Merrimack Pharmaceuticals, Inc.

Thank you. Good morning, and thank you, everyone, for joining us.

Today, we will discuss the results of our Phase III trial of MM-398 in pancreatic cancer, as well as review our first quarter 2014 financials. The 2 press releases detailing this information which were issued earlier this morning can be found in the Investors section of our website at www.merrimackpharma.com.

This call is being broadcast live and will be archived on our website for 6 weeks. I'm joined today by Bob Mulroy, our President and CEO; Bill Sullivan, our CFO; Peter Laivins, Vice President of Late Stage Development; Dr.

Eliel Bayever, Vice President of Medical; and Kathleen Gallagher, Director of Corporate Communications. 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'll 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-K 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.

And with that, I'll turn the call over to Bob.

Thank you, Geoff, and thanks to everyone for joining us. It is a pleasure to speak with you all today on what is an exciting day for us and for cancer patients.

This morning, we announced positive results of our Phase III study of MM-398 in post-gemcitabine pancreatic cancer.

In a moment, Peter and Eliel will walk you through the details of the results that were included in this morning's release. But before we do that, I want to take a moment to thank the many people that helped realize this outcome.

First and foremost, I want to thank the patients and their families who participated in this trial for their dedication and support. I'd also like to recognize our investigators, collaborators and partners whose commitment made this trial possible.

And finally, I'd like to thank the entire team at Merrimack whose efforts contributed to this important milestone and have built a solid research foundation on which to continue to expand and increase the potential of 398 to help cancer patients.

Before we turn specifically to 398 results, let me provide some background on Merrimack for anyone who may be new to the company. We are building a fully integrated cancer company, spanning from the bench to the bedside, to provide novel therapeutics coupled with companion diagnostics, all engineered to improve the treatment of solid tumors.

We believe that a fully integrated approach is required to move the needle on a very difficult disease. Our discovery and development efforts are found on a systems biology discovery platform that integrates advanced engineering and computing with biology to more completely understand the complexities of cancer that has evaded traditional approaches.

We believe our systems engineering approach has the potential to transform the productivity of R&D and the position and impact of cancer care.

We have a diversified and broad technology base that includes leading positions in 2 drug technologies, a multi-specific human antibodies platform that allows us to target complex signaling that occurs in cancer cells and to target them more effectively; and a third generation nanotechnology platform that is designed to enhance the specific delivery of drug to tumors. We believe that all of our technologies have broad applications and opportunities for growth and significant value generation both within and beyond oncology.

We have already spun out one company, Silver Creek, which is advancing novel treatments in cardiology and regenerative medicine. And we have entered into a profit-sharing partnership with leading drug company, Actavis, to develop and market specialty pharma products that leverage our expertise in nanotherapeutic manufacturing.

The net results of our systems biology discovery engine and our novel technologies is that we are advancing one of the most robust large molecule oncology pipelines in the industry, we have 6 novel therapeutics being developed with companion diagnostics currently in clinical development and a robust pipeline of preclinical R&D candidates for continued innovation.

With that introduction, let me turn the call over to Peter Laivins, our Head of Development and the leader of the 398 team.

Thank you, Bob, and good morning, everyone. It's my great pleasure to review the top line results we announced earlier today.

MM-398 or irinotecan liposome injection is a nanoliposomal encapsulation of the chemotherapeutic irinotecan containing about 80,000 molecules of irinotecan in each liposome. MM-398 has demonstrated extended circulation in comparison to free irinotecan in the clinical setting.

The activated form of irinotecan is SN-38, which functions by inhibiting topoisomerase 1, an essential enzyme involved in DNA transcription and replication and promoting cell death.

This global registration trial called NAPOLI-1 is a randomized open-label Phase III study in patients with metastatic pancreatic cancer who received prior gemcitabine based therapy. A total of 417 patients were randomized across 3 arms and patients were enrolled at over 100 sites in North America, South America, Europe, Asia and Australia.

MM-398 has received orphan designation from both the FDA and EMA, and both agencies reviewed the study protocol and the statistical analysis plan.

As we discussed on our last call in February, the study design permitted pairwise comparison of MM-398 alone or in combination with 5-FU/Leucovorin versus a common control of 5-FU/Leucovorin. Meeting the statistical endpoint in either or both arms would represent a successful outcome for the trial.

The study was not powered for comparison of the 2 experimental arms, and it employed different dosing regimens for MM-398. Either 120 milligrams per meter squared every 3 weeks as a single agent or 80 milligrams per meter squared every 2 weeks when in combination with 5-FU/Leucovorin.

Now regarding the results, the combination regimen of MM-398 with 5-FU/Leucovorin achieved an overall survival of 6.1 months, which represents a 1.9-month improvement over the 4.2-month survival observed in the control arm of 5-FU/Leucovorin. The primary log-rank analysis of overall survival was statistically significant at the 0.012 level, with a corresponding hazard ratio of 0.67.

It's also important to note that a statistically significant survival advantage in progression-free survival was observed in the combination arm.

The Phase III study also evaluated MM-398 as a single agent regimen. While a 4.9-month median overall survival was observed for this study, it did not achieve a statistically significant advantage when compared against the 4.2-month median overall survival observed in the control arm.

It should be noted that the single agent arm was consistent with the 5.2 months overall survival observed in our Phase II monotherapy trial. However, the control arm of 5-FU/Leucovorin performed significantly better than we had originally estimated based on historical data.

Now, I'd like to turn the call over to Eliel Bayever who will review the safety data from the trial.

Thank you, Peter. On the combination arm, the most common Grade 3 or higher adverse events were neutropenia, 14.5%; fatigue, 13.7%; diarrhea, 12.8% and vomiting, 11.1%.

The only serious life-threatening event was the 2% or higher difference between the combination arm and the control arm was sepsis, which was observed at 3.4%. On the monotherapy arm, in general, patients experienced a higher level of adverse events compared to patients who received the combination of MM-398 with 5-FU and leucovorin.

The dosage and schedule of MM-398 in the single agent arm was different from that in the combination arm, as Peter has already described.

Now, switching to the population of patients who enrolled in NAPOLI-1. It is important to note that the study is well balanced based on baseline demographics, clinical presentation at diagnosis and prior anticancer treatments.

I'd also like to remind everyone of the challenges of treating patients with pancreatic cancer. In the post-gemcitabine setting, where we are testing MM-398 in the NAPOLI-1 study, there's currently no clear standard of care.

In these very ill patients, who have metastatic disease which has been previously treated, finding a reasonable balance between efficacy and toxicity is extremely important. We're encouraged by these results and look forward to discussing them in detail with the oncology community.

I'll now turn the call back over to Bob.

Thanks, Eliel. We are obviously excited by the opportunity to address a serious unmet need of post-gemcitabine pancreatic cancer patients, which is one of the toughest cancers to treat.

Over the past 25 years, only a handful of drugs have been successful in registration trials in metastatic pancreatic cancer. This trial represents the first in the post-gemcitabine setting.

Our nanotechnology was specifically engineered to address hard-to-treat tumors like pancreatic cancer, and we are pleased to see a positive result.

In terms of next steps, we will be presenting the full results of the study at the European Society for Medical Oncology World Conference on Gastrointestinal Cancer being held in Barcelona this June. We look forward to discussing the full trial details at that time.

We also intend to submit a New Drug Application to the U.S. Food and Drug Administration for the MM-398 combination regimen this year.

Once we have had an opportunity to discuss these results with the FDA, we expect to provide more detail on our expectations for the review process and timing.

Our commercial strategy, as we have stated before, is to commercialize MM-398 in the United States and potentially other territories, while securing partners to support the global reach of our product. We have been actively engaged in the partnering process, and we continue to expect to close business development transactions on MM-398 and other Merrimack pipeline products during 2014.

Before we get to the financials, as many of you know, there is a broad and diverse pipeline of candidates in addition to MM-398, which are advancing to clinical development. And while today's call has been focused on those results, let me provide a few quick highlights on the other news from this quarter.

We presented 4 posters at the American Association of Cancer Research Annual Meeting held this past March. The presentations included clinical data supporting our efforts to develop deposition-based biomarkers for MM-398 and the potential to identify patients which respond best to treatment.

Regarding MM-121, our monoclonal antibody targeting ErbB3 that is being developed with our partners at Sanofi Oncology, we've previously announced that our pre-specified set of biomarkers had identified patient populations in breast cancer and ovarian cancer that demonstrated a significant improvement in progression-free survival. We will be presenting the full trial of results at the ASCO meeting this June.

We also continue to expect top line results later this quarter from our Phase II study of MM-121 in combination with paclitaxel in triple negative breast cancer in the neoadjuvant setting. With respect to next steps, we continue to work actively with our partner and are committed to communicating our plan to you as soon as possible.

Next, MM-111, our biospecific antibody designed to inhibit the signaling complex created when ErbB3, heregulin and HER2 bind together. In 2013, we announced the launch of a Phase II trial in gastric cancer.

We continue to make strong progress with enrollment in that study and anticipate data next year in 2015.

And finally, we continue to prepare for the launch of Phase II trials for 3 of our other products this year, MM-302, MM-151 and MM-141. We presented data at the San Antonio Breast Cancer Symposium this winter on MM-302 in both monotherapy and in combination with rituximab, demonstrating activity in anthrocycline-naive patients.

We will be presenting Phase I data at ASCO on MM-151 and MM-141. As always, we remain very busy advancing our programs, and we look forward to updating you further in the months ahead.

Now let me turn the call over to Bill Sullivan, our CFO, to discuss our first quarter financials.

Thanks, Bob, and good morning to everyone. Our first quarter 2014 financials were included in our press release which was distributed earlier this morning.

Net loss for the first quarter of 2014 was $27.8 million and consisted of $13 million in revenue, $36.5 million in operating expenses and a $4.2 million loss from other expenses.

The $13 million in revenue primarily consisted of expense reimbursement and amortization related to our partnership on MM-121 with Sanofi. Approximately $5.8 million of revenue related to a nonrecurring increase in revenue in the first quarter of 2014 due to Merrimack receiving budget approval from Sanofi during the quarter for expenses recognized in 2013.

$30.3 million or 83% of operating expenses consisted of research and development programs. Of this, $20.5 million or 68% related to expenses on our 6 clinical stage programs.

Please note that the expenses related to our 6 clinical programs were approximately $3.2 million lower in the first quarter 2014 due to a credit received from an agreement with a contract research organization. The remaining $9.8 million in research and development expense related to stock compensation expenses, preclinical expenses and general expenses not directly related to our clinical stage programs.

$6.2 million or 17% of operating expenses consisted of general and administrative expenses, which included costs related to preliminary commercialization efforts of MM-398. The $4.2 million loss from other expenses related primarily to interest expense on Merrimack's term loan with Hercules and convertible senior notes issued in July 2013.

Approximately $2.1 million of this interest expense is imputed noncash expense, primarily related to the conversion feature of the senior notes.

Turning to our balance sheet. Cash and cash equivalents and available-for-sale securities decreased $31 million during the first quarter of 2014.

Please note that the nonrecurring revenue and expense items noted previously had minimal impact on the decrease in cash and cash equivalents and available-for-sale securities in the first quarter of 2014. The $3.2 million credit received from an agreement with a contract research organization primarily reduced accrued expenses on our balance sheet.

We received budget approval from Sanofi late in the first quarter and therefore, the revenue adjustment of $5.8 million primarily resulted in increased accounts receivable at the end of the quarter.

As far as our financial guidance, Merrimack expects existing unrestricted cash and cash equivalents and available-for-sale securities as of March 31, 2014, of $124.2 million, interest income and Sanofi reimbursements to be sufficient to fund operations and pre-commercial efforts into 2015. Any inflows from business development, which as Bob just mentioned, remains a priority, would further extend our cash runway.

At this point, I'll turn the call back over to Geoff.

Thank you, Bill. A quick mention that we will be attending a few upcoming investor conferences, including the Bank of America Merrill Lynch 2014 Health Care Conference in Las Vegas on May 14 and the UBS 2014 Global Healthcare Conference in New York City on May 19.

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

So in the first line -- so I just want to know, now that you have the data in hand for second-line pancreatic for 398, how are you guys thinking about the potential design of a study in the first-line setting? And do you feel like the tolerability, toxicities that you've seen in this study lends itself to a more upstream kind of environment?

Then I have one more follow-up.

Geoff, this is Peter. Yes, I think right now, we're just processing this initial data here and getting full understanding of it, so it's a little premature for us to be looking at those other settings at this time.

But of course, it's on our mind. But right now, it's a little early.

We want to focus in on the results we've seen so far with NAPOLI.

Okay. Got you.

And then what's the -- I know when you look at the monotherapy arm for 398, maybe just help us with what you saw there. Was it just simply the 5-FU/Leucovorin arm leading to a longer OS, or was there something in 398 that as a monotherapy that you think was also a contributor to that OS not being any higher?

Thanks, Geoff. Again, it's Peter.

Recall, the NAPOLI study was designed really to test 2 different regimens, both the monotherapy and the combination. So either one or both could be successful.

And really, the reason for that is that if you think about treating pancreatic cancer patients, you really have to try to find or strike a balance between efficacy and toxicity of different regimens. And the combination arm achieved that, a very -- with a very exciting 6.1-month survival.

So we're just head over heels about that result. Now, the monotherapy arm performed to our expectations at about 4.9 months median overall survival.

That's very, very similar to what we had observed in the Phase II trial, and it's actually better than what we had expected in our survival estimates for the study itself. What was unexpected was the performance of the control arm at about 4.2 months.

And that was a level of activity that we hadn't seen in previous literature. And so the net-net from the monotherapy arm versus the control is that both of those arms showed considerable activity.

A couple on patient baseline. First, can you comment on the percentage of patients who received prior Abraxane?

Yes. There were some patients, very few though, received prior Abraxane.

Obviously, all of them received prior gemcitabine and a combination of assortment of other anticancer drugs.

Okay, great. And then in terms of geographic breakdown baseline, how many of the patients were from the U.S.

versus other territories?

Essentially, the regions were well distributed across all 3 arms. So that if we look at the European, the Asia and the American they were well distributed across the 3 arms.

The proportions were similar? But how many -- right.

But what proportion of patients were from the U.S. overall?

We're still looking in the data. We'll be presenting all these details later on.

Okay, great. So just one last one, then I'll get back in the queue, and that's on adverse events.

So you gave some nice details on the percentages, frequencies of events in the combination drug arm. Just be helpful if I could understand how those compare to the frequencies in the 5-FU and leucovorin alone arm?

Again, Nicholas, this is Eliel. We'll be presenting those detailed data later on in the -- at the meetings that are coming up.

The one question -- a couple of questions. The first question is on the EU.

It sounds like you are more leaning towards a partnership in that territory. And are you going to leave it to the partner to potentially file the NAPOLI data?

Is that the plan as I understand it?

Brett, this is Bob. I think that in the -- hopefully in the near future, we can be more specific about our commercial plans around the globe that right now, we're very clear that Merrimack will be commercializing 398 in the United States and we intend to file with the FDA.

That our hope is that we'll also commercialize in other territories beyond the United States, but the specifics of that are pending some of the conversations we're engaged in with various partners. And we hope to be more specific about that in the near future such that we can progress with additional filings around the globe as quickly as possible as well.

Okay. But there's -- I didn't read any plan to file in EU.

I just -- that's a specific question that I have.

We certainly are looking to get 398 into the EU, and I think whether it will be a Merrimack-based commercial effort or with a partner is something that we are continuing to work on.

Just with the control arm, was there any imbalances or health of the patients or anything that you saw just from your preliminary analysis that might account for the longer survival in that population?

No, when we looked at -- this is Eliel, Daniel. When we looked at the baseline characteristics of the 3 arms, they really were very well balanced across the 3 arms.

So there's nothing specific about those on the single agent arm.

Okay. And based on the data you've presented with your diagnostic, what other indications are you thinking of moving into with 398 next?

Daniel, it's Peter Laivins. Right now, I think we're really just really focused on this pancreas outcome and taking a look at the -- fully understanding that.

Clearly, we reported at the AACR meeting the diagnostic development and some interesting areas where we're going to pursue. In that case, we have grants with glioma and Ewing's sarcoma.

And in what we call the SITS [ph] expansion program where we're looking at various other large solid tumor types that we're looking at CRC, we're looking at triple negative breast and others. So it's quite a broad range at this point.

But right now, we're focused on this pancreas outcome.

I guess, the next thoughts kind of moving the drug into first line. Do you think the failure in mono kind of precludes you from moving into first-line?

Just thoughts around that would be very helpful.

Peter, this is Peter. Actually, not at all.

The regimen that we -- is of interest really is this combination regimen, which provided a very nice -- a nice balance of efficacy with -- and toxicity. And so it really -- the monotherapy arm is in this particular study is an individual finding.

It may be different in different tumor types. And there's a lot of work yet to be done to optimize the best way to give the drug as a monotherapy.

And would that be something you'll pursue?

Absolutely, absolutely. This is -- it's a very important issue for us and the drug shows very -- does show very good activity as a single agent.

Is there anything you could say around pricing, how it's -- how the current trials kind of made you think about pricing and whether the fact that you don't have mono kind of impacts potential pricing?

Peter, this is Bob. I think that at this point, it's probably premature or it is premature for us to talk about pricing, given we need to do a full analysis on the data set, and we need to have that initial conversation with the FDA in the near term relative to the data.

But it's our hope that we'll able to be much more specific with everyone about not just our timelines but our commercial plans in the U.S. and in other places in the near future.

Then just finally on the other drugs with a similar technology. So MM-302 and MM-310.

Will these get prioritized now that you've seen success around 398? And can we get an update on 302?

And I guess 310 is still too early. I wonder if you give any ideas around indications on 310.

Sure, Peter. This is Bob again.

So we're very excited about the nanotherapeutic technology and platform here. MM-302 is our HER2 antibody targeted nanotherapeutic with doxorubicin inside.

We presented data this winter at the San Antonio Breast Cancer Conference, showing some very strong monotherapy activity in anthracycline-naive patients showing strong combination activity with herceptin. So we are in the process of transitioning that into a Phase II study.

And we expect in the not-too-distant future to have news on getting that up and running. And MM-310, we haven't released the technical details on that product, but it is another antibody targeted nanoparticle.

And in the relatively near term as well, we will talk more about not just that technology but the kind of tumors we're going after. Obviously, with 302, we'll be looking at breast cancer populations and patients who have high levels of HER2 overexpression.

Great. I guess I was trying to get to the fact, would you re-prioritize the pipeline based on today's results?

We're excited about all the products we have in our pipeline and the data we've been generating. I think ASCO this year is going to be a very important meeting for us with full data on the 121, data that we put out top line information on last fall.

We'll have our Phase I data out on MM-141, MM-151, which are 2 of our other multi-specific antibodies. And then MM-111 is in what we think is a great proof-of-concept Phase II study in gastric cancer that we're very excited about, and that's been enrolling very strongly.

And where we see that there's a significant unmet need. So I think we are where we'd hope to be.

And I think that hopefully, the scientific momentum of the pipeline will continue to grow. And over the months ahead with ASCO with SMGI.

And we just put out some data at the AACR cancer meeting around some of our diagnostic efforts to continue to bear fruit that are going to help us take this whole nanotherapeutic pipeline forward in a broader range of solid tumors. And so we continue to see the signs that we're pursuing bear out, and so we're -- on each of the programs, on both the antibody platform, as well as the nanotherapeutics.

And so our priorities remain right where they are.

Follow-up. Just wanted to ask one on tolerability.

Were patients, in general, able to receive the combination treatment regimen until progression? Or were there instances of missed doses, early discontinuations or dose reductions?

The dose reduction -- this is Eliel, Nicholas. The dose reductions and delays were built into the protocol.

There were patients who did have dose reductions and delays. Predominantly, the patients that discontinued, discontinued because of progression.

Okay, great. And after the patients had discontinued, did they have much time to receive subsequent therapies?

Probably not, I guess, but if they didn't, did you monitor what the patients received after progression? Any imbalances there?

We are monitoring that and that again will be revealed at the upcoming meetings.

Great. Well, thank you, everyone, for joining us.

We look forward to updating you again very soon.