MERUS N.V. Our management's discussion and analysis of our financial condition and results
of operations are based upon our unaudited condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q, which have been
prepared by us in accordance with accounting principles generally accepted in
Overview
General
We are a clinical-stage oncology company developing innovative antibody therapeutics. Our pipeline of full-length human multi-specific antibody candidates are generated from our proprietary technology platforms, which are able to generate a diverse array of antibody binding domains, or Fabs, against virtually any target. Each antibody binding domain consists of a target-specific heavy chain paired with a common light chain. Multiple binding domains can be combined to produce novel bispecific and trispecific antibodies that bind to a wide range of targets and display novel and innovative biology. These platforms referred to as Biclonics® and Triclonics® allow us to generate large numbers of diverse panels of bispecific and trispecific antibodies, respectively, which can then be functionally screened in large-scale cell-based assays to identify those unique molecules that possess novel biology, which we believe are best suited for a given therapeutic application. Further, by binding to multiple targets, Biclonics® and Triclonics® may be designed to provide a variety of mechanisms of action, including simultaneously blocking receptors that drive tumor cell growth and survival and mobilizing the patient's immune response by engaging T cells, and/or activating various killer cells to eradicate tumors.
Our technology platforms employ an assortment of patented technologies and techniques to generate human antibodies. We utilize our patented MeMo® mouse to produce a host of antibodies with diverse heavy chains and a common light chain that are capable of binding to virtually any antigen target. We use our patented CH3 domain dimerization technology to generate substantially pure multi-specific antibodies. We also employ our patented Spleen to Screen® technology to efficiently screen panels of diverse heavy chains, designed to allow us to rapidly identify Biclonics® and Triclonics® therapeutic candidates with differentiated modes of action for pre-clinical testing and clinical development.
Using our Biclonics® platform we have produced, and are currently developing, the following candidates: MCLA-128, or zenocutuzumab, for the potential treatment of solid tumors that harbor Neuregulin 1 (NRG1) gene fusions; MCLA-158 for the potential treatment of solid tumors; MCLA-145, developed in collaboration with Incyte Corporation, for the potential treatment of solid tumors, and MCLA-129 for the potential treatment of solid tumors. Furthermore, we have a pipeline of proprietary antibody candidates in pre-clinical development and intend to further leverage our Biclonics® technology platform and TriclonicsTM technology platform to identify additional multi-specific antibody candidates and advance them to clinical development.
Funding Our Operations
We are a clinical-stage company and have not generated any revenue from product sales. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our antibody candidates from discovery through pre-clinical development and into clinical trials, and seek regulatory approval and pursue commercialization of any approved antibody candidate. In addition, if we obtain regulatory approval for any of our antibody candidates, if appropriate, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
We anticipate that we will require additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations, business development and licensing opportunities with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. For example, the trading prices for our and other biopharmaceutical companies' stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms. See "Impact of COVID-19 Pandemic" below and "Risk Factors-Risks Related to Our Business and Industry-The COVID-19 pandemic caused by the novel coronavirus has and may continue to adversely impact our business, including our pre-clinical studies and clinical trials, financial condition and results of operations" in Part II, Item 1A of this Quarterly Report on Form 10-Q. Our inability to raise capital
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as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.
Based on our current operating plan, we expect that our existing cash, cash
equivalents and marketable securities of
Clinical Programs
Zenocutuzumab, or "Zeno" (MCLA-128: HER3 x HER2 Biclonics®)
NRG1 gene fusion (NRG1+) Cancers: Phase 1/2 eNRGy trial clinical data and program update planned for Q2 2021
We continue to enroll patients in the Phase 1/2 eNRGy trial to assess the safety and anti-tumor activity of Zeno monotherapy in NRG1+ cancers.
On
In the first quarter of 2021, we opened additional clinical trial sites, which
are now at more than 35 locations, and we entered into more agreements and
collaborations with companies and medical organizations with the goals of
raising awareness of the eNRGy trial and providing access to molecular screening
opportunities for eligible patients with cancers that may have NRG1 fusions.
Merus is now working with more than ten different industry and academic
collaborations across
In
MCLA-158 (Lgr5 x EGFR Biclonics®): Solid Tumors
Phase 1 trial continues: dose expansion in patients with gastro-esophageal and head-and-neck cancers
We are developing MCLA-158 for the potential treatment of solid tumors. Our phase 1 clinical trial of MCLA-158 is ongoing in the dose expansion phase.
On
MCLA-145 (CD137 x PD-L1 Biclonics®): Solid Tumors
Phase 1 trial advancing with clinical update planned for 2H 2021
MCLA-145 is currently being evaluated in a phase 1 open-label, multicenter dose
escalation study, including a safety dose expansion phase, in patients with
solid tumors. MCLA-145 is the first drug candidate co-developed under our global
collaboration and license agreement with Incyte Corporation (Incyte), which
permits the development and commercialization of up to 11 bispecific and
monospecific antibodies from our Biclonics® platform. Merus retains full rights
to develop and commercialize MCLA-145, if approved, in
MCLA-129 (EGFR x c-MET Biclonics®): Solid Tumors
Phase 1 trial ongoing in patients with solid tumors.
MCLA-129 is currently being evaluated in a in a phase 1/2 open-label,
multicenter dose escalation study, including a safety dose expansion phase, for
the treatment of patients with advanced non-small cell lung cancer (NSCLC) and
other solid tumors. MCLA-129 is subject to collaboration and license agreement,
which permits Betta Pharmaceuticals Co. Ltd. (Betta) to exclusively develop
MCLA-129 in
Impact of COVID-19 Pandemic
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The current COVID-19 pandemic has presented a substantial public health and
economic challenge around the world and is affecting our employees, communities,
clinical trial sites and business operations, as well as the
While we are currently continuing our ongoing clinical trials, the COVID-19
pandemic and related precautions have directly or indirectly impacted
enrollment, new, planned clinical trial site openings, patient visits, and
on-site monitoring of our clinical trials and source verification of clinical
data required for presentation of clinical data for zenocutuzumab, MCLA-158,
MCLA-145 and MCLA-129. We continued to observe a moderate to high impact on
clinical trial enrollment and operations as a consequence of the COVID-19
pandemic during the quarter ended
As a result of the COVID-19 pandemic, certain of our CROs and third-party
suppliers, as well as collaborators in the
In response to the spread of COVID-19, on
At this time, there is significant uncertainty caused by the COVID-19 pandemic
and impact of related responses. The future impact of COVID-19 on our business
and clinical trials will largely depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the spread of the
disease, availability and effectiveness of vaccines, arising variants, and their
impact on vaccination efforts, the duration of the pandemic, travel restrictions
and social distancing in
Collaborations
Refer to Item 1, "Business-Our Collaborations" and Note 12, "Collaborations," of the notes to our consolidated financial statements included in our Annual Report on Form 10-K and Note 8, "Collaborations," to our unaudited condensed consolidated interim financial statements elsewhere in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements.
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Discussion and Analysis of our Results of Operations
Comparison of the three months ended
Revenue
The following is a comparison of revenue:
Three Months Ended
March 31,
2021 2020 Change
(In millions)
Incyte $ 6.8 $ 6.0 $ 0.8
Lilly 1.4 - 1.4
Other 0.1 0.3 (0.2 )
Total revenue 8.3 6.3 2.0
Collaboration revenue for the three months ended
As of
Operating Expenses
The following is a comparison of operating expenses:
Three Months Ended
March 31,
2021 2020 Change
(In millions)
Research and development $ 20.8 $ 17.0 $ 3.8
General and administrative 9.3 8.9 0.4
Total operating expenses $ 30.1 $ 25.9 $ 4.2 Research and development expense for the three months ended
General and administrative expense for the three months ended
Other Income (Loss), Net
The following is a comparison of other income, net:
Three Months Ended
March 31,
2021 2020 Change
(In millions)
Interest (expense) income, net $ (0.1 ) $ 0.3 $ (0.4 )
Foreign exchange gains 12.2 2.9 9.3
Other losses (0.4 ) - (0.4 )
Total other income, net $ 11.7 $ 3.2 $ 8.5 Other income, net consists of interest earned on our cash and cash equivalents held on account, accretion of investment earnings and net foreign exchange gains on our foreign denominated cash, cash equivalents and marketable securities. Other gains or losses relate to the issuance and settlement of financial instruments.
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Income Tax Expense
The following is a comparison of income tax expense:
Three Months Ended
March 31,
2021 2020 Change
(In millions)
Current $ (0.3 ) $ (0.1 ) $ (0.2 )
Deferred 0.4 0.2 0.2
Total tax expense, net $ 0.1 $ 0.1 $ -
We are subject to income taxes in
Net Loss
Net loss for the three months ended
Material Changes in Financial Condition
Sources of Cash
As of
On
On
Funding Requirements
Our primary uses of capital are, clinical trial costs, chemistry manufacturing and control costs to manufacture and supply drug product for our clinical trials, third-party research and development services, laboratory and related supplies, financial services, legal and other regulatory expenses and general overhead costs.
Because our product candidates are in various stages of clinical and pre-clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our
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product candidates or whether, or when, we may achieve profitability. In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the pandemic continues to evolve globally. See "Impact of COVID-19 Pandemic" above and "Risk Factors-Risks Related to Our Business and Industry-The COVID-19 pandemic caused by the novel coronavirus has and may continue to adversely impact our business, including our pre-clinical studies and clinical trials, financial condition and results of operations" in Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of the possible impact of the COVID-19 pandemic on our business.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings, collaboration arrangements, license agreements, other business development opportunities with third parties.
Except for any obligations of our collaborators or licensees to make license, milestone or royalty payments under our agreements with them, we do not have any committed external sources of liquidity and currently have no credit facility. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration arrangements, license agreements or other business development opportunities in the future, we may have to relinquish valuable rights to our technologies or intellectual property, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise any additional funds that may be needed through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Outlook
Based on our current operating plan, research and development plans and our
timing expectations related to the progress of our programs, we expect that our
existing cash, cash equivalents and marketable securities as of
Cash Flows
The following is a summary of cash flows:
Three Months Ended
March 31,
2021 2020 Change
(In millions)
Net cash provided by (used in) operating activities
(2.7 ) (4.0 ) 1.3
Net cash provided by financing activities 150.5 0.4 150.1
Net cash provided by operating activities during the three months ended
Net cash used in investing activities during the three months ended
Net cash provided by financing activities during the three months ended
Critical Accounting Policies and Use of Estimates
Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in our Annual Report on Form 10-K and in Note 2 to our consolidated financial
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statements included in the Annual Report on Form 10-K. As disclosed in Note 2 to
our consolidated financial statements included in the Annual Report on Form
10-K, the preparation of financial statements in conformity with
Recently Adopted Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our condensed consolidated financial statements, see Note 2, Summary of Significant Accounting Policies-Pending Accounting Pronouncements, in the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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