MRUS - Merus: (Maybe) Building A Better Bispecific

2023-12-18 20:57:13 ET

Summary

• Merus N.V. is a biotech company developing novel bispecific antibodies, with two drugs in development for unmet needs in head and neck cancer and solid tumors.
• Petosemtamab, targeting EGFR and LGR5, showed promising results in a phase 1/2 trial for head and neck cancer, with an objective response rate of 35.7%.
• Zenocutuzumab, targeting HER2/HER3 in NRG1-positive NSCLC and pancreatic cancer, demonstrated an overall response rate of 37.2% and 42.4%.

Topline Summary

Merus N.V. ( MRUS ) is a biotech based out of the Netherlands leading the development of a novel class of bispecific antibodies. If you pay attention to oncology, you already know that this is not a brand new concepts, as we've had bispecific T-cell engagers for years in certain cancers. But the approach taken by MRUS is more in line with a more classical antibody strategy: blocking specific targets. It just selectively targets 2 at once. In particular, they have 2 drugs in development that could fill compelling unmet needs. This makes them worth watching, but it is worth keeping in mind that the market has already priced in really strong data, which may lower the ceiling for would-be investors today.

Pipeline Overview

Petosemtamab

MRUS is developing an antibody that simultaneously targets EGFR and LGR5, the latter thought to be a marker of cancer stem cells , particularly in head and neck squamous cell cancer. Head and neck remains a critical area of unmet need, as systemic therapy for metastatic disease continues to be subpar, with 5-year survival rates in the neighborhood of only 40% .

At AACR 2023, MRUS presented findings from the head and neck cohort of a phase 1/2 trial evaluating the safety and preliminary efficacy of petosemtamab in patients with advanced solid tumors. Out of 42 who were evaluable for efficacy, 35.7% achieved an objective response to therapy, with a median duration of response of 6.0 months. No particularly concerning toxicities were noted, other than the fact that 6% of patients discontinued treatment due to infusion reactions on the first cycle of treatment.

Based on these findings, MRUS intends to initiate a phase 3 trial comparing petosemtamab to investigator's choice of therapy for patients with previously treated recurrent or metastatic head and neck squamous cell carcinoma. The company also guided that they will publish further findings from a dose-finding study, as well as another trial enrolling patients with untreated, PD-L1-positive, advanced disease to receive petosemtamab plus pembrolizumab.

Also at AACR 2023 , MRUS presented findings from a cohort of 14 patients with previously treated gastroesophageal adenocarcinoma (stomach and/or esophageal cancer), with some early evidence of disease control being shown.

Zenocutuzumab

This HER2/HER3 bispecific antibody is being developed in patients with solid tumors harboring a specific biomarker: fusions involving the neuregulin-1 (NRG1) gene. Long story short on these fusions, they can lead to unchecked presentation of the NRG1 ligand to HER3, which is akin to constantly giving EGF to EGFR and stimulating its signaling capability.

NRG1 fusions are rare tumor aberrations , but they do show up more frequently in patients with NSCLC (~1%), pancreatic ductal adenocarcinoma (3.3%), which is the most common form of pancreatic cancer, and mucinous adenocarcinomas (9.8%). Based on early findings, zenocutuzumab currently has Breakthrough Therapy designations in NRG1 -positive NSCLC and pancreatic cancer.

The most recent updates for zenocutuzumab were presented at ESMO 2023 a few months ago. In an oral presentation , 85 patients with NRG1 -positive NSCLC from the eNRGy study had a 37.2% overall response rate, with 61.5% of patients achieving some level of clinical benefit. The median duration of response was 14.9 months. No patients discontinued therapy due to toxicity.

In a poster presentation , 27 patients with NRG1 -positive pancreatic cancer were evaluated for efficacy with zenocutuzumab. Treatment yielded a response rate of 42.4%, with a median duration of response of 9.1 months. This response rate is remarkable given that these patients had a median of 2 prior lines of systemic therapy. Granted, these are small numbers, too, which raises the likelihood of unexpected results (for good or bad).

MRUS has guided that they believe these data, coupled with the Breakthrough Therapy designations, are sufficient to support a licensing application with the FDA, once they have had a little more time to mature. No firm timeline has been given on this submission, only that they will wait until the first half of 2024 to collect more data.

The company is also investigating zenocutuzumab in patients with prostate cancer, but this is much further behind the other main areas that anyone looking at MRUS today should focus on the NSCLC and PDAC stories, I think.

MCLA-129

The third program, a bit further behind, is MCLA-129, which is designed to target c-Met and EGFR. These two receptor tyrosine kinases are frequent partners in crime for certain tumors, most notably non-small cell lung cancer (NSCLC), where alterations (either mutation or amplification) of c-Met are among the most common drivers of resistance to targeted therapy for patients with EGFR -mutant disease.

Unsurprisingly, MRUS is pursuing development of MCLA-129 in patients with NSCLC. They presented the first findings of a phase 1/2 study at ESMO Asia 2023 a few weeks ago. Patients in the first-line setting had a 75% response rate when combined with osimertinib (note that osimertinib alone had a reported 80% response rate in the original publication of FLAURA). In the previously treated setting, patients had a 35.3% response rate, with median duration of response not reached.

Alarmingly, 12% of patients receiving the combination of MCLA-129 and osimertinib developed grade 3 or higher interstitial lung disease (3 of whom died), and 23% of patients discontinued treatment due to AEs. There was also a signal of venous thromboembolic events with the combination.

Financial Overview

Per their latest quarterly filing , MRUS held $404.8 million in total current assets, including $241.9 million in cash and equivalents and another $146.7 million in marketable securities. They recognized $11 million in collaboration revenue, while reporting $49.4 million in total operating expenses.

After accounting for income, taxes, and foreign exchange gains, MRUS realized a net loss of $23.0 million for the quarter. At this cash burn rate, the company has approximately 4 years of liquid assets to fund operations.

Strengths and Risks

The MRUS balance sheet leaves nothing to be desired, at least for the near term. It's great to look at the cash flow and assets and have no strong reservations about their ability to fund operations. Again, for the near term. There is definitely risk of those losses creeping up as they advance clinical trials forward and have dips in collaboration revenue. I would be confident that the ship is right for at least 2 more years.

And 2 more years is sufficient time to see more advanced readouts of their main pipeline projects, and in the case of zenocutuzumab, possibly even an approval and launch. MRUS guided in its latest corporate update that they see getting a partnership for zenocutuzumab as critical for supporting getting to the market, though.

Really, the biggest risk I see for MRUS on the investment thesis front is its current valuation. $1.4 billion is the market cap as I write this, and that's basically pricing them in as a sure thing to get an approval. Any piece of bad news, be it data that fails to meet the lofty expectations set by early trials, or delays in filing, could be triggers for big falls from these price points.

However, there is a lot of potential for upward growth, as well. We can't underestimate the power of a biomarker in getting accelerated approval, and NRG1 fusions are looking like a pretty dang good biomarker in NSCLC and pancreatic cancer. Unless something really surprising happens in the next 6 months, I think these data are good enough to warrant approval in this relatively narrow band of patients. Possibly even a tissue-agnostic approval in the future.

A big partnership could be in the works for zenocutuzumab, which appears about as strong a contender for accelerated approval as you're going to see. MRUS is also the kind of company we've seen being bought out in recent years, and that would be a major catalyst for anyone buying in today.

Bottom-Line Summary

MRUS hold in its hand 2 very, very promising pipeline candidates, and quite a few in the tank. While their valuation is high, I wouldn't say that should dissuade you immediately. They have a lot of potential strong catalysts coming in 2024. I can't give them a "glowing" recommendation, but I can strongly insist that you take a look, recognize the risks, and consider a small position here, given the opportunities that are right in front of them.

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