Merus’ Cancer Drug, Investors Are Waiting and Watching

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?

How an immune checks for cancer cells

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.

Merus' Drugs in the Pipeline.
Merus’ Drugs in the Pipeline. Four are being tested on humans, and one is pre-clinical.

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.

Slide about how MCLA-158 works from Merus' investor presentation.
Slide about how MCLA-158 works from 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. 

Artist's rendering of the surface of a cell, with proteins sticking through the surface.
Artist’s rendering of the surface of a cell, with proteins sticking through the surface.

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.

Video from Merus illustrating how Zeno works

Stock History

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 stock history since 2016
  1. Merus went public at $10/share.
  2. Merus announced a partnership with Incyte to develop bispecific antibodies, stock jumps 42%.
  3. Merus presents data for its lead drug “Zeno” at a conference. Shares drop 20%.
  4. Merus does a secondary offering for $56 million at $18/share.
  5. 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).

Valuation

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.

Summary

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.

Takeaway

  • Ticker: Merus $MRUS
  • Phase 1 Drug Data: First Quarter 2020
  • Catalyst Score: 2/5

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 24 hours. This article is for informational purposes only, and while the author makes every effort to present accurate and reliable information, Foreshadow, LLC does not guarantee the accuracy, completeness, efficiency, timeliness, or correct sequencing of such information.  Reliance on such information should only be undertaken after an independent review of its accuracy, completeness, efficiency, and timeliness. This article is not intended to serve as a recommendation to buy or sell any security. The author is not a registered investment advisor.

References and Further Reading

They’re the next new thing in cancer immunotherapy, but will bispecifics help more patients than CAR-Ts? – StatNews

Merus: Catalyst Filled 2020 For Biclonics Platform, Concerns Remain – Seeking Alpha

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