Summary
The stock is still in the red since my initial write-up and update piece.
Shares of Dutch biotech Merus (MRUS) are still slightly in the red since my initial write-up on the company in May of last year and late January update piece.
Figure 1: MRUS daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)
For readers newer to the story, the stock popped on my radar last year after a lucrative partnership was signed with Incyte (INCY), for which they received $120 million upfront and a common share purchase of $80 million. Incyte in return received exclusive rights for up to 11 bispecific antibody research programs utilizing Merus' Biclonics technology, which included two preclinical immuno-oncology candidates. I noted that their technology had the potential to be sufficiently differentiated from monoclonal antibodies due to improved tumor cell killing activity and lower toxicity.
I first mentioned their lead candidate MCLA-128 (potentially inhibits heregulin-driven cancer cell growth more effectively than other conventional options), for which the mid-stage international study in both HER2-positive MBC patients and those with hormone receptor positive/HER-2 low MBC had been recently initiated. 120 patients are being enrolled, with the first cohort consisting of those who have progressed on anti-HER2 therapies including TDM-1 (will receive the drug candidate in combination with trastuzumab and chemotherapy).
The second cohort consists of patients who progressed on hormone therapies and CDK4/6 inhibitors and will receive MCLA-128 in combination with endocrine therapy. I stated that in both settings preclinical evidence of synergy had been demonstrated and we shouldn't have to wait too long to see results (primary endpoint is clinical benefit rate at 24 weeks). We could also see results from the ongoing Phase 1/2 study of MCLA-128 in the second quarter per the company's presentation at JPMorgan.
Possibly more relevant to the thesis and of personal interest to me was MCLA-117. After all, the latter targets CLEC12A, expressed by tumor cells of 90% to 95% of patients with AML and 85% of those with MDS. I reminded readers that we could see safety and early activity mid-year at the earliest (potentially ASCO) with more complete data to follow later on.
While Merus was added to the ROTY Contenders List, it soon dropped off due to weak technical action. I remind readers that ROTY holdings are typically stocks that are setting up fundamentally AND with a compelling chart or price action.
Yesterday the news came that the company raised a substantial amount of money ($55.8 million) at a price point of $18 per share, representing a premium of 9% from the close of trading on February 13th. Most companies need to price their secondaries at a discount to convince institutionals and others to jump in, but in this case, it was the opposite! 3.1 million shares were sold to Biotechnology Value Fund (a favored institutional investor I track) and other well-known investors (Aquilo Capital Management, Sofinnova Venture Partners L.P., and LSP Life Sciences Fund NV).
Mark Lampert, President of BVF, and Marc Schneidman, Chief Investment Officer of Aquilo had the following to say:
BVF and Aquilo believe strongly in the fundamental value of Merus and the Biclonics technology. We are privileged to make this investment in the Company and value the opportunity to provide additional leverage to the clinical development of very promising drug candidates that we believe will yield meaningful clinical data in the near future.
Readers might recall that the last time we quoted Lampert was when he stated that the shares of Cascadian Therapeutics were "worth far more than the current market value." The stock went on to be a significant winner when it was bought out by Seattle Genetics, although I wish it'd gone it alone longer and we would have likely seen more upside.
For the third quarter, the company reported cash and equivalents of €202.4 million while research and development costs essentially doubled to €8.0 million. Net loss for the quarter more than tripled to €15.7 million, but this figure also includes €5.5 million of foreign currency losses and €2.7 million of non-cash, share option expenses. Management has guided for an operational runway well into 2019, so it's safe to say that has been extended significantly after the recent offering.
Merus Is A Buy.
Readers who have done their due diligence and are interested in the story should purchase a pilot position in the near term. I suggest accumulating one's total desired position this quarter.
Risks are many, with the main one being setbacks in terms of safety or disappointing initial data for lead assets progressing in studies. Dilution in the medium term no longer appears to be on the table. Postponing or extension of clinical timelines (i.e. slow enrollment rate or failure to expediently open sites) would also pressure shares as Wall Street would have to wait longer for meaningful data to be generated. Keep in mind at ASCO last year the stock was an underperformer as Wall Street didn't think much of initial MCLA-128 results.
For readers interested in stocks with near- to medium-term upside, I encourage you to take a look at the latest edition of ROTY (Runner of the Year), which includes our ROTY 10-stock model account and the ROTY Contenders List.