To treat cancer, you have to understand why your normal immune system is not killing cancer cells. Immune system cells called T cells constantly patrol your body, playing policemen. T cells audit other cells for abnormalities (like cancer or viruses) and kill them unless they are healthy.
Here’s a neat video below illustrating how T cells check normal and cancer cells titled What are ‘checkpoint’ immunotherapy drugs?
Sometimes a T cell can be tricked into thinking that a cancer cell is a healthy cell, and so it will pass it by. One approach to treat cancer is to tag the cancer cells so the T cells can see them better. Scientists designing these tags, called antibodies, have the challenging task of making tags that correctly identify a cancer cell but not a normal cell.
Merus is a Dutch biotech that is designing antibodies, and the company has Phase 1 drug data coming out sometime in the next month (in the first quarter 2020).
Merus currently has 4 drugs in its pipeline that are being tested on humans.
The Drug With the Catalyst
MCLA-158 is Merus’ drug being tested on metastatic colorectal cancer. The company will announce Phase 1 results sometime this quarter (1Q 2020). The study includes 120 patients with colorectal cancer, and while the study won’t tell us if the drug works (i.e. does it cure cancer?), it will tell us if the drug is safe and what dosage to use in the Phase 2 trial.
Here is a slide about MCLA-158 from the Merus’ investor presentation.
History of the Company
Merus was founded in 2003 and IPOed in 2016 at $10/share. Merus’s speciality is designing bispecific antibodies, which can be even more precise and potent than standard antibodies.
What’s so special about Bispecific Antibodies?
Imagine that the surface of a cell is like planet Earth. Like Earth is covered with cities, a cell is covered in surface proteins. Antibodies are little flags floating in space that are attracted to and can find specific surface proteins. So I can create an antibody, and say, go find the city San Francisco, California, and it will.
On cancer cells, there are proteins (cities) that don’t exist on healthy cells. So I may create an antibody that finds the city Winterfell in Westeros and it will skip normal cells, but flag cancer cells.
Now bispecific antibodies are flags that can flag two cities at once, and then do some action. So for instance, it can say if you find both cities Winterfell and King’s Landing, then mark that cancer planet for destruction. This additional precision is less toxic to your body because it keeps more normal cells alive.
Other Drugs In Pipeline
While MCLA-158 is the drug with the nearest catalyst, the drug that most investors are excited about is it lead drug MCLA-128, also known as Zenocutuzumab (or “Zeno” for short). This drug has shown some early promising results (in 3 patients) for hard to treat tumors with a specific genetic mutation called NRG1 fusion. Merus hopes to become the standard of care for cancers with this rare mutation, which could bring in significant sales.
Merus says they will give us results for Zeno clinical trial “at a medical conference in 2020.” The study follows 120 patients with metastatic breast cancer, and is Phase 2.
Here is a quick video from Merus showing how Zeno works.
Merus IPOed in 2016 and has released relatively little major news since it went public. The one exception is an early partnership with Incyte (Nasdaq: INCY) where Incyte paid roughly $200 million for rights to 11 experimental compounds.
- Merus went public at $10/share.
- Merus announced a partnership with Incyte to develop bispecific antibodies, stock jumps 42%.
- Merus presents data for its lead drug “Zeno” at a conference. Shares drop 20%.
- Merus does a secondary offering for $56 million at $18/share.
- Merus raises another $60 million at $14.50/share.
Upcoming Phase 1 Data Catalyst
As mentioned earlier, Merus is expecting to announce results from its Phase 1 study of MCLA-158 for metastatic colon cancer. Phase 1 results generally do not tell us if the drug works, but are designed to tell us if the drug is safe and what dosage to use for the Phase 2 study. Therefore, I don’t expect that this catalyst will move the stock much unless they announce that a large percentage of the patients responded to the treatment or were cured (i.e. their cancer stopped growing or shrank).
Merus has yet to get a drug FDA approved, and its current valuation reflects the potential of its drug pipeline, with a current market cap around $500 million. A similar company also doing bispecific antibodies, Xencor $XNCR trades for around 4 times that valuation at $2 billion market cap, but it also has 1 drug approved with revenues of $165 million in the last 12 months.
Although not much volatility is expected around the company’s Phase 1 results for MCLA-158, which are due sometime in the first quarter 2020, the results for Merus’s lead drug candidate “Zeno”, due by the end of the year, may really move the stock if results are either unexpectedly good or bad.
- Ticker: Merus $MRUS
- Phase 1 Drug Data: First Quarter 2020
- Catalyst Score: 2/5
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