Merus(MRUS) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity changes, with detailed notes Notes to Condensed Consolidated Financial Statements Provides detailed accounting policies, segment information, investments, and key collaborations, alongside ongoing patent litigation with Xencor - The company operates in a single reportable segment: the discovery and development of innovative therapeutics, with Petosemtamab (MCLA-158) being the largest R&D expense[33][35][36] - The company is involved in patent litigation with Xencor, Inc., regarding alleged infringement of three U.S. patents[52][53] - In March 2024, a collaboration with Gilead resulted in a $56.0 million upfront payment and $25.0 million from a share purchase for trispecific T-cell engaging antibodies[58][61] - In November 2024, Merus licensed zenocutuzumab (BIZENGRI®) to Partner Therapeutics, Inc. (PTx) for U.S. commercialization, with Merus eligible for up to $130.0 million in commercial milestones and tiered royalties[65][66] - In January 2025, a research collaboration with Biohaven to co-develop three novel bispecific antibody drug conjugates (ADCs) included a $5.0 million upfront payment in Biohaven shares[72][73] - In June 2025, a public offering of 6,052,631 common shares generated net proceeds of approximately $326.0 million[103] Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $442,791 | $293,294 | | Total current assets | $768,282 | $569,072 | | Total assets | $980,176 | $782,693 | | Total current liabilities | $91,579 | $87,076 | | Total liabilities | $138,440 | $134,766 | | Total shareholders' equity | $841,736 | $647,927 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $8,828 | $7,332 | $35,316 | $15,221 | | Research and development | $93,926 | $49,119 | $174,042 | $87,703 | | Total operating expenses | $119,178 | $71,706 | $221,406 | $126,404 | | Operating loss | $(110,350) | $(64,374) | $(186,090) | $(111,183) | | Net loss | $(158,218) | $(50,042) | $(254,692) | $(84,498) | | Net loss per share | $(2.23) | $(0.81) | $(3.64) | $(1.41) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(165,692) | $(38,755) | | Net cash provided by (used in) investing activities | $(16,175) | $(8,847) | | Net cash provided by financing activities | $340,024 | $475,051 | | Net increase in cash | $149,498 | $425,213 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition and operations, covering business overview, clinical programs, financial performance, and liquidity - As of June 30, 2025, the company held $892.0 million in cash, cash equivalents, and marketable securities, expected to fund operations at least into 2028[113][150] - BIZENGRI® (zenocutuzumab-zbco) received FDA accelerated approval for NRG1 gene fusion positive pancreatic or non-small cell lung cancer, with U.S. commercialization rights exclusively licensed to Partner Therapeutics, Inc. (PTx)[109][120][121] Clinical Programs Updates on key clinical programs including petosemtamab, zenocutuzumab (BIZENGRI®) with FDA accelerated approval, and MCLA-129 - Petosemtamab (MCLA-158): Phase 3 registrational trials in HNSCC are enrolling, with potential interim readouts in 2026, and initial clinical data for mCRC planned for H2 2025[114][116][118] - Zenocutuzumab (MCLA-128): BIZENGRI® has obtained FDA accelerated approval for NRG1+ cancers, with exploration of other potential development opportunities beyond NRG1+ cancer[120][122] - MCLA-129: The Phase 1/2 trial in MET ex14 NSCLC and in combination with chemotherapy in 2L+ EGFR mutant NSCLC is ongoing, with global rights retained outside of China[123][124][125] Results of Operations Details financial performance for Q2 and H1 2025 vs 2024, showing increased revenue and significantly higher operating expenses due to R&D Revenue Comparison (in millions) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $8.8 | $7.3 | $1.5 | | Six Months Ended June 30 | $35.3 | $15.2 | $20.1 | - The $20.1 million increase in revenue for the six-month period was primarily due to $13.3 million in commercial material revenue sold to PTx and a $6.8 million increase in collaboration revenue from Biohaven and Gilead[129] Operating Expenses Comparison (in millions) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $119.2 | $71.7 | $47.5 | | Six Months Ended June 30 | $221.4 | $126.4 | $95.0 | - R&D expenses for the six months ended June 30, 2025, increased by $86.3 million year-over-year, primarily driven by a $73.7 million increase in external costs related to petosemtamab clinical trials[134] - Net loss for the six months ended June 30, 2025, was $254.7 million, compared to a net loss of $84.5 million for the same period in 2024, driven by higher operating expenses and foreign exchange losses[141] Liquidity and Capital Resources Discusses the company's strong liquidity, bolstered by a recent public offering, expected to fund operations into 2028 - In June 2025, the company raised net proceeds of approximately $326.0 million from a public offering of its common shares[144] Summary of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(165.7) | $(38.8) | | Net cash provided by (used in) investing activities | $(16.2) | $(8.8) | | Net cash provided by financing activities | $340.0 | $475.1 | - The increase in net cash used in operating activities was primarily due to higher operating expenses and lower cash inflows from revenues compared to the prior year period[151] Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses market risks from interest rates, foreign exchange rates (primarily USD/Euro), and inflation, with currency risk being the most significant - The company's primary market risk is foreign currency exchange risk, particularly between the U.S. dollar and the euro, as a significant portion of operating costs are in euros[157] - A hypothetical 20% weakening of the U.S. dollar against the euro would have increased the net loss for the quarter ended June 30, 2025, by approximately $32.3 million[157] - Interest rate risk is not expected to be material due to the short-term nature of the company's $449.2 million investment portfolio[156] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[160] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[161] PART II — OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 6 for details on ongoing patent litigation with Xencor, confirming no other material legal proceedings - The company refers to Note 6 of the financial statements for details on legal proceedings, which describes patent litigation with Xencor, Inc.[52][53][162] Item 1A. Risk Factors Outlines numerous risks across business, clinical development, regulatory approval, commercialization, third-party dependence, IP, personnel, and common shares Risks Related to Our Business and Industry Highlights risks including a history of net losses, need for substantial funding, and the unproven nature of novel technology platforms - The company has a history of significant net losses, with an accumulated deficit of $1,223.1 million as of June 30, 2025, and expects to incur losses for the foreseeable future[164] - Substantial additional funding will be required to complete the development of antibody candidates and commercialize products, with capital raising potentially affected by market volatility[169] - The company's Biclonics®, Triclonics®, and ADClonics® technology platforms are novel and largely unproven approaches for therapeutic intervention beyond the single accelerated approval for BIZENGRI®[179][181] Risks Related to the Development and Clinical Testing of Our Antibody Candidates Focuses on the lengthy, expensive, and uncertain nature of clinical trials, potential side effects, and patient enrollment challenges - Clinical drug development is a lengthy, expensive process with uncertain outcomes, where failure can occur at any stage, and early trial results may not predict later success[195] - Antibody candidates may cause serious or unacceptable side effects, potentially leading to trial delays, halts, or denial of regulatory approval for both monotherapy and combination studies[207][210] - The company depends on timely patient enrollment in its clinical trials, which can be challenging due to competition, strict eligibility, and availability of other therapies[217][218][219] Risks Related to Regulatory Approval of Our Antibody Candidates Details hurdles in obtaining and maintaining regulatory approval, including unpredictable processes and legislative impacts like the IRA - The regulatory approval process is lengthy, time-consuming, and inherently unpredictable, with a high degree of discretion from regulatory authorities like the FDA[226] - BIZENGRI® was approved under the FDA's accelerated approval pathway, with continued approval contingent upon verification of clinical benefit in confirmatory trials, risking withdrawal if not met[237][239] - Enacted and future legislation, such as the Inflation Reduction Act (IRA), may increase the difficulty and cost of marketing approval and could negatively affect drug pricing and reimbursement[257][259] Risks Related to Commercialization of Our Antibody Candidates Discusses challenges of commercialization, such as intense competition, reimbursement, market acceptance, and limited sales infrastructure - The biopharmaceutical industry is highly competitive, with competitors potentially possessing greater resources to develop and commercialize products more rapidly or successfully[290][291] - Successful commercialization heavily depends on obtaining adequate coverage and reimbursement from government and private payors, who are increasingly challenging drug prices[298] - The company has limited marketing, sales, and distribution infrastructure and relies on its licensee, PTx, for BIZENGRI® commercialization in the U.S., making future capability building expensive and time-consuming[306][309] Risks Related to Our Dependence on Third Parties Emphasizes reliance on CROs, CMOs, and collaboration partners, whose performance is beyond direct company control - The company relies on third-party CROs to conduct pre-clinical studies and clinical trials, where poor performance or non-compliance could delay or compromise development programs[315][316] - The company depends on collaboration partners like Incyte, Lilly, Gilead, and Biohaven for antibody candidate development, and their failure to perform or agreement termination would adversely affect the business[322][327][333][336] - The company relies on third-party CMOs for manufacturing antibody candidates, and any failure in production, quality, or regulatory approval of facilities could halt or delay clinical trials and commercialization[340][341] Risks Related to Intellectual Property and Information Technology Covers risks related to patent protection, third-party IP infringement, trade secret disclosure, and cybersecurity vulnerabilities - The company's success depends on obtaining and maintaining patent protection for its technology and candidates, which is a costly, time-consuming, and uncertain process[347][348] - Third-party intellectual property rights could create obstacles, potentially requiring costly litigation or licensing agreements to commercialize antibody candidates[357] - The company's information technology systems are vulnerable to cybersecurity attacks, which could lead to the loss of trade secrets, disclosure of sensitive data, and disruption of operations[395] Risks Related to Employee Matters and Managing Growth Addresses risks in attracting and retaining key personnel and effectively managing organizational growth - The company's success depends on retaining key senior leaders and scientific personnel and recruiting additional qualified individuals in a highly competitive biopharmaceutical field[399] - Expected growth in operations, particularly in development and commercialization, may present management difficulties and could disrupt operations if not handled effectively[400] Risks Related to Our Common Shares Details investor risks including share price volatility, dilution, anti-takeover provisions, and potential PFIC classification - Future sales of common shares could adversely affect the market price[401] - Provisions in the company's articles of association and Dutch corporate law, including anti-takeover measures, could deter acquisition bids or prevent changes in the board of directors[402][403] - 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. investors[412] Item 5. Other Information Confirms no director or officer adopted or terminated Rule 10b5-1 trading arrangements during Q2 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2025[434] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including Articles of Association and CEO/CFO certifications - The report includes several exhibits, such as the Articles of Association, CEO and CFO certifications, and interactive data files (XBRL)[435]