Merrimack Pharmaceuticals' CEO Discusses Q4 2012 Results - Earnings Call Transcript

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Merrimack Pharmaceuticals Inc (NASDAQ:MACK) Q4 2012 Earnings Call March 14, 2013 10:00 AM ET


Kathleen Gallagher - Corporate Communications

Robert Mulroy - President & Chief Executive Officer

William Sullivan - Chief Financial Officer & Treasurer


Brett Holley - Guggenheim Securities


Good day, ladies and gentlemen, and welcome to the Merrimack Pharmaceuticals' Fourth Quarter 2012 Investor Call. At this time, lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).

I would now like to turn the conference over to your host today, Kathleen Gallagher, Corporate Communications. Please begin.

Kathleen Gallagher

Thank you, Sean. Good morning and thank you for joining us for Merrimack fourth quarter 2012 Investor Conference Call. With me today is, Bob Mulroy, our President and CEO, and Bill Sullivan, our Chief Financial Officer.

On today's call, we'll be giving an update on our guidance for clinical milestones in the next 18 months as well as an update on MM-398 and MM-121, our two most events programs. We'll end the formal portion of the call with an overview of our fourth quarter and year-end financials and then close with time for Q&A. We will be using slides on our call today, which can be found in the investor relations section of our website

Before we move forward, I need to remind you that 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 factor section of our most recent Form 10-Q and the other reports we file with the SEC, which are available online at While these forward-looking statements represents our views as of today, they should not be relied up in representing our views in the future. We may update these statements in the future, but we are not taking an obligation to do so.

This morning, we issued a press release announcing key recent accomplishments in our fourth quarter and year end financials and that release can be found in the Investor Relations section of our website. This call is being broadcast live and will be archived on our website for six weeks following the call.

At this point, I'll now turn the call over to Bob.

Robert Mulroy

Thank you, Kathleen, and good morning everyone. Thank you for your continuing interest in Merrimack and for taking the time to join us on our call today.

This morning, I am going to walk you through an update on our operations and specifically talk about the timing 2013 and 2014. I'd encourage if you tend to follow along the on slides in our website and I am going to start on page five of that deck with an overview of the company.

So, very quickly, Merrimack is a fully integrated cancer company that's founded on the systems biology scientific platform. We deploy a systems engineering approach to research and development to develop a whole network understanding of the complex dynamics that drive cancer and then translate those insights into novel diagnostics and therapeutics that we believe can transform outcomes in cancer.

We are currently advancing six different therapeutic candidates in clinical studies ranging from Phase I to Phase III. We also have two additional therapeutic candidates and one imaging based diagnostics that we are in the process of preparing to enter into clinic. Our therapeutic candidates consist of two different modalities. We have a set of therapeutic antibodies that we are developing that are based on targeting singling notes that our technology has discovered are key to driving cancer growth and survival. Those drugs include drugs like 121 and 111 that are currently in Phase II, and 151 and 141 that are currently prosecuting Phase I study.

Our candidates also include a set of targeted and the nanotherapeutic candidates that are based on third-generation nanotherapeutic technology that we have engineered to optimize the activity of chemotherapy to work in combination with our antibody-based therapeutics. Our research suggests that antibodies' real impact is increasing the activity of chemotherapy in combination. Some of those therapies include 398, which is in Phase III study and 302, which is in Phase I.

We are advancing all of our candidates with companion diagnostics as well. We believe the companion diagnostics are key to getting the right treatment to the right patient., but we have two different types of diagnostics that we are developing a set of both, molecular diagnostics that are intended to guide physicians towards understanding what's the singling addictions are that drive tumors that are critical to treating the patient more specifically.

We are also developing a set of imaging agents that we believe can understand the critical elements of both tumor physiology in the microenvironment of the tumor that not only influence the tumor's development, but also have a substantial impact on the activity of different therapeutic agents. Our goal as a company is to optimize all parts of the care equation both, the diagnostic component and treatment in order to develop whole new regimens that can create transformative outcomes in cancer. In sum, part of the company, we've achieved some real scale in our developments with over 15 clinical studies underway across all of the major tumor types and we are working with over 350 clinical sites all around the globe.

So, with that overview, let me turn now to some specifics of company, our progress in the past quarter. It's been a very exciting quarter in terms of our progress in the clinical site, and I am going to turn to page six now and talk about updating specifically our guidance for studies we've expected in this year 2013 and 2014, specifically around 121.

So, on a big picture, we had expect to report on four different clinical studies in 2013 and I can now inform you that we expect to report on six different studies in 2013, so we've done a very good job overall, I believe, on rolling our studies and I'll talk specifically about the programs now.

So, for 121, which is our monoclonal antibody directed ErbB3. It's an ErbB3 inhibitor and the first one that's entered the clinic that has partnered in a global deal with Sanofi. We had expected to have results from three different clinical studies in 2013, and we now expect to reporting topline data on five studies in 2013. One of those will be in the first half and four in the second half of the year.

A summary of this is shown on slide six, and so let me walk you through them one-by-one. Previously we had given guidance of the expected two studies in the first half of this year. The first was a Phase II study and in non-small cell lung cancer combining 121 with erlotinib in patients in the second line treatment who had mutated EGFR status.

We also had enrolled study in combination with exemestane with 121 that was in second line patients with ER/PR+ breast cancer. We still expect the second line study in mutated EGFR patients in combination with Tarceva to report in the first half of the year and the months ahead. However, with the combination study with exemestane, we now expect that to be sliding into the second half of the year. That's simply based on just slightly slower recruitment on that trial than we expected over the past quarter.

In the second of 2013, we now expect four studies versus one, and on top of the second line study in combination of exemestane and ER/PR+ breast cancer, we expect to report topline data on the following three studies. The first is a combination of 121with paclitaxel in the neoadjuvant setting for ER/PR+ patients. That is on track with our past guidance and then the two new studies that we had previously anticipated reporting on in 2014, we are now moving into the second half of 2013.

First of those is the ovarian study, looking at the combination of 121 and paclitaxel in second line patients who have become platinum resistant. That is now early and expected study that has concluded much more quickly than expected and we're very thrilled about that case.

The second study that we expect to now read out in the second half of this year is a second cohort of patients with non-small cell lung cancer that are treating patients with the wild type EGFR receptor in combination with 121 and erlotinib, and guidance on that one also in 2014 and we're now moving that up into 2013.

As far as 2014 is concerned, we still expect two other studies for 121 in 2014. The first line study with mutated EGFR patients in non-small cell lung cancer setting, we expect in 2014 in neoadjuvant trial in triple negative breast cancer. We expect that to report in 2014. So, in sum, for 121, all we expect to report to five different study indications for 121 this year versus three and we are encouraged by that progress enrolling patients in our studies.

With respect to MM-398, when we last updated NAPOLI study, which is our Phase III study of MM-398 in second line pancreatic cancer, [that] study back in November. We actually just been through an amendment process where he had added third arm to study and increased the size of the study from 270 to 405 patients. And back in November, when we updated that study, we know that we had just seen a couple of months of enrollment data based on the submission accustoms of the amendment in the majority of our sites.

At this point, we've now seen five months of data and actually we've seen all of our sites get on the amendment now, and so we have a much better sense of where that study is tracking to. So, based on the improved data from enrollment in the post-amendment setting, we're now moving our expectations for topline data results for that Phase III study into the second half of this year. Our prior guidance was mid-2013, which includes the second and third quarter; we're now shifting that one out to the second half to the third and fourth quarter.

Essentially, what we are sensing that study with the amendment is that the last cohort of studies to get on the amendment took longer to get through the regulatory processes endowment than expected enrollment at each of the sites has actually progressed as we would expect and as we have expected in the study, so enrollment continues to go well, we're now looking that data one quarter later than we expected.

So, that's the update on our guidance for those studies that we expect in 2013 and 2014, and so with that, let me turn to slide seven if you are following and talk specifically about 398, and address a couple different things that have come up as we have talked to investors over the past couple months about 398 and really try and help differentiate it from both, the competition and understand why we advanced it in clinical setting.

So, first off 398 is a nanotherapeutic encapsulation of irinotecan. Irinotecan is a chemotherapy that's been used throughout the years in treatment of various types of cancer, but specifically 398 is not simply a reformulation of irinotecan. It's actually a highly engineered drug that we have designed to treat hard-to-treat hypoxic tumors.

What we have done with the nanotechnology is created a very stable drug that allows us to accumulate more drug specifically in the tumor as opposed to systemically to reduce systemic circulation, importantly retain that drug in the tumor for very long half-life, so that we get a much higher duration of exposure of the tumor to the chemotherapy really changing the biology of what the chemotherapy can accomplish. And then lastly, we're able to accomplish local activation of SN-38.

Irinotecan is a pro drug and needs to be broken down at SN-38, which is really active form that results in the depth of tumor cells and we activate that locally getting them both at topical activity of the drug in tumor. Specifically for 398, it's engineered to be taken up by macrophages, which is a type of immune cells that actually surround and encompasses tumors that have very poor blood supply, and so we're actually looking to use these macrophages to traffic 398 in these hypoxic environments and treat these very hard to treat tumors.

So, one of those hard-to-treat tumors is pancreatic cancer. It typically is hypoxic. It typically has very poor blood supply and this being very complex mechanistically and having to choose like stromal tissue around it that make, it gets harder to get drug to, so 389 is really attempt at solving that problem by creating a high accumulation of drug in tumors with leaky vasculature and second using the advantage of these macrophages around these hypoxic tumors to not only traffic the drug, but also to break it down locally and get the highest degree of activation.

So, if we turn to page seven on the slide, I want to specifically how this plays into a clinical advantage and compare it specifically to another type of drug delivery technology and use example of Abraxane.

Abraxane is a drug that's been developed by Celgene. It's approved in breast cancer and recently had some positive results in first line pancreatic cancer that were very encouraging. And as the drug delivery technology is representative of lot of other drug delivery technologies which are really looking to increase the drug by ability to get more drugs in the blood. And, the important part about chemotherapy that we saw with our research, is that getting more drug to the tumor is important, getting more drug to the tumor increases the toxic concentration locally for the tumor increases the likelihood that you can get to toxic concentration to tumor cells, but one of more important variables is actually the duration of exposure and the reason that is, is because chemotherapies tend to kill tumor cells when they're going through cell division. The most aggressive tumor tend divide only every two to three days, so when you have drugs or chemotherapies that have hours of a half-life in the tumor, you're only getting exposure or toxic exposure to a small percentage of tumor cells that are actually going through cell division unless you have a limited set of cells, you even have the opportunity to kill.

What we're doing with 398 is, we've created a technology that has an extremely long half-life, and so it creates hundreds of folds change in the area under the curve in the tumor and the actual exposure the tumor gets to the technology. So if you see slide, what you can see is that the sustained intratumoral levels of both, the drug irinotecan or the active form SN-38 goes out into the hundreds of hours relative to something like Abraxane, which actually has a slight increase in its exposure to tumors just during the first few hours after administration.

All that's driven by the of the drug and the technology that we've used to make these nanoparticles, which we think gives a significant advantage of other drugs in technologies and we think this can result in enhanced activity in the clinical setting.

So, if we turn to page nine, and let's talk now briefly just about the design of the 398 study given that we'll be looking for data on this later this year. Again, it's a Phase III study in second line pancreatic cancer for patients who have received prior gemcitabine-based therapy. Patients are being randomized into three different arms in that study. The first arm of the study is the controller, where we're treatment those patients with 5-FU leucovorin, which is a common therapy for patients who have failed gemcitabine-based therapies in pancreatic cancer.

The second arm, the patients are being randomized into is, monotherapy arm treating patients simply with 398. They are getting that drug once every three weeks and 120 milligram per meter square of dose. And, the third arm of the study is, arm that we added under amendment which is a combination of 5-FU leucovorin and 398 in the case where 398 is given in 80 mgs per meter square at every two weeks in combination with 5-FU leucovorin. So, those were the three arms that's a roughly, it's a one-to-one on randomization. We're looking for about 135 patients in each arm of the study and we expect to report out all the arms at the same time in the study later this year.

With that we quickly turns to just a quick update on MM-121. This is another of our late-stage programs, so we're expecting a considerable amount of data this year. MM-121 is a monoclonal antibody to ErbB3. With the first ErbB3 that has entered the clinical and it's partnered in a deal with Sanofi, one of the top oncology companies in the world that we are developing this for a whole series of different tumor types and indications.

Essentially what our technology discovered years ago is that ErbB3 plays a central role in the survival and resistance that tumors have traditional therapy. Our technology was able to discover one ErbB3 based on looking at singling as opposed to more typical screens for pharmaceutical agents are target, where ErbB3 is not over expressed and it doesn't have a kinase. It's not mutated, so there is no symptomatic level that is typically involved in tumors. We built our model of singling this pathway, we saw that really served as a grand central station, a key singling note for the survival of tumors that are activated and driven by singling through this pathway.

We are developing 121 in combination with a multiplexed assay that we call DX-121, which is a series of protein measured that we used to pre-clinically to be able to predict which types of models, tumor models or cell lines would actually respond to 121 that we are testing in the Phase III program in aggressive way that's hopefully going to set us up for screen patients who we only believe will be possible to respond in future studies.

Currently, the program is in seven different clinical indications. There are three in the breast cancer space in ER+ breast cancer in both, the neoadjuvant in the second line setting and the third study in the breast cancer space and triple negative breast cancer in the united setting. You have the Phase II study in ovarian cancer underway and then we have three different cohorts in non-small cell lung cancer testing 121 in both the front line EGFR population with Tarceva in the second line using EGFR population again with Tarceva. And then in the wild-type EGFR population in combination with Tarceva.

So, specifically let me talk a little bit about the study we expect to report out in the next couple months at Merrimack during the first half of the year and that is a Phase II study in non-small cell lung cancer. It's the third cohort, one we refer to internally as (Inaudible). These are patients who have received erlotinib or Tarceva in the front line setting who have mutant EGFR tumor status and they have progressed on that therapy. They are getting a combination of 121 and erlotinib, and I think most importantly for the study this is an uncontrolled study. There is no approved product for patients who have progressed in the second line setting with mutant EGFR status, and so there was no ethical control for the study.

Our goal for the study as we have talked about before is really understanding biomarkers in this patient population, so there are 50 patients that we're looking for in total and we're really looking to understand the biomarkers signature patients that can inform us for future studies in this space with 121 and potentially other agents. We are expecting now to have top line results in the next couple of months look forward to reporting on that in the time ahead.

Lastly on page 12, let me just quickly summarize what we are seeing for progress on our other therapies. 111 which is our bispecific antibody, targeting both HER2 or ErbB2 receptor and ErbB3 that we have designed specifically to treat a mechanism of both resistant in the HER2 positive setting as well as patients who have lower levels of HER2 in a non-traditional HER2 setting. That is underway in terms of we are preparing to launch a global Phase II study in gastric cancer looking at two different patient populations. Those patients who become resistant to traditional therapies in the second line setting and patients in the non-traditional HER2 space who have lower levels of HER2 receptor after they have progressed on first line chemotherapy, and we expect to have news on that launch coming in the days ahead.

We expect other therapies MM-302 is our second nanotherapeutic. It's a HER2 antibody targeted encapsulation of doxorubicin that is progressing both through a Phase I monotherapy as we well as we have now expanded into Phase I combination therapies that are making nice progress.

Our other Phase I assets MM-151, which is our oligoclonal EGFR antibody that is making progress in its Phase I, and we are preparing to start later this year some combination studies with that and then MM-141 which is our sixth candidate in the clinic which we entered last fall is making steady progress in its monotherapy Phase I as well. MM-141 is our comprehensive IGF pathway singling inhibitor and it's a bispecific antibody like some of our other technologies.

So, that's a quick summary of our pipeline. We do have a couple of preclinical programs, MM-310 and MM-131, which we have not released information on what we are targeting there yet, but we expect to do so in the months ahead and then we have one other product candidate. It's a diagnostic product candidate; we call DX- 929, which is an imaging agent that we use with our nanotechnology that encapsulates a radioactive copper such that we can measure drug accumulation in specific tumors to help direct our nanotherapeutics that we are expecting to enter into the clinic this year as well. So, that's a quick summary of where we are with respect to our pipeline.

With that, let me introduce you to Bill Sullivan, our CFO, who is going to talk about our financial results.

William Sullivan

Thanks, Bob, and good morning to everyone. The summary of our Q4 2012 and full year 2012 financials were included in the press release we issued this morning our three areas of focus for today. First, I'll discuss our financial highlights from Q4 2012. Second, I'll discuss our newly established loan facility, which we also on last quarter's call. And third, I'll provide financial guidance.

Regarding Q4 2012 financials, we reported a net loss of $24.9 million for the quarter. Collaboration's revenues totaled $14.2 million for the quarter. The majority of this revenue related to our license and collaboration agreement with Sanofi for the development and commercialization of MM-120. Research and development expenses totaled $34.6 million for the quarter, and as were expected, were driven largely by the development of our six clinical product candidates.

General and administrative expenses totaled $4.2 million for the quarter, approximately 10.7% of total operating expenses. As we discussed in last quarter's call, on November 8th, Merrimack closed a $40 million facility with Hercules. Under this agreement, Merrimack received an initial loan against the $25 million at closing pipeline. During December, Merrimack elected to drawdown on the remaining $15 million.

As a reminder, assuming no increase in the rate above 5.25% over the life of the loan, Merrimack's effective interest rate on the $40 million is approximately 12% after factoring in fees and our coupon rates.

Finally, let me turn to our financial guidance. We expect unrestricted cash and cash equivalents and available-for-sale securities on hand as of December 31, 2012 of $110 million to Sanofi reimbursements to be sufficient to fund operations into 2014. As we have previously said, we are currently working on business development transactions for other programs outside of the U.S. and Europe, giving us the potential to push our cash burn rate even further out.

Now, I'll turn things back over to Kathleen.

Kathleen Gallagher

Thank you, Bill. Before closing, I just want to remind that we'll be presenting in a few upcoming events in the next few weeks. The one most of note is, we'll be presenting posters and have two oral presentation that the Annual Meeting of AACR in April. One oral presentation on MM-121 and one on MM-111, and more will come on those in the coming weeks.

With that, we'd like to open up line to questions.

Question-and-Answer Session


(Operator Instructions). Our first question comes from Gene Mack with Brean Capital. Please go ahead with your question. Gene, Your line is open. Could you try pressing the mute button possibly?

Our next question comes from Geoff Meacham with J.P. Morgan. Please go ahead with your question.

Unidentified Analyst

It's actually Mike in for Geoff. Thanks for taking the question. Just curious on the 398, and sort of your strategy beyond pancreatic cancer and kind of how you are prioritizing other indications and sort of are you thinking about development there sort of where you are in the process? Thanks.

Robert Mulroy

Thanks for the question. So, one of the most important studies we have underway is actually a diagnostic study for nanoparticles that's called the PET trial, where we are looking at the several different diagnostics that we are developing for our nanotherapeutics program. One of them is 929, which is a nanoparticle with copper-64 inside and it gives us an indication through imaging of where these nanoparticles are accumulating, and so what we are trying to take advantage of there is essentially a principle that all large molecules take advantage of treating cancer, something called EPR effect where most tumors since they are growing quickly, they tend to form very poor blood supply, so the vasculature tends to be very leaky as opposed to very heavy form punctures of the cells in healthy vasculature and you can use that to your advantage with the large molecule. They will only escape the blood vessels where you have the leaky vasculature, so we can actually measure the effects and we have shown that clinically and presented that with this copper-64 based nanoparticle agent.

We're also looking at some other diagnostic agents that allow us to look at macrophage content and all that. So essentially from a perspective of developing 398, where we see it's in these tumors that are hard to treat, have poor blood supply and tend to be hypoxic, because it's designed to be taken up by macrophages, and so pancreatic cancer is certainly one of those areas and so with some evidence hopefully if efficacy in the second line setting, we would like to be moving forward towards the first line setting.

There are other indications like cervical cancer, where you tend to have a high percentage of patients who have hypoxia and then there are broader sort of clinical opportunities across all types of tumors where you tend to have this hypoxia in percentages across all the tumors where it would be critical to have a diagnostic agents, because it's certainly not all the tumors and then you have other opportunities in just the treatment settings where therapies such as radiation tend to wipe out blood vessels and create these situations, create this hypoxia. And, so we could imagine testing 398 in settings in combination or just after ration therapy, so there's a pretty broad range of opportunities across all tumor types.

And then in combination with certain types of other therapy like radiation, but key to moving forward on that is building these diagnostics, so that we're not fishing for those, because it's really just the physical principle of where we can accumulate 398 and we can see that with imaging are the patients who are going to do better on this, because they’re going to get many folds higher drug exposure than will in traditional chemotherapy, so the a simple diagnostics of ours to sort that those trials are underway. We expect to have results this year then be able to come back with a very formal sort of program based on the specific data we have from that study.


Our next question comes from Brett Holley of Guggenheim Securities. Please go ahead with your question.

Brett Holley - Guggenheim Securities

Yes. Thanks for taking the questions. I'm wondering about the nature of the topline results for 121. I mean, obviously, the primary end point is PFS. I guess, what biomarker results might we expect in the top line release? I guess secondarily, what are the secondary endpoints might we get? I assume response rate, but I assume not overall survival. Can you give me a little bit more color on that?

Kathleen Gallagher

Hey, Brett, it's Kat. Thanks for the question. As far as the topline release goes, you usually have to be, you can't really put a ton of information in there. What you are most likely going to see in this is did we meet the primary endpoint or not and the biomarkers is actually secondary endpoint, so our goal with this would be to say whether or not we were able to do detect anything through the biomarker, so really you unfortunately, so that we can present at conferences down the road we can't be very explicit on our topline results for really any of our studies, so what you are probably going to see is did we meet the primary endpoints or not and did we see enough evidence through the biomarkers to actually draw any conclusions there and so those would probably be the two key things that would be in the topline press release.

Brett Holley - Guggenheim Securities

And then when might you anticipate giving the first detailed data from that trial?

Kathleen Gallagher

So, we're actually working with Sanofi on basically when our presentation will be for the Group C data. It may actually make more sense for us to present multiple of the arms together rather than individually, so we're still working that actually with our partner.

Brett Holley - Guggenheim Securities

Okay. Then I think this is for Bill. I'm just wondering on the transaction front. I mean, are you talking about Pan-Asian deals, or how you're thinking about structuring those deals outside of Europe and the United States? And I guess, how can we think about generally, how can we think about the terms? In which programs might be your highest focus or the highest level of interest right now?

Robert Mulroy

Hey, Brett. This is Bob. I'll take that. So, we are involved in a pretty broad range of different types of business development discussions right now. So, as you could imagine with five in the clinic and two more therapeutics that are going through sort of the preparation for IND process, there's seven un-partnered clinical stage assets there and antibodies and you got nanotherapeutic technologies as well and companion diagnostics to go with them and so we actually had discussion that broad range, different territories and regions weather one product and multiproduct and it depends on different interests of different types of partners.

I think, we aren't looking to be any more specific than that, because we're still in a number of these conversations, and I want to see them get to full fruition, but hopefully our expectation as we said recently is that we've made enough progress here to believe that we will be closing some of the transactions this calendar year and don’t want to sort of go too much further than that given we're just in the midst of many of these different conversations right now, but I think as we said in the IPO process the perfect situation for us would be to retain rights in the U.S. and Europe for our existing programs that go beyond 121 and that's our objective in this and hopefully during the course of this year, when we actually are able to get the transactions out, we can tell you how we did on those results, but we actually are looking at a pretty broad range of types of transactions.

Brett Holley - Guggenheim Securities

Okay. Thanks very much. Appreciate it.


I'd like to turn the conference back over to management for closing comments at this time.

Kathleen Gallagher

Okay. Everybody, we want to thank you for joining us today and we look forward to keeping you updated as we move forward. We'll talk to you at the end of the next quarter. Thanks.


Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.

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