SEC Filing - Merus

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37773

MERUS N.V.

(Exact name of registrant as specified in its charter)

The Netherlands

Not Applicable

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

Yalelaan 62
3584 CM Utrecht
The Netherlands

Not Applicable

(Address of principal executive offices)

(Zip code)

+31 85 016 2500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common shares, nominal value €0.09 per share

MRUS

The Nasdaq Stock Market LLC 
(Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2022, the registrant had 46,302,877 common shares, nominal value €0.09 per share, outstanding.


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements	2

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	2

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021	5

Notes to Condensed Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures About Market Risk	24

Item 4. Controls and Procedures	24

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	26

Item 1A. Risk Factors	26

Item 5. Other Information	72

Item 6. Exhibits	72

Signatures	73

Cautionary Note Regarding Forward-looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding our plans to develop and commercialize our product candidates, the timing of our ongoing or planned clinical trials, the timing of and our ability to obtain and maintain regulatory approvals, the anticipated impact of the COVID-19 pandemic on our business and operations, the clinical utility and commercial potential of our product candidates, our commercialization, marketing and manufacturing capabilities and strategy, our expectations surrounding our collaborations, our expectations about the willingness of healthcare professionals to use our product candidates, the sufficiency of our cash, cash equivalents and investments, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties, assumptions and other important factors, including those described under the sections in this Quarterly Report on Form 10-Q entitled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common shares. The principal risks and uncertainties affecting our business include the following:

•

We have incurred significant net losses since our inception and we expect to continue to incur significant expenses and operating losses for the foreseeable future.

•

We have a limited operating history, have not completed any registrational clinical trials, and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.

•

We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and drug development programs or future commercialization efforts.

•

The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities.

•

The clinical trial and regulatory approval processes are lengthy, time consuming and inherently unpredictable, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

•

Our antibody candidates may have serious adverse, undesirable or unacceptable side effects which may delay or prevent marketing approval. If such side effects are identified during the development of our antibody candidates or following approval, if any, we may need to abandon our development of such antibody candidates, the commercial profile of any

approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any.

•

We have never commercialized an antibody candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with suitable collaborators.

•

We rely, and expect to continue to rely, on third parties, including independent clinical investigators and contract research organizations or CROs, to conduct our pre-clinical studies, clinical trials, chemistry, manufacturing and controls and potential development of a companion diagnostic. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our antibody candidates or we may be subject to other significant negative consequences following marketing approval, if any and our business could be substantially harmed.

•

Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain antibody candidates over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues.

•

The competition for qualified personnel is particularly intense in our industry. If we are unable to retain or hire key personnel, we may not be able to sustain or grow our business.

•

We operate in highly competitive and rapidly changing industries, and if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

•

Our success depends on our ability to protect our intellectual property and our proprietary technologies. If we are unable to adequately protect our intellectual property and our proprietary technologies or obtain and maintain issued patents which are sufficient to protect our product candidates and proprietary technologies, or if others do not respect our intellectual property rights and exclusivity, others could compete against us more directly, which would negatively impact our business.

•

Our existing collaborations are important to our business and future licenses may also be important to us, and if we are unable to maintain any of these collaborations, or if these arrangements are not successful, our business could be adversely affected.

•

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.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MERUS N.V.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Amounts in thousands, except per share data)


	September 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	190,980		$	241,435
Marketable securities		160,463			168,990
Accounts receivable		2,628			1,697
Accounts receivable (related party)		—			4,609
Prepaid expenses and other current assets		14,128			7,448
Total current assets		368,199			424,179
Marketable securities		21,476			20,297
Property and equipment, net		7,339			3,549
Operating lease right-of-use assets		12,345			3,733
Intangible assets, net		1,889			2,347
Deferred tax assets		435			417
Other assets		3,307			2,078
Total assets	$	414,990		$	456,600
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,117		$	13,237
Accrued expenses and other liabilities		31,190			22,506
Income taxes payable		—			—
Current portion of lease obligation		1,868			1,494
Current portion of deferred revenue		27,975			16,613
Current portion of deferred revenue (related party)		—			18,048
Total current liabilities		64,150			71,898
Lease obligation		11,273			2,257
Deferred revenue, net of current portion		40,790			10,962
Deferred revenue, net of current portion (related party)		—			55,282
Total liabilities		116,213			140,399
Commitments and contingencies - Note 6
Stockholders’ equity:
Common shares, €0.09 par value; 67,500,000 shares authorized as at September 30, 2022 and December 31, 2021; 46,302,877 and 43,467,052 shares issued and outstanding as at September 30, 2022 and December 31, 2021, respectively		4,750			4,481
Additional paid-in capital		864,842			787,869
Accumulated other comprehensive income		(54,665	)		(9,221	)
Accumulated deficit		(516,150	)		(466,928	)
Total stockholders’ equity		298,777			316,201
Total liabilities and stockholders’ equity	$	414,990		$	456,600

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

MERUS N.V.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(Amounts in thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Collaboration revenue	$	6,581		$	5,919		$	30,920		$	12,636
Collaboration revenue (related party)		—			7,750			—			21,762
Total revenue		6,581			13,669			30,920			34,398
Operating expenses:
Research and development		42,307			26,018			100,378			71,436
General and administrative		12,469			10,171			36,917			30,073
Total operating expenses		54,776			36,189			137,295			101,509
Operating loss		(48,195	)		(22,520	)		(106,375	)		(67,111	)
Other (loss) income, net:
Interest (expense) income, net		866			(25	)		1,288			(158	)
Foreign exchange gains (loss)		23,041			7,756			55,378			15,434
Other (losses) gains, net		—			(75	)		1,059			(460	)
Total other income (loss), net		23,907			7,656			57,725			14,816

Net loss before income taxes		(24,288	)		(14,864	)		(48,650	)		(52,295	)
Income tax expense		327			(11	)		572			100
Net loss	$	(24,615	)	$	(14,853	)	$	(49,222	)	$	(52,395	)
Other comprehensive loss:
Currency translation adjustment		(19,475	)		(5,391	)		(45,444	)		(11,307	)
Comprehensive loss	$	(44,090	)	$	(20,244	)	$	(94,666	)	$	(63,702	)
Net loss per share attributable to common stockholders: Basic and diluted	$	(0.53	)	$	(0.39	)	$	(1.11	)	$	(1.39	)
Weighted-average common shares outstanding: Basic and diluted		46,057			38,513			44,452			37,708

See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.

MERUS N.V.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)


	Nine Months Ended September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(49,222	)	$	(52,395	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment		778			946
Amortization of intangible assets		195			219
Foreign exchange gain		(68,654	)		(14,181	)
Stock-based compensation expense		18,521			12,290
Amortization of discount on investments		243			139
Deferred tax expense		(19	)		190
Changes in operating assets and liabilities:
Accounts receivable		3,031			(1,718	)
Operating lease right-of-use assets and lease obligations		846			(32	)
Prepaid expenses and other current assets		(8,987	)		(2,477	)
Accounts payable		(9,067	)		2,567
Accrued expenses and other liabilities		12,514			6,931
Deferred revenue		(19,566	)		19,492
Net cash provided by (used in) operating activities		(119,387	)		(28,029	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities		(170,692	)		(204,456	)
Proceeds from maturities of marketable securities		178,169			74,129
Purchases of property and equipment		(5,531	)		(537	)
Net cash provided by (used in) investing activities		1,946			(130,864	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net		57,741			129,398
Proceeds from issuance of common stock - Lilly		—			16,477
Proceeds from stock options exercised		1,213			9,041
Repurchase of restricted stock units		—			(285	)
Short-swing profit disgorgement		—			282
Net cash provided by financing activities		58,954			154,913
Foreign exchange impact on cash, cash equivalents and restricted cash		8,866			19
Net increase (decrease) in cash, cash equivalents and restricted cash		(49,621	)		(3,961	)
Cash, cash equivalents, and restricted cash, beginning of period		241,749			163,283
Cash, cash equivalents, and restricted cash, end of period	$	192,128		$	159,322
SUPPLEMENTAL DISCLOSURES:
Lease liabilities arising from obtaining right-of-use assets	$	11,493		$	1,662
Income taxes paid	$	—		$	621
Non-cash purchases of property, equipment and intangibles	$	2		$	—
Non-cash issuance of stock options	$	—		$	573
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents	$	190,980		$	159,121
Restricted cash included in non-current other assets		1,148			201
	$	192,128		$	159,322

See accompanying notes to the Condensed Consolidated Financial Statements.

MERUS N.V.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(Amounts in thousands, except share amounts)


	Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Deficit			Income (Loss)			Equity
Balance at January 1, 2021		31,602,953	$	3,211	$	490,093		$	(400,112	)	$	9,071		$	102,263
Issuance of common stock, net		5,575,757		610		128,793			—			—			129,403
Issuance of common stock - Lilly		706,834		77		16,400			—			—			16,477
Exercise of stock options and vesting of restricted stock units		386,097		42		4,782			—			—			4,824
Repurchase of restricted stock units		—		—		(285	)		—			—			(285	)
Stock-based compensation		—		—		3,400			—			—			3,400
Currency translation adjustment		—		—		—			—			(9,391	)		(9,391	)
Net loss		—		—		—			(10,154	)		—			(10,154	)
Balance at March 31, 2021		38,271,641	$	3,940	$	643,183		$	(410,266	)	$	(320	)	$	236,537
Exercise of stock options and vesting of restricted stock units		172,939		19		1,885			—			—			1,904
Stock-based compensation		—		—		4,559			—			—			4,559
Currency translation adjustment		—		—		—			—			3,475			3,475
Net loss		—		—		—			(27,388	)		—			(27,388	)
Balance at June 30, 2021		38,444,580	$	3,959	$	649,627		$	(437,654	)	$	3,155		$	219,087
Exercise of stock options and vesting of restricted stock units		160,516		17		2,296			—			—			2,313
Short-swing profit disgorgement		—		—		282			—			—			282
Stock-based compensation		—		—		4,331						—			4,331
Currency translation adjustment		—		—		—			—