Mersana Therapeutics, Inc. (0M40.F) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, and welcome to the conference call and live webcast Day One Biopharmaceuticals to acquire Mersana Therapeutics. [Operator Instructions] Please be advised that this conference call is being recorded. I would now like to turn the call over to Joey Perrone, Senior Vice President of Finance and Investor Relations. Please go ahead.

Thank you. Hello, everyone, and good morning. Welcome to Day One's conference call on the announced acquisition of Mersana Therapeutics. Earlier today, we issued a press release that outlines the transaction we are discussing today. You can access the press release and the slides to accompany this conference call on the Investors and Media section of our website at www.dayonebio.com. An audio webcast of the corresponding slides is also available on the website. Before we get started, I'd like to remind everyone that some of the statements that we make on the call and information presented in the slide deck include forward-looking statements as outlined on Slide 2. Actual events and results could differ materially from those expressed or implied by any forward-looking statements. We encourage you to review the various risks, uncertainties and other factors included in our most recent filings with the SEC and any other future filings that we may make with the SEC. These forward-looking statements are based on our current estimates and various assumptions and reflect management's intentions, beliefs and expectations about future events, strategies, competition, products and product candidates, operating plans and performance. You are cautioned not to place any undue reliance on these forward-looking statements, and except as required by law, Day One disclaims any obligation to update such statements. Today, I'm joined by Dr. Jeremy Bender, Chief Executive Officer; Dr. Michael Vasconcelles, Head of Research and Development; and Charles York, Chief Operating and Financial Officer. I will now turn the call over to Jeremy.

Thank you, Joey, and thank you all for joining us today. We are very excited to discuss our planned acquisition of Mersana Therapeutics, a company whose leadership and employees share our mission to develop transformative therapies for people of all ages living with life-threatening diseases. With this transaction, we are expanding our pipeline and creating a potential new growth catalyst for the benefit of patients and for our shareholders. This deal is a strong and strategic fit for Day One, a first-in-class program targeting an area of clear unmet need backed by compelling early data and a mechanism that aligns with our expertise in targeted oncology. We have an opportunity to create a meaningful new medicine and with it, build value by employing our development and commercialization expertise. We've done it with OJEMDA, and we see the same opportunity with emiltatug ledadotin or Emi-Le, Mersana's most advanced program. Adenoid cystic carcinoma or ACC, is a rare cancer that arises most often in the salivary glands, though also in other glandular tissues such as the breast, trachea, lacrimal glands or skin. Approximately 1,300 new cases are diagnosed in the U.S. per year in ACC. This is a devastating disease where there are no approved targeted therapies. Emi-Le targets a well-defined and underserved patient population. It is a Dolasynthen antibody drug conjugate that targets B7-H4 and has shown early potential as a monotherapy in certain hard-to-treat and rare cancers, including adenoid cystic carcinoma. Mike will provide more details on that in a minute. Given Emi-Le's early Phase I data in ACC-1, we believe there may be an opportunity to pursue an accelerated approval for Emi-Le in patients with aggressive forms of ACC. That patient population includes what is described by some in the field as ACC-1, we believe it also likely includes a broader group of ACC patients. We view Emi-Le as a potential first-to-market and best-in-class medicine for this disease. Following close of the transaction, we will discuss potential paths to approval for Emi-Le and ACC with regulators. That potential path may share many features with the path we established for OJEMDA in relapsed/refractory pediatric low-grade glioma. With the development and launch of OJEMDA, we've demonstrated the clinical and commercial capabilities needed to successfully bring a rare disease medicine to patients facing life-threatening diagnoses. This opportunity fits seamlessly with our strategy and extends the reach of our science, our team and most importantly, our opportunity to have a positive and transformative impact for patients. With that, I'll turn it over to Mike, who will share more about the science behind Emi-Le and why we believe it can become a transformative therapy for patients with ACC.

Thanks, Jeremy. First, as a clinician and medical oncologist, I'd just like to share why I'm so enthusiastic about the opportunity in front of us with emiltatug ledadotin or Emi-Le for patients with adenoid cystic carcinoma or ACC. As Jeremy has already mentioned, ACC is a rare cancer with about 1,300 patients diagnosed each year in the United States. With the median age of diagnosis at 58 and a wide range of ages at presentation, it's a cancer that often strikes patients in early or mid-adulthood. Fortunately, many patients may be cured or have long-term remissions with local therapy, specifically surgery and often radiotherapy or chemo radiotherapy. However, some patients present with locally advanced or metastatic disease or recur relatively soon after definitive local therapy, either local regionally or with distant metastases. Many of these patients present with aggressive features and for them, survival is short. Some reports suggest survival in this setting is less than 3 years. No approved therapy exists for patients with locally advanced or metastatic disease and available therapy is woefully inadequate. With response rates to standard chemotherapeutics in mid-single to low double digits, no survival advantage to treatment has been demonstrated. Clearly, we have work to do for patients with adenoid cystic carcinoma. Emi-Le is a B7-H4 directed antibody-drug conjugate, or ADC, developed using a proprietary linker payload design referred to as the Dolasynthen R-statin platform. This platform is comprised of a novel R-statin microtubule inhibitor, SHPA. B7-H4, the cell surface protein where Emi-Le binds on cancer cells is a compelling target in cancer for drug developers. It's highly expressed across several adult solid tumors, including breast, ovarian and endometrial cancers and most notably, adenoid cystic carcinoma. B7-H4 is also over expressed in osteosarcoma, a cancer predominantly with being children and young adults. Furthermore, B7-H4 has limited expression in healthy tissue. These are some of the attributes that make it a promising target for an ADC therapeutic medicine. Earlier this year at ASCO, Dr. Erika Hamilton and her colleagues presented interim Phase I data from their ongoing dose escalation and expansion trial in patients with presumed high expression of B7-H4 based on specific protocol-defined histologies. In her presentation, Dr. Hamilton reported antitumor activity measured by a 31% objective response rate in 26 evaluable patients in the intermediate evaluated dose range. In the high dose range, antitumor activity was also observed in 33 evaluable patients. More notable was the 55.6% objective response rate reported in a subset of 9 patients with ACC regardless of dose. Aggregate safety data presented across all dose groups and histologies in 141 patients suggested that Emi-Le was tolerable. The most commonly reported treatment-related adverse events included transient liver enzyme elevations, generally asymptomatic proteinuria, fatigue and nausea. Most of these adverse events were low grade. Dose reductions and dose delays for adverse events appeared manageable. Hematologic toxicities such as neutropenia and thrombocytopenia were infrequent as were other adverse events typically reported with R-statin-based payload ADCs, such as sensory or motor neuropathies or ocular toxicities. These data are notable not only for the breadth of early antitumor activity in this Phase I dose escalation trial, in other words, across multiple cancer histologies, but also a safety profile that appears manageable. Embedded within these promising early observations is the 55.6% objective response rate observed in patients with ACC. Since ASCO, patient accrual has continued and cohort expansion and dose optimization cohorts have been initiated. We've had the opportunity to review these data, which include a substantially greater number of enrolled and treated patients with ACC than the 9 patients reported at ASCO. Suffice it to say, these data in aggregate from this ongoing Phase I trial with Emi-Le are maturing and in our estimation, may have the potential to be transformational for patients with ACC. At Day One, we view these findings as a strong foundation for an emerging important story. As an R&D team, we've demonstrated our success translating early-stage oncology clinical data into successful product registration, and we see a clear path here to build upon our work. Pending the close of this transaction, our goal will be to advance Emi-Le with the same scientific rigor, patient focus and urgency that's brought Emi-Le to this point and that's guided every Day One program to date, too. We look forward to soon working with our colleagues at Mersana and the Emi-Le study investigators to rapidly progress toward registration of this promising new potential medicine for patients. I'd now like to turn the call over to Charles York to talk more about the financial overview.

Hello, everyone. This deal is exactly the type of opportunity Day One was built to pursue, a targeted high-impact program that aligns directly with our mission and our strengths. With the right science, the right team and the right balance sheet, we acted quickly and deliberately to bring this opportunity forward. Turning to the transaction details. We've announced our agreement to acquire Mersana Therapeutics, a clinical stage company with a promising antibody-drug conjugate. The acquisition is subject to customary closing conditions and regulatory approvals, and we expect the transaction to close by the end of January 2026. Under the terms of the agreement, Day One will offer $25 per share or $129 million in cash at closing plus a non-tradable contingent value right of up to an aggregate of $30.25 per share payable upon the achievement of specified clinical, regulatory and commercial milestones. The transaction will be funded entirely from our existing cash resources with no additional financing required. From a strategic and financial standpoint, this transaction is fully aligned with our long-term growth framework. It expands and diversifies our pipeline with a potential first-in-class B7-H4 directed ADC that has shown encouraging early clinical activity in adenoid cystic carcinoma, a tumor type with no approved therapies. Importantly, we've structured this agreement to balance immediate investment with milestone-based payments that occur at clear points of value creation. Said another way, the upfront payment reflects our confidence in the developability of Emi-Le as a program in ACC and its strategic fit, while the contingent value aligns future payments with tangible achievements, ensuring that shareholders realize value as we do. From a financial position, Day One remains strong. As we recently reported, we ended the third quarter with $451.6 million in cash and no debt. It's important to note that after the completion of this transaction, we will maintain that strong capital position that supports our ongoing operation, measured pipeline investments and growth opportunities. We would also like to take this opportunity to reiterate our full year 2025 OJEMDA net product revenue guidance of $145 million to $150 million. We are excited about the possibilities ahead. We are confident in our ability to execute with the same rigor and focus that have defined Day One since inception. With that, it's important to take a moment to recognize the contributions of the Mersana team for driving the development of this potential medicine to this point. It's a great example of what often goes unnoticed in our industry, drug development teams that relentlessly and selflessly follow data to a clinical path that puts patients first. I'd also be remiss if I didn't take the opportunity to commend our Day One team on their vision, focus, insightful debate and unrelenting effort to critically evaluate another opportunity that has the potential to benefit a truly underserved patient group. On behalf of the Board and our executive team, I would extend our sincere gratitude. I now turn the call back over to the operator for questions.

[Operator Instructions] First question comes from Anupam Rama with JPMorgan.

Congrats on the deal here. Two quick ones from me. I think Mersana was guiding to sort of 2 dose expansion cohort data in the second half of this year. I don't think we've seen the data. What are you looking for in this data, which -- my understanding is going to be mostly TNBC patients that could read through to sort of ACC-1 here? And then are there plans to expand more into ACC-1 patients beyond what we learned at ASCO this year, which I think was 5 out of 9 responses because that data was across all doses in an unselected B7-H4 population. So should we be expecting more sort of dosing sort of population work before we get into the regulatory stage here?

Anupam, thanks for joining the call and for the questions. Just one quick comment, and then I'm going to hand to Mike to answer your questions. And that is that there's a certain amount that we can discuss as it relates to the future plans. But of course, until the transaction closes, those are really in Mersana's hands. With that, let me ask Mike to comment on what we can say on those 2 topics.

Thanks, Jeremy. Yes, there are a few questions or comments embedded in there. But I think to Jeremy's point, what I'd say is you've summed it up about right. The Phase I study is ongoing. The dose cohort optimization cohorts are active and enrolling. And as I believe I mentioned, the subcohort of patients enrolled with ACC is continuing. So all of that is happening, and we look forward to sharing those data as they become available.

Yes. And Anupam, what I'd add in addition to Mike's comments is that from our standpoint, we see a clear potential registration path directed towards ACC, as noted in the call. And that really anchored our evaluation, both strategically and financially of the transaction. I think beyond that, of course, there are open questions about the potential developability of Emi-Le in triple-negative breast cancer patients. And that's something, of course, that we'll consider over time, but I want to make clear that it didn't anchor the transaction that we really were focused on ACC as the primary development path and the major driver of the opportunity for us.

Congrats on the deal.

Thanks Anupam.

Next question, Andrea Newkirk with Goldman Sachs.

Maybe just a follow-up there as you think about ACC as the indication of choice here. Just if you could speak more on the size of the addressable patient population outside of just the newly diagnosed numbers that you provided there? And what makes some patients more susceptible to metastases post surgery and radiation therapy? And then, Charles, I have one follow-up for you.

Yes. Andrea, I'm going to ask Mike to start and then I'll add and we can hand to Charles for your follow-up.

Thanks, Jeremy. Yes, Andrea, I'm going to start with your second question. There's been really nice progress in understanding the underlying biology that drives ACC and its relative form of aggressiveness. There's a good understanding for which therapeutics are actually being potentially developed in that context. And I'd put Emi-Le right in the forefront of that. We have, I think, a good understanding of the relatively broad and high expression of B7-H4, certainly in the aggressive subtype. And that probably is related to the pathobiology, if you will, of the cancer, and that's work that's demonstrated potentially immune invasive mechanisms that arise, again, in preponderant in the aggressive subtype. As that relates to the epidemiology, I think it's fair to say that there is a high prevalent population -- but there is sort of 2 populations, one of which absolutely demonstrates clinically a more indolent clinical course. And then as I mentioned, a population that demonstrates a more highly aggressive course. There are histologic clinical and as I mentioned, probably molecular signatures that help define those populations, and it's our expectation that we'll be tapping into those elements as we define the plan for further development.

Yes. Let me add to that, Andrea, just to emphasize that within the aggressive form, we think there's a broader number of patients than just those patients that are described as ACC-1 and many of the literature references that you'll see. Now I also want to be clear that we will be formulating the registration plan post close and having dialogue with regulators around the potential approval pathway. That will, of course, include the specific patient population that we'd be targeting. And to that end, as we get to that point and have those discussions, we'll provide more details on the nature of the opportunity, but I do want to be clear that we have a differentiated view on the potential eligible patient population than just ACC-1 in this case. Did you want to ask Charles your question as well?

Yes, please. Maybe just, Charles, just given today's announced acquisition, just curious if you might be willing to speak to your desire for additional BD transactions on the forward?

Andrea and of course, happy to address that. So look, this was -- this transaction is a critical one for the company and our ability to really find a program that we had conviction about that really invokes a lot of the similarities we saw on OJEMDA with clear clinical data that we see upfront and an opportunity for registrational paths that we believe are beneficial with an asset that when you look at it from the properties of IP long runway, understanding and overall developability is really interesting to us and what we hope to get to, to a point where we can quickly get to extend the team and work towards commercialization. So when we think about the larger picture here, I would say that we'll be focused on this in the near term, and we'll look at it from our perspective as this is one more important aspect of our pipeline, starting with the FIREFLY-2 trial that's ongoing for OJEMDA in the front line, the DAY301 program, where PTK7-directed ADC, and then this new Emi-Le program in ACC. That puts us in a spot where we believe we have both longer-term and near-term opportunities for both value creation and a clear path to continued value in commercial markets.

Andrea, let me add one other element that I think is important in the context of this particular transaction. And that is that, as you know, we've discussed our both approach and strategy towards bringing in new programs through business development activity for years now. And in the course of that work, we've looked at just dozens and dozens of programs that whether at public or private companies have early-stage clinical data like this. And this is the first that we've really been aggressive about moving to make part of our portfolio. And that's because of what we see as the opportunity to develop a new medicine. And that shouldn't be lost on this transaction. We really do think this is different from all of the other programs that we've looked at historically that have similar stage of data, I should say.

Next question, Alec Stranahan with Bank of America.

Congrats on the deal. Maybe 2 questions. First, given the history with Mersana's other ADCs in the past, both on efficacy and safety, curious if you think there's any read across to Emi-Le as you were sort of kicking the tires on the asset? And if not, what were sort of the aspects of Emi-Le that made you more comfortable to transact versus, say, these legacy ADCs from the company? And then just curious what will happen with Mersana's partnerships with J&J and Merck KGaA after closure of the acquisition.

Yes. Let me ask Mike to comment on the specific question you're asking, Alec, and thanks for joining the call.

Yes. Thanks, Alec. This is Mike. A very fair question you're asking. What I'd say is probably obviously, we wanted to make sure we understood that question. I personally would want to applaud the Mersana team for taking years of scientific focus and rigor bringing forward this novel platform, which clearly is built on the experience that they've gained from prior work and rigorously assessed in a nonclinical setting to build the confidence as a development candidate to create a molecule that we now refer to as Emi-Le. The other thing I'd comment or reinforce is although we're focused today on the antitumor activity signal in ACC, we've also had the benefit of a pretty large safety database that's been generated with the molecule in the overall development program. And clearly, that gives us an added level of confidence of the translatability of the nonclinical work into the clinical setting. So we're confident about where we're at for the phase of development, and that's why we're as focused as Jeremy alluded to, to a pretty aggressive path forward to move from where we're at to defining a registration path.

Jerry, would you like any comment on the partnership...

Yes, yes, go for it. That second part of that question, Go ahead, Charles. Yes, on the existing partnerships.

Super. Yes. Yes, Alec, assuming close of the transaction, we will continue partnerships as contractually required and is consistent with where Mersana was currently standing with them. But there won't be any change, of course, associated that we can see at this point. So it will be completion and closeout of those.

Next question, Kelsey Goodwin with Piper Sandler.

Congrats on the deal. First, I guess, in terms of vetting the Mersana ADC platform, I guess, what was done there? And how does that compare to the program that -- the platform that underlies DAY301? And then more specifically, I guess, in terms of thinking about development time lines, when will we see the next clinical update? When would you talk to regulators and just general next steps for the program?

Of course. Thanks, Kelsey, for joining and the questions. Let me comment and then I'll hand to Mike as well. First off, let me make clear something that I think Mike articulated early. We really do applaud the Mersana team for the learnings over their development experience that culminated in Emi-Le, I think we look at this very explicitly as a focused deal around a product, in this case, Emi-Le that has a clinical profile that we find compelling. And that's really the motivation for the transaction rather than a broader pipeline component or a platform per se. Now there are some molecular differences in the construct of Emi-Le relative to DAY301. And those have different underlying characteristics. To kind of talk at that at a high level, let me ask Mike to comment. But fundamentally, we're looking at this as a clinical stage program that we can push forward rapidly towards a new medicine.

Yes. Thanks, Jeremy. I think what I'd perhaps add or just maybe underscore or reinforce that the innovation that's been ongoing at Mersana for quite a long time has really positioned them nicely as clear innovators in the space of antibody-drug conjugates. And probably, as you know, their platform is proprietary, both with respect to their synthetic branched linker scaffold, their iteration on a class of payload molecules that have validated themselves in the context of ADC therapeutics, but with enhancements in the context of Mersana's hands. And their utilization of really contemporary and innovative linker technology. So you put all 3 together, it's next generation, but I think any measure with respect to the incremental innovation we continue to see across the broader platform of ADCs. And like Jeremy mentioned, you bring that specifically to where we're at with Emi-Le and early clinical development between the antitumor activity signals and the safety profile, we couldn't be more excited. Can you, Kelsey, then just briefly summarize your second question?

Yes, of course. Yes, I guess maybe just more specifically around the development time lines. I guess, do you have any thoughts or high-level kind of guide to when we'll see the next clinical update when you did plan to talk to regulators about a path forward? Or just any steps that you can give some timing for?

Yes. Yes, thanks. I thought that's what your question was. And unfortunately, I'm not going to be able to go into a lot of specifics there. We're -- we need to give the space for the sort of regulatory aspects of the merger to move through. And we're extremely anxious and enthusiastic about mapping all that out. We have certainly a sense of that given the work that we've done to bring us to this point today, but look forward to be even more specific as we engage in those discussions with regulators and lock in our plans in the coming weeks and months.

And Kelsey, I think it's, of course, guidance that we'd love to give as soon as possible. I think what you should hear though, is we see a really rapid development path, one likely that, that would tap into accelerated approval approaches. And we'll be moving as fast as we can to define that with the Mersana team post closing.

Next question, Ami Fadia with Needham.

Congrats on the deal, everyone. I had a couple of quick questions. Can you indicate whether the MTD has been reached in the dose escalation work that Mersana has been doing? And regarding ACC, how many patients did you see the data on that got you comfortable with the path through registration in ACC-1? And if you could talk about your initial thoughts on the other indications that they have been studying in the Phase I, aside from triple negative, they also have ovarian and endometrial. So maybe just sort of -- if you could sort of talk about the applicability of the B7-H4 and the prevalence in those indications and just sort of your early thoughts on the -- how sort of differentiated the molecule could be in those applications?

Of course. And Ami, thank you for joining the call and the questions. I'm going to make a generalized comment, and then I'll hand to Mike to talk about some of the sort of specifics to the extent that we can. Unfortunately, we really can't characterize the details at this stage. But what I want to reiterate is that we saw sufficient data in ACC that we are confident in a rapid development and registration path in that specific tumor. I'm going to defer on the patient numbers at this stage. We very much would like to see all of the data associated with that ACC opportunity, which, again, we don't think is limited to just ACC-1, but to aggressive forms of ACC, including ACC-1 more broadly. But I think let me ask Mike to comment on your dose and question around other development areas given B7-H4 expression.

Yes. Thanks, Jeremy. Yes. So with respect to dose, what I'd circle back to is, I think what I shared earlier on the call, Mersana is in dose optimization cohorts. And I think they've been clear about that. And that will be informative to establishing the recommended Phase II dose for subsequent development. And sort of in the context of the outcome of those data and sort of the aggregate integration of the Phase I data, we'll be certain about that and that may or may not include a formal maximum tolerated dose assessment because as you know, it's as important to look for MTDs that are driven by sort of finite points in time after drug exposure, but also it's important to look at sort of aggregate safety signals that emerge with repeat exposure. And we're in a situation here where many patients with I have been on therapy for months and months. So that's an important integration into the recommended Phase II dose decision. With respect to the indication, yes, I just want to reinforce, I mean, this is an urgent unmet need, and we're very focused on progressing the work for patients with adenoid cystic carcinoma as quickly as possible. It's also a benefit that the expression level of B7-H4 is both broad and at high level, which is going to facilitate that development. The expression pattern in the other histologies that I mentioned that Mersana is studying, we think is also potentially meaningful for development, and we're keen and eager to look at that and round out the development program where it may make sense to do so. But I just want to reinforce that first things first in terms of orienting the program where the unmet need is high and the path is clear.

Thanks, Mike. And Ami, regarding other tumors, I want to be, as I mentioned, clear that we're very focused on ACC. But of course, to the extent that we think there are areas where Emi-Le may be active that can be explored, we'll look at that as potential options going forward. And we may see upside beyond ACC through those paths over time.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.