Merus(US:MRUS)2025-05-07 20:05PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Merus N.V. as of March 31, 2025, and for the three-month periods ended March 31, 2025 and 2024 Condensed Consolidated Financial Statements The financial statements reveal a decrease in total assets to $730.9 million as of March 31, 2025, from $782.7 million at the end of 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $197,199 | $293,294 | | Total current assets | $522,272 | $569,072 | | Total assets | $730,922 | $782,693 | | Liabilities & Equity | | | | Total current liabilities | $89,130 | $87,076 | | Total liabilities | $134,803 | $134,766 | | Total shareholders' equity | $596,119 | $647,927 | Condensed Consolidated Statements of Operations (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenue | $26,488 | $7,889 | | Research and development | $80,116 | $38,584 | | General and administrative | $22,112 | $16,114 | | Operating loss | $(75,740) | $(46,809) | | Net loss | $(96,474) | $(34,456) | | Net loss per share (basic and diluted) | $(1.40) | $(0.59) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(96,461) | $(44,388) | | Net cash provided by (used in) investing activities | $(8,715) | $(12,079) | | Net cash provided by financing activities | $6,743 | $30,156 | | Net decrease in cash | $(96,135) | $(26,089) | Notes to Condensed Consolidated Financial Statements The notes detail the basis of the financial statements, confirming the company's ability to continue as a going concern - The company operates as a single reportable segment focused on the discovery and development of innovative therapeutics. The Chief Operating Decision Maker (CODM) evaluates performance based on expenses by segment and operating earnings33 - Management evaluated conditions and events and did not identify substantial doubt about the Company's ability to continue as a going concern within one year from the date the financial statements were issued32 Collaboration Revenue Breakdown (Q1 2025, in thousands) | Collaborator | Upfront Payments | Reimbursement Revenue | Total Q1 2025 Revenue | | :--- | :--- | :--- | :--- | | Incyte | $4,135 | $723 | $4,858 | | Lilly | $166 | $4 | $170 | | Gilead | $2,359 | $0 | $2,359 | | PTx | $260 | $379 | $639 | | Biohaven | $5,122 | $0 | $5,122 | | Total Collaboration Revenue | $12,042 | $1,106 | $13,148 | - In Q1 2025, the company recognized $13.3 million in commercial material revenue and $9,000 in royalty revenue from its license agreement with Partner Therapeutics (PTx) for zenocutuzumab6791 - The company is engaged in patent litigation. It filed a complaint against Xencor, Inc. for patent infringement in August 2024. Separately, Xencor filed petitions for inter partes review (IPR) against two of Merus's U.S. patents in February 20254748341 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a significant year-over-year revenue increase to $26.5 million in Q1 2025 Overview and Clinical Programs Merus is a clinical-stage oncology company using its proprietary Biclonics® and Triclonics® platforms to develop multispecific antibody therapeutics - The FDA has granted accelerated approval for BIZENGRI® (zenocutuzumab-zbco) for adults with advanced NRG1 gene fusion positive pancreatic or non-small cell lung cancer (NSCLC)103114 - Petosemtamab (MCLA-158) is advancing in two Phase 3 registrational trials for HNSCC (LiGeR-HN1 and LiGeR-HN2) and a Phase 2 trial for mCRC, with initial mCRC data expected in the second half of 2025108113 - MCLA-129 is being investigated in a Phase 1/2 trial for METex14 NSCLC and in combination with chemotherapy for 2L+ EGFR mutant NSCLC117118 Results of Operations For Q1 2025, total revenue increased by $18.6 million year-over-year to $26.5 million, driven by commercial material revenue and new collaborations Comparison of Operating Results (in millions) | Account | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $26.5 | $7.9 | $18.6 | | Research and Development Expense | $80.1 | $38.6 | $41.5 | | General and Administrative Expense | $22.1 | $16.1 | $6.0 | | Operating Loss | $(75.7) | $(46.8) | $(28.9) | | Total Other Income (Loss), Net | $(18.9) | $13.5 | $(32.4) | | Net Loss | $(96.5) | $(34.5) | $(62.0) | - The increase in R&D expense was primarily driven by a $35.6 million rise in clinical trial support from contract manufacturing and research organizations, mostly related to the petosemtamab clinical trials126 - The significant negative change in 'Other Income (Loss), Net' was primarily due to a $24.3 million foreign exchange loss in Q1 2025, compared to an $8.6 million gain in Q1 2024128 Liquidity and Capital Resources As of March 31, 2025, Merus held $638.2 million in cash, cash equivalents, and marketable securities - As of March 31, 2025, the company had $638.2 million in cash, cash equivalents, and marketable securities133 - Based on the current operating plan, the company expects its existing cash and investments will be sufficient to fund operations into 2028140 Summary of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(96.5) | $(44.4) | | Net cash provided by (used in) investing activities | $(8.7) | $(12.1) | | Net cash provided by financing activities | $6.7 | $30.2 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company identifies its main market risks as changes in interest rates, foreign exchange rates, and inflation - The primary market risk is foreign currency exchange risk between the U.S. dollar and the euro, as a significant portion of operating costs are denominated in euros147 - A hypothetical 15% weakening of the U.S. dollar against the euro would have increased the net loss for Q1 2025 by approximately $15.2 million147 - Interest rate risk is considered minimal due to the short-term nature of the company's investment portfolio, which primarily consists of investments with maturities of less than 24 months146 Item 4. Controls and Procedures Based on an evaluation conducted by management, the company's disclosure controls and procedures were deemed effective as of March 31, 2025 - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025150 - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2025151 PART II — OTHER INFORMATION Item 1. Legal Proceedings This section states that the company is not currently a party to any material legal proceedings, referring to Note 6 for details - The company refers to Note 6, "Commitments and Contingencies," for information on legal proceedings. Note 6 details a patent infringement lawsuit Merus filed against Xencor, Inc. and a related inter partes review (IPR) petition filed by Xencor, as well as a patent opposition proceeding with Kymab Limited1524749 Item 1A. Risk Factors This section provides an extensive overview of the risks facing the company, including financial losses, dependence on candidates, and IP risks Risks Related to Our Business and Industry This subsection outlines fundamental business risks, emphasizing the company's history of significant net losses and the need for future funding - The company has incurred significant losses since inception, with an accumulated deficit of $1,064.9 million as of March 31, 2025, and expects to incur losses for the foreseeable future154 - The company will require substantial additional funding to complete the development of its antibody candidates. While existing cash is expected to fund operations into 2028, this estimate is based on assumptions that may prove wrong159160 - The business heavily depends on the success of its antibody candidates, which require significant further development, regulatory approval, and commercialization efforts163 Risks Related to the Development and Clinical Testing of Our Antibody Candidates This subsection details the inherent risks of drug development, including lengthy, expensive, and uncertain clinical trials with potential for adverse side effects - Clinical drug development is a lengthy, expensive process with uncertain outcomes, and failure can occur at any time. Early positive results are not predictive of later-stage success184 - Antibody candidates may cause serious or undesirable side effects, which could delay or prevent marketing approval. Adverse reactions have been observed in trials for zenocutuzumab, petosemtamab, and MCLA-129198199200 - BIZENGRI® received accelerated approval, which is contingent upon verification of clinical benefit in confirmatory trials. Failure to do so, or to comply with post-marketing requirements, could lead the FDA to withdraw the approval228230 Risks Related to Commercialization of Our Antibody Candidates This subsection addresses the challenges of bringing products to market, including intense competition and the need for market acceptance and reimbursement - The biopharmaceutical industry is highly competitive, and competitors may develop safer, more effective, or less expensive products more rapidly279280 - Successful commercialization depends on adequate coverage and reimbursement from government and private payors, which is uncertain and subject to increasing pricing pressures289 - The company has limited marketing, sales, and distribution infrastructure and relies on its licensee, PTx, for the U.S. commercialization of BIZENGRI®. It may not be successful in building these capabilities for other candidates298300 Risks Related to Our Dependence on Third Parties The company's business model is heavily reliant on third parties for clinical trials, manufacturing, and strategic collaborations - The company relies on third-party CROs to conduct clinical trials and CMOs to manufacture antibody candidates. Failure by these parties to perform their duties or meet regulatory standards could delay or halt development307333 - Key collaborations with Incyte, Lilly, Gilead, Biohaven, and PTx are critical. The company is dependent on these partners for development and commercialization activities, and termination or underperformance by a partner would adversely affect the business313319323 Risks Related to Intellectual Property and Information Technology This subsection highlights significant IP and IT risks, including challenges to patents, infringement claims, and vulnerability to cyberattacks - The company's success depends on protecting its intellectual property, but patents may be challenged, narrowed, or invalidated. For example, Xencor has filed IPR petitions challenging two of the company's U.S. patents339341342 - The company may be required to litigate to defend its patents or against claims that it infringes third-party IP, which is costly and time-consuming. The company has filed a patent infringement lawsuit against Xencor348358 - Information technology systems are vulnerable to security breaches and cyberattacks, which could lead to the loss of trade secrets, disruption of clinical trials, and significant financial and reputational harm385386 Risks Related to Employee Matters and Managing Growth The company's future success is dependent on its ability to retain key senior management and scientific personnel and to recruit additional qualified staff - Success depends on retaining key personnel. The loss of senior leaders could delay R&D activities. Competition for qualified personnel is intense388 - Recent senior management changes, including the departures of the CBO, CMO, and CDO, and the appointments of a new CMO and CPO, require orderly transitions to avoid business disruption389 Risks Related to Our Common Shares This subsection details risks for investors in the company's common shares, including price volatility, anti-takeover provisions, and tax consequences - The company's share price is highly volatile and subject to fluctuation from factors like clinical trial results, regulatory decisions, and market conditions407 - Anti-takeover provisions under Dutch law and in the company's articles of association may deter acquisition bids or prevent changes in the board of directors392394 - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. investors402 - As a Dutch company, it may be difficult for U.S. shareholders to enforce judgments from U.S. courts against the company in the Netherlands400 Item 5. Other Information This section discloses that on March 20, 2025, Peter B. Silverman established a Rule 10b5-1 trading plan for the potential sale of common shares - On March 20, 2025, Peter B. Silverman, the Company's Chief Operating Officer and General Counsel, adopted a Rule 10b5-1 trading plan for the sale of up to 117,500 common shares until June 19, 2026424 Item 6. Exhibits This section provides a list of the exhibits filed as part of the Quarterly Report on Form 10-Q, including key agreements and certifications - The report includes several exhibits, notably the License Agreement with Partner Therapeutics, Inc. dated November 27, 2024, and certifications by the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906426