U.S. Markets closed

Edited Transcript of MACK earnings conference call or presentation 7-Nov-18 1:30pm GMT

Q3 2018 Merrimack Pharmaceuticals Inc Earnings Call

Cambridge Jan 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Merrimack Pharmaceuticals Inc earnings conference call or presentation Wednesday, November 7, 2018 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daryl C. Drummond

Merrimack Pharmaceuticals, Inc. - Head of Research

* Geoffrey Grande

Merrimack Pharmaceuticals, Inc. - Senior Director of Communications

* Richard Peters

Merrimack Pharmaceuticals, Inc. - President, CEO & Director

* Sergio L. Santillana

Merrimack Pharmaceuticals, Inc. - Chief Medical Officer

================================================================================

Conference Call Participants

================================================================================

* Colleen Sheahan

* Marc Alan Frahm

Cowen and Company, LLC, Research Division - VP

* Tessa Thomas Romero

JP Morgan Chase & Co, Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, and welcome to the Merrimack Pharmaceuticals Third Quarter 2018 Financial Results Conference Call. (Operator Instructions)

I would now like to introduce to you your host for today's call, Geoff Grande, Senior Director of Communications at Merrimack.

--------------------------------------------------------------------------------

Geoffrey Grande, Merrimack Pharmaceuticals, Inc. - Senior Director of Communications [2]

--------------------------------------------------------------------------------

Thanks, Amanda. Good morning, everyone, and thank you for joining us on today's call to discuss the outcome of our portfolio review and our third quarter 2018 financial results. A press release outlining these results became available at 7:00 a.m. Eastern Time today and can be found in the Investors section of our website, merrimack.com. This call is being broadcast live and will be archived on our website for 6 weeks. Joining me on the call today is Dr. Richard Peters, our President and Chief Executive Officer.

Before we begin, 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 time lines 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.

I'll now turn the call over to Richard.

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Geoff, and thank you all for joining us today. This morning, alongside our third quarter earnings, we announced significant changes to Merrimack, including a corporate restructuring with scaled back development plans. On today's call, we will highlight our rationale around these important but difficult decisions as we outline our plans for Merrimack going forward.

In October, we reported results from an interim analysis of the SHERLOC study, our Phase II trial evaluating MM-121 in non-small cell lung cancer. Unfortunately, these results demonstrated that MM-121 did not offer an improvement in clinical outcomes to patients in this indication. We, therefore, made a swift decision to terminate the SHERLOC study due to futility and announced that we will be diligent in conducting a comprehensive review of our business.

In addition to assisting the continued development of MM-121, which was also being evaluated in the SHERBOC study, our companion Phase II trial in metastatic breast cancer, we took a close look at our entire drug candidate pipeline and our corporate strategy more broadly. Ultimately, we weighted many factors to identify what we consider the key drivers of Merrimack's future. We determined that a corporate restructuring to reduce operational costs provides the best path forward toward maximizing value. Importantly, extending our runway preserves our ability to capture outstanding milestones from Ipsen, which we still intend to pass through to shareholders, net of any taxes owed and subject to there being a sufficient surplus at that time. In addition, we intend to prudently advance the programs that are most likely to generate value in the short term.

To achieve this, we are reducing our workforce by approximately 60%, including the elimination of all open positions, to be initiated immediately and completed by February 2019. Naturally, this was an extremely difficult decision for us and one we did not take lightly. We are immensely grateful to our team for their contributions to Merrimack, and we regret the impact of this restructuring on our affected members and their families. Of course, we will do all that we can to help them during this transition.

In total, this restructuring, together with other restructuring and cost-cutting measures that we could implement in the future, provide us with the potential to extend our cash runway into at least the second half of 2022. In parallel, we have retained external advisers to explore strategic alternatives. These advisers will work with me, along with our executive leadership team, as together we will be keenly focused on exploring strategic alternatives for the company in the near term.

Turning now to our pipeline. Merrimack will continue to develop a slimmed-down version of the pipeline of targeted, novel therapeutics for the treatment of cancer and remains committed to our efficient biomarker-driven development strategy. We have narrowed the scope of our development efforts in light of the strategic review and reflective of the company's leaner operations.

First, regarding MM-121, we have decided to terminate our ongoing MM-121 programs, including the SHERBOC study in metastatic breast cancer. This was a decision based on multiple inputs, including the disappointing results of the lung study announced a few weeks ago, which would likely result in a higher bar required for a successful signal in breast cancer in order to secure funding for a Phase III trial, coupled with our more immediate need to preserve cash to extend our runway. Of course, we are disappointed by this outcome. However, we believe this is the right decision given the data in hand and the capital required to advance MM-121 on our own. We sincerely thank patients, families, caregivers and investigators for their participation in both the lung and breast cancer studies.

Moving on to what is now our lead clinical candidate, MM-310. As you know, MM-310 is an antibody-directed nanotherapeutic that targets the ephrin A2 receptor and contains a novel chemotherapeutic agent. As the ephrin A2 receptor is overexpressed in many solid tumors, including ovarian, bladder, gastric, pancreatic and lung cancers, we are developing MM-310 for the treatment of multiple solid tumor indications. It is currently being evaluated in an ongoing Phase I clinical trial.

We have been enrolling patients in the dose-escalation portion of this study and previously guided that we expected to report safety data, including a maximum tolerated dose, by the end of 2018. After treating the first 14 patients in the first dose-escalating regimen in the Phase I clinical trial of MM-310 in solid tumors, the study has been amended to test an alternative dosing schedule. Early data have shown encouraging signs of anti-tumor activity in 4 patients, including 2 non-small cell lung cancer patients, 1 soft tissue sarcoma patient and 1 ovarian cancer patient who also demonstrated a 70% reduction of CA-125, an associated tumor biomarker. However, we have not been able to reach the maximum tolerated dose on the current dosing regimen as cumulative Grade 3 peripheral neuropathy was observed in 3 patients. Pharmacokinetic and preclinical data indicate that lengthening the time between dosing may improve tolerability of MM-310. So after treating the first 14 patients in dose escalation, we have taken steps to dial in the optimal treatment regimen by extending the dosing interval from every 3 weeks to every 4 weeks and have implemented proactive measures to manage early signs of neuropathy.

The clinical protocol has been amended, and we have begun screening patients for enrollment who would be treated every 4 weeks and dosed starting at the highest level reached on the prior regimen. Importantly, this means we will not have to start the dose escalations again from scratch. As a result, we now expect to provide an additional safety update for this optimized regimen in the first quarter of 2019. We are encouraged by these early signs of activity, and pending positive results, intend to test the drug in tumor types associated with overexpressed ephrin A2 receptors.

Finally, let me provide an update on our discovery efforts. In connection with today's restructuring, we are also narrowing the scope of our preclinical pipeline to prudently advance our 2 most promising candidates: our previously undisclosed immuno-oncology program, MM-401, an agonistic antibody targeting a novel immuno-oncology target, TNFR2; and MM-201, a highly stabilized agonist-Fc fusion protein targeting death receptors 4 and 5.

We are encouraged by available preclinical data from both of these programs, and we'll be featuring data from MM-401 at the 30th EORTC-NCI-AACR Symposium on November 14 in a poster titled, Targeting TNFR2 - A Key Regulator of the Tumor Immunosuppressive Microenvironment, which highlights robust responses in multiple mouse tumor models to MM-401 as a monotherapy, including in PD-1 antibody-resistant tumors, as well as in combination with checkpoint inhibition. Again, both of these programs will be advanced prudently as we preserve capital, and we look forward to providing additional detail about them in the future.

Our Chief Financial Officer, Jean Franchi, cannot be with us today due to a family emergency. In her absence, I will provide an overview of our financials, which were provided in this morning's press release. Before discussing our quarterly results, I want to briefly touch on a few recent financial highlights that occurred in the third quarter and more recently.

As mentioned on last quarter's call but reflected on this quarter's books, in August, Shire reached a milestone relating to the sale of Onivyde in 2 additional major European countries, which triggered an $18.0 million payment to Merrimack, resulting from Merrimack's asset sale to Ipsen in 2017. In addition, and also as announced previously, in September, we received a $5 million milestone payment resulting from the sale of Onivyde in the first major non-European, non-Asian country.

New today, we have announced that in October, subsequent to the quarter close, we received $5 million of the $10 million milestone for the first patient dosed in a pivotal clinical trial of Onivyde in an indication other than pancreatic cancer. Specifically, this was triggered by the commencement of a multi-part study that Ipsen and Servier, the company that acquired the Shire oncology portfolio, are conducting in small-cell lung cancer. The remaining $5 million will be paid if and when a decision is made by Ipsen and Servier to progress to the randomized part of the study focused on efficacy.

Now I'll provide a summary of our financial highlights for the third quarter, which are outlined in greater depth in today's press release. Our total operating expenses for the third quarter ended September 30, 2018, were $16.8 million compared to $17 million from continuing operations for the same period last year. This represents an expense reduction of $0.2 million compared to the same period last year.

We ended the quarter with $84.8 million in cash, cash equivalents and marketable securities compared to $93.4 million as of December 31, 2017. As a result of this restructuring announced today, we believe our cash position as of September 30 plus the $5 million Onivyde milestone received in October but excluding any potential additional milestone payments, together with other restructuring and cost-cutting measures that could be implemented in the future, provide Merrimack with the potential to fund operations into at least the second half of 2022.

Separately, as these cost-cutting measures were initiated to preserve our ability to receive the outstanding milestones from Ipsen, we would like to remind you once again of those potential milestones resulting from the company's 2017 asset sale. Merrimack is eligible to receive up to an additional $5 million in milestone payments triggered by Ipsen's and Servier's decision to progress its ongoing multi-part clinical trial evaluating Onivyde in small-cell lung cancer into the randomized part of the study focused on efficacy. And Merrimack is eligible to receive up to an aggregate of $450 million in regulatory-based milestone payments from Ipsen, which we have previously said that we plan to pass through to shareholders, net of any taxes owed and subject to there being sufficient surplus at the time.

So as I conclude my remarks, today is an important but very difficult day for Merrimack. It is hard to say goodbye to members of our team who have been with us for many years and who have contributed greatly to our efforts. Again, we wish them luck and thank them for their commitment. However, we are confident that this restructuring reflects the best interests of the company to preserve its value long term. As mentioned, we'll be featuring encouraging data from MM-401 at EORTC next week, and we look forward to providing an additional safety update from our Phase I study of MM-310 in solid tumors in the first quarter of 2019.

With that, I'd like to thank you all for joining today's call, and we will now open up the line to any questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from the line of Marc Frahm of Cowen and Company.

--------------------------------------------------------------------------------

Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [2]

--------------------------------------------------------------------------------

Can you maybe give us a little bit more clarity on kind of the, one, if you have any estimates on, like, onetime charges that you may need to take in the restructuring and then also kind of the share of R&D expenses that have been attributed to MM-121 and kind of the pace at which those could come out now that you've made the decision to close SHERBOC?

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Well, thank you, Marc. It's Richard. Yes, of course, it's difficult day for us but one that we think was important to take in terms of the restructuring and extending our cash runway into at least the second half of 2022. With regard to the onetime restructuring charges, we estimate for the headcounts would be between $1.5 million to $1.75 million. That's for the headcount restructuring. With regard to the burn around the MM-121 programs, clearly those programs, both the SHERLOC study and the SHERBOC study now, so the 2 Phase II randomized trials, are expensive trials, right? They are Phase II randomized studies. So we expect that we'll be closing them out. That takes some time to close out a study. We're not closing them out from a safety reason, right? It's -- we're closing them out because from a strategic perspective on SHERLOC, clearly we didn't see an improvement in progression-free survival. And SHERBOC was more of decision of, like, that's the most sensible decision to take at this time, given all the inputs that we have taken into consideration. So that will take some time. We'll be providing over time updates on our expenses and cash runway. What we can say at this stage right now, Marc, is that when we take -- the measures we've taken today, trimming down the programs, focusing on a narrower set of initiatives, restructuring the company with a 60% reduction in workforce and with the potential of taking some additional cost-cutting measures and adjustments, we expect that we can extend our cash runway. If you recall, our prior guidance for our cash runway was into Q1 2020, and today, we are announcing that we can potentially reach at least into the second half of 2022, so roughly an additional 2.5 years. And again, the intent there is to really preserve and enhance the ability of Merrimack to be in a position to capture the long-term Ipsen milestones, which we've indicated we intend to return to our shareholders.

--------------------------------------------------------------------------------

Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [4]

--------------------------------------------------------------------------------

Okay, and then just quick ones on MM-310. So just the peripheral neuropathy that was observed, was that with patients at the highest Q3 week dose? Or was it at lower doses that you were seeing it?

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes, thank you for that question, Marc. I'm going to ask Sergio Santillana, our Chief Medical Officer, to answer that question.

--------------------------------------------------------------------------------

Sergio L. Santillana, Merrimack Pharmaceuticals, Inc. - Chief Medical Officer [6]

--------------------------------------------------------------------------------

So we observed that at 2 dose levels that were more related to cumulative or subsequent number of courses.

--------------------------------------------------------------------------------

Marc Alan Frahm, Cowen and Company, LLC, Research Division - VP [7]

--------------------------------------------------------------------------------

Okay. And then I guess when we think about the dose -- you're transitioning from, I guess, the highest dose you've tested at the Q3 week to using that same dose on a Q4 week. How does that total docetaxel dose on a, I don't know, on a cycle basis compare to what's in the label, free docetaxel dosing schedule?

--------------------------------------------------------------------------------

Sergio L. Santillana, Merrimack Pharmaceuticals, Inc. - Chief Medical Officer [8]

--------------------------------------------------------------------------------

I'm going to ask our Head of Research because that's a very interesting question you're [working on there].

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [9]

--------------------------------------------------------------------------------

Daryl Drummond, our Head of Research, will answer that, Marc.

--------------------------------------------------------------------------------

Daryl C. Drummond, Merrimack Pharmaceuticals, Inc. - Head of Research [10]

--------------------------------------------------------------------------------

It's obviously challenging to get that because this is a novel prodrug of docetaxel that's encapsulated. So the actual amount of docetaxel that's in the circulation is only equivalent to 2% to 5% of what's currently seen with docetaxel when it's given in its free form of Taxotere, for example. So you really can't compare the 2 directly. What we can say is that we've modeled out the pharmacokinetics and looked at the differences in clearance rates, and we see a differential clearance from the tumor compared to the skin, which is in the area that gives rise to the neuropathy. And we do see that at later times, those curves, while they are separated at the current spot, they separate even further when you give more time.

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [11]

--------------------------------------------------------------------------------

And I would also say, Marc, it's not atypical in Phase I programs to have to kind of dial in the optimal dose and the optimal schedule regimen. And given the fact that [to know] we've seen some encouraging signs of activity, we've got this challenge with the cumulative doses that eventually lead to peripheral neuropathy. We've made this change. The amendment is already in place. We can go now to -- from every 3 weeks to every 4 weeks. We also have measures in place to have an aggressive dose reduction and interruptions in the event that patient develops Grade 1 at the beginning of neuropathy. So all these measures have been put in place in the protocol amendment. And so we are able to take that highest last dose from the every-3-week regimen and put it -- and plug it into every 4 weeks, which gives us confidence that in Q1, so in next quarter, we'll be able to provide a safety update based on this amendment.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

And our next question is from the line of Anupam Rama of JPMorgan.

--------------------------------------------------------------------------------

Tessa Thomas Romero, JP Morgan Chase & Co, Research Division - Analyst [13]

--------------------------------------------------------------------------------

This is Tessa filling in for Anupam this morning. And then maybe one from us on the strategic update here. Is there an internal goal for the time line you have to explore strategic alternatives? And what is the range of options that you foresee?

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Yes. Good morning, Tessa, and thank you for both questions. Yes, as we mentioned, we -- as the Director of the Board of Directors, we have engaged with external advisers to explore strategic alternatives. With regards to the time line, we want to make sure that we let this process play out. But rest assured that, as I mentioned in my introductory comments, I and the entire executive leadership team would be keenly focused and working closely with our external advisers who will work not only with us but also with our Board of Directors to advance this process swiftly. With regard to what's in scope, again, we want to make sure that we keep everything open, and we want to make sure that the process plays itself out.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from the line of Mike Ulz of Baird.

--------------------------------------------------------------------------------

Colleen Sheahan, [16]

--------------------------------------------------------------------------------

This is Colleen on for Mike this morning. For MM-310, is there any other color you can provide on the safety profile that you've seen in the first 14 patients? And do you have any sense of roughly how many more patients we'd expect in the next safety update in 1Q?

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [17]

--------------------------------------------------------------------------------

Thank you, Colleen. It's Richard. I'm going to ask Sergio Santillana, our Chief Medical Officer, to provide a bit more color in terms of the overall safety parameters we've been able to collect from these first 14 patients. Sergio?

--------------------------------------------------------------------------------

Sergio L. Santillana, Merrimack Pharmaceuticals, Inc. - Chief Medical Officer [18]

--------------------------------------------------------------------------------

In general, the toxicity profile has been very low in terms of severity or intensity. We have only one what we call dose-limiting toxicity out of the 14 patients. So based on the original design, we could continue escalating the dose of regimen. However, the emergence of late accumulative neurotoxicity make us to decide to do the amendment. So far, the acute toxicity has been much lower than we were expecting with almost minimal hematological toxicity and very low grade of other toxicities. So beyond the cumulative neurotoxicity, we haven't seen any major challenge in safety so far in the 14 first patient -- in the first 14 patients.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

That does conclude our question-and-answer session for today. I'd like to turn the conference back over to management.

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [20]

--------------------------------------------------------------------------------

Amanda, sorry. There was a second part to the questions from Colleen, so we have answered the first part. The second part that Colleen asked is how many patients might we anticipate enrolling in this amendment?

--------------------------------------------------------------------------------

Sergio L. Santillana, Merrimack Pharmaceuticals, Inc. - Chief Medical Officer [21]

--------------------------------------------------------------------------------

Yes. So the dose escalation -- the method that we follow for dose escalation is not a fixed number of patients. So this is not a typical 3 plus 3 design. This is more a Bayesian design, which means depending of the emergence or non-emergence of toxicity, we can enroll and go faster, or we should go slow and enroll more patients. So it's difficult to predict how many patients, but we hope that we are going to be moving forward in different dose-escalation levels.

--------------------------------------------------------------------------------

Richard Peters, Merrimack Pharmaceuticals, Inc. - President, CEO & Director [22]

--------------------------------------------------------------------------------

And I would add, Colleen, is the fact that we're able to take the last highest dose from the every-3-week regimen and carry that one forward in the every 4 weeks and start with that one allows us to really move more swiftly. And this is the reason why we expect to be in a position to provide a safety update next quarter.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

And that does conclude our question-and-answer session. I'd like to turn the call back over to management for the closing remarks.

--------------------------------------------------------------------------------

Geoffrey Grande, Merrimack Pharmaceuticals, Inc. - Senior Director of Communications [24]

--------------------------------------------------------------------------------

Great. Thanks, everyone, for joining us and for your continued interest in Merrimack. We look forward to keeping you updated in the coming months.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.