Merus: Catalyst Filled 2020 For Biclonics Platform, Concerns Remain

Dec. 20, 2019 12:31 PM ETMerus N.V. (MRUS)8 Comments

Summary

  • Shares have fallen by 16% since my initial article.
  • I provide a recap of multiple value drivers for the company and its deep pipeline of bispecific antibody therapeutics.
  • While initial EAP data in NRG1 fusion positive cancer patients appeared quite promising, results in additional patients were more variable.
  • MCLA-158 looks intriguing (could be the first colorectal cancer treatment to block growth of tumors with RAS mutations), but we need to see initial data first.
  • Multiple clinical catalysts await in 2020. I remain on the sidelines until we receive further clarity with upcoming data readouts.
  • Looking for a portfolio of ideas like this one? Members of ROTY get exclusive access to our model portfolio. Get started today »

Shares of Merus NV (NASDAQ:MRUS) have fallen by 16% since my initial article was published in May of 2017, in which we touched on potential advantages of its Biclonics platform technology and multiple assets in the clinic. Shares have fallen by 7% since my February 2018 update piece.

While, in ROTY, we sold this name for a slight profit in 2018 (due in part to one reader pointing out a potential red flag in the form of postponed data readouts), Merus again popped up as a worthy research candidate when it appeared in our Institutional Top Ideas series as a conviction holding for Mark Lampert's Biotechnology Value Fund. With multiple near to medium-term catalysts, I look forward to revisiting to determine if there's finally an opportunity for readers to take advantage of.

Chart

Figure 1: MRUS daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see that shares are closing out this time frame at a significantly higher price point than which they began. Shares briefly spiked in late September above the $20 level, but have since settled again in the mid-teen range.

Overview

In my last update piece, I touched on the following aspects of the bullish thesis:

  • I cited management's presentation at Jefferies, stating that Merus's lead candidates are novel (not "me too" treatments). MCLA-128 was thought to be the first HER3 targeting agent that's proven effective. MCLA-117 is a first-in-class T-cell engager for AML. MCLA-158 is a first-in-class bispecific antibody targeting LGLR5 (leucine-rich repeat-containing G protein-coupled receptor 5) and EGFR that could be effective in RAS-mutant colorectal cancer. MCLA-145 is their first program out of the immuno-oncology efforts partnered with Incyte (INCY) (company retains US rights) and for competitive reasons, half of target combination had not been disclosed. I reminded readers of the lucrative deal terms, for which the company 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's 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 were 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 consisted 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 wouldn't have to wait too long to see results (primary endpoint is clinical benefit rate at 24 weeks).
  • 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 (results were since postponed). An ex-vivo experiment showed how treating AML samples resulted in tumor cell killing and interestingly enough did not require high level of expression of CLEC12A.
  • As for MCLA-158, points of differentiation include being more potent than EGFR agent cetuximab (did Q4 2017 sales of $266 million for the sake of thinking about potential here). RAS mutant CRC is an attractive indication of significant unmet medical need. Keep in mind 158 selectively kills tumor cells over normal cells and potentially provides a better therapeutic window. After CRC, the plan is to expand to other solid tumors in expansion cohorts.

Figure 2: Pipeline (Source: corporate presentation)

Let's take a look at recent events to determine how they've affected our thesis here.

Select Recent Developments

On May 5th, the company announced that the first patient had been treated in the phase 1 study evaluating MCLA-145 (potential first-in-class PD-L1 x CD137 Biclonics) for the treatment of patients with advanced solid tumors. Management reminds us that the hope with this drug candidate is to overcome known systemic side effects of CD137 agonists currently in development through more targeted delivery to the tumor microenvironment and to address a significant unmet need in patient populations not benefiting from current immunotherapeutic agents. As this is an early-stage trial, primary objectives include finding the appropriate dose, safety and tolerability (preliminary antitumor activity and functional target engagement will also be assessed). Keep in mind that Merus retains US rights, while Incyte has rights outside the United States.

On October 27th, the company announced early data for three patients with cancers harboring NRG1 fusions who were treated with MCLA-128 through an Early Access Program and provided an update on MCLA-128 clinical programs. The three patients were treated with the 750 mg IV dose administered every other week, while NRG1 gene fusions were identified via RNA-based sequencing. All three patients exhibited tumor shrinkage, symptomatic improvement and durability up to their most recent assessment (all remained on treatment as well). I found it encouraging that these results were achieved in multiple types of difficult to treat cancers as well (pancreatic ductal adenocarcinoma patient with 44% reduction in tumor diameter that improved to 54% at 5-month scan, another PDAC patient with 22% reduction in tumor diameter with 25% reduction at 5 month scan, NSCLC patient with 33% reduction in tumor diameter that improved to 41% following 5 month scan). This last patient had progressed on six prior lines of therapy.

Figure 3: NRG1 fusions found in multiple cancer types, preclinical data is quite encouraging (Source: corporate presentation)

Figure 4: Early data in solid tumors harboring NRG1 fusion gives reason for measured optimism (Source: corporate presentation)

Figure 5: Case study for 52 year old male with ATP1B1-NRG1 pancreatic cancer (Source: corporate presentation)

MCLA-128 continued to be well tolerated in a phase 1/2 study with 117 patients treated (dosing regiments of weekly to once every 3 weeks) and most adverse events being mild to moderate in nature (incidence of drug related grade 3 AEs of 4%). To be fair, there was one case of grade 5 hypersensitivity reaction.

Going forward, the company amended the phase 1/2 eNRGy trial to focus just on patients with solid tumors harboring NRG1 fusion. As of October 27th, nine patients had been identified (3 PDAC, 6 NSCLC) and enrolled into EAP and eNRGy trial. Of the six NSCLC patients, one patient with confirmed PR remains on treatment, one patient had stable disease for greater than 7 months but discontinued the trial due to poor adherence, two patients had progressive disease and two patients had only recently started treatment and not been assessed for response. Next interim NRG1 data update is expected to be presented at a medical conference by the end of 2020.

As for efforts in metastatic breast cancer, after enrolling the phase 2 combination trial, the company has no plans to pursue MBC or gastric cancer indications (refocusing efforts on eNRGy trial). An unplanned interim efficacy analysis with data cutoff of October 23rd. In the HER2+ cohort, ORR was just 4% confirmed, 17% unconfirmed. All patients had previously been treated with trastuzumab, pertuzumab, and an anti-HER2 antibody drug conjugate. The median number of prior lines of anti-HER2 therapy in the metastatic setting was three, and 71% of patients had visceral involvement. In the ER+ cohort, 40 patients were treated with MCLA-128, and while disease control rate was 40%, ORR was just 0% (no way to spin that positive). All patients were previously treated with CDK4/6 inhibitors. The median number of prior lines of endocrine therapy in the metastatic setting was two, and 85% of patients had visceral involvement. Mature results will be presented at a medical conference in 2020 and will include primary clinical benefit rate at 24 weeks for both cohorts.

On November 5th, the company priced a secondary offering of over 5.4 million common shares at $14.50 per share for gross proceeds of $79.2 million. Investment banks involved included Citigroup, Jefferies, Kempen, Berenberg and Roth Capital Partners.

On December 16th, the company announced that CEO and President Dr. Ton Logtenberg is stepping down with Dr. Sven Lundberg to succeed him. To put this into context, Logtenberg led the company for 16 years. New CEO Lundberg appears to have some relevant experience, including serving prior as Chief Scientific Officer at CRISPR Therapeutics and as Head of Translational Medicine at Alexion Pharmaceuticals.

Other Information

For the third quarter of 2019, the company reported cash and equivalents of €168.1 million as compared to net loss of just €8.3 million. Research and development expenses rose slightly to €12.8 million, while management and administration costs came in at €2.9 million. Keep in mind that the above cash position does not take into account $79.2 million of gross proceeds from the November financing. Management is now guiding for operational runway into 2022.

As for future catalysts of note, as stated prior for MCLA-128 interim data for patients whose cancer cells harbor NRG1 fusions will be presented at a medical conference by the end of next year. Efforts in metastatic breast cancer are more dubious (mature data for both cohorts of phase 2 study to be presented at a medical conference next year, only progressing program with collaborator). As for MCLA-117, initial phase 1 data will be presented at a medical conference 1H 2020 (expectations for low dose are tempered).

MCLA-158 (Lgr5 x EGFR Biclonics) is more of interest considering significant unmet medical need it could address - initial safety data (and information around recommended phase 2 dose) is expected by year end with further guidance on program to be provided in 2020. Management has pointed out prior that this program could be the first colorectal cancer treatment to block the growth of tumors with RAS mutations (~50% of patients).

Figure 6: Preclinical data for MCLA-158 shows potential key attributes of superior growth inhibition and selectivity of tumor versus healthy tissue (Source: corporate presentation)

On the MCLA-128 update conference call from October, we are reminded that HER3 was thought to be undruggable by small molecule drugs like TKIs. Drugs targeting specific gene fusions has become a lucrative area in oncology resulting in transformational outcomes for patients. A big caveat here is that projections of incidence of NRG1 fusions are based on limited information, and more data needs to be analyzed to understand true incidence. Currently, the company estimates these fusions to occur in 0.3% to 3% of NSCLC (what a range), 0.5 to 1.5% of pancreatic cancer and less than 1% in other solid tumor types. According to management commentary, it would appear an efficient path to market exists for treating patients with NRG1 fusions, considering how other targeted oncology companies have been successful here (i.e. single arm enrichment trial). In response to an analyst question regarding a standardized tool being used for identifying patients with NRG1 fusions, the CMO stated that different assays for determining NRG1 fusions are being explored, and this remains a work in progress. Playing devil's advocate, an analyst was right to point out the strength of EAP data (3 of 3 patients responding) versus less promising results from the eNRGy trial (in NSCLC had 2 progressors, 2 that were too early to evaluate).

As for institutional investors of note, BVF recently sold some of its stake but still owns over 3.3 million shares.

Final Thoughts

To conclude, there are reasons for optimism with this bispecifics player considering multiple irons in the fire, bolstered cash position and multiple catalysts in 2020. That said, there are multiple caveats as well as we don't know the true incidence of NRG1 fusions, and initial data has yielded variable outcomes (promising efficacy signals, but big difference between new study and EAP). Programs like MCLA-158 and MCLA-117 look quite intriguing, but again, nothing can be known until we get a look at initial data.

Thus, while certain programs interest me a great deal, I remain on the sidelines until additional data updates provide more clarity. Remember, my goal (especially in ROTY) is to focus on just the few stories where we truly feel we have an edge, and I encourage readers to be very selective with the pitches they choose to swing at.

While near-term dilution is not a concern, given the recent secondary offering, key risks include setbacks in the clinic, disappointing data readouts and intense competition for certain indications (metastatic breast cancer for example).

Author's Note: I greatly appreciate you taking the time to read my work and hope you found it useful. Consider clicking "Follow" next to my name to receive future updates and look forward to your thoughts in the Comments section below.

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This article was written by

Jonathan Faison profile picture
16.17K Followers
Community of Biotech Investors Focused on Value & Clinical Momentum

Founder of ROTY (Runners of the Year), a 500+ member community of biotech investors & traders. Big believer in quality over quantity, my goal is to add value for ALL readers.





Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: Disclaimer: Commentary presented is NOT individualized investment advice. Opinions offered here are NOT personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. I reserve the right to make investment decisions on behalf of myself and affiliates regarding any security without notification except where it is required by law. Keep in mind that any opinion or position disclosed on this platform is subject to change at any moment as the thesis evolves. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account.

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