Kicking The Tires On Merus – Merus N.V. (NASDAQ:MRUS)

Capitalism tries for a delicate balance: It attempts to work things out so that everyone gets just enough stuff to keep them from getting violent and trying to take other people’s stuff.” – George Carlin

Today, we take a look at a small developmental firm focused on immunotherapy. The company gets little attention from Wall Street analysts as it is headquartered ‘across the pond’. It is developing a diverse pipeline and merited a deeper dive. The stock has been volatile since coming public a few years ago.

Company Overview

Merus (MRUS) IPO’d in 2016 and is a Netherlands-based clinical-stage immune-oncology company. Merus is focused on developing full-length bispecific antibody therapeutics, which are referred to as Biclonics. The company’s vision is to leverage the unique characteristics of bispecific antibodies and their novel screening technologies to weaponize a patient’s immune system against tumor cells. MCLA-128 is the company’s most advanced product candidate, which is in Phase 2 of development to combat breast cancer and other solid tumors. The company also has three Phase 1 assets and one pre-clinical candidate. Merus has a market capitalization of roughly $350 million and trades just under $15.00 a share.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

Pipeline:

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

MCLA-128:

MCLA-128 is an antibody-dependent cell-mediated cytotoxicity ADCC-enhanced Biclonics that targets the HER3 pathway. In plain English, the drug works by docking on HER2 and subsequently blocking heregulin stimulated the growth of tumor cells by binding to HER3. Furthermore, the drug is designed to overcome tumor cells developing resistance to the therapeutic via the use of two mechanisms: blocking growth and survival pathways to stop tumor expansion and by mobilizing and bolstering the immune effector cells to eliminate the tumor. The drug is currently in Phase 2 of development for breast cancer and phase 1/2 for other solid tumors.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

Currently, a Phase 2 trial evaluating MCLA-128 in combination treatments in two metastatic breast cancer populations is currently enrolling patients in the U.S. and Europe. The company will provide an update on the trial in the second half of 2019. Also, the single agent Phase 1/2 trial in solid tumors is ongoing in non-small-cell lung cancer and gastric cancer and gastroesophageal junction cancer. The gastric cancer and the gastroesophageal junction cancer cohort has completed enrollment. An update for the NSCLC cohort is expected in the second half of 2019. Furthermore, the company plans on exploring collaboration options in the gastric cancer patient population for potential trials in rational therapeutic combinations.

MCLA-145:

MCLA-145 is a Biclonics T-cell agonist discovered through an unbiased functional screening of multiple immunomodulatory target combinations. MCLA-145 works by binding to human PD-L1 and CD137. MCLA-145 shows promise as having the unique ability to activate immune effector cells in the tumor microenvironment while simultaneously blocking inhibitory signals in the same immune cell population.

Merus is developing the drug as part of a collaboration with Incyte (INCY) to potentially develop and commercialize up to 11 bispecific and monospecific antibodies from the Merus Biclonics platform. Per the terms of the collaboration, Merus retains all rights to develop and commercialize MCLA-145 in the United States, while Incyte has rights to develop and commercialize the drug outside of the United States.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

On May 9th, it was announced that the first patient had been treated in the Phase 1 trial evaluating MCLA-145 for the treatment of patients with advanced solid tumors. Primary objectives of the Phase 1 trial are dose finding, evaluation of safety, and tolerability of MCLA-145. The Phase 1 trial will also examine potential preliminary anti-tumor activity and functional target engagement of single-agent MCLA-145.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

MCLA-117:

MCLA-117 is a Biclonics that binds to CD3, a cell-surface molecule present on all T cells, and CLEC12A, a cell surface molecule present on Acute Myeloid Leukemia cells and stem cells. The drug works by recruiting and activating T-cells to kill CLEC12A-expressing AML tumor cells and stem cells, which potentially may prevent recurrence of a tumor.

The drug is currently in Phase 1 clinical development for acute myeloid leukemia. The Phase 1 trial is in progress and preliminary anti-tumor activity has been observed. The company sees initial data for the Phase 1 trial available in the second half of 2019 and plans to offer guidance on the program when they announce the maximum tolerated dose.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

MCLA-158:

MCLA-158 is an antibody-dependent cell-mediated cytotoxicity ADCC-enhanced Biclonics for the treatment of solid tumors. MCLA-158 uses two different mechanisms of action. The first blocks growth and survival pathways in cancer stem cells, and the second involves the recruitment and enhancement of immune effector cells to directly kill cancer stem cells that persist in solid tumors and cause relapse and metastasis.

Kicking The Tires On Merus - Merus N.V. (NASDAQ:MRUS)

Source: Company Presentation

A dose escalation of the Phase 1 clinical trial in patients with solid tumors is ongoing. Data for the trial is expected at the end of 2019.

Analyst Commentary and Balance Sheet:

As of March 31, 2019, the company had cash and cash equivalents of roughly $140 million compared to approximately $145 million as of December 31, 2018. Revenue, originating from the amortization of upfront license payments from collaboration agreements and R&D cost reimbursements and milestone payments from their various collaboration agreements, brought in $7.7 million in the quarter compared to $9.9 million in the three months ended March 31, 2018. Research and development expenses for the first quarter were $10.3 million compared to $10.2 million in Q1 of 2018. Management and administrative expenses for the quarter were $1.9 million compared to $2.8 million in Q1 of the prior year. Overall, the company had a comprehensive loss of $6.1 million for the most recent quarter compared to $8.4 million in the same period of 2018.

The company is covered by only a half dozen analyst firms (five buys, one hold). The median analyst price target on Wall Street is just over $22.50 a share. The most recent recommendation comes from Roth Capital who initiated the shares as a new Buy with a $20 price target and the following commentary last week.

We are initiating coverage of Merus, a Netherlands-based biotechnology company with a solid bispecific platform focused on developing innovative antibodies that harness the immune system to treat and potentially cure various types of cancer. Merus has several bispecifics in the clinic (HER3 x HER2, CLEC12A x CD3, and CD137 x PD-L1) that are all expected to readout during 2019″

Verdict:

There is a lot to like about Merus. It has a strategic partner, intriguing technology, and multiple ‘shots on goal’. It is also well funded and is seeing some positive momentum of late in the analyst community. That said, most of the company’s pipeline in at an early stage. We are many years away from any potential commercialization. Therefore, while Merus seems to merit a very small ‘watch item’ position, it does not merit consideration as a large holding at this time.

When the company gets a candidate(s) into Phase 3 development, we may very well revisit this interesting concern again. Until then, I would imagine this is a stock that will continue to be volatile.

Economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.” – Ayn Rand

Bret Jensen is the Founder and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum. To receive these articles as published on Seeking Alpha, just click the appropriate link and hit the orange follow button.

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Disclosure: I am/we are long MRUS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.