaxel in a late-stage ovarian cancer setting. The added toxicities from MM-121 are in line with our previously published data and similar to toxicities observed with other inhibitors of the ErbB pathway where we do observe overlapping toxicities characteristic for EGFR and/or ErbB3 PI3K AKT pathway inhibitors.

The overall increase in toxicities presented mostly is mild to moderate for individual AEs, but higher frequencies were reported. Looking at patients with CTCAE Grade 3 or higher adverse events, 35.7% and 30% were assessed as related to the study measurement for the treatment and control arm respectively. There was no trends in reported SAEs for either arm there was no increase in the number of dose reductions and no difference in the total exposure to the study drugs.

The overall safety profile did not impact the ability of investigators to administer treatment on this study. The expected rate for venous thromboembolic events, VTEs primarily preliminary embolisms and deep vein thrombosis, in patients with cancers who receive EGFR directed therapies was reported to be 5% in the recent meta-analysis.

Slide 13 provides with a breakdown of individual frequencies for study utilized for this meta-analysis. On our study, the reported incidence of VTEs was 6.5% on the treatment arm and 7.5% on the control arm. Pulmonary embolisms which are subset of VTEs were observed at a higher rate with the combination of MM-121 and paclitaxel as the rate increased from 1.2% on the control arm to 5% on the treatment arm. None of the VTEs reported impacted patients treatment on study as all continued to receive study infusion.

Overall, the toxicity profile observed for the combination of MM-121 and paclitaxel appear to be manageable with no adverse impact on the amount of treatment received from the study.

Bob Mulroy

Thank you, Akos. Let me continue now with an update on our other ongoing clinical trial before returning to 398. A summary of our clinical trial status is provided on Slide 14. With respect to MM-121, we continue to expect top-line results in our ER/PR-positive breast cancer second line study and our ER/PR-positive breast cancer neoadjuvant study prior to this year-end. We also continue to expect top-line data from a triple-negative neoadjuvant breast cancer trail in the first half of 2014.

We had previously disclosed that our study in wild type EGFR lung cancer was unlikely to meet its primary endpoint and that the biomarker analysis was ongoing. We can confirm that the trial does not meet its primary endpoint. We also provided guidance that we would expect to report biomarker data from the studies prior to year-end. However, in completing the analysis of patient samples derived from the study is now clear that the number of high quality samples are lower than what we needed to achieve a statistically meaningful conclusions. In collaboration with our partner, we've decided that the biomarker data from this group will be analyzed in the context of the entirety of data for MM-121 inclusive of all the lung patients and we presented at a future medical conference.

For MM-111, our bispecific antibody targeting heregulin-driven HER2 positive patients, we're continuing enrolment in two patient groups in our Phase 2 gastric and esophageal cancer study, a traditional HER2 patient population, and a second patient population with moderately elevated levels of HER2 positivity that are below traditional threshold set for the currently approved HER2 targeted therapies.

For MM-302 our HER2 targeted nanotherapeutic encapsulation of doxorubicin, we are preparing to launch a Phase 2 study for MM-302 in third line refectory HER2 positive breast cancer early in 2014. We will be presenting additional Phase 1 single agent and combination data at the San Antonio Breast Cancer Symposium this December.

For MM-151, our oligoclonal EGFR inhibitor, we continue to make progress in the Phase 1 program. We are working to initiate a combination testing with irinotecan to enable the launch of a Phase 2 trial in colorectal cancer in 2014.

For MM-141, our tetravalent bispecific antibody targeting the IGF pathway, we have completed the Phase1 dose escalation this quarter without reaching a dose limiting toxicity or identifying a maximum tolerate dose. We have identified a recommended Phase 2 dose and have initiated drug combination work to prepare for a Phase 2 launch in 2014.

Turning now to Slide 15, let me provide a more detailed update on MM-398. MM-398 is our nanoliposomal encapsulation of irinotecan, which is specifically engineered for increased drug deposition, the local activation of SN38, and prolonged cytotoxic effects. Our early clinical trials provided evidence, clinical activity as a single agent. We knew the comparable efficacy to irinotecan in an early gastric study that was achieved at less than half a dose of the irinotecan control and with an indication with a low prevalence to the physical tumor properties that 398 is engineered to target. In a Phase 2 study, in gemcitabine-refractory pancreatic cancer patient, the data shown on Slide 15, 398 achieved an overall survival of 5.2 months as a single agent. The single agent efficacy is comparable to many of the combination therapy results previously reported. The study also saw a 25% of the patient survival were one year, are very comparable to historic front-line therapy with gemcitabine.

Slide 16 provides a snapshot of the biological benefits of the engineering technology that is behind MM-398 and provides for statistically higher tumor acclamation of drug, as well as the dramatically extended duration of exposure, or a time that a tumor is exposed to a toxic concentration of drug. Our models have shown that duration of exposure is a primary driver of clinical benefits.

Slide 17 is a summary of the Phase 3 design for MM-398 and gemcitabine-refractory metastatic pancreatic cancer. The trail is testing both the single agent treatment of 398 and the combination of 398 with 5-FU and leucovorin against the second line standard 5-FU leucovorin as a therapy. The study has been reviewed by the U.S. FDA and the EMEA and has orphan drug designations from both, upon receiving positive data on one or both endpoints we plan to file quickly for registration. The primary endpoint of the study is overall survival.

Turning to Slide 18, we are pleased with the execution of the study. Of note, we announced in August that we meet our enrolment target. The final number of patients enrolled in the study is 417. In October, the data safety monitoring board overseeing this study met for the final time, they noted no issues or safety signals beyond what would be normally expected in the administration of 5-FU leucovorin or irinotecan.

As noted at the top of the call, we are advising our guidance for top-line data for the Phase 3 top-line results to Q2 2014. This is based on a blinded assessment of survival events that show that patient deaths or recorded deaths are recurring at a slower rate than we had forecast. Current focus of the team is preparing for rapid data analysis and a quick turnaround for potential NDA or MAA filing in 2014.

Finally, with respect to business development, as we've discussed in the past, we are actively engaged in a broad range of business development discussions. We are pursuing two types of transactions. The first are platform deals that leverage our technology to generate revenues and fund our future R&D. We are also pursuing commercial and development licensing agreements to secure strategic partners to gain global commercial reach for our therapeutic and diagnostic product candidates. We are making progress on both fronts, and per our prior guidance, we may on a track to announce at least one deal prior to the end of the year.

With that, let me now turn it over to Bill Sullivan our CFO to discuss our Q3 financials.

Bill Sullivan

Thanks, Bob and good morning to everyone. Our third quarter 2013 financials were included in our press release which was distributed earlier this morning. Net loss for the third quarter 2013 was $39.8 million, approximately $16.5 million higher than net loss of third quarter 2012. This increase in net loss is primarily attributable to three factors. First, $3.9 million of increased research and development expense primarily associated with our clinical stage product candidates.

Second, $3.9 million of increased interest expense for Merrimack term loan with Hercules and recently issued convertible senior notes. Approximately $1.7 million of this interest expense is imputed non-cash interest, or non-cash expense, primarily related to the convertible feature of our senior notes.

And third, decreased revenue related to our MM-121 license and collaboration agreement. In the third quarter 2013, management determined that it was likely that Merrimack would incur full year MM-121 development expenses in excess of the approved 2013 MM-121 collaboration budget. Merrimack therefore did not fully recognize revenue related to these expenses under its revenue recognition model, resulting an increase in third quarter 2013 net loss of approximately $6.8 million. Upon a budget approval these expenses will be included in our revenue model in future periods and net loss would be lower, all else equal, as we catch up on unrecognized revenue, which we have already recorded expenses.

Turning to the balance sheet. Cash and cash equivalents and available-for-sale securities increased $120.3 million from the second quarter to the third quarter of 2013. On July 17, 2013, Merrimack closed concurrent underwritten public offerings resulted in combined net proceeds of approximately $147.3 million. After subtracting these net proceeds the decrease in cash and cash equivalents and available-for-sale securities from the second to the third quarter of 2013 was $27 million.

As far as financial guidance, Merrimack expect existing, unrestricted cash and cash equivalents and available-for-sale securities as of September 30, 2013, of $182.5 million, interest income and Sanofi reimbursements to be sufficient to fund operations in 2015. In event that Merrimack obtained favorable results from NAPOLI-1 Merrimack expects that anticipated additional expenses in 2014 related to the commercialization of MM-398 will be offset by cash received from potential collaboration opportunities.

At this point, I will turn it back over to Geoff.

Geoff Grande

Thank you, Bill. So again, we have recapped our upcoming data milestones on Slide 20. We will also be presenting at a few Investor Conferences over the next couple of months, including the Brean Capital Life Sciences Summit December 25 in New York; the Oppenheimer 24th Annual Healthcare Conference December 10 through 11 in New York; the Guggenheim Boston Healthcare Day, December 17 in Boston; and the 32nd Annual JPMorgan Healthcare Conference, January 13 through 16 in San Francisco.

With that, we would like to open up the line to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Peter Lawson with Mizuho Securities, your line is open.

Peter Lawson – Mizuho Securities

Bob, just on the delay for 398, is there anything else you can tell us around which arm is driving that delay?

Bob Mulroy

Good morning, Peter. So the analysis that we've done is a blind analysis of the entire study population. Merrimack is blinded to what's going on within any arm in the study, so it's trend for the entire population. There are two active arms, a monotherapy arm of 398, combination arm of 398 and 5-FU, and then the control of 5-FU leucovorin.

Operator

Our next question comes from Geoff Meacham with JPMorgan. Your line is open.

Geoff Meacham - JPMorgan

Just to follow-up again on the -- in the pancreatic study, when you look at the baseline characteristics, was there anything different when ultimately it was fully enrolled versus your original expectation, for example, like the length of time that a patient had received gemcitabine therapy previously or their response to it or -- I just want to get a sense for kind of the population versus what you originally thought.

Bob Mulroy

Good morning Jeff, and thanks for the question. We do not know any differences in the patient population from the patient population that has entered our Phase 2 study previously. So I think a full analysis of the patient population will be done upon completion of the study but the characteristic that we are entering, we don't see any study differences today.

Geoff Meacham - JPMorgan

And just to follow-up on 121 in ovarian, how would you characterize for the next steps for the biomarker analysis? Do you feel like you have to run a separate Phase 2b to prove the biomarker value out, or do you feel like with your partner Sanofi you can go right into a pivotal study?

Bob Mulroy

So right now Jeff we are looking at the full dataset from the study and working with our partner to determine what the next step will be. And I think together hopefully, in the not too distant future we will be able to communicate what that next step may be. I think at the present time we're not ready to discuss that. We do have additional data coming from 121 and ongoing analysis of the ovarian data that needs to be completed.

Operator

Our next question comes from Gene Mack with Brean Capital. Your line is open.

Gene Mack - Brean Capital

Hey, Bob, could you -- a couple of questions. First, on the pancreatic cancer trial, when you included the -- when you amended the protocol to include 398 plus 5FU, there was a bit of a stall in enrollment for a while. Can you just talk about that and how that may have impacted maybe some of the timing of the accrual or the events, if at all?

Bob Mulroy

Thanks Gene. Good morning. So when we initiated the study, we initiated the study with two arms, the control arm of 5-FU leucovorin and then against the monotherapy 398 single agent which is what we had -- seen the activities of single agent in a Phase 2 study and not to soon after that the availability of some Phase 3 data in combination of 398, in combination with 5-FU allowed us to submit an amendment to both the U.S. FDA and EMEA for the addition of a third arm that would be the combination arm. For us it was strategically important to have the combination arm given that in the past pancreatic patients given rather poor status have generally been treated with single agents to maximize quality of life, but the trend in the future in current stage is definitely moving towards more combination therapies and more aggressive therapies. So in some sense to monotherapy with one eye towards the past and the combination is one eye towards the future.

With respect to how that played out, it really gets related to essentially a three month pause in enrolment while we went through the amendment process in the regulatory agencies and with the IRBs across our study sites. And so that's really all it took. And from the point we got approval about 15 months with the accrual process in the study.

Gene Mack - Brean Capital

Okay. Okay. And I know that you've said that there are other things that could be contributing to the length of time, but I mean, given the fact that so many patients -- I mean, the majority of patients in this study are getting treated with 398, either single agent or combination. I mean, what other things could be driving the timing of the event accrual outside of those treated patients? What other things do you think it could be?

Bob Mulroy

So the study is blinded. So we don't have a sense of what's going on in the arms. But if you look at the history of just clinical trials in our space, there are factors such as the underlying health in the population that some factor in just the accumulation of patients, you have a health status that's different than you've seen previously. As they enter as a whole, you could have factors where you control in a selected population does better than historical. Data would suggest that there could be other factors, in other studies you're seeing crossover designs or other things influence those things, we don't have definite study. But there are a long list of things and I'm sure you guys are very familiar with them that can impact these and until you have them blinded, un-blinded results with the study conclusion, we can't make a final specific determination.

Gene Mack - Brean Capital

All right. But just -- okay, but assuming all that stuff is really well balanced at baseline and really only difference is the treatment group, right?

Bob Mulroy

We'll all see it together.

Gene Mack - Brean Capital

Okay. On 121, the lung cancer biomarker analysis, given the fact that that seems to be more challenging at this point, what sort of information do you think you'll be able to -- how impactful will that analysis be if it's a pooled analysis and the samples aren't very robust? What sort -- how should we think about the expectations there?

Bob Mulroy

So I think for the lung study, we knew going into to lung that -- well, in retrospect, historically we've tried to focus folks on the ovarian and breast cancer data as our best opportunity to identify biomarkers and identify activity of 121. We knew going in lung would be difficult. Given, we're essential in lung cancer with the activation of EGFR, the dimmer EGFR and ErbB3 would be in play and that Tarceva tends to have a less than full effect inhibiting EGFR in that setting, or most of those settings. And so, the lung cancer group C was really a research steady. But the other studies, we're hoping to sort of find biomarker trends and we knew going in that biomarkers with a biopsies from lung patients especially late-stage lung patients were very difficult to get.

And so, you can get the biopsy, but really the question is do you have enough tumor tissue in there to actually do an analysis. So we found is in with the individual studies, particularly the wild type EGFR study. We don't have enough quality samples there. We're hoping to pull them all across lung and then look at that entire analysis together to see if some of our hypothesis about the rollover of B3 in combination with EGFR in lung cancer is supported or not. So that's the kind of data you could hope to see in the future, if that pulled analysis. Looking at all the samples where we do have quality tissue across the various lung studies and testing some of our hypothesis about biomarkers, very specifically the EGFR and HERB3 in those samples, and we would hope to present that in 2014.

Gene Mack - Brean Capital

Okay. And then I just have one last question, and that's on the breast cancer program. For 121, can you talk about -- well, first of all, from the baseline cancer -- from the baseline population, are you seeing enough robust samples from that group in order to get good biomarker data? And then secondly on that, you've talked in the past about how HER2 expression can limit the potency of 121, but inasmuch as 111, the earlier antibody, uses HER2 as a docking agent to hit HER3, can you talk about how -- can you walk us through, number one, what sort of tissue samples you might be able to -- we might be able to expect from breast cancer patients and then what your expectations might be around how 121 might pan out there, given HER2 expression, and then what that might mean for 111?

Gavin MacBeath

Sure. Gene, this is Gavin MacBeath. So just addressing the first question, in terms of the samples for the breast cancer trials that are upcoming. So just to remind everyone there is two different trials in breast cancer. One is in an ER/PR-positive second line metastatic setting in which we're looking at MM-121 in combination with exemestane, relative to exemestane alone. And so in this study we acquired archived tumor block or archived tumor tissues from the patients. The study did not include pretreatment biopsies. And so in this trial all biomarker analyses will be conducted either both on the archived tissue, as well as serum samples that we received from those patients.

The other breast cancer study with 121 is in the neoadjuvant setting. And so here we're looking at two distinct patient populations, an ER/PR-positive population and a triple-negative population, in both of those populations we are looking at pretreatment biopsies that were obtained from these patients. As per our previous guidance, the top-line results and biomarker analysis of the ER/PR-positive population will be presented this year and then the triple-negative population we expect data from that in 2014.

And then your other question related to HER2 and its role in 121 versus MM-111. So just to remind people, MM-111 is a bispecific antibody that's also in clinical development at Merrimack that recognizes both ErbB2 and blocks heregulin binding to RB3. So MM-111 was designed to inhibit heregulin driven ErbB3 signaling when ErbB2 levels are high in patients tumor cells. So MM-121, we've shown pre-clinically and without modeling that it's most effective when HER2 levels are low. And so that's why MM-111 was designed and is being currently studied in gastric cancer, both in the HER2 medium setting and HER2 high setting. But I think they are complimentary drugs that really address two distinct patent population.

Operator

(Operator instructions) Our next question comes from Eric Schmidt with Cowen & Company. Your line is open?

Eric Schmidt - Cowen & Company

Bob, on the NAPOLI trial, could you tell us how many events are required to trigger the final analysis?

Bob Mulroy

Sure. Good morning, Eric. So 305 events will trigger the final analysis. Again, 417 patients in the study, 305 deaths is the calculation to gain significance in the study.

Eric Schmidt - Cowen & Company

And then in terms of your own internal assumptions on timing, can you talk about what those were based on and may be any speculation -- well, just maybe you could tell us what the event rate that you guys had projected internally was based off of or what event rate you had assumed.

Bob Mulroy

Sure. So page 17 of our deck sort of lays out the study design and talks about the specific numbers we used in calculating our assessment of timing, that historical controls of other studies of 5-FU and leucovorin control setting had seen about a three month overall survival in multiple studies. So we used three months as a baseline that we assume the four and a half months overall survival down from the 5.2 months we saw in our Phase 2. So we assumed four and a half for the single agent monotherapy arm of MM-398 and we assumed an additional six weeks up to six months overall survival for the combination based on the synergy we have seen pre-clinically with MM-398 and 5-FU with leucovorin. But also looking in a range of studies, where essentially combinations of agents in other settings have added a month or month and a half to study drugs performance generally across the pancreatic setting space.

So that's essentially the base assumptions that we used in calculating the timing. And then, we had an error bar around that given that this is the first large study in the second lines, cancer 417 patients in the second line setting, controlled. Many other studies have been around the 100 patients or slightly larger. So we had an error bar around that suggested that we could see data roughly three months from when we saw the last patient enroll.

Eric Schmidt - Cowen & Company

Okay. And switching to 121, I thought that when we spoke last week about the data you only had biomarker data on about 70% of the individuals, but it sounded like Gavin said you've collected 100% of biomarkers or biopsied tissues.

Gavin MacBeath

Yes. Well, I can clarify that. This is Gavin. So in total 223 patients were randomized in the study, which is what I indicated on Slide 8 in the deck. So all of the patients submitted pretreatment biopsies, but those biopsies only -- some fraction of those biopsies do not yield sufficient tumor materials to conduct a biomarker assays. So overall across the study we received analyzable samples from about 75% to 80% of the patient. So the biomarker analysis --

Eric Schmidt - Cowen & Company

75% to 80%, okay.

Gavin MacBeath

Right. So the biomarker analysis is based on those patients for which biomarker data were available.

Eric Schmidt - Cowen & Company

Okay. And the subset you identified is therefore 35% of the 75% to 80% of the population that you were able to evaluate.

Gavin MacBeath

That's correct.

Eric Schmidt - Cowen & Company

Okay. And then one quick question for Bill. Should we expect the revenue recognition to be lower in Q4 for modeling purposes?

Bill Sullivan

Good morning, Eric. So there is two things that are going to work in opposite directions related to revenue. One is since we've completed enrolment on our studies MM-121 expenses they're just naturally getting decreased starting in Q4 in the first half of next year. So what that would result in is we would recognize lower revenue because we have lower expenses. But on the opposite ends because we haven't received full budget approvals for some of the overruns that I mentioned. If we do receive budget approvals from Sanofi and Merrimack and the Joint Steering Committee, in the fourth quarter, we would begin to recognize revenue on some of those items that were over budget in this year, so the two could offset each other slightly.

Operator

Our next question comes from Rachel McMinn with Bank of America Merrill Lynch. Your line is open.

Rachel McMinn - Bank of America Merrill Lynch

I just wanted to follow up on the NAPOLI study. I apologize if this has been asked already, but I guess given the significant shift in the expected timing for top-line data, what does that tell you about the probability of success of the trial? Because obviously you had powering assumptions for the control arm to be three months. That must not be correct. I'm assuming that's the right interpretation that the control arm is doing significantly better than your initial expectation. So I guess does that throw off your calculations, and does that impact the way you view probability of success? Thank you.

Bob Mulroy

Thanks, Rachel. So I think anything related to this is speculation. I think our view is that we calculated our assumptions around when we would see data based on one-third of the patients in the study are on control and two-thirds of the patients were on 398 and we had different time lines for both the monotherapy and the control group. As we went through three months for the control, four and a half months for single-agent MM-398, and six months for the combination of MM-398 and 5-FU leucovorin.

So the underlying trend could be related to performance on any or all of those. It could be related to factors that are unrelated to drugs, could be the overall health of the population or other factors that we're unaware of at this point in time. I think we will know the full data and what is underlying the change in our forecast when we see the full study there.

Rachel McMinn - Bank of America Merrill Lynch

And at this point do you have any visibility on baseline characteristics, what the prior treatment regimen was for patients enrolling in the study?

Bob Mulroy

We do because the entry criteria require the patients had experienced gemcitabine in their prior therapy and were refractory to it. And so the baseline characteristics are matching well with the patients we had in our Phase 2 in terms of second or in some cases third line patients who have seen and then refractory to gemcitabine prior therapy.

Operator

Our next question comes from Peter Lawson with Mizuho Securities. Your line is open.

Peter Lawson - Mizuho Securities

Bob just on MM-398, again, I mean, how many events we are at now?

Bob Mulroy

So we're not aware of the events. The study is blinded to us and being managed by a group that's sequestered about the physical group and so we're not aware of events at this current time.

Peter Lawson - Mizuho Securities

And, I guess, so if the control arm is surviving longer, is that going to impact the number of events you require?

Bob Mulroy

No, the statistics work basically to show a benefit at 305 patients because the benefit in the and the statistics around the benefit in the other arms are all relative to whatever could performance is in control group, so it's essentially plus six weeks for the monotherapy or single agent arm and it's plus an additional six weeks for the combination arm to reach statistical significance based on whatever the baseline is for the control group.

Peter Lawson - Mizuho Securities

And so the trial delay, there's nothing -- it's not connected with any delays in enrollment, and you don't think it's connected with the trial design in any way?

Bob Mulroy

No. I mean the only delay that we've experienced in executing the study, it was an intentional delay where we paused a study in order to add the third arm and that was essentially decision that it came about because we thought we could get both indications completed faster within the studies and subsequently executing a combination study. But our enrolment timeline was executed as we hoped for and completed as we had hoped this summer. And the study characteristics and the underlying patient population is, as we would expect and are required in terms of the study protocol in terms of enrolment. These patients have been on a baseline of gemcitabine plus other therapies, whether it's GEM/Abraxane or GEM in other combinations, but they have all seen a GEM-based therapy. And so there is no change other than our forecast on the frequency and the rate of patient events.

Peter Lawson - Mizuho Securities

And then, just on 121, the biomarker analysis. Are you also using FFP used samples to work through that analysis?

Bob Mulroy

So with regard to the biomarker analysis, so this is all conducted on pretreatment biopsies, so those biopsies were received from the patients before they went on the study and then those samples were all formalin-fixed, paraffin-embedded and then biomarker assays were performed on that material.

Peter Lawson - Mizuho Securities

And then, just you mentioned there was an issue with getting samples from lung cancer patients, is that right, what was that?

Bob Mulroy

Yes. So well in the lung cancer study we had similar protocols, so patients submitted a pretreatment biopsies before going on the study. But in this setting it's very difficult to obtain biopsies in late line lung cancer patients and so the yield of biopsies where there was sufficient tumor material to conduct the assays was lower than what we received in the ovarian study or what we're receiving in the neoadjuvant breast cancer study.

Peter Lawson - Mizuho Securities

And then, when do you engage a diagnostic partner for 121 to test?

Bob Mulroy

So that's a work that's done in collaboration with our partner Sanofi. So as we look at these data and decide what to do that is something that's done in collaboration with them.

Operator

Our next question comes from Gene Mack with Brean Capital. Your line is open.

Gene Mack - Brean Capital

I just want to clarify something and look at the NAPOLI trial from a different perspective. So you need 305 events to occur. Roughly 127 patients are in the 5-FU alone arm, so the control arm, so every single one of those patients could have died by now and you still would be a significant way, 175 events or so, away from unblinding the study. Is that right? I mean, it's unlikely that that would be the case, but a significant number of patients who are treated with 398 have to essentially die, unfortunately, in order for you to unblind. So the control group, how possible is it that the control group could be driving this?

Bob Mulroy

Gene I think -- I don't want to speculate until we see the data right.

Gene Mack - Brean Capital

Right.

Bob Mulroy

That -- what we know is that we based a forecast based on a full range of clinical studies that have been done in control settings with 5-FU that showed a pretty standard and a pretty high confidence interval around, a three month overall survival, and what we will current study as a larger study, as a global study, we will find out. But as I said at the outset, there are many different factors that could be underlying this.

Gene Mack - Brean Capital

But if every single control patient is no longer living right now, you still wouldn't be able to unblind?

Bob Mulroy

I think we went through and reviewed the statistics on the study and our assumptions about performance to the groups on average. And as we went through the study, we were careful to maintain a pretty wide interval around that three months given it was the first large study in this setting and sometime these have wider variance. But as I said, we will see what the data says and what's underlying the change in duration when we see the data.

Gene Mack - Brean Capital

All right. I'm going to interpret that as a yes.

Operator

Our next question comes from Eric Schmidt with Cowen & Company. Your line is open?

Eric Schmidt - Cowen & Company

Yes, thanks again for the follow-up. Bob, I was surprised that you internally don't know the event rate assumption, so if that's the case is it the DSMB who's enabling you to make these projections, and do you have any knowledge on how they're projecting out timelines?

Bob Mulroy

Thanks Eric. So what we have at Merrimack is we do have an internal biostatistics team that is actually sequestered from the organization who are monitoring the creation of the dataset from the study. And those folks do have a view of events and we have a report for them. But our company as a whole, our management team, we're not aware of how many events have occurred.

Operator

Thank you. I'm showing no further questions. I will now turn the call back over to Geoff Grande for any closing remarks.

Geoff Grande

Okay. Well, thank you everyone for joining us. We look forward to updating you again next quarter.

Operator

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.

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