Merrimack Pharmaceuticals, Inc.
Q2 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Good day ladies and gentlemen, and welcome to the Merrimack Pharmaceuticals Second Quarter 2015 Investor Call. At this time, all participants are in a listen-only mode. Later, there 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 call over to Mr. Geoff Grande. You may begin.

[Geoffrey M. Grande:]

Thanks, Michelle. Good afternoon everyone and thank you for joining us. Today, we will review our second quarter 2015 financials and provide an update on our clinical progress. A press release detailing this information issued a short while ago can be found in the Investors’ section of our website at merrimackpharma.com. This call is being broadcast live and will be archived on our website for six weeks. I'm joined today by Bob Mulroy, our President and CEO; and Bill Sullivan, our CFO. We’ll end the formal portion of the call with time for Q&A. 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 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'll turn the call over to Bob.

[Robert J. Mulroy:]

Thank you, Geoff and good afternoon everyone. It is really a pleasure to update you today on what's been a highly productive and exceptional operating quarter. This is a very exciting time for Merrimack as we work diligently towards our first potential approval and complete the transition to a commercial company. [indiscernible] very few companies founded in our industry achieve and one of the potentially largest weeks ahead. On the call today, I'd like to focus on five areas; the prosecution of our regulatory filings for MM-398, the progress of our commercial readiness for a potential U.S. launch, the recent additions to our organization in support of our commercial transition, and update on our development efforts, and the status of our business development and financials. To dive right in, let me start with our regulatory update. This past quarter we achieved some significant milestones in advancing MM-398 to patients worldwide. In the United States our NDA filing for MM-398 for the treatment of metastatic pancreatic cancer patients in the post-Gemcitabine setting was formally accepted by the FDA on June 24. At the same time the FDA granted our NDA filing Priority Review and established a PDUFA date of October 24, 2015. A Priority Review designation is for drugs that treat serious conditions and in the eyes of the Agency provide for significant improvements in the safety or effectiveness of the treatment of serious conditions. The October 24 PDUFA date has helped to focus our company and drive our operations over the past quarter. From a process perspective our interactions with the FDA as part of the review have continued and we remain pleased with the process to date. We are especially thankful for the FDA's responsiveness in conducting an expedited process under the Priority Review. Since receiving the priority designation we have completed several key additional steps. Recently the FDA completed the preapproval inspection of our commercial nanotherapeutic manufacturing facility, a plant developed and operated by Merrimack as part of our integrated facility in Cambridge. This facility will support our commercial needs in the U.S. as well as the global needs of our partners at Baxalta. The completion of the inspection is a significant step forward not only for 398 but also for our entire nanotherapeutic pipeline including 302 and MM-310. The FDA also recently completed the clinical trial site inspections from the [indiscernible] study and also an important component of the regulatory review process. We are thankful to all the investigators who participated in this study and conducted their sites with such professionalism. The completion of these various inspections marked steady progress in the review cycle towards the October 24, PDUFA date. To date, inclusive of the recent inspections and the ongoing review, we were not aware of any material concerns or issues raised by the Agency and we look forward to working with the FDA as we advance through the remainder of the process. With respect to our efforts to support a global launch for 398 our ex-U.S. partner Baxalta has continued to make progress prosecuting the global regulatory filing for MM-398. It successfully completed the filing for regulatory approval of 398 in Europe with the European Medicines Agency in April. The application was accepted in May initiating 398's review in Europe. We continue to support Baxalta's efforts to expand the regulatory filings for 398 around the globe and look forward to updating you further in the near future. The second area I would like to update today is our preparation for commercial launch of MM-398 in the United States. Over the past year we have made great progress in building our commercial team to support our U.S. effort. We have secured the management for all of the key commercial functions including medical affairs, marketing, access, field force management, distribution and commercial manufacturing. We are also deep into the development of all the supporting IT, HR and operating infrastructure. Since the receipt of the priority review, we have made many, several more important steps. First, we are deep into the process of assembling and training our field force. Our hiring and education programs have gone exceptionally well to bring in a highly experienced field team. Our field team is well on track to be ready for a full launch in Q4. We are also deep into the process of building our reimbursement and account management teams. We have made major progress in the development of our supply chain focusing on our logistics and distribution networks to enable rapid product availability. We are now in a position to have drug available for all patients as rapidly as possible upon approval. Coupled with the completion of our inspection, we feel we are on track with our launch readiness and excited for the opportunity to bring 398 to patients in need. The third area I want to touch on is our broader organizational preparations for our transformation into a commercial entity. Over the past year we've made several leading additions to our Board of Directors to support our transition. This quarter we were pleased to announce the addition of one more, John Dineen the recently retired CEO of GE Healthcare. John brings exceptional experiences in operating CEO of one of the world's great healthcare companies. Last week we announced the addition of another. Dr. Yasir Al-Wakeel will join our management team as CFO and Head of Corporate Development. As our operations have grown in complexity and our external business opportunities have multiplied across a rapidly maturing pipeline, we felt it was important to bring in an additional executive to focus on developing and optimizing our business networks. Yasir comes to Merrimack from Credit Suisse where he spent eight years on both the healthcare investment banking team and previously as an analyst covering biotechnology and specialty pharmaceuticals. He is a physician by training providing unique perspective on the patients and the healthcare professionals we aim to serve. He also brings deep industry knowledge coupled with finance and corporate strategy capabilities that will be critical to the advancement of Merrimack's mission to deliver life-changing results to cancer patients. We are thrilled to have him on the team. I am also thrilled that Bill Sullivan will remain Head of our Finance and accounting efforts. Bill has been instrumental in the development of the company and in getting Merrimack to where it is today. He will continue to play a key strategic role at operations and preparing for the potential commercialization of 398. Moving now to an update of our development efforts, let me first touch on the plans for the expansion of 398 into new indications. We currently have three expansion indications under development in active clinical trials, sarcoma, glioma and metastatic breast cancer. We expect to be reporting data from the glioma and sarcoma clinical programs during 2016. We have also been gearing up to launch development path in two additional indications for 398, front-line pancreatic cancer and front-line HER2-negative gastric cancer. As we have stated, the front-line pancreatic cancer study will take place in two stages, first assessing the safety of 398 in multiple front-line combinations and then expanding into a second regulatory phase. In the gastric cancer indication, we believe that the front-line opportunity presents a very large unmet need with over 500,000 patients diagnosed worldwide annually. Both studies are now expected to launch in the coming months and we look forward to updating you on the specifics of the new trials at that time. Moving now to the development on the rest of our pipeline, we continue to make steady progress in enrollment with the MM-302 HERMIONE trial in HER2-positive metastatic breast cancer. Recall that this is a Phase 2 study that has been designed to support a potential accelerated approval in the United States and conditional approval in Europe. One significant development this quarter was a series of positive meetings with the regulatory authorities in Japan. As a result we are advancing plans to open HERMIONE sites in Japan to include this important region in our Global Development program for 302. Earlier this year we initiated clinical studies for MM-141 and MM-121 and which we are prospectively selecting patients based on internally developed biomarkers for both programs. Both studies represent an important step towards our ultimate goal to test our therapies in the patients with the highest likelihood to respond and to ultimately obtain approval for the respective campaign in diagnostics. We are active enrolling heregulin-positive patients in the Phase 2 study of 121 in combination with docetaxel and pemetrexed in heregulin-positive patients in second and third line non-small cell lung cancer. MM-141 is also enrolling only biomarker positive patients, those who test positive for high serum levels of free IGF. The trial is evaluating 141 in combination with nab-paclitaxel and gemcitabine versus nab-paclitaxel and gemcitabine alone. So far both studies are making strong early progress with patient enrollment per our expectations and we look forward to updating you in the future in our progress. Finally, let me touch on our business development and cash run way. One of our business objectives for 2015 has been to secure funding for MM-121 in order to expand its regulatory development into breast cancer. This goal is unchanged. As you may recall, we officially regained the rights to 121 on December 17 and given our belief in the medical and economic potential of the program as well as the competitive landscape of HER B3 [ph] we move swiftly to initiate a clinical trial in lung cancer two months later in February of this year. As we have stated previously our goals in securing a new deal throughout this process has been to secure funding to expand the 121 program as well as to retain as large an equity interest as possible. We continue to believe the data from our previous Phase 2 study support the potential for 121 to meet a significantly large unmet need in reversing the resistance that most cancer patients experience over the course of their therapy. We are pleased to have the lung study underway and confident given the breadth, step and late-stage of our discussions that we'll meet our objectives to secure a deal in the near term and expand 121 into the breast cancer space. As Bill will discuss in a moment, our current cash run way projection into 2016 is missing several important components. Our projection does not include potential sales of 398 or milestones beyond this year that we expect to receive from Baxalta pursuant to the $970 million partnership we entered into last year. We expect both of these components to significant extend our run way. In addition, we recently filed a $40 million ATM which was executed to provide the company with the flexibility to secure funds to directly support our commercial launch readiness given the early PDUFA date of October 24. As a result we feel we have the means to access capital that is needed for our launch and the business components in place to improve our cash position in the near-term. We look forward to updating you as we progress through the year. To recap, there are a number of important milestones on the horizon, an October 24 PDUFA date for the MM-398 NDA in post-Gemcitabine in pancreatic cancer, assuming a positive decision by the FDA we are on track to launch 398 in the United States in Q4 with the roll out of our well-trained, experienced field force to engage with and educate customers on 398, initiations for MM-398 in front-line pancreatic cancer, and front-line gastric cancer, the ongoing enrollment in the MM-302 HERMIONE in support of a potential accelerated approval, continued enrollment in the Phase 2 trials for 121 in non-small cell lung cancer and MM-141 in front-line pancreatic cancer and the initiation of our Phase 2 study for MM-151 in colorectal cancer. In summary, it has been a very productive first half of the year and there are exciting milestones on the horizon in the months ahead. We look forward to keeping you updated on our progress on all of these programs. Let me now turn the call over to Bill Sullivan who will continue discussion of this quarter's financial results. Bill?

[William A. Sullivan:]

Great, well thanks Bob and good afternoon to everyone. Our second quarter 2015 financials were included in our press release which was distributed a short while ago. Net loss for the second quarter of 2015 was $22.9 million and consisted of $36.6 million in collaboration revenues, $55.1 million in operating expenses and $4.3 million in losses from other expenses. The $36.6 million in collaboration revenues consisted of $16.6 million of revenue recognized under our proportional performance revenue recognition model associated with our Baxalta collaboration and $20 million of nonrecurring revenue recognized related to the achievement of a substantial milestone. Approximately $42.8 million or 78% of operating expenses consisted of research and development expenses. Of this $25.9 million or 61% related to our clinical stage programs and $14.5 million or 34% related to preclinical general research and discovery costs. The other $12.3 million or 22% of operating expenses consisted of general and administrative expenses. The $4.3 million loss from other expenses was primarily related to interest expense from our term loan with Hercules and Merrimack’s convertible senior notes. Approximately $2.1 million of interest expense was imputed non-cash expense related to the conversion feature of our senior notes. Looking at our balance sheet cash and cash equivalents and available for sale securities decreased $24.1 million during the second quarter of 2015 Turning to our financial guidance. Merrimack expects to be able to fund operations into 2016 through unrestricted cash and cash equivalents and available for sale securities of $67.7 million as of June 30, 2015, anticipated cost sharing reimbursements from Baxter, and anticipated receipts of $51.5 million of net MM-398 milestones in the second half of 2015. Any cash inflows from our aftermarket operating program, business development, sales of MM-398 if it receives marketing approval and any additional net milestones related to MM-398 that we receive in 2016 will provide further funding for operations. I'd also like to provide some additional color regarding our accounting of our net milestones for the remainder of this year. The $51.5 million of MM-398 net milestones consists of approximately $62.5 million of milestones that we expect to collect from Baxalta this year, $11 million in milestone payments owed to PharmaEngine as of June 30. The Baxalta milestones are research and development milestones associated with initiating our MM-398 front-line pancreatic cancer trial. These milestones have been classified as nonsubstantive milestones and therefore have already been included in our proportional performance revenue recognition model. Therefore, when Merrimack receives cash inflows from these milestones, Merrimack will not book a one-time revenue entry as we did for the substantive milestone payment received in Q2 2015. Instead we will increase deferred revenue on our balance sheet. We anticipate over the next 12 months we will recognize approximately 59 million in revenue under our proportional performance revenue recognition model which we have classified as short term deferred revenue on our balance sheet. The $11 million nonrecurring milestone payment owed to PharmaEngine was expensed in Q2 and classified as an accrued liability at the end of Q2. The payment was made in July of this year. Should you have further questions on MM-398 revenue recognition model I encourage ou to read the footnotes to our financial statements. At this point, I'll turn the call back over to Geoff.

[Geoffrey M. Grande:]

Thanks Bill. Before we wrap up, a quick mention that we'll be attending a few investor conferences this fall, including Citi's 10th Annual Biotech Conference on September 9 and 10 in New York and the 2015 Credit Suisse Healthcare Conference on November 9 to 11 in Scottsdale, Arizona. We hope to see you at one of these events. And with that operator, we'd like to open up the line to any questions.

[Operator:]

[Operator Instructions] Our first question comes from Anupam Rama of JPMorgan. Your line is open.

[Unidentified Analyst:]

Hey guys this is Eric in for Anupam this afternoon. Thanks for taking my questions and congrats on the progress. Just a couple development questions if I could. First I just want to get a better sense about some of the gearing side results of the front-line pancreatic study with 398 and whether you could kind of enlighten us on what kind of combination regimens you are looking to explore in the first part of the study there? And then one on the 121 lung cancer lung cancer study, maybe you could kind of, just wondering if you'd kind of update us on enrollment progress and potential timelines, the completion of that study and how you are planning to communicate progress with the Street? Thanks a lot.

[William A. Sullivan:]

Thanks Eric, I appreciate the question. So with respect to the front-line pancreatic study, we've been hard at work in terms of first developing a global development plan with our partner Baxalta and once that was done initiate a process of developing a protocol with a group of investigators and then having move that protocol through the regulatory process to gain approval that while getting all sites lined up in contracts and things like that. So a lot of administrative work that we've been doing and we're moving towards the end of that process and look forward to updating you very shortly once the study is fully launched. With respect to the combinations that we're looking at I think we've mentioned several times that we're looking at a few different combinations, the combination that or one of the combinations were we're very excited about is the idea of combining 398, 5-FU and oxaliplatin together to attempt to use the improved safety and tolerability profile that you saw with 398 in our Phase 3 study and an Apley [ph] study in the very late-stage pancreatic population potentially we create the benefits of [indiscernible] for a much broader set of patients. Currently the full furinox [ph] regimen is the most effective regimen out there, but limited to a very small set of patient, maybe 15 or 20 sets of patients who are in the best shape. And we think that the tolerability profile of 398, 5-FU combo. They in fact provide the opportunity to create that combination and achieve that level of efficacy across the much broader set of pancreatic patients in the semi setting. And then there are a couple of other combinations that we'll be looking at in addition to that which we have not been specific on but in the very short term we expect to be putting out the full details of this study and the protocol and the designs. With respect to 121 and I think this is also true for both the 121 lung study and the 302 HERMIONE study. We do expect this all to provide our estimates on the expected completions of those studies and to date with the study launched for 121 in February. As you are well aware, the U.S. sites tend to get launched very quickly and then all the international filings that follow that have to get through the ratchets and various hurdles how each of the different countries get prosecuted and you don’t face your public international sites and we would like to see those international sites open and enrolling and see what the rates look like there, given that we are hoping for a pretty strong participation on a global basis for this study as well. So you should expect to hear from us this fall for expected timeline to deliver on both the HERMIONE and 302 study and the 121 study.

[Unidentified Analyst:]

Okay great, thanks for taking my questions.

[Operator:]

Our next question comes from Daniel Brims of Cantor. Your line is open.

[Daniel Brims:]

Hi thanks for taking my questions. I mean you touched on HERMIONE how many centers in Japan were you saying you're planning to open and what kind of acceleration do you expect to have in basically those time lines?

[Robert J. Mulroy:]

Hey, Daniel, thanks for the question. So I think what we're reporting today is that we had a very positive conversation with the Japanese regulatory authorities about the idea of adding 302 sites to our existing study, adding the specific number of sites that we hope to add we will be specific on because we're still in discussions with potential sites and so we'll see what makes sense. But the traditional path in Japan is one on which safety studies are done first before efficacy studies are executed or supported. The opportunity to add Japanese patient studies to this global study for HERMIONE creates a potential opportunity to accelerate our regulatory filings in Japan significantly. And I think today we're not prepared to be specific about that because we have to determine the number of sites and patients and continue to work with the agency. And so well it may allow us to skip a step, it may allow us to go faster than skipping a step in the development of 302 in Japan and that's a very important market for us on many fronts. So good news is that, it looks like we have an opportunity to do it, we are in the process of operationalizing, bringing HERMIONE and that study to Japan and I think our further discussions with the Japanese agency on how this could relate to the timing and potential approval application there we look forward to updating you on the future.

[Daniel Brims:]

All right, thank you and I guess one question is have you thought given last week's announcement that Shire is looking at Baxalta, how 398 would fit in with Shire's portfolio?

[Robert J. Mulroy:]

So we are thrilled with the partnership that we have with Baxalta. I think the teams they've assembled, their oncology is an exceptional group of people, and we've been working exceptionally well with them and are thrilled. I think I cannot really comment on Shire. We're not involved with them and where they are going. I think that hey publicly have commented that they are very attracted to the asset that Baxalta has built there in terms of its global operations in oncology which we all personally understand here because we were very much attracted to it as well. And so, but I do believe that the Baxalta team is committed to our partnership, committed to working for it and that they have put some public statements out about their views on the discussions with Shire. I know from their my point of view we're committed to working with Baxalta and the team there and looking forward to working with them to make 398 acceptable to the entire global marketplace as soon as possible.

[Daniel Brims:]

Thank you for taking my questions.

[Operator:]

Our next question comes from of [indiscernible] of Cowen & Company. Your line is open.

[Unidentified Analyst:]

Hi thanks for taking my questions and congrats on all the progress. Maybe if I could ask about on the reimbursement talks and then 398 if you continue to expect there is going to be no price sensitivity?

[Robert J. Mulroy:]

Yes so we have not made any comments about reimbursement for 398 to date and we will not do so while we're under review and until we have a label from the agency, but we can continue to believe there is a strong value proposition for this that there is certainly a significant need. There has not been a new drug approved for the post-Gemcitabine setting in 30 years in pancreatic cancer and that the study is clearly demonstrating our robust improvement for patients. So we think there is a strong value proposition and we look forward to talking with you more specifically about the reimbursement subsequent to the decision by the FDA.

[Unidentified Analyst:]

Thanks, makes sense. And if I may, ask about the EU approval decision is there a sort of a rough timeline expected?

[Robert J. Mulroy:]

So first off, the Baxalta team is leading that effort in Europe with feet on the ground and the experts that they have working in Europe and oncology and the regulatory setting. And secondly that the review process in Europe works much differently than ours the U.S. has a benefit of the PDUFA act that where the FDA puts out a target date for a decision and can provide clarity, the EU works more on 120-day review cycle basis which continues until the EMEA questions are adequately addressed. So we're hopeful that that process will go smoothly and we're pleased that the U.S. processes has gone exceptionally smoothly and we look forward to updating you when we actually do have some information expected timing from Baxalta.

[Unidentified Analyst:]

Thanks and maybe one last one on MM-121 could you describe so that the conversations with potential collaborators there involving in any way?

[Robert J. Mulroy:]

Yes sure, so as we've said in the past call we have been engaged in a process to secure funding to expand the indications for 121 into breast cancer. The data that we have from those studies we are very bullish on the opportunity to address what could be half the patients in the non-small cell lung cancer setting with a resistance mechanism driven by the [indiscernible] or B3 interaction and our date of that study and other research that we've done suggests that that is a very, very strong area to show a significant benefit. And that we believe that the AFM [ph] study was also very strong in the breast cancer setting and both ER positive and the negative setting and we've discussed in the past our desire to move there. At the time we got the program back from Sanofi. We believe we had the capital resources to move forward lung cancer, but that breast cancer would need additional capital and our decision strategically was to see that from new external partner. So the process has gone exceptionally well. We've had talks with a whole series of interested parties, interest has been strong. We're trying to move here to get this thing wrapped up in the not too distant future. And the usual time fame for the deals can be anywhere from 18 months to 24 month and I know our initial development transaction on 121 about a 20-month campaign and hopefully we're going to expedite this given the strength of the data and get it done this year. As we've said many times we don’t control the timing a hundred percent, but we are doing our best to actively move it and I'm pleased that we continue to make progress and are moving towards getting something done little to meet our objectives in terms of allowing us to fund 121 into the breast cancer indication, but also importantly given our belief in the very high potential market for 121 is retaining as much ownership as we can the asset going forward. So we think we're on track to accomplish both of those goals with the various discussions and look forward to updating you as we move into the fall.

[Unidentified Analyst:]

Thanks very much, Bob. Good luck moving forward.

[Operator:]

Our next question comes from Eric [indiscernible] of Mizuho. Your line is open.

[Unidentified Analyst:]

Hey, good afternoon. Thanks for taking my questions, just filling in for Peter tonight. On the 121 development program, do you still plan to have an out EGFR wild type study, Phase 3 study beginning this year or possibly next year in non-small cell lung cancer?

[Robert J. Mulroy:]

So the EGFR wild type study that we're looking at I think is 151 that's the EGFR that we have, I know the numbers all get jumbled at times even inside Merrimack. So anyway, 151 is that program and we are looking at doing something in the EGFR space in the colorectal cancer space and expect to be launching that study later this fall and getting into the details of the study and the opportunity and the regulatory path we expect to pursue at 151 at that time.

[Unidentified Analyst:]

Thank you for clearing that up for me. And then I guess on 121, can we expect any type of data release in the second half of this year?

[Robert J. Mulroy:]

So we don’t expect any new data on 121 in the second half of this year. The study with 121 in non-small cell lung cancer that's underway is the study that we expect will be continuing to enroll through this year, but the enrollment we're expecting based on the initial data received from the sites look like we'll be able to give a projection of when we expect to finish that study sometime this fall.

[Unidentified Analyst:]

Great thanks, and just one last question on 398 launch, what type of, what sized sales force are you targeting, how close are you to that final size and do you expect to have reimbursement in place at least partially at launch? Thank you.

[Robert J. Mulroy:]

Sure, so on 398 we feel really good about where we are from a commercial preparedness status. As I mentioned prior to the PDUFA date we'd essentially put a lot of work in the past year and a quarter since getting the data into put all the infrastructure and management in place for our commercial effort. And that management was busy sort of building plans around of the training and that we had made a decision to hold on really getting deep into the field force until we had a PDUFA date. With a PDUFA date in October previously we had said we thought it might be in December. We got the quick work and I'm really pleased with the progress we've made in getting the field force in place. We are even more pleased that we're really picking up some super experienced folks and so we're deep into that process and comfortable that we'll have everyone in place and boots on the ground ready for a fourth quarter launch. We're deep into the training of the folks that we brought on board and so I feel really good about our ability to support a potential commercial launch in the fourth quarter of this year.

[Operator:]

There are no further questions at this time. I'd like to turn the call back over to Geoff Grande for any closing remarks.

[Geoffrey M. Grande:]

Great, well thank you everyone for joining us. We look forward to updating you again soon.

[Operator:]

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