Quarterly report
Page 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-37773 MERUS N.V. (Exact name of registrant as specified in its charter) The Netherlands Not Applicable (State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) Uppsalalaan 17 3rd and 4th Floor 3584 CT Utrecht The Netherlands Not Applicable (Address of principal executive offices) (Zip code) +31 85 016 2500 (Registrant’s telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Common shares, nominal value €0.09 per share MRUS The Nasdaq Stock Market LLC (Nasdaq Global Market) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Page 3
As of October 26, 2025, the registrant had 75,844,579 common shares, nominal value €0.09 per share, outstanding.
Page 4
PART I — FINANCIAL INFORMATION Item 1. Financial Statements 2 Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 2 Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2025 and 2024 3 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 4 Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2025 and 2024 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 32 Item 4. Controls and Procedures 32 PART II — OTHER INFORMATION Item 1. Legal Proceedings 33 Item 1A. Risk Factors 33 Item 5. Other Information 89 Item 6. Exhibits 89 Signatures 91
Page 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward- looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding the planned completion of the transactions contemplated by the transaction agreement, dated as of September 29, 2025, entered into with Genmab A/S (Genmab) and Genmab Holding II B.V., a wholly owned subsidiary of Genmab (Purchaser), and related timing, and the potential benefits and effects of the proposed transactions, our plans to develop and commercialize our product candidates, the timing of our ongoing or planned clinical trials, the planned announcement of data from our clinical trials and related timing, the timing of and our ability to obtain and maintain regulatory approvals, the potential impact of any economic conditions and the global geopolitical landscape, including global instability due to United States political environment, disruptions and extreme volatility in the global economy, including rising inflation and interest rates, declines in economic growth and the ongoing conflicts in Europe and the Middle East on our business and operations, the potential impact of enacted U.S. federal legislation, the clinical utility and commercial potential of our product candidates, our commercialization, marketing and manufacturing capabilities and strategy, our expectations surrounding our collaborations and licenses, and related timelines, our expectations about the willingness of healthcare professionals to use our product candidates, the sufficiency of our cash, cash equivalents and investments, and the plans and objectives of management for future operations and capital expenditures. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties, assumptions and other important factors, including those described under the sections in this Quarterly Report on Form 10-Q entitled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. SUMMARY RISK FACTORS Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common shares. The principal risks and uncertainties affecting our business include the following: • We have executed a transaction agreement with Genmab and Purchaser, which, subject to certain conditions being met, would result in us or our legal successor becoming an indirect wholly owned subsidiary of Genmab. The proposed transactions may not be completed within the expected timeframe or at all, which could adversely affect our business, and in the interim period we are subject to restrictions on our business that could also adversely affect our business and operations. Additionally, we have incurred, and will continue to incur, significant costs in connection with the proposed transactions, for which we may receive little or no benefit if the proposed transactions are not completed. • We have incurred significant net losses since our inception and we expect to continue to incur significant expenses and operating losses for the foreseeable future. • We have a limited operating history, have limited experience with registrational clinical trials, and a single approved product for commercial sale through an exclusive licensee, which may make it difficult for you to evaluate our current business and predict our future success and viability.
Page 6
• We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and drug development programs or future commercialization efforts. • The outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities. • The clinical trial and regulatory approval processes are lengthy, time consuming, require compliance with extensive regulations and consistent with appropriate quality, and are inherently unpredictable, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates or for our product approved under accelerated approval, we or our licensee may be unable to meet the requirements for full approval, including potential verification and description of clinical benefit in confirmatory trial(s). • Our antibody candidates may have serious adverse, undesirable or unacceptable side effects alone or in combinations being tested in clinical development, which may delay or prevent marketing approval. If such side effects are identified during the development of our antibody candidates or following approval, if any, we may need to abandon our development of such antibody candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any. • We have never commercialized an antibody candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with our exclusive licensee Partner Therapeutics Inc., or PTx for the commercialization of BIZENGRI® in the United States in the field of NRG1 fusion cancer. • We may not be able to successfully manufacture our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing resulting approved products, if any. • We rely, and expect to continue to rely, on third parties, including independent clinical investigators and contract research organizations or CROs, to conduct our pre-clinical studies, clinical trials, chemistry, manufacturing and controls and potential development of a companion diagnostic. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, perform with the requisite level of compliance and quality, or perform at reasonable cost, we may not be able to obtain regulatory approval for or commercialize our antibody candidates or we may be subject to other significant negative consequences following marketing approval for BIZENGRI®, and our business could be substantially harmed. • Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain antibody candidates over other potential candidates, and certain indications and combination studies over others. These decisions may prove to have been wrong and may adversely affect our revenues. • The competition for qualified personnel is particularly intense in our industry. If we are unable to retain or hire key personnel, we may not be able to sustain or grow our business. • We operate in highly competitive and rapidly changing industries, and if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted. • Our success depends on our ability to protect our intellectual property and our proprietary technologies. If we are unable to adequately protect our intellectual property and our proprietary technologies or obtain and maintain issued patents which are sufficient to protect our product candidates and proprietary technologies, or if others do not respect our intellectual property rights and exclusivity, others could compete against us more directly, which would negatively impact our business. • Our existing collaboration and license agreements are important to our business and potential future collaborations and licenses may also be important to us, and if we are unable to maintain any of these collaborations and licenses or execute new collaborations or licenses, or if these arrangements are not successful, our business could be adversely affected. • The trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of disruptions and extreme volatility in the global economy, including rising inflation and interest rates, declines in economic growth, global instability, including the ongoing conflicts in Europe and the Middle East, which have and may continue to adversely impact our business, including our pre-clinical studies and clinical trials, financial condition, our ability to raise capital and results of operations.
Page 7
2 PART I – FINANCIAL INFORMATION Item 1. Financial Statements MERUS N.V. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share and per share data) September 30,2025 December 31,2024 ASSETS Current assets: Cash and cash equivalents $ 367,491 $ 293,294 Marketable securities 268,441 243,733 Accounts receivable 19,182 1,261 Prepaid expenses and other current assets 36,815 30,784 Total current assets 691,929 569,072 Marketable securities 180,916 187,008 Property and equipment, net 11,353 10,770 Operating lease right-of-use assets 11,636 9,254 Intangible assets, net 1,751 1,679 Equity Investment 1,992 — Deferred tax assets 1,202 1,520 Other assets 3,417 3,390 Total assets $ 904,196 $ 782,693 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 8,392 $ 4,164 Accrued expenses and other liabilities 44,553 43,957 Income taxes payable 6,737 7,317 Current portion of lease obligation 2,762 1,704 Current portion of deferred revenue 24,356 29,934 Total current liabilities 86,800 87,076 Lease obligation 9,555 8,208 Deferred revenue, net of current portion 32,909 39,482 Total liabilities 129,264 134,766 Commitments and contingencies - Note 6 Shareholders’ equity: Common shares, €0.09 par value; 105,000,000 shares authorized at September 30, 2025 and December 31, 2024; 75,840,942 and 68,828,749 shares issued and outstanding as at September 30, 2025 and December 31, 2024, respectively 7,676 6,957 Additional paid-in capital 2,066,404 1,664,822 Accumulated other comprehensive income 19,451 (55,465) Accumulated deficit (1,318,599) (968,387) Total shareholders’ equity 774,932 647,927 Total liabilities and shareholders’ equity $ 904,196 $ 782,693 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 8
3 MERUS N.V. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) (Amounts in thousands, except share and per share data) Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 2025 2024 Commercial material revenue $ — $ — $ 13,331 $ — Collaboration revenue 11,867 11,772 33,843 26,993 Royalty revenue 283 — 292 — Total revenue 12,150 11,772 47,466 26,993 Operating expenses: Research and development 80,017 63,239 254,059 150,942 General and administrative 28,611 20,765 75,975 59,466 Total operating expenses 108,628 84,004 330,034 210,408 Operating loss (96,478) (72,232) (282,568) (183,415) Other income, net: Interest income, net 8,827 10,254 23,152 22,301 Foreign exchange loss (2,172) (34,950) (78,342) (16,897) Other income (expense) 119 — (2,912) — Total other income (loss), net 6,774 (24,696) (58,102) 5,404 Net loss before income taxes (89,704) (96,928) (340,670) (178,011) Income tax expense 5,816 2,977 9,542 6,392 Net loss $ (95,520) $ (99,905) $ (350,212) $ (184,403) Other comprehensive loss: Currency translation adjustment 1,078 31,775 74,916 15,409 Comprehensive loss $ (94,442) $ (68,130) $ (275,296) $ (168,994) Net loss per share attributable to common shareholders: Basic and diluted $ (1.26) $ (1.46) $ (4.87) $ (2.94) Weighted-average common shares outstanding: Basic and diluted 75,675,631 68,254,120 71,910,095 62,750,425 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 9
4 MERUS N.V. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Nine Months EndedSeptember 30, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (350,212) $ (184,403) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment 1,720 1,749 Amortization of intangible assets 139 133 Foreign exchange losses (gains) 87,839 13,537 Share-based compensation expense 56,143 29,971 Amortization (accretion) of discount on investments (3,942) (3,129) Deferred tax expense (benefit) 318 363 Non-cash customer consideration (1,897) — Changes in operating assets and liabilities: Accounts receivable (16,913) 1,293 Operating lease right-of-use assets and lease obligations (55) (74) Prepaid expenses and other current assets (2,092) (19,930) Accounts payable 3,178 1,525 Accrued expenses and other liabilities (4,657) 642 Deferred revenue (20,178) 39,146 Net cash used in operating activities (250,609) (119,177) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (283,579) (295,311) Proceeds from maturities of marketable securities 268,320 154,602 Purchases of intangible assets — (163) Purchases of property and equipment (587) (1,647) Net cash used in investing activities (15,846) (142,519) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 326,025 434,863 Payments of offering costs (524) (325) Proceeds from share issuance - Gilead Collaboration — 22,613 Proceeds from share options exercised 20,656 28,790 Net cash provided by financing activities 346,157 485,941 Foreign exchange impact on cash, cash equivalents and restricted cash (5,503) 4,513 Net increase (decrease) in cash, cash equivalents and restricted cash 74,199 228,758 Cash, cash equivalents, and restricted cash, beginning of period 294,031 205,014 Cash, cash equivalents, and restricted cash, end of period $ 368,230 $ 433,772 SUPPLEMENTAL DISCLOSURES: Lease liabilities arising from obtaining right-of-use assets $ 1,849 $ — Income taxes paid $ 9,802 $ 2,800 Non-cash purchases of property, equipment and intangibles $ 371 $ — Non-cash financing costs $ — $ — Non-cash issuance of share options $ — $ — CASH, CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents $ 367,491 $ 432,998 Restricted cash included in non-current other assets 739 774 $ 368,230 $ 433,772 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 10
5 MERUS N.V. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (Amounts in thousands, except share data) Common Shares Additional Paid-In Accumulated Accumulated Other Comprehensive Total Shareholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance at January 1, 2024 57,825,879 $ 5,883 $ 1,126,054 $ (753,061) $ (22,533) $ 356,343 Issuance of common shares - Gilead 452,527 45 22,568 — — 22,613 Exercise of share options and vesting of restricted share units 409,145 40 7,503 — — 7,543 Share-based compensation — — 4,793 — — 4,793 Currency translation adjustment — — — — (7,388) (7,388) Net loss — — — (34,456) — (34,456) Balance at March 31, 2024 58,687,551 $ 5,968 $ 1,160,918 $ (787,517) $ (29,921) $ 349,448 Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs 8,682,500 848 433,682 — — 434,530 Exercise of share options and vesting of restricted share units 482,869 47 10,081 — — 10,128 Share-based compensation — — 11,686 — — 11,686 Currency translation adjustment — — — — (8,978) (8,978) Net loss — — — (50,042) — (50,042) Balance at June 30, 2024 67,852,920 $ 6,863 $ 1,616,367 $ (837,559) $ (38,899) $ 746,772 Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs — — 8 — — 8 Exercise of stock options and vesting of restricted stock units 573,859 56 11,063 — — 11,119 Share-based compensation — — 13,492 — — 13,492 Currency translation adjustment — — — — 31,775 31,775 Net loss — — — (99,905) — (99,905) Balance at September 30, 2024 68,426,779 $ 6,919 $ 1,640,930 $ (937,464) $ (7,124) $ 703,261 Balance at January 1, 2025 68,828,749 $ 6,957 $ 1,664,822 $ (968,387) $ (55,465) $ 647,927 Exercise of share options and vesting of restricted share units 347,017 33 6,710 — — 6,743 Share-based compensation — — 14,818 — — 14,818 Currency translation adjustment — — — — 23,105 23,105 Net loss — — — (96,474) — (96,474) Balance at March 31, 2025 69,175,766 $ 6,990 $ 1,686,350 $ (1,064,861) $ (32,360) $ 596,119 Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs 6,052,631 622 324,871 — — 325,493 Exercise of share options and vesting of restricted share units 336,741 35 7,221 — — 7,256 Share-based compensation — — 20,353 — — 20,353 Currency translation adjustment — — — — 50,733 50,733 Net loss — — — (158,218) — (158,218) Balance at June 30, 2025 75,565,138 $ 7,647 $ 2,038,795 $ (1,223,079) $ 18,373 $ 841,736 Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs — — 9 — — 9 Exercise of stock options and vesting of restricted stock units 275,804 29 6,628 — — 6,657 Share-based compensation — — 20,972 — — 20,972 Currency translation adjustment — — — — 1,078 1,078 Net loss — — — (95,520) — (95,520) Balance at September 30, 2025 75,840,942 $ 7,676 $ 2,066,404 $ (1,318,599) $ 19,451 $ 774,932 See accompanying notes to the Unaudited Condensed Consolidated Financial Statements.
Page 11
6 MERUS N.V. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Overview Merus N.V. is an oncology company developing innovative antibody therapeutics, headquartered in Utrecht, the Netherlands. Merus US, Inc. is a wholly-owned subsidiary of Merus N.V. located at 139 Main Street, Cambridge, Massachusetts, United States (collectively, "Merus" or the “Company”). Since inception, the Company has generated an accumulated deficit of $1,318.6 million as of September 30, 2025. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future as its antibody candidates advance through discovery, pre-clinical development and clinical trials and as it seeks regulatory approval and pursues commercialization of any approved antibody candidate. As a result, the Company may need additional financing to support its continuing operations. Until the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through public equity offerings, debt financings, or other sources, which may include collaborations, business development and licensing opportunities with third parties. Adequate additional financing may not be available to the Company on acceptable terms, or at all. The Company’s inability to raise capital as and when needed would have a negative impact on its financial condition and ability to pursue its business strategy. The Company will need to generate significant revenues to achieve profitability and may never do so. Transaction Agreement On September 29, 2025, the Company entered into a transaction agreement (“Transaction Agreement”) with Genmab A/S (“Genmab”) and Genmab Holding II B.V., a wholly owned subsidiary of Genmab (“Purchaser”). Initial Offer, Duration and Expiration Time Pursuant to the Transaction Agreement, Purchaser commenced a cash tender offer to purchase any and all of the issued and outstanding common shares of the Company in exchange for $97.00 per common share (the “Offer Consideration”), without interest and subject to any applicable tax withholding, on the terms and subject to the conditions set forth in the offer to purchase, dated October 21, 2025, and in the related letter of transmittal (which together constitute the “Offer”). The Offer is described in a Tender Offer Statement on Schedule TO filed by Genmab and Purchaser with the U.S. Securities and Exchange Commission ("SEC") on October 21, 2025. Unless the Offer is earlier terminated, the Offer will expire at 5:00 p.m., New York City time, on December 11, 2025 or, if the Offer is extended pursuant to and in accordance with the terms of the Transaction Agreement, the date and time to which the Offer has been so extended (the “Initial Expiration Time”, or such later expiration date and time to which the Offer has been so extended, the “Expiration Time”). Subsequent Offering Period; Back-End Mechanics Following the payment by Purchaser for all common shares validly tendered and not properly withdrawn pursuant to the Offer prior to the Expiration Time (the “Acceptance Time”), Purchaser will commence a subsequent offering period (the “Subsequent Offering Period”) for a period of at least ten (10) business days to purchase additional common shares. Pursuant to the Subsequent Offering Period, Purchaser will offer to purchase such additional common shares validly tendered during such Subsequent Offering Period at the Offer Consideration, without interest and subject to any applicable tax withholding (the “Subsequent Closing”, and the final date on which common shares tendered during the Subsequent Offering Period are accepted for payment and paid for, the “Subsequent Closing Date”). Following the Subsequent Closing, if certain conditions set forth in the Transaction Agreement are met, the Company or its legal successor will become an indirect wholly owned subsidiary of Genmab through certain back-end reorganization transactions involving Genmab, Purchaser, the Company and their subsidiaries. The applicable merger, share exchange and cancellation transactions or share issuance and buy-out proceedings (to be determined in accordance with the Transaction Agreement and subject to receipt of certain tax rulings) are referred to as the “Back-End Transactions” (and, together with the Offer, the “Transactions”). The Company will, at Genmab’s request, cooperate with Genmab and Purchaser and use reasonable best efforts to cause the delisting of the Company’s common shares from the Nasdaq Stock Market LLC as promptly as practicable after the Subsequent Closing Date and the
Page 12
7 deregistration of the common shares under the Exchange Act, resulting in the cessation of the Company’s reporting obligations with respect to the common shares thereunder. Conditions to the Offer Purchaser’s obligation to purchase common shares pursuant to the Offer is subject to the satisfaction or (if permitted by applicable law and the terms of the Transaction Agreement) waiver of various usual and customary conditions, including: (i) the valid tendering of a sufficient number of common shares (and such tenders not having been properly withdrawn) to enable Purchaser to acquire, together with (a) any common shares Genmab, Purchaser or their respective affiliates at that time owns, and (b) any common shares irrevocably and unconditionally (subject only to the occurrence of Closing, as defined hereafter) sold and committed to be transferred, but not yet transferred, to Purchaser in writing, at least eighty percent (80%) of the Company’s issued and outstanding share capital (the “Minimum Condition”) at the Expiration Time (and prior to the Subsequent Offering Period) (the “Closing”) (under certain circumstances, Purchaser may reduce the Minimum Condition to seventy-five percent (75%) of the Company’s issued and outstanding share capital); (ii) the receipt of required approvals relating to U.S. and foreign competition filings (including the Hart-Scott-Rodino Antitrust Improvements Act of 1976), or the expiration or termination of their respective waiting periods; and (iii) the adoption of resolutions by shareholders of the Company at an extraordinary general meeting (“EGM”) to be convened in connection with the Offer (or a subsequent EGM) approving certain matters relating to the Offer, particularly, the resolutions required to consummate the relevant Back-End Transactions, and to appoint Purchaser designees to the Company’s board of directors effective upon the Closing. Representations, Warranties and Covenants The Transaction Agreement contains customary representations, warranties and covenants of the Company, Genmab and Purchaser, including a covenant requiring the Company to operate its business and that of its subsidiaries in the ordinary course consistent with past practice. Treatment of Merus Equity Awards Each option that is outstanding and unexercised immediately prior to the Acceptance Time with an exercise price per common share that is less than the Offer Consideration, whether or not fully vested and exercisable and whether or not then subject to any performance or other conditions (i) will vest in full at the Acceptance Time and (ii) be canceled immediately prior to the Closing and converted automatically into the right to receive an amount in cash, equal to the product of (a) the amount by which the Offer Consideration exceeds the applicable exercise price per common share of such option and (b) the aggregate number of common shares underlying such option, without interest and subject to any applicable tax withholding. Termination Rights The Transaction Agreement contains certain termination rights. Upon termination of the Transaction Agreement, the Company has agreed to pay Genmab a termination fee of $240.0 million under specified circumstances, including (i) a termination by the Company to enter into an acquisition agreement for a Superior Proposal (as defined in the Transaction Agreement), (ii) a termination by Genmab following an Adverse Recommendation Change (as defined in the Transaction Agreement) or (iii) in the event that an Acquisition Proposal (as defined in the Transaction Agreement) is made public prior to a termination for certain specified reasons and, within 12 months of such termination, the Company consummates or enters into an agreement with respect to an Acquisition Proposal. The Transaction Agreement also provides that Genmab will be required to pay a regulatory termination fee of $416.0 million to the Company if the Transaction Agreement is terminated by either Genmab or the Company because the Acceptance Time has not occurred by the outside date (as may be extended pursuant to the Transaction Agreement), and as of termination, the conditions to the Offer related to the expiration or termination of the HSR waiting period or the absence of any law or order that prohibits consummation of the Offer, the Back-End Transactions or the other transactions contemplated by the Transaction Agreement or that has the effect of making the Offer, the Back-End Transactions or the other transactions contemplated by the Transaction Agreement illegal if arising under any antitrust law have not been satisfied, and all other conditions to the Offer (other than those conditions that by their nature are to be satisfied at the Acceptance Time) have been satisfied or waived. 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these unaudited condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2024, and the notes thereto, which
Page 14
8 are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025 (the “Annual Report on Form 10-K”). There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2025. Basis of Presentation The Company prepared its unaudited condensed consolidated financial statements in compliance with generally accepted accounting principles in the U.S. ("U.S. GAAP"). Any reference in these notes to applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). The unaudited condensed consolidated financial statements include the accounts of Merus N.V. and its wholly owned, controlled subsidiary, Merus US, Inc. All intercompany transactions and balances of subsidiaries have been eliminated in consolidation. In the opinion of management, these financial statements reflect all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the unaudited condensed consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The three months ended September 30, 2025 and 2024 are referred to as the third quarter of 2025 and 2024, respectively. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period. The unaudited condensed consolidated financial statements presented herein do not contain the required disclosures under U.S. GAAP for annual financial statements. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2024, included in the Annual Report on Form 10-K. Going Concern At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs, and comparing those needs to the current cash, cash equivalent and marketable security balances. After considering the Company’s current research and development plans and the timing expectations related to the progress of its clinical-stage programs and its plans to pursue commercialization of any antibody candidate, if approved, and after considering its existing cash, cash equivalents and marketable securities as of September 30, 2025, the Company did not identify conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date these financial statements were issued. Additional details of the Company’s cash runway are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Segment Information The Company operates in one reportable segment, which comprises the discovery and development of innovative therapeutics. The Company's chief operating decision maker ("CODM") is Sven (Bill) Lundberg, Chief Executive Officer (CEO). The CODM measures the performance of the segment based on expenses by segment and earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to the segment. The Company does not consider the impact of certain non-cash operating expenses such as share-based compensation expense, amortization of intangible assets, and depreciation of property, plant, and equipment when evaluating the segment. Total assets by segment are not presented as that information is not used to allocate resources or assess performance at the segment level and is not reviewed by the CODM. The reconciliation of segment operating results to the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended September 30, 2025 and 2024 is as follows:
Page 15
9 For the three months ended September 30, 2025 (in thousands) Segment Reconciling Items Consolidated Statement of Operations and Comprehensive Loss Commercial material revenue $ - $ - $ - Collaboration revenue 11,867 - $ 11,867 Royalty revenue 283 - $ 283 Total revenue 12,150 - 12,150 Less Research and development expenses Petosemtamab - MCLA-158 49,919 - 49,919 Zenocutuzumab - MCLA-128 2,765 - 2,765 MCLA - 129 1,835 - 1,835 Research general 2,836 - 2,836 R&D employee-related expenses - unallocated 7,348 9,995 17,343 Other indirect R&D expenses - unallocated 5,022 297 5,319 Total Research and development expenses 69,725 10,292 80,017 General and administrative expenses G&A expenses 11,175 355 11,530 G&A employee-related expenses 6,104 10,977 17,081 Total General and administrative expenses 17,279 11,332 28,611 Operating loss (74,854) (21,624) (96,478) Interest income 8,827 - 8,827 Foreign exchange losses, net (2,172) - (2,172) Other income 119 - 119 Loss before income tax expense $ (68,080) $ (21,624) $ (89,704) For the three months ended September 30, 2024 (in thousands) Segment Reconciling Items Consolidated Statement of Operations and Comprehensive Loss Collaboration revenue $ 11,772 $ - $ 11,772 Less Research and development Expenses Petosemtamab - MCLA-158 31,450 - 31,450 Zenocutuzumab - MCLA-128 7,962 - 7,962 MCLA - 129 4,193 - 4,193 Research general 1,958 - 1,958 R&D employee-related expenses - unallocated 7,092 7,166 14,258 Other indirect R&D expenses - unallocated 3,129 289 3,418 Total Research and development expenses 55,784 7,455 63,239 General and Administrative expenses G&A expenses 8,938 340 9,278 G&A employee-related expenses 5,161 6,326 11,487 Total General and administrative expenses 14,099 6,666 20,765 Operating loss (58,111) (14,121) (72,232) Interest income 10,254 - 10,254 Foreign exchange losses, net (34,950) - (34,950) Loss before income tax expense $ (82,807) $ (14,121) $ (96,928) (1) (2) (2) (1) (1) (2) (2) (1)
Page 16
10 The reconciliation of segment operating results to the Condensed Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2025 and 2024 is as follows: For the nine months ended September 30, 2025 (in thousands) Segment Reconciling Items Consolidated Statement of Operations and Comprehensive Loss Commercial material revenue $ 13,331 $ - $ 13,331 Collaboration revenue 33,843 - $ 33,843 Royalty revenue 292 - $ 292 Total Revenue 47,466 - 47,466 Less Research and development Expenses Petosemtamab - MCLA-158 167,713 - 167,713 Zenocutuzumab - MCLA-128 8,420 - 8,420 MCLA - 129 5,625 - 5,625 Research general 8,217 - 8,217 R&D employee-related expenses - unallocated 18,353 27,241 45,594 Other indirect R&D expenses - unallocated 17,643 847 18,490 Total Research and development expenses 225,971 28,088 254,059 General and Administrative expenses G&A expenses 28,973 1,013 29,986 G&A employee-related expenses 17,087 28,902 45,989 Total General and administrative expenses 46,060 29,915 75,975 Operating loss (224,565) (58,003) (282,568) Interest income 23,152 - 23,152 Foreign exchange losses, net (78,342) - (78,342) Other expenses (2,912) - (2,912) Loss before income tax expense $ (282,667) $ (58,003) $ (340,670) For the nine months ended September 30, 2024 (in thousands) Segment Reconciling Items Consolidated Statement of Operations and Comprehensive Loss Collaboration Revenue $ 26,993 $ - $ 26,993 Less Research and development Expenses Petosemtamab - MCLA-158 69,773 - 69,773 Zenocutuzumab - MCLA-128 21,483 - 21,483 MCLA - 129 12,923 - 12,923 Research general 7,192 - 7,192 R&D employee-related expenses - unallocated 14,742 14,281 29,023 Other indirect R&D expenses - unallocated 9,700 848 10,548 Total Research and development expenses 135,813 15,129 150,942 General and Administrative expenses G&A expenses 28,364 1,029 29,393 G&A employee-related expenses 14,383 15,690 30,073 Total General and administrative expenses 42,747 16,719 59,466 Operating loss (151,567) (31,848) (183,415) Interest income 22,301 - 22,301 Foreign exchange losses, net (16,897) - (16,897) Loss before income tax expense $ (146,163) $ (31,848) $ (178,011) (1) (2) (2) (1) (1) (2) (2) (1)
Page 18
11 (1) Reconciling item for non-cash share-based compensation operating expense. (2) Reconciling item for non-cash depreciation and amortization operating expense. New Accounting Pronouncements The Company considers the applicability and impact of any recent Accounting Standards Update ("ASU") issued by the Financial Accounting Standards Board ("FASB"). Based on the assessment, the ASUs were determined to be either not applicable or are expected to have minimal impact on the Company's condensed consolidated financial statements. 3. Investments in Debt Securities The following tables summarize the Company’s investments in debt securities and their presentation in the condensed consolidated balance sheet: September 30,2025 December 31,2024 (in thousands) Money market funds $ 9,515 $ 13,563 Corporate paper and notes 280,562 285,940 U.S. government agency securities 93,141 87,470 U.S. treasuries 75,654 57,331 Total $ 458,872 $ 444,304 Fair value of debt securities $ 459,350 $ 443,607 September 30,2025 December 31,2024 (in thousands) Cash equivalents $ 9,515 $ 13,563 Current marketable securities 268,441 243,733 Non-current marketable securities 180,916 187,008 Total $ 458,872 $ 444,304 The Company does not intend to sell and the Company believes it is unlikely that the Company will be required to sell the above investments before recovery of their amortized cost bases, which may be at maturity. The Company determined that there was no material change in the credit risk of any of its investments. The fair value of money market funds is determined based on publicly available market price for these funds (Level 1). The fair value of other debt securities is determined based on the publicly available inputs which includes a market price for the same or similar instruments adjusted for estimates in interest yield (Level 2). 4. Supplemental Balance Sheet Information Prepaid expenses and other current assets consisted of the following: September 30,2025 December 31,2024 (in thousands) Prepaid research and development expenses $ 23,164 $ 22,794 Prepaid general and administrative expenses 3,648 2,824 Interest receivable 3,554 3,449 Other 6,449 1,717 Total $ 36,815 $ 30,784
Page 19
12 Accrued expenses and other liabilities consisted of the following: September 30,2025 December 31,2024 (in thousands) Accrued research and development expenses $ 29,064 $ 30,484 Accrued personnel costs 8,279 10,514 Accrued general and administrative expenses 3,841 2,856 Other 3,369 103 Total $ 44,553 $ 43,957 5. Income Taxes The Company files income tax returns for its subsidiary Merus US, Inc. in the U.S. federal and Massachusetts, Florida, New York, and New Jersey jurisdictions as well as for the Company in the Netherlands. The components of the income tax expense (benefit) from continuing operations are as follows: After consideration of all positive and negative evidence, we believe that it is more-likely-than-not that the Netherlands deferred tax assets that are not supported by reversing temporary differences, will not be realized. As a result, we established a full valuation allowance against deferred tax assets of the Netherlands. Under Dutch tax law, net operating loss carryforwards may be used to offset future taxable income in full up to €1.0 million and 50% of taxable income that exceeds €1.0 million. Effective as of January 1, 2022, these losses can be carried forward indefinitely. The Company recorded $0.4 million deferred tax benefit in relation to its operations in the U.S. during the three months ended September 30, 2025. The Company recorded $0.3 million deferred tax benefit in relation to its operations in the U.S. during the three months ended September 30, 2024. The Company has recorded $0.3 million deferred tax expense in relation to its operations in the U.S. during the nine months ended September 30, 2025. The Company recorded $0.4 million deferred tax expense in relation to its operations in the U.S. during the nine months ended September 30, 2024. The effective income tax rate of 6.5% during the three months ended September 30, 2025 is substantially lower than the enacted rate of 25.8% in the Netherlands as the Company records a valuation allowance against its net deferred tax assets in the Netherlands. The effective income tax rate of 3.1% during the three months ended September 30, 2024 is substantially lower than the enacted rate of 25.8% in the Netherlands as the Company records a valuation allowance against its net deferred tax assets in the Netherlands. The effective income tax rate of 2.8% during the nine months ended September 30, 2025 is substantially lower than the enacted rate of 25.8% in the Netherlands as the Company records a valuation allowance against its net deferred tax assets in the Netherlands. The effective income tax rate of 3.6% during the nine months ended September 30, 2024 is substantially lower than the enacted rate of 25.8% in the Netherlands as the Company records a valuation allowance against its net deferred tax assets in the Netherlands. On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S. It contains a broad range of tax reform provisions affecting businesses, including extending and modifying many provisions of the Tax Cuts and Jobs Act. Certain provisions will take effect beginning in 2026, while others apply retroactively to January 1, 2025. The Company is evaluating the full effects of the legislation on its estimated annual effective tax rate and cash tax position but expects that the legislation will likely not have a material impact on its financial statements. 6. Commitments and Contingencies Litigation From time to time, the Company may be involved in various claims and legal proceedings relating to or arising out of the Company’s operations. The Company is not currently a party to any material legal proceedings. On August 5, 2024, the Company filed a complaint in the United States District Court of Delaware ("Court") against Xencor, Inc. ("Xencor") alleging Xencor is infringing the Company's U.S. Patent Numbers (Nos.) 9,944,695 and 9,358,268, and 11,926,859, related to Xencor's manufacture, use, offer for sale, sale, and/or importation of certain antibodies and antibody technologies and methods in and/or into the United States. The Company is the plaintiff and Xencor is the defendant. As a result of Xencor’s acts, the Company has alleged that the Company has suffered and continues to suffer damages, is entitled to recover from Xencor damages sustained as a result of Xencor's wrongful and infringing acts, and the Company has and will continue to suffer, irreparable harm for which there is no remedy at law. Accordingly, the Company seeks, among other things, damages, equitable remedies, and an award of attorneys' fees. On October 10, 2024, Xencor filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which Merus responded to via an answering brief in opposition on October 31, 2024, and to which Xencor replied on November 14, 2024. On
Page 21
13 September 30, 2025, the Court granted Xencor's motion to dismiss, granting leave for the Company to file an amended complaint, which is currently due on November 11, 2025, with proceedings to follow. On February 11, 2025, Xencor filed two petitions for inter partes review (IPR) before the Patent Trial and Appeal Board (PTAB) of U.S. Patent Nos. 9,358,268 (the "'268 Patent") and 11,926,859 (the "'859 Patent"), challenging such patents as allegedly invalid as anticipated and obvious in view of certain alleged prior art. On May 30, 2025, the Company filed requests for discretionary denial of institution of each petition. On June 30, 2025, Xencor filed oppositions to the Company’s discretionary denial briefs. The Company filed reply briefs on July 9, 2025, and Xencor filed sur-reply briefs on July 11, 2025. On July 17, 2025, the Acting Director of the United States Patent and Trademark Office (USPTO) issued a decision denying the Company’s requests for discretionary denial and referring the petitions to the PTAB to handle in the normal course, including by issuing a decision on whether to institute a petition, addressing the merits and other non-discretionary considerations. On June 30, 2025, the Company filed a Patent Owner’s Preliminary Response (POPR) under 37 C.F.R. § 42.107, addressing the merits of Xencor’s petitions and other statutory considerations, in each IPR proceeding, asserting institution should be denied for both patents. Decisions from the PTAB issued on September 26, 2025, instituting the IPRs for the '268 Patent and '859 Patent, with proceedings to follow. On August 19, 2022, Kymab Limited ("Kymab"), a subsidiary of Sanofi, filed a notice of opposition against the Company's EP3456190 patent (the "'190 patent"), entitled "Antibody Producing Transgenic Murine Animal," in the European Opposition Division of the European Patent Office (the "EPO"). The notice asserted, as applicable, the '190 patent is contrary to the provision of Article 123(2) EPC, Article 75(1) EPC and Article 100(c) EPC, and alleges the '190 patent lacks novelty and/or is obvious contrary to the provisions of Articles 54 and/or 56 EPC, and Article 100(a) EPC, and that the specification of the '190 patent does not provide sufficient disclosure of the subject matter of the inventions contravening Article 83 EPC and Article 100(b). On January 17, 2023, the Company timely filed a response before the European Opposition Division of the EPO contesting each of these assertions, with further oral proceedings scheduled to follow on January 18, 2024. On June 2, 2023, the European Opposition Division issued a non-binding preliminary decision. On January 18, 2024, the European Opposition Division held oral proceedings addressing each allegation of invalidity raised by Kymab and maintained the '190 patent as granted, and issued a written decision documenting these conclusions on February 16, 2024. In April 2024, Kymab filed a notice of appeal before the Technical Board of Appeals, and Grounds of Appeal on June 17, 2024. The Company filed a response to Kymab's notice of appeal on October 18, 2024. Kymab filed a letter of the opponent on April 14, 2025, maintaining arguments provided in the grounds in its notice of appeal, with further submissions by the parties and proceedings to follow. Oral proceedings are now scheduled to occur on July 9, 2026. The Company does not expect significant impact on its assets or liabilities as a result of the opposition proceeding. 7. Leases The Company has noncancelable operating leases for offices and lab spaces expiring at various dates through 2032. In March 2019, Merus US, Inc. entered into a non-cancellable operating lease agreement for office space in Cambridge, Massachusetts. In September 2025, the Company executed an amendment to this lease that will extend the existing term of the existing leased premises from April 30, 2026 to December 31, 2027. Additionally, the Company has leased an additional 7,395 square feet of space (“the expansion premises”) with the space being available for use on September 1, 2025 and expiring on December 31, 2027. The Company determined the amendment consists of two separate contracts under ASC 842. One contract is related to a new right-of-use asset for the expansion premises, which are being accounted for as an operating lease, and the other is related to the modification of the lease term for the existing leased premises. As a result, the Company recorded a right-of-use asset and a lease liability of $1.1 million for the expansion premises and an aggregate increase of $0.7 million to the right-of-use assets and lease liabilities for the existing premises upon execution of the lease amendment. The Company is recognizing rent expense for the buildings on a straight-line basis through the remaining extended term of the lease. In July 2019, the Company entered into a lease agreement with Kadans Science Partner XIII B.V. for the Accelerator headquarters, which commenced in April 2022. On April 5, 2025, in accordance with the terms of the lease agreement, the annual rent for the Accelerator lease increased due to increases in the consumer price index (CPI). The portion of the rent payments related to the CPI are included within variable lease costs. There have been no other material changes in the Company’s lease arrangements for the three months ended September 30, 2025.
Page 22
14 The components of lease expense for the three and nine months ended September 30, 2025 and 2024 are as follows: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 2025 2024 (in thousands) (in thousands) Lease cost Operating lease cost $ 693 $ 528 $ 1,831 $ 1,562 Variable lease cost 68 59 197 177 Total lease cost included in operating expenses $ 761 $ 587 $ 2,028 $ 1,739 Other information Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows $ 746 $ 551 $ 1,927 $ 1,636 8. Collaborations Gilead On March 5, 2024, the Company entered into a collaboration, option and license agreement (the “Gilead Collaboration Agreement”) and Share Subscription Agreement (the “Subscription Agreement”) with Gilead Sciences, Inc. (“Gilead”). Gilead agreed to pay the Company a $56.0 million, non-refundable upfront payment, and purchased 452,527 common shares at a stated price per share of $55.2454 for an aggregate purchase price of $25.0 million. Merus is also eligible to receive license option exercise payments, potential development and commercialization milestones, tiered royalties on product sales should Gilead successfully commercialize a therapy from the collaboration, and an initiation fee should Gilead exercise its right to include a third Program (as defined below) in the collaboration. Under the terms of the Gilead Collaboration Agreement, the Company and Gilead agreed to collaborate on the use of Merus’ proprietary Triclonics® platform to develop certain trispecific T-cell engaging multi-specific antibody products for the treatment of certain indications. The collaboration shall include at least two, but may include up to three, separate preclinical research programs (each, a “Program”) for the design and validation of candidates directed to the applicable Program targets selected by Gilead. On a Program-by- Program basis, the Company has granted Gilead an exclusive option to obtain an exclusive license for such Program. If Gilead exercises the license option with respect to a Program, for the first two Programs, Gilead will be responsible for clinical development and commercialization of the products arising from such Program. Upon exercise of its option to include the third Program in the collaboration, Gilead will pay the Company a non-refundable upfront initiation fee of $28.0 million, and Merus shall have the option to share in the worldwide net profit or loss, including development costs and expenses for the third Program only. The initial term of the arrangement is the shorter of the completion of all activities under the applicable research plan or forty-eight months following the initiation of research plan activities. If, as of the fourth anniversary of the initiation of activities under the applicable Program, Merus has not completed the activities under the then current mutually agreed research plans in accordance with the timelines set forth therein (other than due to the act or omission of Gilead), the applicable term shall automatically be extended by an additional twelve months (for a maximum term of sixty months), unless otherwise extended by mutual agreement of the parties. Gilead's obligations under the collaboration to pay milestones and royalties, continues until the longer of an expiration of certain royalty bearing patents or fixed period after a first commercial sale. The arrangement may be terminated in its entirety or in relation to one or more Programs for any reason at any time upon ninety (90) days prior written notice to Merus. At inception of the arrangement, the Company identified two performance obligations for each of the initial two Programs. The first is the License and Research single performance obligation comprised of a combined delivery of a nonexclusive license and related activities, including research activities associated with the Program and the activities of the joint steering committee. The second is the twelve-month extension (material right) for the Program. Merus accounted for the Program-by-Program options to obtain exclusive licenses as a marketing offer because the exclusive license provides Gilead with additional clinical development and commercialization rights, and the license option exercise fee of $10.0 million on a Program-by-Program basis was estimated to be offered at the standalone selling price. The option to include a third Program was accounted for as a marketing offer because the non-refundable upfront initiation fee of $28.0 million was estimated to be offered at the standalone selling price. The transaction price at inception was comprised of fixed consideration of $58.4 million that was derived from the $56.0 million non- refundable upfront payment and $25.0 million common shares purchase proceeds, net of the fair value of the common shares delivered to Gilead of $22.6 million. All other consideration under the arrangement was determined to be variable consideration and fully constrained at inception.
Page 23
15 The fixed consideration was allocated equally between the Program #1 and Program #2 License and Research performance obligations, respectively. The equal allocation of the fixed consideration was based on the estimated standalone selling price of each performance obligation as each was materially the same. The Company initially deferred $58.4 million allocated to the performance obligations to be recognized as revenue over time using an output method to measure progress towards completing the research activities dictated by each Program’s respective research plan. Development milestones, commercialization milestones and royalties are variable consideration, fully constrained, to be included in the transaction price for each performance obligation and recognized in future periods in accordance with the Company’s revenue recognition policy. The revenue recognized relating to each combined performance obligation is presented in the notes according to the source of consideration received (upfront and milestone), reflective of their differing timing of receipt. During the three months ended September 30, 2025, the Company recognized a $3.0 million development milestone from Gilead related to the successful completion of a research phase. No other milestones have been achieved to date. Partner Therapeutics On November 27, 2024, the Company entered into a license agreement (the "Partner Therapeutics License Agreement") with Partner Therapeutics, Inc. ("PTx"). Under the terms of the Partner Therapeutics License Agreement, the Company granted to PTx (i) an exclusive, sublicensable, royalty-bearing license under certain patent rights and know-how to (a) exploit zenocutuzumab for the treatment of neuregulin 1 gene fusion positive (NRG1+) cancer in the United States and (b) develop, manufacture and commercialize companion diagnostic tests with respect to zenocutuzumab for the treatment of NRG1+ cancer in the United States and (ii) a limited, non-exclusive, non-sublicensable, royalty-bearing license under certain patent rights and know-how to commercialize zenocutuzumab for the treatment of NRG1+ cancer outside of the United States solely in connection with a named patient program until the Company files for any regulatory approval for zenocutuzumab in any country outside the United States. The Company retains all rights not granted to PTx. PTx granted to the Company an exclusive, fully paid, royalty-free, perpetual and irrevocable license, with the right to grant sublicenses, to certain intellectual property of PTx to exploit zenocutuzumab for (1) the treatment of NRG1+ cancer in a country outside of the United States and (2) for any other uses of zenocutuzumab in any other territory. If after three years after the launch of zenocutuzumab in the United States, PTx does not to achieve certain specified annual net sales targets, the Company and PTx will work in good faith to develop a plan to improve net sales. If in the subsequent year PTx does not achieve the specified annual net sales target, the Company has the right to terminate the PTx License Agreement, with all rights reverting to Company. In exchange for the rights granted under the Partner Therapeutics License Agreement, PTx has agreed to pay an upfront, non-refundable payment, agreed to fund the development, manufacturing and clinical trial expenses for zenocutuzumab and certain companion diagnostic products (other than a portion of the expenses associated with securing or maintaining approval from the United States Food and Drug Administration) and the Company is eligible to receive up to $130.0 million in commercialization milestone payments based on annual net sales of zenocutuzumab. The Company is also eligible to receive tiered royalties based on the level of aggregate annual net sales ranging from high single digits to low twenties until the royalty term expires. PTx also has the option to purchase existing quantities of zenocutuzumab from the Company at a specified cost-plus rate. The initial term of the arrangement is the period from the first commercial sale until the latest of the following to occur: a) the expiration of the last-to-expire valid claim covering zenocutuzumab (b) the launch of a biosimilar; or (c) twelve (12) years after the date of the first commercial sale of zenocutuzumab. PTx holds termination for convenience rights and must give 9 months’ notice to exercise those rights and may only exercise those rights following the second anniversary of the first commercial sale of zenocutuzumab. The Company may terminate the Partner Therapeutics License Agreement if PTx fails to achieve a specified annual net sales target in the fourth calendar year after first commercial sale. The Company determined that, at the inception of the contract, there are enforceable rights and obligations throughout the term of the contract. At the inception of the arrangement, the Company identified three performance obligations. The first is the Licensed IP performance obligation which is the exclusive in the field of NRG1+ cancer in the territory of the United States, sublicensable, royalty-bearing license the Company granted to PTx. The Licensed IP performance obligation is comprised of technology, knowledge, regulatory, and clinical trial transfers which the Company determined are not capable of being distinct. These promises to transfer are combined into the single Licensed IP performance obligation. The second performance obligation is the Licensed Trademark the Company granted PTx as part of the agreement. The third performance obligation is the sale of the existing quantities of zenocutuzumab to PTx. The Partner Therapeutics License Agreement also included an option for the Company to provide clinical trial and technical assistance to PTx as necessary. The Company would be reimbursed at an agreed upon cost reimbursement rate for any clinical trial or technical assistance performed. The Company accounted for these cost reimbursements as a marketing offer because the underlying promise to which this additional clinical trial and technical assistance relates is the technology and knowledge transfer which was concluded to not be capable of being distinct and is part of the Licensed IP first performance obligation. Accordingly, because the clinical trial and technical assistance option is not related to an activity that is a performance obligation and is offered at a reimbursement rate, it is not a material right and not a performance obligation.
Page 25
16 The transaction price at inception was comprised of fixed consideration of the immaterial upfront nonrefundable payment. The upfront nonrefundable consideration is not material to the contract or the Company as a whole. The upfront nonrefundable payment was intended to cover the efforts of the technology and knowledge transfer included in the first performance obligation. Accordingly, the Company will recognize upfront nonrefundable payment ratably over a six month period, which corresponds to the time period expected for the technology and knowledge transfer. Both the commercial milestone payments and royalty payments are tied to PTx annual net sales of the licensed product and are therefore considered variable consideration. Accordingly, the Company will apply the royalty recognition constraint to both. The commercial milestone payments and the royalty payments are allocated to the Licensed IP and Licensed Trademark performance obligations. There are stipulations in the agreement for royalty reductions and offsets for certain expenses incurred by PTx that will reduce the transaction price at the later of when the Company recognizes revenue for the transfer of the services or when the Company promises to pay the consideration. The transaction price for the sale of the existing quantities of zenocutuzumab performance obligation is at a cost-plus rate. The Licensed IP performance obligation is satisfied at a point in time; however due to the royalty recognition constraint, revenue will be recognized as PTx sales of zenocutuzumab occur. The Licensed Trademark performance obligation is a right-to-access license and is a series of distinct service periods. The Licensed Trademark performance obligation is satisfied as PTx sales of zenocutuzumab occur in accordance with the variable consideration allocation exception and the royalty recognition constraint. The sale of existing quantities of zenocutuzumab is satisfied at the point of transfer. The Company and PTx are engaging in ongoing discussions regarding the payment for transferred inventory used for commercial and clinical purposes, which may have implications on the collectability of the outstanding receivables. As of September 30, 2025, no milestones have been achieved, $0.3 million of royalties have been earned, and $13.3 million has been earned related to sales of the existing quantities of zenocutuzumab. Biohaven On January 12, 2025, the Company entered into a research collaboration and license agreement with Biohaven Ltd. ("Biohaven") to co- develop three novel bispecific antibody drug conjugates (ADCs), leveraging Merus’ Biclonics® technology platform, and Biohaven’s ADC conjugation and payload platform technologies. Under the terms of the agreement, Biohaven is responsible for the preclinical ADC generation of three Merus bispecific antibodies under mutually agreed research plans. The agreement includes two Merus bispecific programs previously generated using the Biclonics® platform, and one program under preclinical research by Merus (each a "Program"). Each program is subject to mutual agreement for advancement to further development, with the parties then sharing subsequent external development costs and commercialization, if advanced. Merus received an upfront payment of $5.0 million in the form of Biohaven shares pursuant to a private placement agreement, and is eligible to receive a license fee at the candidate nomination of the first program of $5.0 million, with Merus to assume the preclinical bispecific antibody generation cost of the third program, and Biohaven to assume the preclinical ADC generation cost for each of the three preclinical programs. Thereafter, upon mutual agreement to advance each program, the parties plan to share further development and commercialization costs. The contract meets the criteria for being accounted for under ASC 808 Collaborative Arrangements as there is a joint operating activity, both parties are actively involved, and both parties share in the significant risks and rewards of the commercial success of the programs. When analyzing the units of account for each of the programs, two of the promises in Program #1 were determined to be within the scope of ASC 606 as they represented a promise to a customer and the promised goods and services are typical revenue activities for Merus. These two promises are 1) the granting of the research license Merus’ Biclonics® technology platform and delivering the related Merus antibodies to Biohaven and 2) the granting of the co-exclusive license for development and commercialization of the first program at candidate nomination. These two promises represent performance obligations under ASC 606. The transaction price at inception was comprised of the fixed consideration related to the upfront payment and the candidate nomination license fee. The first performance obligation is satisfied once control of the license is transferred. The license was transferred as of the effective date of the agreement, therefore the Company recognized the $5.0 million in Biohaven shares as revenue during the first quarter ended March 31, 2025. The second performance obligation is contingent upon the first program resulting in a candidate nomination, and the effectiveness of the co-exclusive license with Biohaven. This performance obligation will be satisfied at the point in time that co-exclusive license is effective. At that time, the Company will recognize the additional $5.0 million. All other activities in the contract will be recorded as R&D expense. The Company received the $5.0 million in Biohaven shares during the quarter ended March 31, 2025. These shares are considered available-for-sale equity securities as there are no re-sale restrictions within the Biohaven agreement. The Company considers these shares to be Level 1 financial instruments as their valuation is based on a market approach using quoted prices in active markets for
Page 26
17 identical assets. Valuations of these shares do not require a significant degree of judgment. This investment is recorded at fair value and changes in fair value are recorded through earnings. As of September 30, 2025, the performance obligation related to the granting of the research license has been satisfied and as such, the $5.0 million upfront payment of Biohaven shares was recognized as revenue during the first quarter ended March 31, 2025. No other performance obligations have been achieved to date. Lilly On January 18, 2021, Eli Lilly and Company (“Lilly”) agreed to pay the Company a $40.0 million, non-refundable upfront payment, and purchased 706,834 common shares at a stated price per share of $28.295, for an aggregate purchase price of $20.0 million. The Company and Lilly agreed to collaborate with respect to the discovery and research of bispecific antibodies utilizing the Company’s proprietary Biclonics® bispecific technology platform. The collaboration encompasses up to three (3) independent programs directed to the generation of T-cell re-directing bispecific antibodies that bind CD3 and a tumor associated antigen target selected by Lilly to be the subject of each program. The objective of each program is to develop a lead compound that Lilly would be able to continue to develop through clinical trials. Lilly agreed to fund the research activities the Company conducts for each program under an agreed research plan and budget. Lilly receives an exclusive, worldwide, royalty-bearing, sublicensable license, under certain patent rights and know-how to exploit certain compounds and products directed to designated targets in combination with targeting CD3, or directed to such designated target(s) alone as a monospecific antibody or monospecific antibody drug conjugate, subject to rights granted by Merus to third parties under one or more existing third party agreements. Merus retains all rights not granted to Lilly. Lilly has certain rights to replace selected targets, including the right to substitute a target selection after initial selection for a period of time. The Company may be entitled to further milestones and royalties in the future dependent on development and commercialization of any resulting product. The initial term of the arrangement includes a three-year research term for the Company to perform research and development activities, subject to two extension terms of six months at Lilly’s discretion. While the arrangement may be terminated in its entirety or on a program-by-program basis at will by Lilly, there are no direct costs or penalties to Lilly to terminate the arrangement prior to the end of the initial term. At inception of the arrangement, the Company identified a single performance obligation comprised of a combined delivery of a license and related activities, including research activities associated with a product candidate against the first target and the activities of the joint steering committee. The Company also identified two other combined performance obligations relating to options exercisable by Lilly to select a second and third target to advance a second and third product candidate against the selected targets through discovery and research. The transaction price at inception was comprised of fixed consideration of $43.5 million that was derived from the $40.0 million upfront payment and $20.0 million share purchase proceeds, net of the fair value of the shares delivered to Lilly of $16.5 million, and variable consideration associated with the funding of research services for the product candidate against the first target at inception. All other consideration under the arrangement was determined to be variable consideration and fully constrained at inception. The fixed consideration was allocated equally amongst the three performance obligations and the variable consideration associated with each target was allocated to the performance obligation of each respective target. The equal allocation of the fixed consideration was based on the estimated standalone selling price of each performance obligation as each was materially the same. On February 12, 2021, the Company and Lilly completed the initial exchange of fixed consideration and transfer of common shares. The Company initially deferred $43.5 million allocated to the performance obligations to be recognized as revenue over time using a cost-to- cost measure of progress toward the development of a lead compound for each respective target, anticipated to be recognized as revenue within the initial research term, along with research funding. Development milestones, commercialization milestones and royalties are variable consideration, fully constrained, to be included in the transaction price for each performance obligation and recognized in future periods in accordance with the Company’s revenue recognition policy. The revenue recognized relating to each combined performance obligation is presented in the notes according to the source of consideration received (upfront, reimbursement revenue, milestone), reflective of their differing timing of receipt. During the year ended December 31, 2022, Lilly substituted one of the target programs. Under the current research plan, for the program to be completed in collaboration with Merus, Lilly extended the research term to January 2025. Lilly exercised the first six month extension in October 2023 for which there was no associated fee. The program timeline extended beyond this first extension, and such an extension into 2025 resulted in a fee of $0.5 million. Lilly exercised the second six month extension in May 2024 and the Company received the $0.5 million extension fee payment in July 2024. The $0.5 million extension is included in the Lilly cost-to-cost model as of September 30, 2025 and September 30, 2024.
Page 27
18 As of September 30, 2025, the research term concluded, no Company research activities were on-going, two programs are being advanced for development by Lilly, and no milestones have been achieved. Incyte On January 23, 2017, the Company completed the sale of shares and exchange of a license with Incyte Corporation (“Incyte”). The Company initially deferred $152.6 million of the transaction price allocated to the license and related performance obligation as deferred revenue, to be recognized as revenue over time as the primary benefit of the license to Incyte is access to the Company’s intellectual property covering its Biclonics® technology platform for the generation of potential product candidates. Development milestones, commercialization milestones and royalties are variable consideration, fully constrained, to be recognized in future periods in accordance with the Company’s revenue recognition policy. Cost reimbursements for research services are recognized as they are performed over time as these are considered a separate performance obligation. In January 2022, the Company announced that Incyte elected to opt-out of its ex-U.S. development of MCLA-145, from the parties joint collaboration agreement executed in 2017. At inception of the collaboration, for the designated product candidate (MCLA-145), the Company retained the exclusive right to develop and commercialize products and product candidates in the United States, while Incyte obtained the exclusive right to develop and commercialize products and product candidates arising from such program outside the United States. For MCLA-145, the parties conducted and shared equally the costs of mutually agreed global development activities. Incyte’s opt- out of ex-U.S. rights to MCLA-145 provides the Company the exclusive right to develop and commercialize potential MCLA-145 products globally. Under the collaboration, Incyte continued to support the program for a limited time while ex-U.S. activities transitioned to the Company. Incyte will retain a right to a residual royalty of up to 4% on sales of future commercialization of MCLA-145, if approved. No milestones were recognized during the three months ended September 30, 2025. The Company had previously recognized a $1.0 million milestone from Incyte related to a candidate nomination during the second quarter of 2025. There have not been any other milestones recognized during the year. Ono In April 2014, the Company granted Ono Pharmaceutical Co., Ltd. (“Ono”) an exclusive, worldwide, royalty-bearing license, with the right to sublicense, research, test, make, use and market a limited number of bispecific antibody candidates based on the Company’s Biclonics® technology platform against two undisclosed targets directed to a particular undisclosed target combination. On March 14, 2018, the Company granted Ono an exclusive, worldwide, royalty-bearing license, with the right to sublicense, research, test, make, use and market a limited number of bispecific antibody candidates based on the Company’s Biclonics® technology platform against two undisclosed targets directed to a particular undisclosed target combination (the "2018 Ono Agreement"). Ono agreed to pay the Company an upfront, non-refundable payment of €0.7 million. In addition, the Company was entitled to €0.3 million intended to compensate the Company for research services already completed upon entering into the agreement, and €0.2 million to be paid to the Company over time for full-time equivalent funding. The Company is entitled to research and development milestones in addition to potential royalties on future sales of any bispecific antibody candidate that may be approved. The Company identified performance obligations for: (1) provision of a license for the target combination, and (2) research and development services. The Company concluded that Ono would be able to develop and benefit from the license, independent of the research and development services. Certain of the research and development services are capable of being performed by third parties with an appropriate sub-license, and are recognized over time as these services are delivered. Milestone payments are fully constrained as variable consideration to be recognized in future periods in accordance with the Company’s revenue recognition policy. Amounts related to the provision of the licenses were amortized over the intended period of use. There were no development or commercialization milestones achieved during the three and nine months ended September 30, 2025.
Page 28
19 Contract Assets and Liabilities The following tables provide amounts by year indicated and by line item included in the Company's accompanying condensed consolidated financial statements attributable to transactions arising from its collaboration arrangements. The dollar amounts in the tables below are in thousands. Incyte Lilly Gilead PTx Biohaven Other Total CONTRACT ASSETS Accounts receivable Balance at January 1, 2025 $ — $ — $ — $ — $ — $ — $ — Billings 4,100 81 3,000 14,115 — — 21,296 Cash receipts (4,011) (81) — (9) — — (4,101) Adjustments — — — — — — — Foreign exchange 4 — — (11) — — (7) Balance at September 30, 2025 $ 93 $ — $ 3,000 $ 14,095 $ — $ — $ 17,188 Unbilled receivables Balance at January 1, 2025 $ 597 $ 78 $ — $ 400 $ — $ 186 $ 1,261 Accrued receivables 5,646 8 3,002 13,884 — — 22,540 Billings (4,844) (81) (3,002) (14,518) — — (22,445) Adjustments 186 (5) — — — (186) (5) Foreign exchange — — — 643 — — 643 Balance at September 30, 2025 $ 1,585 $ — $ — $ 409 $ — $ — $ 1,994 CONTRACT LIABILITIES Deferred revenue Balance at January 1, 2025 $ 17,598 $ 166 $ 51,252 $ 400 $ — $ — $ 69,416 Additions to contract consideration — — — — 5,122 — 5,122 Revenue recognized in the period (13,332) (166) (6,249) (388) (5,122) — (25,257) Foreign exchange 1,629 — 6,336 19 — — 7,984 Balance at September 30, 2025 5,895 — 51,339 31 — — 57,265 Less: current portion (5,895) — (18,430) (31) — — (24,356) Non-current balance at September 30, 2025 $ — $ — $ 32,909 $ — $ — $ — $ 32,909 The balance of unbilled receivables predominantly represents reimbursement revenue under the Company’s collaboration arrangements earned in the period to be billed and collected in the next period, generally quarterly.
Page 29
20 Contract Revenues and Expenses Three Months Ended September 30, 2025 (in thousands) Third Party Incyte Lilly Gilead PTx Biohaven Other Total Collaboration Revenue Upfront payments $ 4,692 $ — $ 2,619 $ — $ — $ — $ 7,311 Reimbursement revenue 1,556 — — — — — 1,556 Milestones — — 3,000 — — — 3,000 Other — — — — — — — Total collaboration revenue 6,248 — 5,619 - — — 11,867 Commercial material revenue — — — — — — — Royalty revenue — — — 283 — — 283 Total revenue $ 6,248 $ — $ 5,619 $ 283 $ — $ — $ 12,150 Revenue recognized that was included in deferred revenue at the beginning of the period $ 4,692 $ — $ 2,619 $ — $ — $ — $ 7,311 Three Months Ended September 30, 2024 (in thousands) Third Party Incyte Lilly Gilead PTx Biohaven Other Total Collaboration Revenue Upfront payments $ 4,400 $ 4,038 $ — $ — $ — $ — $ 8,438 Reimbursement revenue 943 194 — — — — 1,137 Milestones — — — — — 2,197 2,197 Other — — — — — — — Total collaboration revenue 5,343 4,232 — — — 2,197 11,772 Commercial material revenue — — — — — — — Royalty revenue — — — — — — — Total revenue $ 5,343 $ 4,232 $ — $ — $ — $ 2,197 $ 11,772 Revenue recognized that was included in deferred revenue at the beginning of the period $ 4,400 $ 4,038 $ — $ — $ — $ — $ 8,438
Page 30
21 Nine Months Ended September 30, 2025 (in thousands) Third Party Incyte Lilly Gilead PTx Biohaven Other Total Collaboration Revenue Upfront payments $ 13,332 $ 166 $ 6,249 $ 388 $ 5,122 $ — $ 25,257 Reimbursement revenue 3,807 4 — 795 — — 4,606 Milestones 980 — 3,000 — — — 3,980 Other — — — — — — — Total collaboration revenue $ 18,119 $ 170 $ 9,249 $ 1,183 $ 5,122 $ — $ 33,843 Commercial material revenue — — — 13,331 — — 13,331 Royalty revenue — — — 292 — — 292 Total revenue $ 18,119 $ 170 $ 9,249 $ 14,806 $ 5,122 $ — $ 47,466 Revenue recognized that was included in deferred revenue at the beginning of the period $ 13,332 $ 166 $ 6,249 $ 388 $ 5,122 $ — $ 25,257 Nine Months Ended September 30, 2024 (in thousands) Third Party Incyte Lilly Gilead PTx Biohaven Other Total Collaboration Revenue Upfront payments $ 12,968 $ 5,310 $ 1,207 $ — $ — $ — $ 19,485 Reimbursement revenue 3,603 698 — — — — 4,301 Milestones 1,000 — — — — 2,197 3,197 Other — — — — — 10 10 Total collaboration revenue $ 17,571 $ 6,008 $ 1,207 $ — $ — $ 2,207 $ 26,993 Commercial material revenue — — — — — — — Royalty revenue — — — — — — — Total revenue $ 17,571 $ 6,008 $ 1,207 $ — $ — $ 2,207 $ 26,993 Revenue recognized that was included in deferred revenue at the beginning of the period $ 12,968 $ 5,310 $ 1,207 $ — $ — $ — $ 19,485 9. Common Share Share Issuances In February 2024, the Company entered into an Open Market Sale Agreement (the “2024 Sales Agreement”) with Jefferies to sell from time to time up to $300.0 million of the Company’s common shares through an “at-the-market” offering program under which Jefferies acts as the sales agent. Subject to the terms and conditions of the 2024 Sales Agreement, Jefferies could sell the common shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under Securities Act. Jefferies was entitled to compensation at a commission rate of up to 3.0% of the gross proceeds of any shares sold under the 2024 Sales Agreement. In connection with any sale of the common shares on the Company's behalf, Jefferies would be deemed to be an “underwriter” within the meaning of the Securities Act and the compensation of Jefferies would be deemed to be underwriting commissions or discounts. The Company agreed to provide indemnification and contribution to Jefferies with respect to certain liabilities, including liabilities under the Securities Act or the Exchange Act. There have been no sales under the 2024 Sales Agreement through September 30, 2025. In connection with entering into the Gilead Collaboration Agreement in March 2024, pursuant to the Subscription Agreement, Gilead purchased 452,527 common shares of the Company at a price per share of $55.2454 for aggregate gross proceeds to the Company of approximately $25.0 million. Gilead agreed not to transfer, sell, or otherwise dispose of the shares for a period of time following the purchase of the shares, subject to certain customary exceptions. On May 29, 2024, the Company entered into an underwriting agreement (the “2024 Underwriting Agreement”) with Jefferies, BofA Securities, Inc., Leerink Partners LLC, Guggenheim Securities, LLC and BMO Capital Markets Corp., as representatives of the several underwriters named therein (collectively, the “2024 Underwriters”), in connection with the issuance and sale by the Company in a public offering of 7,550,000 common shares of the Company, nominal value €0.09 per share, at a public offering price of $53.00 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 and
Page 31
22 accompanying prospectus (Registration No. 333-277465), which became effective upon filing on February 28, 2024, and a prospectus supplement thereunder. Under the terms of the 2024 Underwriting Agreement, the Company also granted the 2024 Underwriters an option exercisable for 30 days to purchase up to an additional 1,132,500 common shares at the public offering price, less underwriting discounts and commissions. On May 30, 2024, the 2024 Underwriters exercised this option in full. The offering closed on May 31, 2024, and the Company received net proceeds of $434.9 million, after deducting underwriting discounts and commissions. On June 3, 2025, the Company entered into an underwriting agreement (the “2025 Underwriting Agreement”) with Jefferies LLC, BofA Securities, Inc., Leerink Partners LLC, Guggenheim Securities, LLC and Truist Securities, Inc., as representatives of the several underwriters named therein (collectively, the “2025 Underwriters”), in connection with the issuance and sale by the Company in a public offering of 5,263,158 common shares of the Company, nominal value €0.09 per share, at a public offering price of $57.00 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 and accompanying prospectus (Registration No. 333-277465), which became effective upon filing on February 28, 2024, and a prospectus supplement thereunder. Under the terms of the 2025 Underwriting Agreement, the Company also granted the 2025 Underwriters an option exercisable for 30 days to purchase up to an additional 789,473 common shares at the public offering price, less underwriting discounts and commissions. On June 4, 2025, the 2025 Underwriters exercised this option in full. The offering closed on June 5, 2025, and the Company received net proceeds of approximately $326.0 million, after deducting underwriting discounts and commissions. 10. Employee Benefits Share-Based Compensation Share-based compensation expense is classified in the condensed consolidated statements of operations and comprehensive loss as follows: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 2025 2024 (in thousands) (in thousands) Research and development $ 9,995 $ 7,166 $ 27,241 $ 14,281 General and administrative 10,977 6,326 28,902 15,690 Total $ 20,972 $ 13,492 $ 56,143 $ 29,971 The weighted-average grant date fair value of options, estimated as of the grant date using the Black Scholes option pricing model was $28.77 per option for the 2,805,591 options granted during the nine months ended September 30, 2025. The following assumptions were used to estimate the fair value of the options granted during the nine months ended September 30, 2025. Volatility 66.3% Risk-free interest rate 4.3% Expected holding period (in years) 6.2 Dividend yield -
Page 32
23 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. This discussion and analysis is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and should be read in conjunction with these unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025 (the “Annual Report on Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those factors set forth in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview General We are an oncology company developing innovative antibody therapeutics. Our pipeline of full-length human multispecific antibody candidates is generated from our proprietary technology platforms, which are able to generate a diverse array of antibody binding domains, or Fabs, against virtually any target. Our antibody binding domain generally consists of a target-specific heavy chain paired with a common light chain. Multiple binding domains can be combined to produce novel multispecific antibodies that bind to a wide range of targets and display novel and innovative biology. These platforms, referred to as Biclonics® and Triclonics®, allow us to generate large numbers of diverse panels of bispecific and trispecific antibodies (Multiclonics®), respectively, which can then be functionally screened in large-scale cell-based assays to identify those unique molecules that possess novel biology, which we believe are best suited for a given therapeutic application. Further, by binding to multiple targets, Biclonics® and Triclonics® may be designed to provide a variety of mechanisms of action, including simultaneously blocking receptors that drive tumor cell growth and survival and mobilizing the patient’s immune response by engaging T cells, and/or activating various killer cells to eradicate tumors. Our Multiclonics® are compatible with a range of linkers and payloads to generate antibody-drug conjugates (ADClonics®) capable of binding two or more different targets with the potential for improved binding selectivity, internalization and cancer cell killing activity. Our technology platforms employ an assortment of patented technologies and techniques to generate human antibodies. We utilize our patented MeMo® mouse to produce a host of antibodies with diverse heavy chains and a common light chain that are capable of binding to virtually any antigen target. We use our patented heavy chain and CH3 domain dimerization technology to generate substantially pure bispecific and trispecific antibodies. We employ our patented Spleen to Screen® technology to efficiently screen panels of diverse heavy chains, designed to allow us to rapidly identify Biclonics® and Triclonics® therapeutic candidates with differentiated modes of action for pre-clinical and clinical testing. We use our patented Triclonics® format to generate multispecific antibodies capable of binding to three different epitopes or antigens. The U.S. Food and Drug Administration (FDA) approved BIZENGRI® (zenocutuzumab-zbco), the first and only treatment indicated for adults with pancreatic adenocarcinoma or NSCLC that are advanced, unresectable or metastatic and harbor a neuregulin 1 (NRG1) gene fusion who have disease progression on or after prior systemic therapy. Using our Biclonics® platform we have produced, and are currently developing, the following candidates: MCLA-128 (zenocutuzumab), which we are exploring for potential other development opportunities beyond NRG1 fusion; MCLA-158 (petosemtamab) for the potential treatment of solid tumors, including 1L PD-L1+ recurrent/metastatic (r/m) head and neck squamous cell carcinoma (HNSCC) in combination with pembrolizumab, and 2/3L r/m HNSCC as monotherapy; and in mCRC in 1L and 2L in combination with standard chemotherapy and 3L+ metastatic colorectal cancer (mCRC) as monotherapy; MCLA-129, for the potential treatment of lung and other solid tumors, which is subject to a collaboration and license agreement, which permits Betta Pharmaceuticals Co. Ltd. (Betta) to exclusively commercialize MCLA-129 in China, if approved, while Merus retains full ex-China rights. Furthermore, we have a pipeline of proprietary antibody candidates in pre-clinical development and intend to further leverage our ADClonics®, Biclonics® and Triclonics® technology platforms to identify multispecific antibody candidates and multispecific ADCs and advance them into clinical development. Transaction Agreement On September 29, 2025, we entered into a transaction agreement (the Transaction Agreement) with Genmab A/S , a public limited liability company (Aktieselskab) organized under the laws of Denmark (Genmab), and Genmab Holding II, B.V., a wholly owned subsidiary of Genmab (Purchaser). Pursuant to the Transaction Agreement, Purchaser commenced a cash tender offer (the Offer) to purchase all of our issued and outstanding common shares in exchange for $97.00 per common share, without interest and subject to
Page 33
24 any applicable tax withholding, on the terms and subject to the conditions set forth in the offer to purchase, dated October 21, 2025, and in the related letter of transmittal. The Offer is described in a Tender Offer Statement on Schedule TO filed by Genmab and Purchaser with the SEC on October 21, 2025. In the event certain conditions are met and the Offer is closed, we or our legal successor will become an indirect wholly owned subsidiary of Genmab through certain back-end reorganization transactions. The applicable merger, share exchange and cancellation transactions or share issuance and buy-out proceedings (to be determined in accordance with the Transaction Agreement and subject to receipt of certain tax rulings) are referred to as the “Back-End Transactions” (and, together with the Offer, the Transactions). We will then, at Genmab’s request, use reasonable best efforts to cause the delisting of the common shares from the Nasdaq Stock Market LLC and, thereafter, the deregistration of the common shares under the Exchange Act, resulting in the cessation of our reporting obligations with respect to the common shares. Refer to Note 1, “Overview—Transaction Agreement,” to our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of the terms of the Transaction Agreement, the Transactions, and the various conditions to closing of the Transactions. Funding Our Operations We are an oncology company and have only generated modest revenue from royalties through our commercial licensee PTx's product sales. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our antibody candidates from discovery through pre-clinical development and into clinical trials and seek regulatory approval and pursue commercialization of any approved antibody candidate. We have exclusively licensed to PTx the right to commercialize BIZENGRI® (zenocutuzumab-zbco), in the United States, as the first and only treatment indicated for adults with pancreatic adenocarcinoma or NSCLC that are advanced unresectable or metastatic and harbor a NRG1 gene fusion who have disease progression on or after prior systemic therapy. Beyond zenocutuzumab, if we obtain regulatory approval for any of our other antibody candidates, if appropriate, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, and compliance. If the Transactions do not close, we anticipate that we will require additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations, business development and licensing opportunities with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the United States political environment, disruptions and extreme volatility in the global economy, including rising inflation and interest rates, declines in economic growth, and global instability including the ongoing geopolitical conflicts in Europe and the Middle East. As a result, we may face difficulties raising capital through sales of our common shares and any such sales may be on unfavorable terms. See “The price of our common shares may be volatile and may fluctuate due to factors beyond our control.” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so. Based on our current operating plan, we expect that our existing cash, cash equivalents and marketable securities of $816.8 million as of September 30, 2025 will fund our operations at least into 2028. We have based this estimate on assumptions that may prove to be wrong, particularly as the process of producing and testing product candidates in clinical trials is costly and the timing of progress in these trials is uncertain. As a result, we could use our capital resources sooner than we expect. Clinical Programs Petosemtamab (MCLA-158: EGFR x LGR5 Biclonics®): Solid Tumors Phase 3 registrational trial investigating petosemtamab in combination with pembrolizumab in 1L PD-L1+ r/m head and neck squamous cell carcinoma (HNSCC), the LiGeR-HN1 trial, and phase 3 registrational trial investigating petosemtamab monotherapy in 2/3L HNSCC, the LiGeR-HN2 trial, are enrolling, with both trials expected to be substantially enrolled by year-end, and a potential top line interim readout for one or both trials in 2026; phase 2 trial in 1L and 2L metastatic colorectal cancer (mCRC) cohorts of petosemtamab in combination with standard chemotherapy, and in 3L+ mCRC as monotherapy are enrolling. An updated analysis of the interim clinical data from the phase 2 trial of petosemtamab with pembrolizumab as 1L treatment of PD-L1+ (CPS ≥ 1) r/m HNSCC was presented in a poster at the June 2025 American Society of Clinical Oncology® (ASCO®) Annual Meeting as of a February 27, 2025 data cutoff. 45 patients were treated. The efficacy evaluable population consisted of 43 patients who were treated (with one or more doses) as of the data cutoff date and either ≥1 post-baseline tumor assessment, or discontinued early due to disease progression or death. Median follow up was 14.3 months for the 45 patients. In 43 evaluable patients, there was a confirmed overall response rate: 63% (27/43, 95% CI: 49-75), including 6 complete responses, 21 partial responses by Response Evaluation Criteria in Solid Tumors v1.1. per investigator assessment, including 4 of 8 patients with HPV associated cancer responded; responses observed across PD- L1 levels (CPS 1-19: 47% [8/17]; CPS > 20: 73% [19/26]); median progression-free survival was 9 months (95% CI: 5.2-12.9); median duration of response and median overall survival (OS) were not reached; 79%
Page 34
overall survival rate at 12-months (30/43 censored after the 12 month mark); at the time of data cutoff, 14 patients, each of whom are responders, remained on treatment. In 45 patients, the combination was generally well tolerated and no significant overlapping toxicities with pembrolizumab were observed. Treatment-emergent adverse events (TEAEs) were reported in 45 patients. Grade (G) ≥3 TEAEs occurred in 27 (60%) patients, including 20 (44%) patients who experienced treatment-related TEAEs. Infusion-related reactions (composite term) were reported in 38% of patients (all Gs) and 7% (G3), no G4 or 5, mainly occurred during the first infusion and were resolved. LiGeR-HN1, a phase 3 trial evaluating the efficacy and safety of petosemtamab in combination with pembrolizumab in 1L PD-L1+ (CPS≥1) r/m HNSCC expressing PD-L1 compared to pembrolizumab, and LiGeR-HN2, a phase 3 trial evaluating the efficacy and safety of petosemtamab in 2/3L HNSCC compared to standard of care, are enrolling and we expect both trials to be substantially enrolled by year-end 2025. We believe a randomized registration trial in HNSCC with an overall response rate endpoint could potentially support accelerated approval and the overall survival results from the same study could potentially verify its clinical benefit to support regular approval for the Company’s LiGeR-HN1 and LiGeR-HN2 trials. A phase 2 trial evaluating petosemtamab in combination with standard chemotherapy in 1L and 2L mCRC, and as monotherapy in heavily pretreated (3L+) mCRC, is enrolling. An updated analysis of the interim clinical data from the phase 2 trial of petosemtamab in mCRC was provided on October 24, 2025 at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics 2025 meeting in Boston. Observations in the presentation include, as of a July 29, 2025 data cutoff date: • 54 patients with left- and/or right-sided, KRAS, NRAS, and BRAF wildtype microsatellite stable mCRC received petosemtamab 1500 mg every two weeks, in combination with FOLFOX/FOLFIRI or as monotherapy • Patients treated in 1L or 2L had no prior anti-EGFR therapy • Patients treated in 2L received 1 prior chemotherapy regimen in the metastatic setting • Patients treated in 3L+ received at least 2 prior regimens in the metastatic setting, including a prior anti-EGFR therapy • Efficacy evaluable population consisted of patients with ≥1 dose of petosemtamab who had opportunity for ≥8 weeks follow up and ≥1 post baseline tumor assessment or discontinued petosemtamab early due to disease progression, symptomatic deterioration and/or death • 1L petosemtamab with FOLFOX/FOLFIRI • 14 patients were treated in 1L (10 FOLFOX and 4 FOLFIRI) • 10 patients were efficacy evaluable, 8 left-sided; 10 (100%) remained on treatment • 80% (8/10) response rate: 1 confirmed complete response, 7 partial responses (PRs) (4 unconfirmed, 1 unconfirmed response confirmed post data cutoff); 2 stable disease (SD) • 88% (7/8) response rate in left-sided: 1 confirmed complete response, 6 partial responses (PRs) (3 unconfirmed, 1 unconfirmed response confirmed post data cutoff); 1 stable disease (SD) • One SD observed to be an unconfirmed PR post data cutoff leading to 100% (8/8) responses left-sided and 90% (9/10) responses overall in 1L • 2L petosemtamab with FOLFOX/FOLFIRI • 14 patients were treated in 2L (2 FOLFOX and 12 FOLFIRI) • 13 were efficacy evaluable, 10 (77%) remained on treatment • 62% response rate: 8 PRs (3 unconfirmed of which 1 confirmed post data cutoff); 4 stable diseases (SD) and 1 clinical deterioration prior to first scan • All unconfirmed PRs and SDs remained on treatment • 3L+ petosemtamab monotherapy: • 26 patients were treated, with median follow up of 4.2 (0.4-7.6) months, 11 (42%) remained on treatment • 20 were efficacy evaluable, 6 (30%) remain on treatment • 10% confirmed response rate: 2 PRs; 9 SDs (5 ongoing) • Safety: o Petosemtamab safety profile in mCRC observed thus far, appears consistent with its established safety profile in recurrent/metastatic head and neck squamous cell carcinoma o No significant overlapping toxicities identified in combination with FOLFOX/FOLFIRI o No new safety signals identified o Infusion related reactions (IRRs) were managed with premedication and prolonged infusion day 1 of cycle 1; no discontinuations due to IRRs were observed. Further, the Company, through its contract manufacturing and development organizations, manufactures both drug substance and drug product in the United States and Europe, and we plan to focus on potential commercial manufacturing in the United States.
Page 35
25
Page 36
26 Zenocutuzumab, or “Zeno” (MCLA-128: HER3 x HER2 Biclonics®): NRG1 gene fusion (NRG1+) cancers and other solid tumors BIZENGRI® (zenocutuzumab-zbco), obtained FDA accelerated approval as the first and only treatment indicated for adults with pancreatic adenocarcinoma or NSCLC that are advanced unresectable or metastatic and harbor a neuregulin 1 (NRG1) gene fusion who have disease progression on or after prior systemic therapy. In December 2024, we entered into a license agreement with Partner Therapeutics, Inc. (PTx), a private, fully-integrated biotechnology company with a focus in hematology and oncology, in which we exclusively licensed to PTx the right to commercialize zenocutuzumab (Zeno) for the treatment of NRG1+ cancer in the United States. In October 2025, PTx announced that the FDA has awarded Breakthrough Therapy designation to zenocutuzumab-zbco (BIZENGRI®) for the treatment of adults with advanced, unresectable or metastatic cholangiocarcinoma harboring a neuregulin 1 (NRG1) gene fusion. We are conducting ongoing translational work on potential biomarkers outside of NRG1+ cancer and other potential development opportunities, which may support investigation of Zeno in additional areas of unmet need beyond NRG1+ cancer. MCLA-129 (EGFR x c-MET Biclonics®): Solid Tumors Investigation of MCLA-129 continues in MET ex14 NSCLC expansion cohort in the phase 1/2 trial; MCLA-129 in combination with chemotherapy in 2L+ EGFR mutant (EGFRm) NSCLC is ongoing. MCLA-129 is in clinical development in a global, phase 1, open-label, clinical trial evaluating MCLA-129 in patients with c-MET exon 14 skipping mutations (METex14), and we continue to monitor and evaluate patients on treatment. We are also enrolling patients in the phase 2 trial evaluating MCLA-129 in combination with chemotherapy in 2L+ EGFRm NSCLC, with a cohort receiving MCLA-129 and paclitaxel and carboplatin, and another cohort receiving MCLA-129 and docetaxel. We remain interested in exploring partnering MCLA-129 to sufficiently resource the development of MCLA-129 and the potential benefit it may have for patients. MCLA-129 is subject to a collaboration and license agreement with Betta, which permits Betta to develop MCLA-129 and potentially commercialize exclusively in China, while we retain global rights outside of China. Collaborations Refer to Item 1, “Business—Collaboration Agreements” and Note 12, “Collaborations,” of the notes to our consolidated financial statements included in our Annual Report on Form 10-K and Note 8, “Collaborations,” to our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements. Discussion and Analysis of our Results of Operations Comparison of the three and nine months ended September 30, 2025 and 2024 Revenue The following is a comparison of revenue: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 Change 2025 2024 Change (in millions) (in millions) Incyte $ 6.2 $ 5.4 $ 0.8 $ 18.1 $ 17.6 $ 0.5 Lilly — 4.2 (4.2) 0.2 6.0 (5.8) Gilead 5.6 — 5.6 9.2 1.2 8.0 PTx — — — 1.2 — 1.2 Biohaven — — — 5.1 — 5.1 Other — 2.2 (2.2) — 2.2 (2.2) Total collaboration revenue $ 11.8 $ 11.8 $ - $ 33.8 $ 27.0 $ 6.8 Total commercial material revenue $ — $ — $ — $ 13.4 $ — $ 13.4 Total royalty revenue $ 0.3 $ — $ 0.3 $ 0.3 $ — $ 0.3 Total revenue $ 12.1 $ 11.8 $ 0.3 $ 47.5 $ 27.0 $ 20.5
Page 37
27 Total revenue for the three months ended September 30, 2025 increased by $0.3 million as compared to the three months ended September 30, 2024, primarily as a result of increases Gilead revenue of $5.6 million, increases in Incyte revenue of $0.8 million, and increases in PTx royalty revenue of $0.3 million, partially offset by decreases in Lilly revenue of $4.2 million, and Other revenue of $2.2 million. The Gilead revenue increase is primarily driven by increases in milestone revenue of $3.0 million and upfront payment amortization of $2.6 million. The Incyte revenue increase is primarily the result of increases cost reimbursements of $0.6 million, and increases in Incyte upfront payment amortization of $0.2 million. The Lilly revenue decrease is primarily driven by decreases in upfront payment amortization of $4.0 million and decreases in Lilly cost reimbursement of $0.2 million. The Other revenue decrease is primarily driven by decreases in milestone revenue of $2.2 million. Total revenue for the nine months ended September 30, 2025 increased by $20.5 million as compared to the nine months ended September 30, 2024, primarily as a result of commercial material revenue sold to PTx of $13.4 million, increases in collaboration revenue of $6.8 million, and increases in PTx royalty revenue of $0.3 million. The collaboration revenue increase is primarily due to increases in Gilead upfront payment amortization of $5.0 million and milestone revenue of $3.0 million, increases in Biohaven upfront payment amortization of $5.1 million, increases in PTx cost reimbursements of $0.8 million and PTx upfront payment amortization of $0.4 million, and increases in Incyte collaboration revenue of $0.5 million, partially offset by decreases in Lilly upfront payment amortization of $5.1 million, decreases in Lilly cost reimbursement of $0.7 million, and decreases in Other milestone revenue of $2.2 million. As of September 30, 2025, we had total deferred revenue of $57.3 million, which primarily relates to the upfront payments received under our Gilead collaboration agreement and our Incyte collaboration agreement. The remaining deferred revenue of $51.3 million from the Gilead collaboration agreement is expected to be recognized over time using an output method of progress toward the development of the program target. The remaining deferred revenue of $5.9 million from the Incyte collaboration agreement is expected to be recognized over the next year. The change in deferred revenue compared to December 31, 2024 is primarily due to progress towards the development of the Gilead programs and the passage of time for Incyte. Operating Expenses The following is a comparison of operating expenses: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 Change 2025 2024 Change (in millions) (in millions) Research and development $ 80.0 $ 63.2 $ 16.8 $ 254.0 $ 150.9 $ 103.1 General and administrative 28.6 20.8 7.8 76.0 59.5 16.5 Total operating expenses $ 108.6 $ 84.0 $ 24.6 $ 330.0 $ 210.4 $ 119.6 Research and Development Expense The following table summarizes our research and development expenses by product candidate for the three months ended September 30, 2025 and 2024: For the three months ended September 30, 2025 2024 Change (in thousands) Research and development expenses Petosemtamab - MCLA-158 $ 49,919 $ 31,450 $ 18,469 Zenocutuzumab - MCLA-128 2,765 $ 7,962 (5,197) MCLA - 129 1,835 4,193 (2,358) Research general 2,836 1,958 878 Total Program Costs $ 57,355 $ 45,563 $ 11,792 R&D Employee-Related Expenses - Unallocated 17,343 14,258 3,085 Other Indirect R&D Expenses - Unallocated 5,319 3,418 1,901 Total Research and development expenses $ 80,017 $ 63,239 $ 16,778
Page 38
28 The following table summarizes our research and development expenses by type for the three months ended September 30, 2025 and 2024: For the three months ended September 30, 2025 2024 Change (in thousands) Research and development expenses External and manufacturing and other external costs $ 56,671 $ 43,191 $ 13,480 Wages, salaries and other employee benefits 7,348 7,092 256 Share-based compensation 9,995 7,166 2,829 Consultants 3,118 3,503 (385) Depreciation and amortization 297 289 8 Facilities and other related 2,588 1,998 590 Total research and development expenses $ 80,017 $ 63,239 $ 16,778 Research and development expense for the three months ended September 30, 2025 increased by $16.8 million as compared to the three months ended September 30, 2024. The increase in R&D expense is primarily driven by an increase of $13.5 million in clinical trial support provided by contract manufacturing and development organizations and contract research organizations, most of which is related to the petosemtamab clinical trials. The increase is also due to increases in personnel related expenses including share-based compensation of $3.1 million, and increases in facilities and depreciation expenses of $0.6 million, partially offset by decreases in consulting expenses of $0.4 million. The following table summarizes our research and development expenses by product candidate for the nine months ended September 30, 2025 and 2024: For the nine months ended September 30, 2025 2024 Change (in thousands) Research and development expenses Petosemtamab - MCLA-158 $ 167,713 $ 69,773 $ 97,940 Zenocutuzumab - MCLA-128 8,420 $ 21,483 (13,063) MCLA - 129 5,625 12,923 (7,298) Research general 8,217 7,192 1,025 Total Program Costs $ 189,975 $ 111,371 $ 78,604 R&D Employee-Related Expenses - Unallocated 45,594 29,023 16,571 Other Indirect R&D Expenses - Unallocated 18,490 10,548 7,942 Total Research and development expenses $ 254,059 $ 150,942 $ 103,117 The following table summarizes our research and development expenses by type for the nine months ended September 30, 2025 and 2024: For the nine months ended September 30, 2025 2024 Change (in thousands) Research and development expenses External and manufacturing and other external costs $ 191,743 $ 104,562 $ 87,181 Wages, salaries and other employee benefits 18,353 14,742 3,611 Share-based compensation 27,241 14,281 12,960 Consultants 8,674 9,523 (849) Depreciation and amortization 847 848 (1) Facilities and other related 7,201 6,986 215 Total research and development expenses $ 254,059 $ 150,942 $ 103,117
Page 39
29 Research and development expense for the nine months ended September 30, 2025 increased by $103.1 million as compared to the nine months ended September 30, 2024. The increase in R&D expense is primarily driven by an increase of $87.2 million in clinical trial support provided by contract manufacturing and development organizations and contract research organizations, most of which is related to the petosemtamab clinical trials. The increase is also due to increases in personnel related expenses including share-based compensation of $16.6 million and increases in facilities and depreciation expenses of $0.2 million. The increases are partially offset by decreases in consulting expenses of $0.9 million. General and Administrative Expense General and administrative expense for the three months ended September 30, 2025 increased by $7.8 million as compared to the three months ended September 30, 2024, primarily as a result of increases in personnel related expenses including share-based compensation of $5.6 million, increases in facilities and depreciation expense of $0.8 million, increases in consulting expenses of $0.8 million, increases in intellectual property and license expenses of $0.5 million, increases in finance and human resources expenses of $0.1 million, and increases in travel expenses of $0.1 million, partially offset by decreases in legal expenses of $0.2 million. General and administrative expense for the nine months ended September 30, 2025 increased by $16.5 million as compared to the nine months ended September 30, 2024, primarily as a result as a result of increases in personnel related expenses including share-based compensation of $15.9 million, increases in facilities and depreciation expense of $1.9 million, increases in legal expenses of $0.6 million, increases in intellectual property and license expenses of $0.2 million, increases in finance and human resources expenses of $0.2 million and increases in travel expenses of $0.2 million, partially offset by decreases in consulting expenses of $2.6 million. Other Income (Loss), Net The following is a comparison of other income (loss), net: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 Change 2025 2024 Change (in millions) (in millions) Interest income, net $ 8.8 $ 10.3 $ (1.5) $ 23.2 $ 22.3 $ 0.9 Foreign exchange loss (2.2) (35.0) 32.8 (78.3) (16.9) (61.4) Other income (expense) 0.2 — 0.2 (3.0) — (3.0) Total other income (loss), net $ 6.8 $ (24.7) $ 31.5 $ (58.1) $ 5.4 $ (63.5) Other income (loss), net consists of interest earned on our cash and cash equivalents held on account, accretion of investment earnings and net foreign exchange gains or losses on our foreign denominated cash, cash equivalents, marketable securities, and payables and receivables, and changes in fair value of our equity investments. Income Tax Expense The following is a comparison of income tax expense: Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2025 2024 Change 2025 2024 Change (in millions) (in millions) Current $ 6.2 $ 3.3 $ 2.9 $ 9.2 $ 6.0 $ 3.2 Deferred (0.4) (0.3) (0.1) 0.3 0.4 (0.1) Total tax expense, net $ 5.8 $ 3.0 $ 2.8 $ 9.5 $ 6.4 $ 3.1 We are subject to income taxes in the Netherlands and the U.S. Our current and deferred tax provision represents taxable income attributed to our U.S. operations as a consequence of allocating income to that jurisdiction. No current or deferred provision for income taxes has been made for income taxes in the Netherlands due to losses for tax purposes. Further, given a history of losses in the Netherlands, no deferred tax assets in excess of deferred tax liabilities are recognized as it is not more likely than not that they will be recovered. Income tax expense for the three and nine months ended September 30, 2025 increased by $2.8 million and increased by $3.1 million, respectively, as compared to the three and nine months ended September 30, 2024. The increase in the year to date results is primarily due to an increase in book income before tax, increases in permanent differences due to personnel related expenses, and increases in state taxes, partially offset by decreases in temporary differences related to personnel expenses and leases.
Page 40
Net Loss Net loss for the three and nine months ended September 30, 2025 was $95.5 million and $350.2 million, respectively compared to net loss for the three and nine months ended September 30, 2024 of $99.9 million and $184.4 million, respectively. The change in net loss was primarily due to the change in commercial material revenue, collaboration revenue, changes in operating expenses and changes in other income, net, as discussed above. Material Changes in Financial Condition Sources of Cash As of September 30, 2025, we had $816.8 million in cash, cash equivalents and marketable securities that are available to fund our current operations. Our cash and cash equivalents are maintained at financial institutions in amounts that exceed federally insured limits. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurances that we will be able to access uninsured funds in a timely manner or at all. In addition to our existing cash, cash equivalents and marketable securities, we may receive research and development co-funding and are eligible to earn a significant amount of milestone payments under our collaboration agreements and research license agreements. Our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities, and those of our collaborators and licensees, and is uncertain at this time. In February 2024, we entered into an Open Market Sale Agreement (the “2024 Sales Agreement”) with Jefferies LLC ("Jefferies") to sell from time to time up to $300.0 million of our common shares through an “at-the-market” offering program under which Jefferies acts as the sales agent. Subject to the terms and conditions of the 2024 Sales Agreement, Jefferies could sell the common shares by any method deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). There have been no sales under the 2024 Sales Agreement through September 30, 2025. On June 3, 2025, we entered into an underwriting agreement (the “2025 Underwriting Agreement”) with Jefferies LLC, BofA Securities, Inc., Leerink Partners LLC, Guggenheim Securities, LLC and Truist Securities, Inc., as representatives of the several underwriters named therein (collectively, the “ 2025 Underwriters”), in connection with the issuance and sale by us in a public offering of 5,263,158 of our common shares, nominal value €0.09 per share, at a public offering price of $57.00 per share, less underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 and accompanying prospectus (Registration No. 333- 277465), which became effective upon filing on February 28, 2024, and a prospectus supplement thereunder. Under the terms of the 2025 Underwriting Agreement, we also granted the 2025 Underwriters an option exercisable for 30 days to purchase up to an additional 789,473 common shares at the public offering price, less underwriting discounts and commissions. On June 4, 2025, the 2025 Underwriters exercised this option in full. The offering closed on June 5, 2025, and we received net proceeds of approximately $326.0 million, after deducting underwriting discounts and commissions. Funding Requirements Our primary uses of capital are clinical trial costs, chemistry, manufacturing and control costs to manufacture and supply drug product for our clinical trials, third-party research and development services, laboratory and related supplies, financial services, legal and other regulatory expenses and general overhead costs. Because our product candidates are in various stages of clinical and pre-clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Further, failure to complete the Transactions at all or within the expected timeframe, could adversely affect our business, the market price of our common shares, and cause us to incur significant costs and/or termination fees for which we may receive little or no benefit. In addition, the magnitude and duration of the global instability due to the United States political environment, disruptions and extreme volatility in the global economy, including rising inflation and interest rates, declines in economic growth, and the ongoing conflicts in Europe and the Middle East and their impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the situation continues to evolve. See “The price of our common shares may be volatile and may fluctuate due to factors beyond our control.” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Until such time, if ever, as we can generate substantial product revenues, and to the extent the Transactions are not completed, we expect to finance our cash needs through a combination of equity or debt financings, collaboration arrangements, license agreements, other business development opportunities with third parties and government grants. Except for any obligations of our collaborators or licensees to make license, milestone or royalty payments under our agreements with them, and government grants, we do not have any committed external sources of liquidity and currently have no credit facility. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our shareholders may be
Page 41
30
Page 42
31 diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additionally, the Transaction Agreement contains restrictions on our ability to issue common shares, subject to certain exceptions described therein. If we raise additional funds through collaboration arrangements, license agreements or other business development opportunities in the future, we may have to relinquish valuable rights to our technologies or intellectual property, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If the Transactions are not completed and if we are unable to raise any additional funds that may be needed through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Outlook Based on our current operating plan, research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash, cash equivalents and marketable securities as of September 30, 2025 will be sufficient to fund our planned operating expenses and capital expenditure requirements at least into 2028. We have based this estimate on assumptions that may prove to be wrong, including as a result of the Transactions and risks related to such Transactions, and as the process of testing product candidates in clinical trials is costly and the timing of progress in these trials is uncertain. As a result, we could use our capital resources sooner than we expect. Cash Flows The following is a summary of cash flows: Nine Months EndedSeptember 30, 2025 2024 Change (in millions) Net cash used in operating activities $ (250.6) $ (119.2) $ (131.4) Net cash used in investing activities $ (15.8) $ (142.5) $ 126.7 Net cash provided by financing activities $ 346.2 $ 485.9 $ (139.7) Net cash used in operating activities during the nine months ended September 30, 2025 increased by $131.4 million as compared to the nine months ended September 30, 2024, primarily as a result of increases in cash outflows related to operating expenses of $82.5 million, and decreases in cash inflows from revenues of $57.1 million, partially offset by increases in cash inflows from other income of $10.0 million. Net cash used in investing activities during the nine months ended September 30, 2025 decreased by $126.7 million as compared to the nine months ended September 30, 2024 primarily due to increases in proceeds from maturities of marketable securities of $113.7 million, decreases in purchases of marketable securities of $11.7 million, decreases in purchases of property and equipment of $1.1 million and decreases in purchases of intangible assets of $0.2 million. Net cash provided by financing activities during the nine months ended September 30, 2025 decreased by $139.7 million as compared to the nine months ended September 30, 2024 primarily due to decreases in net proceeds received from the 2025 Underwriting Agreement compared to the 2024 Underwriting Agreement of $108.8 million and the Gilead collaboration agreement of $22.6 million, and decreases in proceeds from share option exercises of $8.1 million and increases in payments for offering costs of $0.2 million. Critical Accounting Policies and Use of Estimates Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K and in Note 2 to our consolidated financial statements included in the Annual Report on Form 10-K. As disclosed in Note 2 to our consolidated financial statements included in the Annual Report on Form 10-K, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. During the period covered by this Quarterly Report on Form 10-Q, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K.
Page 43
32 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk from changes in interest rates, foreign exchange rates and inflation. All of these market risks arise in the ordinary course of business, as we do not engage in speculative trading activities. The following analysis provides additional information regarding these risks. Interest Rate Risk Our investments in marketable securities, which consist of corporate paper and notes, U.S. government securities and treasury notes, are subject to interest rate risk. As of September 30, 2025, marketable securities were $449.4 million. As of September 30, 2024, marketable securities were $349.9 million. The primary objective of our investment activities is to preserve principal while also maintaining liquidity and maximizing investment returns without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, a hypothetical 100 basis point increase or decrease in interest rates or in investment returns would not have a material effect on the fair market value of our portfolio or investment income. Our investment portfolio is primarily composed of short-term investments with maturities less than 24 months and our investments in debt securities are held to maturity. Accordingly, we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates. We had no outstanding debt that is subject to interest rate risk as of September 30, 2025 or September 30, 2024. Foreign Currency and Exchange Risk Merus US, Inc.’s functional currency is the U.S. dollar. The functional currency of Merus N.V. is the euro. Our revenues and monetary assets and liabilities are mainly denominated in U.S. dollars. A significant portion of our operating costs are in the Netherlands, which are denominated in the euro. This foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar against the euro. Furthermore, we anticipate that a significant portion of our expenses will continue to be denominated in the euro. A hypothetical 20% weakening of the U.S. dollar compared to the euro would have decreased our net loss for the quarter ended September 30, 2025, by approximately $19.4 million and increased our currency translation adjustment by approximately $166.0 million. A hypothetical 20% strengthening of the U.S. dollar compared to the euro would have an equal and opposite effect on our financial statements. Impact of Inflation While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation has had a material effect on our historical results of operations and financial condition. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset higher costs through raising funds or other corrective measures, and our inability or failure to do so could adversely affect our business, financial condition, and results of operations. Item 4. Controls and Procedures Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2025. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 44
33 PART II — OTHER INFORMATION Item 1. Legal Proceedings See Note 6, "Commitments and Contingencies," in the accompanying notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. From time to time, we may be involved in various legal proceedings relating to claims arising out of our operations. We are not currently a party to any material legal proceedings. Item 1A. Risk Factors Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC, in evaluating our company and our business. Investing in our common shares involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks facing our company. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations. Risks Related to Our Business and Industry We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. We are an oncology company with a limited operating history. We have incurred net losses of $350.2 million and $184.4 million for the nine months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, we had an accumulated deficit of $1,318.6 million. Our losses have resulted principally from expenses incurred in research and development of our antibody candidates and from management and administrative costs and other expenses that we have incurred while building our business infrastructure. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we continue to advance our antibody candidates from discovery through pre-clinical development and into clinical trials and seek regulatory approval and pursue commercialization of any approved antibody candidates. We anticipate that we will continue to incur significant expenses as we: • Support the commercial transition of zenocutuzumab to PTx, for PTx to commercialize zenocutuzumab in the approved indications of the treatment of pancreatic adenocarcinoma or NSCLC that are advanced unresectable or metastatic and harbor a neuregulin 1 (NRG1) gene fusion who have disease progression on or after prior systemic therapy, and continue to explore potential development of zenocutuzumab outside the field of NRG1+ cancer; • conduct our ongoing Phase 1/2 clinical trial of MCLA-158 or petosemtamab for the treatment of solid tumors; • conduct our ongoing LiGeR-HN1 and LiGeR-HN2 phase three clinical trials of petosemtamab in 1L r/m PD-L1+ HNSCC and 2/3L r/m HNSCC respectively; • conduct our ongoing Phase 1/2 clinical trial for MCLA-129 for the treatment of solid tumors, which is subject to a collaboration with Betta, whereby Betta has exclusive rights to MCLA-129 in China for commercialization, if any, and Merus retains all rights ex-China; • continue the research and development of our other pre-clinical antibody candidates; • expand our clinical programs to explore new potential combination therapies or indications; • expand and enhance our technology platforms, including our Biclonics® technology platform which generates our pipeline of bispecific product candidates, our Triclonics® technology platform, which generates pre-clinical trispecific candidates and generate and develop additional multispecific antibody candidates; and our ADClonics® technology platform, which generates pre-clinical multispecific ADC candidates; • seek regulatory approvals for any antibody candidates that successfully complete clinical trials; • potentially establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products beyond zenocutuzumab, for which we may obtain regulatory approvals; • maintain, expand and protect our intellectual property portfolio;
Page 45
34 • secure, maintain and/or obtain freedom to operate for our technologies and products; • add clinical, scientific, operational, financial, information technology and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our operation as a public company; • work to consummate the Transactions; and • experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, manufacturing, potential commercialization challenges, safety issues or other regulatory challenges. We have financed our operations primarily through public offerings and private placements of our common shares and our collaboration and license agreement with Incyte, Eli Lilly, Gilead and Biohaven. We have devoted a significant portion of our financial resources and efforts to developing our full-length bispecific antibody therapeutics, which we refer to as Biclonics®, our technology platforms, identifying potential antibody candidates, conducting pre-clinical studies of a variety of candidates, and conducting our clinical trials of zenocutuzumab, petosemtamab, and MCLA-129. To become and remain profitable, we must succeed in developing and eventually commercializing products beyond zenocutuzumab in NRG1+ pancreatic adenocarcinoma and NSCLC, that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing pre-clinical testing and clinical trials of our antibody candidates, discovering and developing additional antibody candidates, obtaining regulatory approval for any antibody candidates that successfully complete clinical trials, establishing manufacturing and marketing capabilities and ultimately selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of many of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with pharmaceutical product and biological development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration (FDA), or the European Medicines Agency (EMA), or other regulatory authorities to perform studies in addition to those we currently anticipate, or if there are any delays in completing our clinical trials or the development of any of our antibody candidates, our expenses could increase and commercial revenue could be further delayed. Even if we do generate product royalties or product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our failure to sustain profitability could depress the market price of our common shares and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. If the Transactions are not completed, we will need additional funding in order to complete development of our antibody candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we conduct our ongoing clinical trials of petosemtamab, and MCLA-129, potential new development activities for zenocutuzumab, and continue to research, develop and conduct pre-clinical studies of our other antibody candidates. In addition, beyond zenocutuzumab, which we have licensed to PTx to commercialize in the United States in the field of NRG1+ cancer, if we obtain regulatory approval for any of our other antibody candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we continue to incur additional costs associated with operating as a public company. Accordingly, if the Transactions are not completed, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. For example, the trading prices for our and other biopharmaceutical companies’ shares have been highly volatile as a result of the United States political environment, disruptions and extreme volatility in the global economy, and global instability, including rising inflation and interest rates, declines in economic growth, the ongoing conflicts in Europe and the Middle East. As a result, we may face difficulties raising capital through sales of our common shares and any such sales may be on unfavorable terms. Based on our current operating plan, we expect that our existing cash, cash equivalents and investments as of September 30, 2025 will be sufficient to fund our operations at least into 2028. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. Additionally, the Transaction Agreement generally restricts our ability to issue common shares, subject to limited exceptions, during the interim period between the execution of the Transaction Agreement and the
Page 46
35 Acceptance Time (or the date on which the Transaction Agreement is earlier terminated). In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position. Our future capital requirements will depend on many factors, including: • our ability to consummate the Transactions within the expected timeframe, if at all; • the cost, progress and results of our ongoing clinical trials of petosemtamab and MCLA-129 and potential additional development activities for zenocutuzumab; • the success of our collaborations with Incyte, Lilly, Gilead and Biohaven to develop antibody candidates; • the cost of manufacturing clinical supplies of our multispecific antibody candidates; • the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for our other antibody candidates; • the costs, timing and outcome of regulatory review of any of our antibody candidates; • the costs and timing of potential future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our antibody candidates to the extent any receive marketing approval; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any potential future claims by third parties that we are alleged to be infringing upon their intellectual property rights; • the costs and timing of securing, maintaining and/or obtaining freedom to operate for our technologies and products; • the revenue, if any, received from commercial sales of our antibody candidates to the extent any receive marketing approval; • the extent to which we can realize planned cost efficiencies; • the effect of competing technological and market developments; and • the extent to which we acquire or invest in businesses, products and technologies, including our existing collaborations and any other future licensing or collaboration arrangements for any of our antibody candidates.
Page 47
36 We depend heavily on the success of our antibody candidates, and we cannot give any assurance that any of our antibody candidates will receive regulatory approval, beyond BIZENGRI®, which is necessary before they can be commercialized. If we, any of our collaborators, or any other strategic partners we may enter into collaboration agreements with for the development and commercialization of our antibody candidates, are unable to commercialize our antibody candidates, or experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected. We have invested a significant portion of our efforts and financial resources in the development of bispecific antibody candidates using our Biclonics® technology platform and in development of multi-specific antibody candidates using our Triclonics® technology platform. Our ability to generate royalty and product revenues will depend heavily on our commercial licensee PTx for the marketing BIZENGRI® for NRG1+ pancreatic adenocarcinoma and NSCLC, and on the successful development and eventual commercialization of our other antibody candidates, which may never occur. We currently have generated limited revenues from sales of our product BIZENGRI®, and we may never be able to develop or commercialize a marketable product beyond BIZENGRI®. BIZENGRI® was approved under accelerated approval based on overall response rate (ORR) and duration of response (DOR) and continued approval for these indications may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). Beyond the indications approved under the BIZENGRI® label, each of our bispecific antibody candidates and pre-clinical antibody candidates will require additional clinical development, management of clinical, pre-clinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, including commercial manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote any of our antibody candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our antibody candidates. The success of our antibody candidates will depend on several factors, including the following: • for antibody candidates which we may license to others, such as to our collaborators, the successful efforts of those parties in completing clinical trials of, receipt of regulatory approval for and commercialization of such antibody candidates; • for the antibody candidates to which we retain rights, completion of pre-clinical studies and clinical trials of, receipt of marketing approvals for, establishment of commercial manufacturing supplies of and successful commercialization of such antibody candidates; and • for all of our antibody candidates, if approved, acceptance of our antibody candidates by patients, the medical community and third-party payors, effectively competing with other therapies, a continued acceptable safety profile following approval and qualifying for, maintaining, enforcing and defending our intellectual property rights and claims. If we or our collaborators, as applicable, do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our antibody candidates, which would materially adversely affect our business, financial condition and results of operations. Beyond BIZENGRI®'s accelerated approval by the FDA, we cannot be certain that any of our antibody candidates will be successful in clinical trials or receive regulatory approval. Further, our antibody candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our antibody candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our antibody candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved. We plan to seek regulatory approval to commercialize our antibody candidates both in the United States and the European Union (EU), and potentially in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with the numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our antibody candidates, and we cannot predict success in these jurisdictions.
Page 48
37 The Biclonics® technology platform and Triclonics® technology platform are unproven, novel approaches to the production of biologics for therapeutic intervention. Beyond BIZENGRI®, we have not received regulatory approval for a therapeutic based on a full-length human bispecific or trispecific IgG approach. We cannot be certain that our approach will lead to the development of additional approvable or marketable products beyond BIZENGRI®. In addition, our Biclonics® and Triclonics® may have different effectiveness rates in various indications and in different geographical areas. Our Biclonics® and Triclonics® technology platforms rely on third parties for biological materials. Some biological materials have not always met our expectations or requirements, and any disruption in the supply of these biological materials could materially adversely affect our business. Although we have control processes, auditing and screening procedures, biological materials are susceptible to damage and contamination and may contain active pathogens. Further, assays used to test the identity and potency of zenocutuzumab and our antibody candidates are susceptible to deviations or inaccuracy, which can impact the testing and release of these products for commercial or clinical use. Similarly, improper filling or storage of these materials, by us or any third-party suppliers, may require us to destroy some of our biological raw materials or antibody candidates. The ADClonics® technology platform is unproven, novel approach to the production of antibody drug conjugates for therapeutic intervention. We have not received regulatory approval for a therapeutic based on a full-length human bispecific or trispecific IgG antibody drug conjugate, which attaches a linker and payload to our proprietary format. We cannot be certain that our approach will lead to the development of approvable or marketable products. Our ADClonics® technology platform relies on third parties for linker, payload technologies and biological materials. These elements have not always met our expectations or requirements, and any disruption in the supply of these materials could materially adversely affect our business. Although we have control processes, auditing and screening procedures, such materials are susceptible to quality issues, damage, developability issues and contamination and may contain active pathogens, which could negatively impact our ability to successfully research, develop or commercialize our ADClonics® candidates, which would materially adversely affect our business, financial condition and results of operations. Failure to successfully validate, develop and obtain regulatory approval or certification for companion diagnostics could harm our development strategy. We may seek to identify patient subsets within a disease category that may derive selective and meaningful benefit from the antibody candidates we are developing. Through collaborations or license agreements, companion diagnostics may help us to more accurately identify patients within a particular subset, both during our clinical trials and in connection with the commercialization of our antibody candidates, if approved. Companion diagnostics are subject to regulation by the FDA, and comparable foreign regulatory authorities as medical devices and typically require separate regulatory approval (or clearance, or certification) prior to commercialization. The development of companion diagnostics in collaboration with or via license agreements with third parties, may make us potentially dependent on the scientific insights and sustained cooperation and effort of any third-party collaborators in developing and obtaining approval (or clearance, or certification) for companion diagnostics. Difficulties in developing and obtaining approval or certification for any companion diagnostics may be encountered, including as it concerns issues relating to selectivity/specificity, analytical validation, reproducibility or clinical validation. Any delay or failure to develop or obtain regulatory approval (or clearance, or certification) of companion diagnostics could delay or prevent approval of our antibody candidates. In addition, production difficulties may be encountered that could constrain the supply of the companion diagnostics, and difficulties may arise in gaining acceptance of the use of the companion diagnostics in the clinical community. If such companion diagnostics fail to gain market acceptance, it could have an adverse effect on our ability to derive revenues from sales of our products. In addition, the diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic that we anticipate using in connection with development and commercialization of our antibody candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative companion diagnostic test for use in connection with the development and commercialization of our antibody candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our antibody candidates.
Page 49
38 Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. Since our inception in 2003, we have devoted a significant portion of our resources to developing zenocutuzumab, petosemtamab, and MCLA-129 and our other antibody candidates, building our intellectual property portfolio, developing our clinical manufacturing supply chain, generating and enhancing our Biclonics® and Triclonics® technology platforms, planning our business, raising capital and providing general and administrative support for these operations. While we have completed certain of the clinical trials for zenocutuzumab, we have limited experience and have not completed clinical trials for petosemtamab and MCLA-129. We have not yet demonstrated our ability to successfully to manufacture a commercial scale product or have only recently arranged for a third party to do so on our behalf and we have not demonstrated our ability to conduct sales and marketing activities necessary for successful product commercialization. Additionally, we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, including the Transactions, many of which are beyond our control. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. Raising additional capital may cause dilution to our holders, restrict our operations or require us to relinquish rights to our technologies or antibody candidates. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through equity or debt financings, upfront, milestone and royalty payments, if any, received under our existing licenses and collaborations and any other future licenses or collaborations, together with our existing cash and cash equivalents. In order to accomplish our business objectives and further develop our product pipeline, we will, however, need to seek additional funds if the Transactions do not close. If we raise additional capital through the sale of equity or convertible debt securities, our existing shareholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing shareholders’ rights as holders of our common shares. In addition, the possibility of such issuance may cause the market price of our common shares to decline. Debt financing, if available, may result in increased fixed payment obligations and involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, or acquiring, selling or licensing intellectual property rights, which could adversely impact our ability to conduct our business. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies, future revenue streams or antibody candidates or grant licenses on terms that may not be favorable to us. We could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable. Any of these occurrences may have a material adverse effect on our business, operating results and prospects. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our antibody candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. For example, the trading prices for our and other biopharmaceutical companies’ shares have been highly volatile as a result of the United States political environment, disruptions and extreme volatility in the global economy, including rising inflation and interest rates, declines in economic growth, and global instability, including the ongoing conflict in Europe and the Middle East. As a result, we may face difficulties raising capital through sales of our common shares and any such sales may be on unfavorable terms. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any of our antibody candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations. Our business may become subject to economic, political, regulatory and other risks associated with international operations. As a company based in the Netherlands, our business is subject to risks associated with conducting business internationally. Many of our suppliers and collaborative and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including: • economic weakness, including inflation, or political instability, in particular, in non-U.S. economies and markets; • differing regulatory requirements for drug approvals in non-U.S. countries;
Page 50
39 • differing jurisdictions could present different issues for securing, maintaining and/or obtaining freedom to operate in such jurisdictions; • potentially reduced protection for intellectual property rights; • difficulties in compliance with non-U.S. laws and regulations; • changes in non-U.S. regulations and customs, tariffs and trade barriers; • changes in non-U.S. currency exchange rates of the euro and currency controls; • changes in a specific country’s or region’s political or economic environment; • trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments; • differing reimbursement regimes and price controls in certain non-U.S. markets; • negative consequences from changes in tax laws; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • compliance with international privacy regulations, including the EU General Data Protection Regulation (GDPR) and United Kingdom General Data Protection Regulation (UK GDPR); • negative consequences from the United Kingdom’s withdrawal from the EU, and its potential impact on supply-chain and our personnel; • workforce uncertainty in countries where labor unrest is more common than in the United States; • difficulties associated with staffing and managing international operations, including differing labor relations; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • business interruptions resulting from geo-political actions, including war, riots and terrorism, as well as the ongoing conflict in Europe and Middle East, or natural disasters including earthquakes, typhoons, floods, fires, epidemics or public health emergencies and U.S. or non-U.S. governmental actions or restrictions related thereto. Exchange rate fluctuations or abandonment of the euro currency may materially affect our results of operations and financial condition. Due to the international scope of our operations, fluctuations in exchange rates, particularly between the euro and the U.S. dollar, may adversely affect us. Although we are based in the Netherlands, we source research and development, manufacturing, consulting and other services from several countries. Further, potential future revenue may be derived from abroad, particularly from the United States. Additionally, our funding has mainly come from investors and collaborators mainly in the United States. As a result, our business and share price may be affected by fluctuations in foreign exchange rates between the U.S. dollar, the euro and these other currencies, which may also have a significant impact on our reported results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place. In addition, the possible abandonment of the euro by one or more members of the EU could materially affect our business in the future. Despite measures taken by the EU to provide funding to certain EU member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the euro could be abandoned in the future as a currency by countries that have adopted its use. This could lead to the re-introduction of individual currencies in one or more EU member states, or in more extreme circumstances, the dissolution of the EU. The effects on our business of a potential dissolution of the EU, the exit of one or more EU member states from the EU or the abandonment of the euro as a currency, are
Page 51
40 impossible to predict with certainty, and any such events could have a material adverse effect on our business, financial condition and results of operations. Risks from improper conduct by our employees, agents, contractors, or collaborators could adversely affect our reputation, business, prospects, operating results, and financial condition. We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including, without limitation, health care, employment, foreign corrupt practices, trade restrictions and sanctions, environmental, import and export requirements, competition, patient privacy and other privacy laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our ability to conduct business, operating results, and reputation. We are subject to a number of anti-corruption laws, including the Foreign Corrupt Practices Act (FCPA) in the United States, the Bribery Act in the United Kingdom and the anti-corruption provisions of the Dutch Criminal Code in the Netherlands. Our failure to comply with anti-corruption laws applicable to us could result in penalties, which could harm our reputation and harm our business, financial condition, results of operations, cash flows or prospects. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of improperly or corruptly obtaining or keeping business, obtaining preferential treatment and/or other undue benefits or advantages. The FCPA also requires public companies to maintain accurate books and records and devise a system of sufficient internal accounting controls. We regularly review and update our policies and procedures and internal controls designed to provide reasonable assurance that we, our employees, distributors and other intermediaries comply with the anti-corruption laws to which we are subject. However, there are inherent limitations to the effectiveness of any policies, procedures and internal controls, including the possibility of human error and the circumvention or overriding of the policies, procedures and internal controls. There can be no assurance that such policies or procedures or internal controls will work effectively at all times or protect us against liability under these or other laws for actions taken by our employees, distributors and other intermediaries with respect to our business. The Securities and Exchange Commission (SEC) and Department of Justice continue to view FCPA enforcement activities as a high priority. There is no certainty that all of our employees, agents, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could materially damage our reputation, our brand, our international operations, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition. Risks Related to the Development and Clinical Testing of Our Antibody Candidates All of our antibody candidates are in pre-clinical or clinical development. Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of our antibody candidates, particularly petosemtamab and MCLA- 129, are prolonged or delayed, we or any collaborators may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our antibody candidates on a timely basis or at all. To obtain the requisite regulatory approvals to market and sell any of our antibody candidates, we or any collaborator for such candidates must demonstrate through extensive pre-clinical studies and clinical trials that such candidates are safe, pure and potent in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early-stage clinical trials of our antibody candidates may not be predictive of the results of later-stage clinical trials. Antibody candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results may not be successful. To date, we have only completed a clinical trial required for the accelerated approval of BIZENGRI® in the current indications. Although we are conducting ongoing clinical trials for petosemtamab, and MCLA-129, considering potential further development for zenocutuzumab and exploring pre-clinical studies for other antibody candidates, we may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be
Page 52
41 completed on schedule, if at all. Clinical trials can be delayed, suspended, or terminated for a variety of reasons, including the following: • failure to maintain accelerated approval for zenocutuzumab due to an inability to verify clinical benefit in confirmatory trials, and/or post-marketing commitments or requirements; • delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • delays in or failure to recruit suitable patients to participate in a trial; • delays in or failure to establish the appropriate dose and schedule for antibody candidates in clinical trials; • the difficulty in identifying the sub-populations that we are trying to treat in a particular trial, which may delay enrollment and reduce the power of a clinical trial to detect statistically significant results; • lower than anticipated retention rates of patients in clinical trials; • failure to have patients complete a trial or return for post-treatment follow-up; • clinical sites deviating from trial protocol or dropping out of a trial; • investigator-sponsored studies of our product candidates, including expanded or early access protocols, may identify safety or efficacy concerns associated with our antibody candidates, or otherwise negatively affect patient enrollment in our ongoing and planned clinical trials; • delays in, inability or failure to add new clinical trial sites; • safety or tolerability concerns could cause us or our collaborators or regulatory authorities, as applicable, to pause, suspend or terminate a trial if we or our collaborators or regulatory authorities, find that the participants are being exposed to unacceptable health risks or during evaluation of safety signals; • failure to observe a meaningful clinical benefit; • delays in or failure to obtain regulatory approval or authorizations to commence a trial; • delays in or failure to obtain institutional review board (IRB) or ethics committee approval at each site; • our third-party research contractors failing to comply with regulatory requirements or applicable law, or to meet their contractual obligations to us in a timely manner, or at all; • changes in regulatory requirements, policies and guidelines; • manufacturing sufficient quantities of our antibody candidate for use in clinical trials or our commercial product to meet market demand; • the quality or stability of our commercial product and/or an antibody candidate falling below acceptable standards; • changes in the treatment landscape for our target indications that may make our antibody candidates no longer relevant; • third party actions claiming infringement by our antibody candidates in clinical trials outside of the United States and obtaining injunctions interfering with our progress; and • business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires, epidemics or public health emergencies and U.S. or non-U.S. governmental actions or restrictions related thereto. We could encounter delays if a clinical trial is paused, suspended or terminated by us, by the IRBs or ethics committees of the institutions in which such trials are being conducted, by the Data Review Committee or Data Safety Monitoring Board for such trial or by the FDA, the competent authorities of the European Economic Area (EEA) countries (the 27 EU member states plus Iceland, Liechtenstein and Norway) and the UK, or other regulatory authorities. Such authorities may impose such a suspension or termination
Page 53
42 due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EEA competent authorities or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our antibody candidates, the commercial prospects of our antibody candidates will be harmed, and our ability to generate product revenues from any of these antibody candidates, if approved, will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our antibody candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our antibody candidates and impair our ability to commercialize our antibody candidates, if approved, and may harm our business and results of operations. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our antibody candidates. Clinical trials must be conducted in accordance with the FDA, EEA countries, and other applicable regulatory authorities’ legal requirements, other regulations or guidelines, and are subject to oversight by these governmental agencies and ethics committees or IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our antibody candidates produced under current good manufacturing practice (cGMP), or similar foreign requirements and other regulations. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with good clinical practice (GCP) requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business. In addition, clinical trials that are conducted in countries outside the EEA and the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-EEA and non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA or the EEA competent authorities, and may use different standards of diagnosis, screening and medical care. In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the EU recently evolved. The EU Clinical Trials Regulation (CTR) which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the EU Clinical Trials Directive required a separate clinical trial application (CTA) to be submitted in each member state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application for multi-center trials. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. The CTR transition period ended on January 31, 2025, and all clinical trials (and related applications) are now fully subject to the provisions of the CTR. Compliance with the CTR requirements by us, our collaborators and third-party service providers, such as CROs, may impact our developments plans. Furthermore, on April 11, 2025 the UK adopted an amendment to the UK clinical trials regulations intended to support a more streamlined and flexible regulation of clinical trials, removing unnecessary administrative burden on trial sponsors, whilst protecting the interests of trial participants. It also intends to bring the UK regulatory framework for clinical trials, which is still based on the EU Clinical Trials Directive, into closer alignment with the (EU) CTR. The amendment will become applicable on April 10, 2026, following a one-year transition period, and the UK's medicines regulator (the Medicines and Healthcare products Regulatory Agency (MHRA)), will publish guidance intended to provide support during the transition period and once the amendment becomes applicable. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may be impacted.
Page 54
43 Interim, preliminary, and “top-line” data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the subsequent reporting of such data or final data. From time to time, we may publish interim, preliminary or “top-line” data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary and top-line data also remain subject to audit and verification procedures that may result in subsequent reporting of such data or the final data being materially different from the preliminary data previously published. In addition, we may decide to report interim or preliminary analyses of only certain endpoints (e.g., primary subject to investigator review) rather than all endpoints (e.g., including secondary subject to central review). As a result, interim, preliminary and top-line data should be viewed with caution until the final data are available. Furthermore, the information we choose to publicly disclose regarding a particular study or clinical trial is based on more extensive information, and others may not agree with what we determine is the material or otherwise appropriate information to disclose. Any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular antibody candidate or our business. Others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of particular programs, the approvability or commercialization of the particular antibody candidates, and our business in general. As a result, interim, preliminary or top-line data and analyses should be viewed with caution. Adverse differences between preliminary, top-line or interim data, subsequent reporting of such data and final data or changes in what is material information regarding the results from a particular study or clinical trial could significantly harm our clinical development and business prospects and cause volatility in the price of our common shares. If the interim, top-line, or preliminary data that we report differ from actual, subsequent reporting of such data or final results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. Our antibody candidates may have serious adverse, undesirable or unacceptable side effects which may delay or prevent marketing approval. If such side effects are identified during the development of our antibody candidates or following approval, if any, we may need to abandon our development of such antibody candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval, if any. Undesirable side effects that may be caused by our antibody candidates, whether alone or in combination with other drugs, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, or other comparable foreign authorities. In February 2015, we commenced a Phase 1/2 clinical trial in Europe of our most advanced antibody candidate, zenocutuzumab, for the treatment of various solid tumors, which was amended to treat patients having solid tumors harboring a NRG1 gene fusion. Additionally, in January 2018 we commenced a Phase 2 clinical trial in Europe and the United States exploring zenocutuzumab, in combination with other agents, in patients with metastatic breast cancer. Patients treated with zenocutuzumab have experienced adverse reactions that may be related to the treatment with a safety update provided for zenocutuzumab in October 2023, at the European Society for Medical Oncology (ESMO) Congress 2023, with a safety cut-off date of July 31, 2023. Patients treated with petosemtamab have experienced adverse reactions that may be treatment related. In May 2018 we commenced a Phase 1/2 clinical trial of our bispecific antibody petosemtamab in patients with solid tumors and on January 15, 2021, at ASCO GI, with a safety data cutoff date of September 7, 2020, where safety events were reported for patients treated with petosemtamab as a single agent across 11 dose levels (5 to 1500mg), and at the AACR-NCI-EORTC Virtual International Conference on Molecular Targets and Cancer Therapeutics, on October 7-10, 2021, with a data cutoff date of August 9, 2021. A safety update was provided for petosemtamab in December 2024 at the ESMO Asia Congress 2024, with a safety data cutoff date of July 5, 2024 for the treatment of 82 pt receiving petosemtamab 1500mg Q2W in patients with 2L+ HNSCC. In 2024, we commenced a Phase 1/2 investigation of petosemtamab monotherapy in patients with metastatic colorectal cancer (mCRC) having three or more prior lines of therapy (3L+) and a safety update was provided for this cohort at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics on October 24, 2025 held in Boston. In May 2021, we commenced a Phase 1/2 clinical trial in the United States of our bispecific antibody MCLA-129 in patients with advanced NSCLC and other solid tumors. Patients treated with MCLA-129 have experienced adverse events, with a safety update provided for MCLA-129 in December 2023 at the ESMO Asia Congress 2023 held in Singapore, December 1-3, and an additional update in June 2024 at ASCO with a safety data cutoff date of February 16, 2024, for the treatment of 22 pt receiving MCLA-129 1500mg Q2W in patients with MET Exon 14 Skipping Mutation (METexon14) NSCLC.
Page 55
44 We also engage in combination studies of our antibody candidates in combination with other approved therapies, the combination of which may also cause or be correlated with undesirable side effects not observed in our monotherapy trials that may cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign authorities. For example, in 2023, we commenced a Phase 1/2 investigation of petosemtamab in combination with pembrolizumab as a potential front-line therapy for relapsed/metastatic (r/mm) HNSCC expressing PD-L1 (combined positive score (CPS) ≥ 1) (PD-L1+). A safety update was provided in June 2024 at ASCO, with a safety data cutoff date of March 6, 2024 for the treatment of 42 pts receiving petosemtamab 1500mg Q2W in patients with 1L r/m PD-L1+ HNSCC in combination with pembrolizumab 400 mg IV Q6W. A safety update was further provided in June 2025 at ASCO, with a safety data cutoff date of February 27, 2025 for the treatment of 43 pts receiving petosemtamab 1500mg Q2W in patients with 1L r/m PD-L1+ HNSCC in combination with pembrolizumab 400 mg IV Q6W. In September 2024, we also initiated a phase 3 study investigating this combination in patients with 1L r/m PD-L1+ HNSCC to evaluate safety and clinical activity in this population, referred to as the LiGeR-HN1 trial. We have observed certain adverse events from patients receiving the combination of petosemtamab and pembrolizumab, including infusion related reactions, and asthenia. Common side effects with pembrolizumab when used alone include feeling tired, pain, including pain in muscles, rash, diarrhea, fever, cough, decreased appetite, itching, shortness of breath, constipation, bones or joints and stomach-area (abdominal) pain, nausea, and low levels of thyroid hormone. We provided a safety update for petosemtamab in combination with pembrolizumab in June 2024 at the 2024 American Society of Clinical Oncology annual meeting with a data cutoff date of March 6, 2024. In 2024, we commenced a Phase 2 investigation of the combination of petosemtamab with FOLFIRI or FOLFOX, in patients with mCRC and a safety update was provided for this cohort at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics on October 24, 2025 held in Boston. We have observed certain adverse events from patients receiving the combination of petosemtamab and FOLFIRI or FOLOFOX, including infusion related reactions, acneiform dermatitis, nausea, stomatitis, diarrhea, fatigue, gastroesophageal reflux disease, constipation, blood magnesium decrease, blood potassium decrease, dyspnea, embolism, peripheral sensory neuropathy, dry skin, palmar-plantar erythrodysesthesia syndrome, neutropenia, chills, and peripheral edema. We continue to monitor and evaluate patients enrolled and have observed certain adverse events from patients receiving these combinations. In 2022, we commenced a Phase 1/2 investigation of the combination of MCLA-129 with osimertinib, a third generation EGFR TKI, in patients with treatment-naïve EGFR mutant (m) NSCLC and in patients with EGFRm NSCLC that has progressed on osimertinib. We continue to monitor and evaluate patients enrolled and have observed certain adverse events from patients receiving the combination of MCLA-129 in combination with osimertinib, including infusion-related reactions, skin toxicity, gastrointestinal events, asthenia, decreased appetite, venous thromboembolism (VTE, composite term) and treatment-related interstitial lung disease, with additional details on safety reported at the ESMO Asia Congress 2023 held in Singapore, December 1-3. In addition, osimertinib has warnings and precautions regarding interstitial lung disease, QT prolongation, cardiomyopathy, keratitis and Stevens-Johnson Syndrome, and toxic epidermal necrolysis; cutaneous vasculitis, aplastic anemia, embryo-fetal toxicity. In 2024, we also commenced a Phase 2 investigation of MCLA- 129 in combination with chemotherapy in 2L+ EGFRm NSCLC, with a cohort receiving MCLA-129 and paclitaxel and carboplatin, and another cohort receiving MCLA-129 and docetaxel. We continue to monitor and evaluate patients enrolled and have observed certain adverse events from patients receiving this combination. We continue to monitor and evaluate patients enrolled and have observed certain adverse events including fatigue, cough, pyrexia, constipation, decreased appetite, dyspnoea, nausea, dizziness and elevation of liver enzymes. In each of our clinical trials and investigations of our antibody candidates in combination with approved therapies there may still be important facts about the safety, efficacy, and risk versus benefit that are not known to us at this time which may negatively impact our ability to develop and commercialize our antibody candidates as single agents or in combination with other agents. In this regard, we have in the past and may in the future observe serious side effects ranging from grade 1 to grade 5 across our clinical trials, including patient death, and we have in the past, and may in the future, institute additional precautionary safety measures such as dosing caps and delays, enhanced monitoring for side effects, and modified patient inclusion and exclusion criteria. Additional and/or unexpected safety events or our failure to generate additional efficacy data in our clinical trials that support registration could significantly impact the value of antibody candidates to our business. Many companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in late-stage clinical trials or combination trials after achieving encouraging or positive results in early-stage development. We cannot be certain that we will not face similar setbacks in our ongoing or planned clinical trials. If we or our collaborators fail to produce positive results in our ongoing or planned clinical trials of our other product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business, financial condition, results of operations and growth prospects, would be materially adversely affected. If results of our trials reveal a high and unacceptable severity and prevalence of adverse events or side effects, including those that may be new or unexpected, our trials or enrollment could be paused, suspended or terminated and the FDA, EEA competent authorities, or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our antibody candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment, investigator
Page 56
45 engagement and commitment and perception of the clinical candidate or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Additionally, if any of our antibody candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including: • regulatory authorities may withdraw approvals of such products and require us to take our approved product off the market; • regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies; • regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a risk evaluation and mitigation strategy plan to ensure that the benefits of the product outweigh its risks; • we may be required to change the dose or the way the product is administered, conduct additional clinical trials or change the labeling of the product; • we may be subject to limitations on how we may promote the product; • sales of the product may decrease significantly; • we may be subject to litigation or product liability claims; and • our reputation may suffer. As the approved label for BIZENGRI® includes a boxed warning describing certain risks for embryo-fetal toxicity, and the product label also includes warnings regarding infusion-related and anaphylactic reactions, hypersensitivity, interstitial lung disease, pneumonitis, and left ventricular dysfunction, we may encounter these or other similar adverse reactions if we develop zenocutuzumab for any other indications. Any of these events could prevent us, our collaborators or our potential future partners from achieving or maintaining market acceptance of the affected antibody candidate, if approved, or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our antibody candidates, if approved. We depend on enrollment of patients in our clinical trials for our antibody candidates. If we are unable to enroll patients in our clinical trials or enroll them in a timely manner, our research and development efforts and business, financial condition and results of operations could be materially adversely affected. Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. In the Phase 2 clinical trial of MCLA-129, we plan to enroll up to 576 adult patients with solid tumors, including in combination with chemotherapy in pts with NSCLC. In the Phase 1/2 clinical trial of petosemtamab, we plan to enroll up to 523 adult patients with solid tumors, including as monotherapy in solid tumors, in combination with pembrolizumab in PD-L1+ r/m first line head and neck cancer; in 1L mCRC and 2L mCRC in combination with standard chemotherapy, and in 3L+ mCRC as monotherapy. We further initiated a randomized phase 3 trial of petosemtamab monotherapy, or investigators’ choice of single agent chemotherapy or cetuximab in 2L/3L HNSCC in July 2024 referred to as the LiGeR-HN2 trial. We further initiated a randomized phase 3 trial of petosemtamab in combination with pembrolizumab, a PD-1 blocking antibody, or pembrolizumab monotherapy, investigating this combination in patients with untreated HNSCC expressing PD-L1 (CPS ≥ 1) to evaluate safety and clinical activity in this population in September 2024, referred to as the LiGeR-HN1 trial. These trials and other trials we conduct may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Our clinical trials will also compete with other clinical trials for antibody candidates that are in the same or similar therapeutic areas as our antibody candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites.
Page 57
46 Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies. These factors may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. Delays in the completion of any clinical trial of our antibody candidates will increase our costs, slow down our antibody candidate development and approval process, delay or potentially jeopardize our ability to commence product sales and generate revenue and harm our reputation and ability to obtain financing. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our antibody candidates. We may become exposed to costly and damaging liability claims and reputational risks, either when testing our antibody candidates in the clinic or at the commercial stage; and our product liability insurance may not cover all damages from such claims. We are exposed to potential product liability and professional indemnity risks and reputational risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Whereas our exclusive commercial license with PTx for the sale in the U.S. of BIZENGRI® for the treatment of NRG1+ pancreatic adenocarcinoma and NSCLC requires PTx to indemnify us for any product liability claims, we cannot guarantee such indemnity will absolve us of all potential liability, nor eliminate potential reputational risks. Further, the current and future use of antibody candidates by us and our collaborators in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, our collaborators or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our antibody candidates or any prospects for commercialization of our antibody candidates, if approved, and otherwise harm our reputation causing potential difficulties for existing or future commercialization efforts. Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If zenocutuzumab or any of our antibody candidates were to cause adverse side effects during clinical trials or after approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our antibody candidates. Although we maintain adequate product liability insurance for our antibody candidates, it is possible that our liabilities could exceed our insurance coverage or for BIZENGRI®, the limits of indemnity by PTx. We intend to expand our insurance coverage to include the sale of commercial products for future antibody candidates, which we are responsible for obtaining marketing approval and selling into the market place. However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired. Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations. The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our antibody candidates, our business will be substantially harmed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of an antibody candidate’s clinical development and may vary among jurisdictions. Beyond the accelerated approval obtained for BIZENGRI®, we have not obtained regulatory approval for any antibody candidate and it is possible that our existing antibody candidates or any antibody candidates we may seek to develop in the future will not obtain regulatory approval. Our antibody candidates could fail to receive regulatory approval for many reasons, including the following: • the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
Page 58
47 • we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that an antibody candidate is safe, pure, potent and/or effective for its proposed indication; • we may be unable to demonstrate that an antibody candidate’s clinical and other benefits outweigh its safety risks; • the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials; • the data collected from clinical trials of our antibody candidates, our data monitoring, oversight of our CROs may not be sufficient in amount or quality to support the submission of a BLA or other submission or to obtain regulatory approval in the United States, the EU or elsewhere; • the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third- party manufacturers with which we contract for clinical and commercial supplies; • the FDA or comparable foreign regulatory authorities and notified bodies may fail to approve (or to clear or to certify) the companion diagnostics we contemplate developing with collaborators; and • the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. For instance, the EU pharmaceutical legislation is currently undergoing a complete review process, launched by the European Commission in November 2020. The European Commission's proposal for a revision of several legislative instruments related to medicinal products (including potentially reducing the duration of regulatory exclusivity and revising the eligibility for expedited pathways) was published on April 26, 2023. The European Parliament and the Council of the EU adopted their respective positions on April 10, 2024, and June 4, 2025. Subsequent inter-institutional trilogue negotiations have started and are expected to last until at least the end of 2025/early 2026. The proposed revisions remain to be agreed upon and adopted, and are not expected to become applicable before the end of 20262027.The revisions may, however, have a significant impact on the biopharmaceutical industry and our business in the long term. This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our antibody candidates, which would significantly harm our business, results of operations and prospects. The FDA and other regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our antibody candidates. Even if we believe the data collected from clinical trials of our antibody candidates are promising, such data may not be sufficient in quantity or quality to support approval by the FDA or any other regulatory authority. In addition, even if we were to obtain approval, regulatory authorities may approve any of our antibody candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve an antibody candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that antibody candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our antibody candidates and have a material adverse effect on our business, financial condition and results of operations. Fast Track designation by the FDA for petosemtamab or potential future Fast Track designation of our other antibody candidates may not actually lead to a faster development or regulatory review or approval process. We have been granted a Fast Track designation for zenocutuzumab for the treatment of patients with metastatic solid tumors harboring NRG1 gene fusions that have progressed on standard-of-care therapy and for petosemtamab for the treatment of patients with recurrent or metastatic HNSCC whose disease has progressed following treatment with platinum-based chemotherapy and an anti-programmed cell death protein 1 (anti-PD-1) antibody, and we may seek additional Fast Track designations for zenocutuzumab, petosemtamab or for our other antibody candidates. The Fast Track program is intended to expedite or facilitate the process for reviewing therapeutic candidates that meet certain criteria. Specifically, investigational biologics are eligible for Fast Track designation if they are intended, alone or in combination with one or more drugs or biologics, to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied. The sponsor of a Fast Track candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once a BLA is submitted, the application may be eligible for priority review. With a Fast Track designation for an antibody
Page 59
48 candidate, the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA. Obtaining a Fast Track designation does not change the standards for product approval but may expedite the development or approval process. Even though the FDA has granted such designation to petosemtamab for the treatment of patients with recurrent or metastatic HNSCC whose disease has progressed following treatment with platinum-based chemotherapy and an anti-programmed cell death protein 1 (anti-PD-1) antibody, this designation may not actually result in faster clinical development or regulatory review or approval. Furthermore, such a designation does not increase the likelihood that petosemtamab or any other antibody candidate that may be granted Fast Track designation will receive marketing approval in the United States. Breakthrough Therapy designations (BTD) by the FDA for petosemtamab and any potential future product candidate may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that the product candidate will receive FDA approval. We have been granted a Breakthrough Therapy designations for zenocutuzumab for the treatment of patients with advanced unresectable or metastatic NRG1 fusion (NRG1+) pancreatic cancer following progression with prior systemic therapy or who have no satisfactory alternative treatment options and for zenocutuzumab for the treatment of patients with advanced unresectable or metastatic NRG1+ non- small cell lung cancer (NSCLC), following progression with prior systemic therapy, and we may seek additional Breakthrough Therapy designations for zenocutuzumab or for our other antibody candidates, or the comparable designations in foreign jurisdictions, where we believe the clinical data support such designations. We have been granted a BTD by the FDA for petosemtamab the treatment of patients with recurrent or metastatic (r/m) HNSCC whose disease has progressed following treatment with platinum based chemotherapy and an anti-programmed cell death receptor-1 (PD-1) or anti-programmed death ligand 1 (PD-L1) antibody. We have also been granted BTD by the FDA for petosemtamab in combination with pembrolizumab for the first-line treatment of adult patients with r/m PD-L1 positive HNSCC with CPS ≥ 1 A "Breakthrough Therapy" is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs and biologics designated as Breakthrough Therapies also receive the same benefits associated with Fast Track designation, including eligibility for rolling review of a submitted BLA, if the relevant criteria are met. Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as Breakthrough Therapies and have received such designation, the FDA may later decide that the product candidate no longer meets the conditions for qualification and rescind the designation. We secured approval from the FDA through the use of the accelerated approval pathway for BIZENGRI® and may seek such use of the accelerated approval pathway for our other antibody candidates. If we are unable to obtain such approvals in the future, we may be required to conduct additional pre-clinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary regulatory approvals. Even for the accelerated approval received from the FDA for BIZENGRI®, if our confirmatory trials do not verify clinical benefit, or if we or our licensee PTx does not comply with rigorous post-marketing requirements, the FDA may seek to withdraw any accelerated approval we have obtained. We have obtained accelerated approval for BIZENGRI® for the treatment of adults with either advanced, unresectable or metastatic NSCLC or pancreatic adenocarcinoma that harbors an NRG1 gene fusion, who have disease progression on or after prior systemic therapy and may in the future seek accelerated approval for other clinical candidates. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate
Page 60
49 endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a product candidate over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional confirmatory studies to verify and describe the drug’s clinical benefit. In December 2024, the FDA approved BIZENGRI® (zenocutuzumab-zbco), the first and only treatment indicated for adults with pancreatic adenocarcinoma or NSCLC that are advanced unresectable or metastatic and harbor a neuregulin 1 (NRG1) gene fusion who have disease progression on or after prior systemic therapy. These indications were approved under accelerated approval based on ORR and DOR and continued approval for these indications may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). If such confirmatory studies fail to confirm the drug’s clinical benefit or are not completed in a timely manner, the FDA may withdraw its approval of the drug on an expedited basis. In addition, the Food and Drug Omnibus Reform Act of 2022, among other things, provided FDA new statutory authority to mitigate potential risks to patients from continued marketing of ineffective drugs previously granted accelerated approval. Under these provisions, among other things, the FDA may require a sponsor of a product seeking accelerated approval to have a confirmatory trial underway prior to such approval being granted. Prior to seeking accelerated approval for any of our other product candidates, such as petosemtamab and/or MCLA-129, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval. Furthermore, if we decide to submit an application for accelerated approval for our product candidates, there can be no assurance that such application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. Similarly, for BIZENGRI®, irrespective of obtaining accelerated approval, there can be no assurance that such approval will be maintained or converted to full approval upon the completion of confirmatory trial(s) and /or post-marketing requirements or commitments. The FDA or other comparable foreign regulatory authorities could also require us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, if any, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace. A failure to convert to full approval or maintain our accelerated approval for BIZENGRI® could also result in lost revenue from potential future royalties and reputational harm to our business. For any of our antibody candidates that obtain regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our antibody candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products. With respect to the accelerated approval we have received for BIZENGRI®, and for any further regulatory approvals that we may receive for our antibody candidates, such approval will require the submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of the applicable product, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements. For example, although this was not required for with respect to the accelerated approval we have received for BIZENGRI®, as a condition for approving any of our other clinical candidates, the FDA may require a Risk Evaluation and Mitigation Strategy in order to approve our antibody candidates, which could entail requirements for a medication guide, physician training and communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Similar risk management measures may be required by foreign regulatory authorities. In addition, if the FDA or foreign regulatory authorities approve our antibody candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as on-going compliance with cGMPs or similar foreign requirements, and GCPs for any clinical trials that we conduct following approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP or similar foreign regulations and standards.
Page 61
50 If we or a regulatory authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facilities where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. In addition, failure to comply with FDA and other comparable foreign regulatory requirements may subject our company to administrative or judicially imposed sanctions, including: • delays in or the rejection of product approvals; • restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials; • restrictions on the products, manufacturers or manufacturing process; • warning or untitled letters; • civil and criminal penalties; • injunctions; • suspension or withdrawal of regulatory approvals; • product seizures, detentions or import bans; • voluntary or mandatory product recalls and publicity requirements; • total or partial suspension of production; and • imposition of restrictions on operations, including costly new manufacturing requirements. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue and could require us to expend significant time and resources in response and could generate negative publicity. The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. We may not be successful in our efforts to use and expand our Biclonics® technology platform to build a pipeline of antibody candidates or to use our Triclonics® technology platform to build a pipeline of trispecific antibody candidates. A key element of our strategy is to use and expand our Biclonics® technology platform to build a pipeline of antibody candidates and progress these antibody candidates through clinical development for the treatment of a variety of different types of diseases. Although our research and development efforts to date have resulted in a pipeline of antibody candidates directed at various cancers, we may not be able to develop antibody candidates that are safe and effective. Another important element of our strategy is to develop, use and exploit our Triclonics® technology platform to build a pipeline of trispecific antibody candidates and collaborate with third parties in potentially researching and developing these trispecific antibody candidates through pre-clinical and clinical development for the treatment of a variety of different types of diseases. Although our research and development efforts to date have resulted in proof of concept pre-clinical candidates, we may not be able to develop or monetize these trispecific antibody candidates or demonstrate in the clinic that they are safe and effective. Even if we are successful in continuing to build our bispecific and trispecific pipelines, the potential antibody candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize our bispecific antibody candidates or if we do not successfully develop, collaborate, license or begin to commercialize our trispecific antibody candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant harm to our financial position and adversely affect our share price.
Page 62
51 Even though we obtained marketing approval of BIZENGRI® in the United States, we may never obtain approval or commercialize BIZENGRI® or our other clinical candidates in other major markets, which would limit our ability to realize their full market potential. In order to market any products in a country or territory, we must establish and comply with numerous and varying regulatory requirements of such countries or territories regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking regulatory approvals in all major markets could result in significant delays, difficulties and costs for us and may require additional pre-clinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We currently only have received accelerated approval for zenocutuzumab, as BIZENGRI®, in the United States. We currently do not have any other antibody candidates approved for sale in any jurisdiction, whether in the Netherlands, the United States or any other international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products, if any, will be harmed. Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain antibody candidates over other potential candidates. These decisions may prove to have been wrong and may adversely affect our revenues. Because we have limited resources and access to capital to fund our operations, we must decide which antibody candidates to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular compounds, antibody candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain antibody development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our antibody candidates or misread trends in the biopharmaceutical industry, in particular for our lead antibody candidates, our business, financial condition and results of operations could be materially adversely affected. Because we are subject to environmental, health and safety laws and regulations, we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities which may adversely affect our business and financial condition. Our operations, including our research, development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the importation, storage, controlled use, handling, release and disposal of, and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, animal byproducts, genetically modified organisms, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, or fail to obtain or maintain relevant permits, we could be subject to fines or other sanctions or work stoppages, which could have a material adverse effect on our business, financial condition and results of operations. As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, our production and development efforts may be interrupted or delayed and our financial condition and results of operations may be materially adversely affected.
Page 63
52 Our employees, independent contractors, principal investigators, CROs, consultants, vendors and collaborators may engage in misconduct or other improper activities, including noncompliance with applicable law, regulatory standards and requirements, which could have a material adverse effect on our business. We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants, vendors and collaborators may engage in fraudulent conduct or other illegal activities. Misconduct by these parties could include fraudulent, intentional, reckless and/or negligent conduct or unauthorized activities that violate: (i) the regulations of the FDA and other regulatory authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad; (iv) laws that require the reporting of true, complete and accurate financial information and data; or (v) their representations or commitments to us regarding their capabilities and performance under existing or future agreements. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our pre-clinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare programs, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Additionally, we are subject to the risk that misrepresentations regarding independent contractors, principal investigators, CROs, consultants, vendors and collaborators’ capabilities and performance under existing or future agreements may lead us to rely upon them for important strategic or operational matters, which could have a significant adverse impact on our business and results of operations. Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing. Certain laws and regulations require us to test our antibody candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted, delayed or become more expensive. Risks Related to Regulatory Approval of Our Antibody Candidates Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our antibody candidates and may affect the prices we may set. The successful commercialization of our antibody candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies. In the United States, the EU, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively the ACA) was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include the following: • an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs;
Page 64
53 • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; • extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and • establishment of a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes include the American Rescue Plan Act of 2021, which eliminated the statutory Medicaid drug rebate cap beginning January 1, 2024. The rebate was previously capped at 100% of a drug's average manufacturer price. Moreover, payment methodologies, including payment for companion diagnostics, may be subject to changes in healthcare legislation and regulatory initiatives. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. Most recently, in August 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (which began in 2025). The IRA permits the Secretary of the Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs are implemented. CMS has published the negotiated prices for the initial ten drugs, which will first be effective in 2026, and the list of the subsequent 15 drugs that will be subject to negotiation, although the Medicare drug price negotiation program is currently subject to legal challenges. The One Big Beautiful Bill Act, which was enacted in July 2025, imposes significant reductions in the funding of the Medicaid program. Such reductions are expected to decrease the number of persons enrolled in Medicaid and reduce the services covered by Medicaid, which could adversely affect our sales of BIZENGRI® or any other product candidate that we or our partners may commercialize. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for BIZENGRI® or our antibody candidates or additional pricing pressures.
Page 65
54 Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The current U.S. administration has issued executive orders that address the pricing of pharmaceuticals in the U.S. and propose a so-called most favored nation pricing policy, which would tie the price of drugs in the U.S. to the lowest price in a group of other countries. While it is unclear whether and how these proposals may be implemented, should that occur, these policies are likely to have a negative impact on the pharmaceutical industry. Even proposals or executive actions that are ultimately deemed unlawful could negatively impact the U.S. pharmaceutical sector and our business. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for any future products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects. In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize any future products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our antibody candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In the EU, similar developments may affect our ability to profitably commercialize our product candidates, if approved. On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (HTA) amending Directive 2011/24/EU, was adopted. The Regulation entered into force in January 2022 and has been applicable since January 2025, with phased implementation based on the type of product, i.e. oncology and advanced therapy medicinal products as of 2025, orphan medicinal products as of 2028, and all other medicinal products by 2030. The Regulation intends to boost cooperation among EU member states in assessing health technologies, including new medicinal products, and provide the basis for cooperation at the EU level for joint clinical assessments in these areas. It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement. Finally, policies of the individual government agencies, including the FDA or similar regulatory authorities, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our antibody candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
Page 66
55 If we are required by the FDA or similar authorities to obtain approval (or clearance, or certification) of a companion diagnostic test in connection with approval of any of our antibody candidates, and we do not obtain or face delays in obtaining approval (or clearance, or certification) of a diagnostic device, we will not be able to commercialize such product candidate and our ability to generate revenue will be materially impaired. If safe and effective use of any of our antibody candidates depends on a diagnostic that is not otherwise commercially available, then the FDA may require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves our antibody candidates, if at all or as a post-marketing commitment. According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication. If a satisfactory companion diagnostic is not commercially available, we may be required to develop or obtain one that would be subject to regulatory approval requirements. The process of obtaining or creating such diagnostics is time consuming and costly and associated with numerous risks and uncertainties. Companion diagnostics are developed in conjunction with clinical programs for the associated product and are subject to regulation as medical devices by the FDA and comparable regulatory authorities, and, to date, the FDA has generally required premarket approval of companion diagnostics labeled for use with cancer therapies. The approval of a companion diagnostic as part of the therapeutic product’s labeling limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the companion diagnostic was developed to detect. If the FDA or a comparable regulatory authority requires approval (or clearance, or certification) of a companion diagnostic for any of our antibody candidates, whether before or after such candidate obtains marketing approval, difficulties may be encountered in developing and obtaining approval for such antibody candidate. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval (or clearance, or certification) of a companion diagnostic could delay or prevent approval or continued marketing of such antibody candidate. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent us from completing our clinical trials or commercializing our product candidate, if approved, on a timely or profitable basis, if at all. Approval, clearance or certification of companion diagnostics may be subject to further legislative or regulatory reforms notably in the EU. On May 25, 2017, the new In Vitro Medical Devices Regulation (2017/746) (IVDR) entered into force. The IVDR repeals and replaces the EU In Vitro Diagnostic Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA countries, regulations are directly applicable, i.e., without the need for adoption of EEA countries laws implementing them, in all EEA countries and are intended to eliminate current differences in the regulation of medical devices among EEA countries. The IVDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The IVDR became applicable on May 26, 2022. Following subsequent legislative changes, European institutions adopted a “progressive” roll-out of the IVDR to prevent disruption in the supply of in vitro diagnostic medical devices. Therefore, the IVDR applied since May 26, 2022 but there is a tiered system extending the grace period for many devices (depending on their risk classification) before they have to be fully compliant with the Regulation. The regulation of companion diagnostics is subject to further requirements since the IVDR became applicable and introduced a new classification system for companion diagnostics which are now specifically defined as diagnostic tests that support the safe and effective use of a specific medicinal product, by identifying patients that are suitable or unsuitable for treatment. Companion diagnostics will have to undergo a conformity assessment by a notified body. Before it can issue an EU certificate of conformity, the notified body must seek a scientific opinion from the EMA on the suitability of the companion diagnostic to the medicinal product concerned if the medicinal product falls exclusively within the scope of the centralized procedure for the authorization of medicinal products, or the medicinal product is already authorized through the centralized procedure, or a marketing authorization (MA) application for the medicinal product has been submitted through the centralized procedure. For other substances, the notified body can seek the opinion from national competent authorities or the EMA. These modifications may make it more difficult and costly for us to obtain regulatory clearances, approvals or certifications for our companion diagnostics or to manufacture, market or distribute our products after clearance, approval or certification is obtained. Disruptions at the FDA and other government agencies caused by funding shortages, staffing limitations, or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or
Page 67
56 modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business. The ability of the FDA and foreign regulatory authorities to review and or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s or foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s or foreign regulatory authorities’ ability to perform routine functions. Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies, may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, from time to time, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough, lay off or reduce in force critical FDA employees and stop or slow critical activities. In addition, the current U.S. Presidential administration has issued certain policies and Executive Orders directed towards reducing the employee headcount and costs associated with U.S. administrative agencies, including the FDA, and it remains unclear the degree to which these efforts may limit or otherwise adversely affect the FDA’s ability to conduct routine activities. Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. If a prolonged government shutdown occurs, or if funding shortages, staffing limitations, or renewed global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business. We may be subject to healthcare laws, regulation and enforcement; our failure to comply with these laws could harm our results of operations and financial conditions. Although we do not currently have any products on the market, beyond BIZENGRI®, which we have licensed to PTx to commercialize in the U.S. for the labeled indications in NRG1+ cancer, if we obtain FDA approval for any of our antibody candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti- Kickback Statute. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our proposed sales, marketing and education programs and constrain our financial arrangements and relationships with healthcare providers, physicians and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include: • the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the U.S. federal false claims and civil monetary penalties laws, including the civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act; • the U.S. federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making
Page 68
57 any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the FD&C Act which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; • the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other health care professionals including physician assistants and nurse practitioners, and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members; • analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, and that require the tracking and reporting of gifts and other remuneration and items of value provided to healthcare professionals and entities; and • European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits, reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. We face potential liability related to the privacy of health or other personal information we obtain from clinical trials sponsored by us or our collaborators, from research institutions, and directly from individuals. Most health care providers, including research institutions from which we or our collaborators obtain patient health information, are subject to privacy and security regulations promulgated under HIPAA, as amended by HITECH. HIPAA imposes privacy, security and data breach reporting obligations with respect to individually identifiable health information upon “covered entities” (health plans, health care clearinghouses and certain health care providers), and their respective “business associates” (individuals or entities that create, receive, maintain or transmit individually identifiable health information in connection with providing a service for or on behalf of a covered entity, as well as their covered subcontractors). Entities that are found to be in violation of HIPAA as the result of a breach of unsecured PHI, a complaint about privacy practices, or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations. Any person may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a HIPAA-covered health care provider or research institution that has not satisfied HIPAA’s requirements for the disclosure of such information.
Page 69
58 In addition, we may maintain sensitive personally identifiable information, including health information, that we receive throughout the clinical trial process, in the course of our research collaborations, and directly from individuals (or their healthcare providers) who enroll in our patient assistance programs. Even when HIPAA does not apply, according to the Federal Trade Commission (FTC), failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The FTC has authority to initiate enforcement actions against entities that mislead customers about HIPAA compliance, make deceptive statements about privacy and data sharing in privacy policies, fail to limit third-party use of personal health information, fail to implement policies to protect personal health information or engage in other unfair practices that harm customers or that may violate Section 5(a) of the FTC Act. The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. Additionally, federal and state consumer protection laws are increasingly being applied by FTC and states’ attorneys general to regulate the collection, use, storage, and disclosure of personal or personally identifiable information, through websites or otherwise, and to regulate the presentation of website content. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA Security Rule. As such, we, our collaborators, research institutions, health care providers and other entities that provide personally identifiable information to us may be subject to state information security laws, and state laws requiring notification of affected individuals and state regulators in the event of a breach of personal information, which is a broader class of information than the health information protected by HIPAA. The United States and global data protection landscape is rapidly evolving, and we may be affected by or subject to new or amended laws and regulations in the future. Certain states have also adopted privacy and security laws and regulations governing the privacy, processing and protection of personal information. For example, the CCPA, among other things, creates data privacy obligations for covered companies and provides individual privacy rights to California residents, including the right to delete and to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, and has increased the risks associated with a data breach. Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of certain personal information depending on the context. Additional compliance investment and potential business process changes may also be required. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition, our ability to operate in certain jurisdictions and our reputation. Our and our collaborators’ clinical trial programs and research collaborations outside the U.S. may implicate international data protection laws, including, in the Europe Economic Area (EEA), the GDPR, UK GDPR and local laws further implementing or supplementing the GDPR. The GDPR imposes more stringent operational requirements for processors and controllers of personal data including requirements for such companies to be able to ensure and be able to demonstrate compliance with the GDPR. If our or our collaborators’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher. In addition to statutory enforcement, a non-compliance can lead to compensation claims by affected individuals (including class actions), negative publicity and a potential loss of business. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EEA and the United States remains uncertain. Such transfers need to be legitimized by a valid transfer mechanism under the GDPR. Case law from the Court of Justice of the EU (CJEU) states that reliance on the standard contractual clauses - a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism - alone may not necessarily be sufficient in all circumstances and that transfers must be assessed on a case-by-case basis. On July 10, 2023, the European Commission adopted its Adequacy Decision in relation to the new EU-US Data Privacy Framework (DPF), rendering the DPF effective as a GDPR transfer mechanism to U.S. entities self-certified under the DPF. The DPF also introduced a new redress mechanism for EU citizens which addresses a key concern in the previous CJEU judgments and may mean transfers under standard contractual clauses are less likely to be challenged in future. We currently rely on the EU standard contractual clauses and the UK Addendum to the EU standard contractual clauses as relevant to transfer personal data outside the EEA and the UK, including to the United States, with respect to both intragroup and third party transfers. We expect the existing legal complexity
Page 70
59 and uncertainty regarding international personal data transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. As a result, we may have to make certain operational changes and implement revised standard contractual clauses and other relevant documentation for existing data transfers arrangements within required time frames. Further, following the withdrawal of the UK from the EU on January 31, 2020, and the expiration of the transition period, from January 1, 2021, we have had to comply with the GDPR and separately the UK GDPR, with each regime having the ability to fine up to the greater of €20 million/ £17 million or 4% of global turnover. On October 12, 2023, the UK Extension to the DPF came into effect (as approved by the UK Government), as a data transfer mechanism from the U.K. to U.S. entities self-certified under the DPF. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business. Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner among jurisdictions in which we operate. We are likely to be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security laws both inside and outside the United States. Claims that we have violated individuals’ privacy rights or breached our contractual obligations regardless of merit and even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business. Claims that we or any collaborators fail to comply with applicable federal, state, or local, legal or regulatory requirements, could subject us to a range of regulatory actions that could affect our or any collaborators’ ability to seek to commercialize our antibody candidates, if approved. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business. Risks Related to Commercialization of Our Antibody Candidates We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully than we do. The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions. These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with our antibody candidates. With the proliferation of new drugs and therapies into oncology, we expect to face increasingly intense competition as new technologies become available. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Any antibody candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our antibody candidates or our technology obsolete, less competitive or uneconomical. Our competitors may, among other things: • have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do; • develop and commercialize products that are safer, more effective, less expensive, more convenient or easier to administer, or have fewer or less severe side effects; • obtain quicker regulatory approval; • establish superior proprietary positions covering our products and technologies; • implement more effective approaches to sales and marketing; or • form more advantageous strategic alliances.
Page 71
60 Should any of these factors occur, our business, financial condition and results of operations could be materially adversely affected. In addition, existing and future collaborators may decide to market and sell products that compete with the antibody candidates that we have agreed to license to them. While we have agreements governing their committed activities, we have limited influence over their actual performance, and any competition by our collaborators could also have a material adverse effect on our future business, financial condition and results of operations. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, retaining manufacturers to produce clinical trial materials, as well as in acquiring technologies complementary to, or necessary for, our programs. If we fail to obtain orphan drug designation for our antibody candidates, or obtain or maintain orphan drug exclusivity for our products, or lose or fail to add to such designation for zenocutuzumab in the United States, our competitors may sell products to treat the same conditions and our revenue will be reduced. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the EU, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition. Upon grant of a MA, orphan medicinal products are entitled to a ten-year period of market exclusivity for the approved therapeutic indication, which means that during this period, the regulatory authorities cannot accept another application for a MA or grant a MA or accept an application to extend an existing MA for the same indication, in respect of a similar medicinal product. The application for orphan designation must be submitted before the MA application (MAA). The applicant will receive a fee reduction for the MAA if the orphan designation has been granted, but not if the designation is still pending at the time the MA is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. In the United States, orphan drug designation entitles a party to potential financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the disease or condition for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same disease or condition for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. For example, in connection with the FDA’s accelerated approval of BIZENGRI® , the FDA granted seven years of orphan exclusivity for zenocutuzumab-zbco for the treatment of adults with advanced unresectable or metastatic pancreatic adenocarcinoma harboring a NRG1 gene fusion with disease progression on or after prior systemic therapy. In the EU, orphan designation entitles a party to potential financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity or where the prevalence of the condition has increased above the threshold. We potentially may seek additional orphan drug designations from the FDA and foreign regulatory authorities for other clinical assets, where supported by data in the appropriate disease or condition that meet the criteria for orphan status. We may not be the first to obtain marketing approval for any particular orphan disease or condition due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for a disease or condition broader than the orphan-designated disease or condition or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA or foreign regulatory authorities can subsequently approve the same drug with the same active moiety for the same condition if the FDA or foreign regulatory authorities concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while we intend to seek orphan drug designation, when appropriate, we may not receive such designation.
Page 72
61 The successful commercialization of our antibody candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and pricing policies. Failure to obtain or maintain adequate coverage and reimbursement for our antibody candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue. The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford products such as our antibody candidates, assuming approval. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize and attract additional collaborators to invest in the development of our antibody candidates. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the EU or elsewhere will be available for BIZENGRI® commercialized by our licensee PTx, or any potential product or antibody candidate that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future. Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our antibody candidate and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our antibody candidate, pricing of existing drugs may limit the amount we will be able to charge for our antibody candidate. These payors may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our antibody candidates and may not be able to obtain a satisfactory financial return on products that we may develop. There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our antibody candidates, if approved. Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of any future products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely. Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of our antibody candidates, if approved. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our antibody candidates, if approved. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits. Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our antibody candidates, if approved. We expect to experience pricing pressures in connection with the sale of any of our antibody candidates that are approved due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Page 73
62 In addition, even if a pharmaceutical product obtains a MA in the EU, there can be no assurance that reimbursement for such product will be secured on a timely basis or at all. Our products may not gain market acceptance, in which case we may not be able to generate product revenues, which will materially adversely affect our business, financial condition and results of operations. Even though the FDA granted accelerated approval for BIZENGRI® for the labeled indications, any other regulatory authority approves the marketing of any of our other antibody candidates that we develop on our own or with a collaborator, physicians, healthcare providers, patients or the medical community may not accept or use them. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of any of our antibody candidates that are approved will depend on a variety of factors, including: • the timing of market introduction; • the number and clinical profile of competing products; • our ability to provide acceptable evidence of safety and efficacy; • the prevalence and severity of any side effects; • relative convenience and ease of administration; • cost-effectiveness; • patient diagnostics and screening infrastructure in each market; • marketing and distribution support; • availability of adequate coverage, reimbursement and adequate payment from health maintenance organizations and other insurers, both public and private; and • other potential advantages over alternative treatment methods. Failure of our antibody candidates, if approved, to gain market acceptance will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow us to generate significant revenues. We currently have limited marketing, sales or distribution infrastructure. If we are unable to adequately develop sales, marketing and distribution capabilities on our own or through collaborations, we will not be successful in commercializing our antibody candidates. While we have hired a Chief Commercial Officer and certain personnel to support market access and supply chain, we currently have only limited marketing, and distribution capabilities, and no sales force, because we have exclusively licensed PTx to commercialize our single approved product, BIZENGRI® in the U.S. for the labeled indications in NRG1+ pancreatic adenocarcinoma and NSCLC cancer, and all of our other antibody candidates are still in clinical or pre-clinical development. Apart from BIZENGRI®, if any of our antibody candidates are approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our antibody candidates, or to outsource this function to a third party. Either of these options would be expensive and time consuming. These costs may be incurred in advance of any approval of our antibody candidates. In addition, we may not be able to hire a sales force that is sufficient in size or has adequate expertise in the medical markets that we intend to target. Any failure, delay or inadequacy in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any approved products. Irrespective of our entry into a license agreement with PTx with respect to marketing, sales or distribution of BIZENGRI®, our product revenue may be lower than if we directly marketed or sold any approved products. In addition, any revenue we receive will depend in whole or in part upon the efforts of this third-party licensee, which may not be successful and are generally not within our control beyond certain contractual rights and provisions, which may not be adhered to or adequate. With respect to our other antibody candidates, if we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. If we are not successful in commercializing any approved products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Page 74
63 We have never commercialized an antibody candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with suitable collaborators. We have never commercialized an antibody candidate. While we have hired a Chief Commercial Officer and certain personnel to support market access and supply chain, we currently have only limited marketing or distribution capabilities, and no sales force. To achieve commercial success for our antibody candidates, if approved, which we may partner, collaborate or license to others, we will rely on the assistance and guidance of those partners, collaborators or licensees. For antibody candidates for which we retain commercialization rights, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party. Outside consultants may be relied upon to provide advice on commercialization strategies, which may fail to deliver or provide effective guidance to maximize any commercial opportunity, if any, that may arise from our antibody candidates. Factors that may affect our ability to commercialize our antibody candidates on our own include obtaining effective advice from consultants on commercialization strategy, recruiting and retaining adequate numbers of effective sales and marketing personnel, having adequate numbers of physicians decide to prescribe our antibody candidates and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization will be expensive and time-consuming and could delay the launch of our antibody candidates, if approved. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our antibody candidates, we may not generate revenues from them or be able to reach or sustain profitability. Our antibody candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated. The ACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (BPCIA) which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. We believe that zenocutuzumab does qualify, and any of our antibody candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Jurisdictions in addition to the United States have established abbreviated pathways for regulatory approval of biological products that are biosimilar to earlier approved reference products. For example, the EU has had an established regulatory pathway for biosimilars since 2006. The increased likelihood of biosimilar competition has increased the risk of loss of innovators’ market exclusivity. Due to this risk, and uncertainties regarding patent protection, if our antibody candidates are approved for marketing, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. It is also not possible to predict changes in United States regulatory law that might reduce biological product regulatory exclusivity. The loss of market exclusivity for a product would likely materially and negatively affect revenues and we may not generate adequate or sufficient revenues from them or be able to reach or sustain profitability. Risks Relating to the Anticipated Transactions with Genmab The Transactions may not be completed within the expected timeframe, or at all, and significant delay or the failure to complete the Transactions could adversely affect our business, prospects, relationships, financial condition, and results of operations and the market price of our common shares. On September 29, 2025, we entered into a transaction agreement (the Transaction Agreement) with Genmab A/S, a public limited liability company (Aktieselskab) organized under the laws of Denmark (Genmab), and Genmab Holding II, B.V., a wholly owned subsidiary of Genmab (Purchaser). Pursuant to the Transaction Agreement, Purchaser commenced a cash tender offer (the Offer) to purchase all of our issued and outstanding common shares, in exchange for $97.00 per share, without interest and subject to any applicable tax withholding, on the terms and subject to the conditions set forth in the Offer to Purchase, dated October 21, 2025, and
Page 75
64 in the related letter of transmittal. In the event certain conditions are met and the Offer is closed, we or our legal successor will become an indirect wholly owned subsidiary of Genmab through certain back-end reorganization transactions. The applicable merger, share exchange and cancellation transactions or share issuance and buy-out proceedings (to be determined in accordance with the Transaction Agreement) are referred to as the “Back-End Transactions” (and, together with the Offer, the “Transactions”). We will then, at Genmab’s request, use reasonable best efforts to cause the delisting of the common shares from Nasdaq and, thereafter, the deregistration of the common shares under the Exchange Act resulting in the cessation of our reporting obligations with respect to the common shares. Refer to Note 1, “Overview Transaction Agreement,” to our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of the terms of the Transaction Agreement, the Transactions, and the various conditions to closing of the Transactions. Many of the conditions to consummation of the Transactions are not within our control or the control of Purchaser or Genmab, and we cannot predict when or if these conditions will be satisfied. There can be no assurance that our business, prospects, relationships, financial condition or results of operations will not be adversely affected, as compared to the condition prior to the announcement of the Transactions, if the Transactions are not consummated within the expected timeframe, or at all. Failure to complete the Transactions within the expected timeframe, or at all, could adversely affect our business, prospects, relationships, financial condition, and results of operations and the market price of our common shares in a number of ways, including the following: • if the Transactions are not completed within the expected timeframe, or at all, the share price of our common shares may change to the extent that the current market price of our common shares reflects assumptions regarding the completion of the Transactions; • we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other costs in connection with the Transactions, for which we may receive little or no benefit if the Transactions are not completed. Many of these fees and costs will be payable by us even if the Transactions are not completed and may relate to activities that we would not have undertaken other than to complete the Transactions. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses; • failure to complete the Transactions within the expected timeframe, or at all, may result in negative publicity and a negative impression of us in the investment community and may lead to subsequent offers to acquire our company at a lower price or otherwise on less favorable terms to us and our shareholders than contemplated by the Transactions; • upon termination of the Transaction Agreement by us under specified circumstances, we would be required to pay a termination fee of approximately $240,000,000; • the diversion of significant management time and resources towards the completion of the Transactions; • the impairment of our ability to attract, retain and motivate key personnel, including our senior management given potential uncertainties about the effect of the Transactions; • difficulties maintaining relationships with third-party manufacturers, contract research organizations, collaborators and other business partners; • difficulties maintaining relationships with investigators, healthcare professionals, consultants, third-party payors, customers and other business partners, who may defer decisions about working with us or seek to change existing business relationships with us; • the inability to pursue alternative business opportunities or make appropriate changes to our business because of requirements in the Transaction Agreement that we conduct our business in the ordinary course and not engage in certain kinds of transactions or business activities prior to the completion of the Transactions; and • litigation relating to the Transactions and the costs and distractions related thereto, including litigation related to any failure to complete the Transactions. The market price of our common shares may also fluctuate significantly based on announcements by Genmab, other third parties, or us regarding our business, the Transactions or based on market perceptions of the likelihood of the satisfaction of the Minimum Condition (as defined in the Transaction Agreement) or other conditions to the consummation of the Transactions. Such announcements may lead to perceptions in the market that the Transactions may not be completed, which could cause our share price to fluctuate or decline.
Page 76
65 The Transaction Agreement contains provisions that could discourage a potential competing acquirer of our company or could result in any competing proposal being at a lower price than it might otherwise be. We are subject to certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions. In addition, we may be required to pay Genmab a termination fee of approximately $240,000,000 in specified circumstances, including (i) a termination by Merus to enter into an acquisition agreement in respect of a superior proposal, (ii) a termination by Genmab following an Adverse Recommendation Change (as defined in the Transaction Agreement) and (iii) in the event that an Acquisition Proposal (as defined in the Transaction Agreement) is made public prior to a termination for certain specified reasons set forth in the Transaction Agreement and, within 12 months of such termination, Merus consummates or enters into an agreement with respect to an Acquisition Proposal or consummates a transaction specified in the definition of Acquisition Proposal. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our company from considering or proposing such an acquisition, including, in some circumstances, if the Transaction Agreement is terminated prior to the consummation of the Transactions, after such termination of the Transaction Agreement, even if it were prepared to pay a purchase price per share higher than the purchase price per share proposed to be paid in the Transactions. These provisions might also result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Transaction Agreement, including, in certain circumstances, after a valid termination of the Transaction Agreement in accordance with the terms thereof. While the Transaction Agreement is in effect, we are subject to restrictions on our business activities. The Transaction Agreement includes restrictions on the conduct of our business prior to the completion of the Transactions, generally requiring us to conduct our business only in the ordinary course in all material respects and to use reasonable best efforts to preserve substantially intact in all material respects our business organization, assets, properties and business relations. In addition, we are subject to a variety of specified restrictions. Unless we obtain Genmab’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed), except as specifically required by the Transaction Agreement or required by applicable law, we may not, among other things and subject to certain exceptions, limitations and qualifications, incur indebtedness, issue additional common shares outside of our equity incentive plans, repurchase our common shares, pay dividends, acquire certain assets or securities, sell or dispose of certain intellectual property, enter into certain material contracts or make certain capital expenditures beyond specified amounts. We may find that these and other contractual restrictions in the Transaction Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. If any of these effects were to occur, it could materially and adversely impact our operating results, financial position, cash flows or the price of our common shares. Shareholder litigation or creditor opposition could prevent or delay the closing of the Transactions or otherwise negatively impact our business, operating results and financial condition. We may incur additional costs in connection with the defense or settlement of any future shareholder litigation, or creditor opposition under Dutch law, filed in connection with the Transactions. Such litigation or creditor opposition could cause a delay in completion of the Transactions or may adversely affect our ability to complete the Transactions. The outcome of litigation is uncertain, including the amount of costs associated with defending any claims or any other liabilities that may be incurred in connection with the litigation of such claims, and we may not be successful in defending against any such future claims. We could incur significant costs in connection with any such lawsuit or creditor opposition, including costs associated with the indemnification obligations we owe to our directors, and divert the attention of our management and employees from our day-to-day business which could affect our operations and otherwise adversely affect us financially. If a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the Transactions, then such injunctive or other relief may prevent the Transactions from becoming effective within the expected timeframe or at all. Risks Related to Our Dependence on Third Parties We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs, to conduct our pre- clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our antibody candidates and our business could be substantially harmed. We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and third-party CROs, to conduct our pre-clinical studies and clinical trials and to monitor and manage data for our ongoing pre-clinical and clinical
Page 77
66 programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the competent authorities of the member states of the EEA, and comparable foreign regulatory authorities for all of our antibody candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities, who may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with the antibody candidate produced under cGMP or similar foreign regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Further, these investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our antibody candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our antibody candidates, or if their performance is substandard or they deviate from their contractual duties or obligations, it may delay or compromise the prospects for approval and commercialization of any antibody candidates that we develop. In addition, the use of third-party service providers may require us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our antibody candidates. As a result, our results of operations and the commercial prospects for our antibody candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Additionally, CROs may lack the capacity to absorb higher workloads or take on additional capacity to support our needs. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects. The collaboration and license agreement, or the Incyte Collaboration Agreement, with Incyte Corporation (Incyte) is important to our business. If suitable monospecific or bispecific antibody candidates are not identified for further development and commercialization activities under the Incyte Collaboration Agreement, or if we or Incyte fail to adequately perform under the Incyte Collaboration Agreement, or if we or Incyte terminate the Incyte Collaboration Agreement, the development and commercialization of our antibody candidates would be delayed or terminated and our business would be adversely affected. The Incyte Collaboration Agreement may be terminated: • in its entirety or on a program-by-program basis by Incyte for convenience; • in its entirety or on a program-by-program basis by either party due to a material breach of the Incyte Collaboration Agreement, or any one or more programs under the Incyte Collaboration Agreement, as applicable; and • on a program-by-program basis (but not in its entirety), by either party if the other party challenges the terminating party’s patents for such program, and such challenge is not withdrawn within 30 days.
Page 78
67 If the Incyte Collaboration Agreement is terminated with respect to one or more programs, all rights in the terminated programs revert to us, subject to payment to Incyte of a reverse royalty of up to 4% on sales of future products, depending on the stage of development as of the date of termination, if we elect to pursue development and commercialization of monospecific or bispecific antibody candidates arising from the terminated programs. Termination of the Incyte Collaboration Agreement could cause significant delays in our antibody candidate development and commercialization efforts, which could prevent us from commercializing our antibody candidates without first expanding our internal capabilities or entering into another agreement with a third party. Any suitable alternative collaboration or license agreement would take considerable time to negotiate and could also be on less favorable terms to us. In addition, under the Incyte Collaboration Agreement, Incyte agreed to conduct certain clinical development activities. If the Incyte Collaboration Agreement were to be terminated, and whether or not we identify another suitable collaborator, we may need to seek additional financing to support the research and development of any terminated antibody candidates so that we may continue development activities, or we may be forced to discontinue development of terminated antibody candidates, each of which could have a material adverse effect on our business. Under the Incyte Collaboration Agreement, we are dependent upon Incyte to successfully develop and commercialize any antibody candidates that are identified for further development under the Incyte Collaboration Agreement. With the exception of those programs where we retain certain co-development rights, we have limited ability to influence or control Incyte’s development and commercialization activities or the resources it allocates to development of product candidates identified under the Incyte Collaboration Agreement. Our interests and Incyte’s interests may differ or conflict from time to time, or we may disagree with Incyte’s level of effort or resource allocation. Incyte may internally prioritize programs under development within the collaboration differently than we would, or it may not allocate sufficient resources to effectively or optimally develop or commercialize antibody candidates arising from such programs. If these events were to occur, our ability to receive revenue from the commercialization of products arising from such programs would be reduced, and our business would be adversely affected. The collaboration and license agreement with Eli Lilly, or the Lilly Collaboration Agreement is important to our business. If suitable monospecific or bispecific antibody candidates are not identified for further development and commercialization activities under the Lilly Collaboration Agreement, or if we or Eli Lilly fail to adequately perform under the Lilly Collaboration Agreement, or if we or Eli Lilly terminate the Lilly Collaboration Agreement, the development and commercialization of our antibody candidates would be delayed or terminated and our business would be adversely affected. The Lilly Collaboration Agreement may be terminated: • in its entirety or on a program-by-program basis by Eli Lilly for convenience; • on a product-by-product basis (but not in its entirety), by Merus if Lilly challenges the Merus patents for such product and • in its entirety or on a program-by-program basis by either party due to a material breach of the Lilly Collaboration Agreement, or any one or more programs under the Lilly Collaboration Agreement, as applicable. If the Lilly Collaboration Agreement is terminated with respect to one or more programs, depending on the stage of development, certain rights in the terminated programs revert to us. Termination of the Lilly Collaboration Agreement could cause significant delays in our antibody candidate development and commercialization efforts, which could prevent us from commercializing our antibody candidates without first expanding our internal capabilities or entering into another agreement with a third party. Any suitable alternative collaboration or license agreement would take considerable time to negotiate and could also be on less favorable terms to us. In addition, under the Lilly Collaboration Agreement, Eli Lilly agreed to conduct certain pre-clinical and clinical development activities. If the Lilly Collaboration Agreement were to be terminated, and whether or not we identify another suitable collaborator, we may need to seek additional financing to support the research and development of any terminated antibody candidates so that we may continue development activities, or we may be forced to discontinue development of terminated antibody candidates, each of which could have a material adverse effect on our business. Under the Lilly Collaboration Agreement, we are dependent upon Eli Lilly to successfully develop and commercialize any antibody candidates that are identified for further development under the Lilly Collaboration Agreement. We have limited ability to influence or control Eli Lilly’s development and commercialization activities or the resources it allocates to development of product candidates identified under the Lilly Collaboration Agreement. Our interests and Eli Lilly’s interests may differ or conflict from time to time, or we may disagree with Eli Lilly’s level of effort or resource allocation. Eli Lilly may internally prioritize programs under development
Page 79
68 within the collaboration differently than we would, or it may not allocate sufficient resources to effectively or optimally develop or commercialize antibody candidates arising from such programs. If these events were to occur, our ability to receive revenue from the commercialization of products arising from such programs would be reduced, and our business would be adversely affected. The collaboration, option and license agreement, or the Gilead Collaboration Agreement, with Gilead is important to our business. If suitable trispecific antibody candidates are not identified for further development and commercialization activities under the Gilead Collaboration Agreement, or if we or Gilead fail to adequately perform under the Gilead Collaboration Agreement, or if we or Gilead terminate the Gilead Collaboration Agreement, the development and commercialization of our trispecific antibody candidates would be delayed or terminated and our business would be adversely affected. The Gilead Collaboration Agreement may be terminated: • in its entirety or on a program-by-program basis by Gilead for convenience or for futility; • on a product-by-product basis (but not in its entirety), by Merus if Gilead challenges the Merus patents for such product; and • in its entirety or on a program-by-program basis by either party due to a material breach of the Gilead Collaboration Agreement, or any one or more programs under the Gilead Collaboration Agreement, as applicable. If the Gilead Collaboration Agreement is terminated with respect to one or more programs, depending on the stage of development, certain rights in the terminated programs revert to us. Termination of the Gilead Collaboration Agreement could cause significant delays in our antibody candidate development and commercialization efforts, which could prevent us from commercializing our Triclonics® antibody candidates without first expanding our internal capabilities or entering into another agreement with a third party. Any suitable alternative collaboration or license agreement would take considerable time to negotiate and could also be on less favorable terms to us. In addition, under the Gilead Collaboration Agreement, Gilead agreed to conduct certain pre-clinical and clinical development activities. If the Gilead Collaboration Agreement were to be terminated, and whether or not we identify another suitable collaborator, we may need to seek additional financing to support the research and development of any terminated antibody candidates so that we may continue development activities, or we may be forced to discontinue development of terminated antibody candidates, each of which could have a material adverse effect on our business. Under the Gilead Collaboration Agreement, we are dependent upon Gilead to successfully develop and commercialize any Triclonics® antibody candidates that are identified for further development under the Gilead Collaboration Agreement. We have limited ability to influence or control Gilead’s development and commercialization activities or the resources it allocates to development of product candidates identified under the Gilead Collaboration Agreement. Our interests and Gilead’s interests may differ or conflict from time to time, or we may disagree with Gilead’s level of effort or resource allocation. Gilead may internally prioritize programs under development within the collaboration differently than we would, or it may not allocate sufficient resources to effectively or optimally develop or commercialize antibody candidates arising from such programs. If these events were to occur, our ability to receive revenue from the commercialization of products arising from such programs would be reduced, and our business would be adversely affected. The collaboration and license agreement with Betta Pharma, and the research and license agreements with Ono are important to our business. If our Biclonics® antibodies licensed in these collaboration and license agreements fail to advance or experience unacceptable safety or efficacy results if clinically developed, this could adversely impact the reputation of our platform and our ability to engage in future collaborations. If our collaboration and license agreement with Betta Pharma or our research and license agreements with Ono are terminated with respect to one or more programs, or the pre-clinical assets associated with the Ono license agreements fail to advance into the clinic, or experience negative results with respect to safety, efficacy, manufacturability, or other features of research and development, or if Betta Pharma or Ono fail to meet their obligations under the respective agreements, this could adversely affect the reputation of our Biclonics® technology platform and our ability to engage in future collaborations or licensing agreements. While we have certain contractual provisions in place in our collaboration and license agreement with Betta Pharma that permit us to supervise its development efforts for MCLA-129, for which it has development and product rights in China, we cannot guarantee that this clinical antibody candidate will be developed in China in accordance with our standards as applied to our wholly owned programs or in a manner suitable for ex-China development or in a manner that does not detract from our development of MCLA-129 outside of China. Ono is currently clinically developing at least two antibody programs generated by us under a license agreement with Merus through use of our proprietary Biclonics® platform. To the extent these assets do not successfully advance through clinical development, this may impair our ability to leverage our platform in future license agreements to further expand the use of our platform and generate future revenue. Should the Betta Pharma collaboration or Ono license agreements fail or be terminated, any suitable alternative collaboration or license agreement would take considerable time to negotiate, if at all, and could also be on less favorable terms to us. If these agreements were to be terminated, and whether or not we identify a suitable alternative collaborator, we may need to seek additional financing to support the research and development of any terminated antibody candidates so that we may continue
Page 80
69 development activities, or we may be forced to discontinue development of terminated antibody candidates, each of which could, depending on the stage of development and investment, have a material adverse effect on our business. The collaboration and license agreement with Biohaven is important to our business. If our ADClonics® antibodies researched and developed in this collaboration and license agreement fail to advance or experience unacceptable safety or efficacy results, this could adversely impact the reputation of our platform and our ability to engage in future collaborations. If our collaboration and license agreement with Biohaven is terminated with respect to one or more programs, or experience negative results with respect to safety, efficacy, manufacturability, or other features of research and development, or if Biohaven fails to meet its obligations under the collaboration and license agreement, this could adversely affect the reputation of our ADClonics® technology platform and our ability to engage in future collaborations or licensing agreements. While we have certain contractual provisions in place in our collaboration and license agreement with Biohaven that permit us to supervise development efforts for the three ADC programs, for which we share development and product rights, we cannot guarantee that the preclinical and potential future clinical antibody candidates will be developed in accordance with our standards as applied to our wholly owned programs. To the extent these assets do not successfully advance through clinical development, this may impair our ability to leverage our Multiclonics® and ADClonics® platforms in future license agreements to further expand the use of our platform and generate future revenue. Should the Biohaven collaboration and license agreement fail or be terminated, any suitable alternative collaboration or license agreement would take considerable time to negotiate, if at all, and could also be on less favorable terms to us. If these agreements were to be terminated, and whether or not we identify a suitable alternative collaborator, we may need to seek additional financing to support the research and development of any terminated ADC candidates so that we may continue development activities, or we may be forced to discontinue development of terminated ADC candidates, each of which could, depending on the stage of development and investment, have a material adverse effect on our business. The license agreement with PTx is important to our business. If BIZENGRI® (zenocutuzumab-zbco) exclusively licensed to PTx for commercialization in the United States for NRG1+ cancer fails to generate revenue, this could adversely impact the reputation of our business and our ability to engage in future commercialization agreements. If our license agreement with PTx fails to generate revenue, or experiences negative results with maintenance of BIZENGRI®'s accelerated approval, conversion to full approval, or experiences a failed transition with respect to the CRO and CMDO that we have worked with for the development of BIZENGRI®, or if PTx fails to meet its obligations under the license agreement, this could adversely affect the reputation of our Company, our ability to generate revenue from this license and our ability to engage in future collaborations or commercial licensing agreements. While we have certain contractual provisions in place in our license agreement with PTx that require PTx to exercise diligence in the commercialization of BIZENGRI® and permit us to supervise its efforts, we cannot guarantee that this will lead to significant revenue or performance by PTx in accordance with its obligations under the license agreement or to our standards as applied to our wholly owned programs. Should the PTx license agreement fail or be terminated, any suitable alternative license agreement would take considerable time to negotiate, if at all, and could also be on less favorable terms to us, and our own efforts to commercialize BIZENGRI® post-termination may be hampered by a transition of the asset back to Merus. If this agreement were to be terminated, and whether or not we identify a suitable alternative licensee, we may need to seek additional financing to support the commercialization of BIZENGRI®, so that we may continue marketing activities, or we may be forced to discontinue commercialization, each of which could have a material adverse effect on our business. If the Transactions are not completed and if we fail to enter into new strategic relationships our business, financial condition, commercialization prospects and results of operations may be materially adversely affected. Our product development programs and the potential commercialization of our antibody candidates will require substantial additional cash to fund expenses. Therefore, for some of our antibody candidates and with respect to our Triclonics® technology platform, we may decide to enter into new collaborations with pharmaceutical or biotechnology companies for the development and potential commercialization of those bispecific and trispecific antibody candidates. For instance, we have license and collaboration agreements with Ono, Incyte, Eli Lilly, Gilead, Biohaven and Betta Pharma, under which we have licensed certain development and commercialization rights of certain of our monospecific, bispecific, trispecific antibody and ADC candidates. Further, we have a license agreement with PTx for the commercialization of BIZENGRI® in the U.S. in the field of NRG1+ cancer. We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all. If that were to occur, we may have to curtail the development of a particular bispecific or trispecific antibody candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own
Page 81
70 expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we will not be able to bring our antibody candidates to market, further research and develop new bispecific, trispecific antibody or ADC candidates, enhance our Biclonics®, Triclonics® and ADClonics® technology platforms and generate product revenue. If we do enter into a new collaboration agreement, we could be subject to the following risks, each of which may materially harm our business, commercialization prospects and financial condition: • we may not be able to control the amount and timing of resources that the collaborator devotes to the product development program; • the collaborator may experience financial difficulties; • we may be required to relinquish important rights such as marketing, distribution and intellectual property rights; • a collaborator may experience technical, clinical, intellectual property, manufacturing or other setbacks in the research or development of a product program arising from our collaboration adversely affecting the financial return of our collaboration or the reputation of our technology platform; • a collaborator could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors; or • business combinations or significant changes in a collaborator’s business strategy may adversely affect our willingness to complete our obligations under any arrangement. We currently rely on third-party suppliers and other third parties for production of our antibody candidates and our dependence on these third parties may impair the advancement of our research and development programs and the development of our antibody candidates. Moreover, if the Transactions are not completed, we intend to rely on third parties to produce commercial supplies of any approved antibody candidate and our commercialization of any of our antibody candidates could be stopped, delayed or made less profitable if those third parties fail to obtain approval of the FDA or comparable foreign regulatory authorities following inspection of their facilities and procedures to manufacture our antibody candidates and products, fail to provide us with sufficient quantities of antibody product or fail to do so at acceptable timing, quality levels or prices or fail to otherwise complete their duties in compliance with their obligations to us or other parties. We rely on and expect to continue to rely on third-party contract manufacturing organizations (CMOs) for the supply of cGMP-grade clinical trial materials and commercial quantities of our antibody candidates and products, if approved. Reliance on third-party providers may expose us to more risk than if we were to manufacture antibody candidates ourselves. The facilities used by our CMOs to manufacture our antibody candidates must be approved by the FDA foreign regulatory authorities pursuant to inspections that will be conducted after we submit our BLA to the FDA, or similar applications to foreign regulatory authorities. We have limited control over the manufacturing process, and beyond contractual terms, we are completely dependent on our CMOs for compliance with cGMP or similar foreign requirements for the manufacture of our antibody candidates. If our CMOs cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or comparable foreign regulatory authorities, or are unable to do so in a timely manner, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities or may result in delay of our ability to obtain marketing authorization, if any, of our antibody candidates. In addition, we have limited control over the ability of our CMOs to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our antibody candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our antibody candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our antibody candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third- party providers may breach existing agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreement because of their own financial difficulties or business priorities, at a time that is costly or otherwise inconvenient for us. If we were unable to find an adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our clinical or commercial activities could be harmed. In addition, the fact that we are dependent on our collaborators, our CMOs and other third parties for the manufacture, filling, storage and distribution of our antibody candidates means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could adversely affect our business, financial condition and results of operations.
Page 82
71 We rely on our CMOs to purchase from third-party suppliers the materials necessary to produce our antibody candidates for our clinical trials, and will rely on our existing and future collaborators and licensees to purchase from third-party suppliers the materials necessary to develop and produce our antibody candidates for future clinical trials and, upon approval, our products for commercialization. There are a limited number of suppliers for raw materials used to manufacture our antibody candidates and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our antibody candidates for our clinical trials, and if approved, ultimately for commercial sale. Apart from contractual measures, we do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers or manufacturers paid by our collaborators and licensees. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of an antibody candidate to complete the clinical trial or have secured resupply capacity, any significant delay in the supply of an antibody candidate, or the raw material components thereof, for a planned or an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our antibody candidates. In addition, the manufacturing of our novel antibody candidates is expensive and time-consuming, and generally requires more complex processes than those associated with small-molecule drugs. If we are successful in obtaining regulatory approval for any of our antibody candidates, we might have limited quantities of such antibody candidates available to us in connection with a potential commercial launch, and these supplies may be further limited by our ongoing clinical development activities. If our manufacturers, collaborators or we are unable to purchase or produce sufficient quantities of raw materials or of our antibody candidates after regulatory approval has been obtained for our antibody candidates, the commercial launch of our antibody candidates could be delayed or there could be a shortage in supply, which in either case, would impair our ability to generate revenues from the sale of our antibody candidates. If the manufacturer of zenocutuzumab is unable to manufacture sufficient commercial supply or is unable to purchase or produce sufficient quantities of raw materials, the commercialization of zenocutuzumab by our license partner PTx could be impaired or there could be a shortage in supply, which in either case, would impair our ability to generate revenues from the sale of zenocutuzumab, and access clinical trial material to continue to develop zenocutuzumab for other future, potential indications. We rely on our manufacturers and other subcontractors to comply with and respect the proprietary rights of others in conducting their contractual obligations for us. If our manufacturers or other subcontractors fail to acquire the proper licenses or otherwise infringe third party proprietary rights in the course of completing their contractual obligations to us, we may have to find alternative manufacturers or defend against claims of infringement, either of which would significantly impact our ability to develop, obtain regulatory approval for or market our antibody candidates, if approved. We may not be able to successfully manufacture our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing resulting approved products, if any. As part of the development of our clinical candidates, we have in the past, and expect to continue to transfer drug substance and drug product fill to new manufacturers and/or new facilities. We have and plan in the future plan to instruct our CMO's and third party providers to manufacture product candidates in larger batch sizes to meet anticipated clinical trial supply and potential commercial demand. We and our CMO's and third party providers may not be able to successfully repeat or increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner or at all. Significant changes or scale-up of manufacturing may require additional validation studies and/or analytical comparability studies, which are costly and which regulatory authorities must review and approve. In addition, quality issues may arise during those changes or scale-up activities. If we and our CMO's and third party providers are unable to successfully manufacture any of our product candidates in sufficient quality and quantity, the development of that product candidate and regulatory approval or commercial launch for any resulting products may be delayed or there may be a shortage in supply, which could significantly harm our business. Further, we have in the past and will in the future make changes in type and size of glass vials and container closure system of our clinical candidates. If we are unable to demonstrate analytical comparability for such changes that are acceptable to the FDA or similar regulatory authorities outside of the United States, our ability to obtain approvals for our clinical candidate may be harmed, which could harm our business, operating results, prospects or financial condition. Risks Related to Intellectual Property and Information Technology We rely on patents and other intellectual property rights to protect our technology, including antibody candidates and our Biclonics® technology platform and Triclonics® technology platform, the enforcement, defense and maintenance of which may be challenging and costly. Failure to enforce or protect these rights adequately could harm our ability to compete and impair our business.
Page 83
72 Our commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property rights for our Biclonics® technology platform, Triclonics® technology platform, our common light chain transgenic technology, our dimerization technology, our heavy chain variable regions and binding domains that bind particular antigens, our monospecific antibodies, bispecific antibody, trispecific antibody and antibody pre-clinical and clinical candidates, products, their format and methods and host cells used to produce, screen, manufacture and purify those pre-clinical antibody and antibody clinical candidates, the methods for treating patients using those candidates, among other aspects of our technology or on licensing-in such rights. Failure to protect or to obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely affect our ability to develop and market our platform technologies, and antibody candidates. The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors, licensees or collaborators will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Further, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors’, licensees’ or collaborators’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. The patent examination process may require us or our licensors, licensees or collaborators to narrow the scope of the claims of our or our licensors’, licensees’ or collaborators’ pending and future patent applications, which may limit the scope of patent protection that may be obtained. We cannot assure you that all of the potentially relevant prior art relating to our patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, or have issued and even if such patents cover our Biclonics® technology platform, Triclonics® technology platform, our common light chain transgenic technology, our dimerization technology our heavy chain variable regions and binding domains that bind particular antigens, our monospecific antibodies, bispecific antibody, trispecific antibody and antibody pre-clinical and clinical candidates, products, their format and methods and host cells used to produce, screen, manufacture and purify those pre-clinical antibody and antibody clinical candidates, the methods for treating patients using those candidates, and other technologies, third parties may initiate opposition, interference, re-examination, post-grant review, inter partes review (IPR), nullification or derivation action in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated. Our and our licensors’, licensees’ or collaborators’ patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology in the relevant jurisdiction. For example, as discussed further in Note 6, "Commitments and Contingencies," to our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q, on February 11, 2025, Xencor, Inc. (Xencor) filed two petitions for IPR before the PTAB of U.S. Patent Nos. 9,358,268 and 11,926,859, challenging such patents as allegedly invalid as anticipated and obvious in view of certain alleged prior art. On May 30, 2025, we filed requests for discretionary denial of institution of each petition. On June 30, 2025, Xencor filed oppositions to our discretionary denial briefs. We filed reply briefs on July 9, 2025, and Xencor filed sur-reply briefs on July 11, 2025. On July 17, 2025, the Acting Director of the United States Patent and Trademark Office (USPTO) issued a decision denying our requests for discretionary denial and referring the petitions to the PTAB to handle in the normal course, including by issuing a decision on whether to institute a petition, addressing the merits and other non-discretionary considerations. On June 30, 2025, we filed a Patent Owner’s Preliminary Response (POPR) under 37 C.F.R. § 42.107, addressing the merits of Xencor’s petitions and other statutory considerations, in each IPR proceeding, asserting institution should be denied for both patents. Decisions from the PTAB issued on September 26, 2025, instituting the IPRs for the '268 Patent and '859 Patent, with proceedings to follow. An institution of such IPRs and adverse determination in any such challenge may result in loss of exclusivity or in our patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products or limit the duration of the patent protection of our technology and products. Such challenges also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Because patent applications are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file any patent application related to our technology, including our antibody candidates.
Page 84
73 Furthermore, if third parties have filed such patent applications on or before March 15, 2013, an interference proceeding can be initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding can be initiated by such third parties to determine whether our invention was derived from theirs. Issued patents covering one or more of our products or the Biclonics® technology or Triclonics® technology platforms could be found invalid or unenforceable if challenged in court. To protect our competitive position, we may from time to time need to resort to litigation to enforce or defend any patents or other intellectual property rights owned by or licensed to us, or to determine or challenge the scope or validity of patents or other intellectual property rights of third parties. As enforcement of intellectual property rights is difficult, unpredictable and expensive, we may fail in enforcing our rights—in which case our competitors may be permitted to use our technology without being enjoined, required to pay us any license fees, or compensate us for lost profits or reasonable royalty. In addition, litigation involving our patents carries the risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize technology covered by our patents we seek to enforce, such as those covering our antibody candidates or methods, our Biclonics® technology and Triclonics® technology platforms, our common light chain transgenic technology, or our dimerization technology, among other technologies, and then compete directly with us, without payment to us. If we were to initiate legal proceedings against a third party to enforce a patent covering our technology, one of our products or methods, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States or in certain jurisdictions in Europe, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements for patentability, for example, lack of utility, novelty, obviousness, non-enablement or lack of written description or as constituting unpatentable subject matter. Grounds for an unenforceability assertion could be an allegation that someone substantively involved in prosecution of the patent withheld but-for material information from the USPTO or engaged in affirmatively egregious misconduct, during prosecution, with a specific intent to deceive the USPTO. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we could lose at least part, and perhaps all, of the patent protection on one or more of our technologies, products, methods or certain aspects of our Biclonics® technology and Triclonics® technology platforms. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights. Intellectual property rights of third parties could adversely affect our ability to commercialize our antibody candidates, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our antibody candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms or at all. Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our technology platforms, methods or candidates or elements thereof, our manufacture or uses relevant to our development, or other attributes of our antibody candidates or our Biclonics® technology platform or Triclonics® technology platform. In such cases, we may not be in a position to develop or commercialize products or antibody candidates unless we successfully pursue litigation, opposition, inter partes, or related post-grant proceedings to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. In addition, we are aware of issued patents and/or pending patent applications held by third parties that could be alleged as covering some of our antibody candidates, irrespective of the merits. We believe that if such patents or patent applications (if issued as currently pending) were asserted against us, we would have counterclaims and defenses against such claims, including non-infringement, the affirmative defense of safe harbor designed to protect activity undertaken to obtain federal regulatory approval of a drug, including under 35 U.S.C. § 271(e) and similar foreign exceptions to infringement, and defenses concerning patent invalidity and/or unenforceability. However, if such counterclaims and defenses were not successful and such patents were successfully asserted against us such that they are found to be valid and enforceable, and infringed, unless we obtain a license to such patents, which may not be available on commercially reasonable terms or at all, we could be prevented from continuing to develop or commercialize our technology. We could also be required to pay substantial damages. It is also possible that in our evaluation of third party intellectual property, we failed to identify relevant patents or applications. For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published
Page 85
74 approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our products or platform technologies could have been filed by others without our knowledge. Furthermore, we operate in a highly competitive field, and given our limited resources, it is unreasonable to monitor all patent applications purporting to claim broad coverage in the areas in which we are active. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our methods, antibody candidates or the use of our bispecific and trispecific antibody candidates. Third party intellectual property right holders, including our competitors, may actively bring infringement claims against us. The granting of orphan drug status in respect of any of our antibody candidates does not guarantee our freedom to operate and is separate from our risk of possible infringement of third parties’ intellectual property rights. We may not be able to successfully settle or otherwise resolve such potential infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing any approved products. If we fail in any such dispute, in addition to being forced to potentially pay damages, we or our licensees may be temporarily or permanently prohibited from commercializing any of our antibody candidates that are held to be infringing or be forced to redesign antibody candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. In addition, if the breadth or strength of protection provided by our or our present or future licensors’, collaborators’ or partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future antibody candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Our ability to compete may be adversely affected if we are unsuccessful in defending against any claims by competitors or others that we are infringing upon their intellectual property rights. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including those producing therapeutic candidates or products to treat and potentially cure cancer, have employed intellectual property litigation as a means to gain an advantage over their competitors. As a result, we may be required to defend against claims of intellectual property infringement that may be asserted by our competitors against us and, if the outcome of any such litigation is adverse to us, it may affect our ability to compete effectively. Our involvement in litigation, and in any interferences, opposition, pre and post-grant administrative proceedings or other intellectual property proceedings inside and outside of the United States may divert management from focusing on business operations, could cause us to spend significant amounts of money and may have no guarantee of success. Any potential intellectual property litigation successfully adjudicated against us could also force us to do one or more of the following: • stop selling, incorporating, manufacturing or using our products, if approved, in the United States and/or other jurisdictions that are covered by the subject intellectual property; • obtain from a third party asserting its intellectual property rights, a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all, or may be non-exclusive thereby giving our competitors access to the same technologies licensed to us; • redesign those technologies, products or processes that use any allegedly infringing or misappropriated technology, which may result in significant cost or delay to us, or which redesign could be technically infeasible; or • pay damages, including the possibility of treble damages in a patent case if a court finds us to have willfully infringed certain intellectual property rights. We are aware that significant number of patents and patent applications may exist relating to aspects of therapeutic antibody technologies filed by, and issued to, third parties. We cannot assure you that we will ultimately prevail if any of this third-party intellectual property is asserted against us.
Page 86
75 Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities. Where we are asserting our intellectual property against third parties, or defending against an allegation of infringement, even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, this could have a substantial adverse effect on the price of our common shares. Such litigation or proceedings and the legal costs associated with them, could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. For example, as discussed further in Note 6, "Commitments and Contingencies," to our unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q, on August 5, 2024, the Company filed a complaint in the United States District Court of Delaware against Xencor alleging Xencor is infringing our U.S. Patent Numbers (Nos.) 9,944,695 and 9,358,268, and 11,926,859, related to Xencor's manufacture, use, offer for sale, sale, and/or importation of certain antibodies and antibody technologies and methods in and/or into the United States. We are the plaintiff and Xencor is the defendant. As a result of Xencor’s acts, we alleged that the Company has suffered and continues to suffer damages, is entitled to recover from Xencor damages sustained as a result of Xencor's wrongful and infringing acts, and the Company has and will continue to suffer, irreparable harm for which there is no remedy at law. Accordingly, we seek, among other things, damages, equitable remedies, and an award of attorneys' fees. On October 10, 2024, Xencor filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which we responded to via an answering brief in opposition on October 31, 2024, and to which Xencor replied on November 14, 2024, with further submissions by the parties and proceedings to follow. While we believe this litigation is meritorious, it may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, if the breadth or strength of protection provided by our patents and patent applications could be threatened by defenses or counterclaims raised, which could have a potentially negative material impact on our business. We may not be successful in obtaining or maintaining necessary rights to our antibody candidates through acquisitions and in- licenses. We currently have rights and own our intellectual property, including issued patents and pending patent applications, relating to and covering our Biclonics® technology and Triclonics® technology platforms, our common light chain transgenic technology, our dimerization technology, our heavy chain variable regions and binding domains that bind particular antigens, our monospecific antibodies, bispecific antibody, trispecific antibody and pre-clinical antibody and antibody clinical candidates, products, their format and methods and host cells used to produce, screen, manufacture and purify those pre-clinical antibody and antibody clinical candidates, the methods for treating patients using those candidates, among other aspects of our technology. Because our programs may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license, maintain or use these proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we may identify as necessary for our antibody candidates. The licensing and acquisition of third- party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain a license to third-party intellectual property rights necessary for the development of an antibody candidate or program, we may have to abandon development of that antibody candidate or program and our business and financial condition could suffer. If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Page 87
76 We currently have trademark and service mark rights relating to and covering our Biclonics® technology, Triclonics® technology, and ADClonics® technology platforms, zenocutuzumab and other aspects of our company, its services and activities used in commerce. Our registered or unregistered trademarks, trade names or service marks may be challenged including during prosecution or through opposition proceedings, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks, trade names, and service marks, which we need to build name recognition by potential collaborators, partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks, trade names and service marks then we may not be able to compete effectively and our business may be adversely affected. If other entities use trademarks, trade names or service marks similar to ours in different jurisdictions, or have senior rights to ours, or prevail in any opposition proceedings, it could interfere with our use of our current trademarks, trade names or service marks throughout the world. If we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents covering each of our antibody candidates, our business may be materially harmed. Patents typically have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date, not including potential patent term extensions or adjustments that may be available in the U.S., and under comparable laws applicable outside the U.S., where certain conditions are met. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our antibody candidates are obtained, once the patent life has expired for a candidate, we may be open to competition from competitive medications, including biosimilar or generic medications. Given the amount of time required for the development, testing and regulatory review of new antibody candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours, causing our revenue from applicable products to be reduced, possibly materially, and potentially harming our ability to recover our investment in such product or obtain a reasonable return on that investment. Depending upon the timing, duration and conditions of FDA marketing approval of our antibody candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially. We enjoy only limited geographical protection with respect to certain patents and may face difficulties in certain jurisdictions, which may diminish the value of intellectual property rights in those jurisdictions. We generally file our first patent application (i.e., priority filing) in the Netherlands. International applications under the Patent Cooperation Treaty (PCT) are usually filed within 12 months after the priority filing, where we pursue patent applications in the U.S., across the E.U., and other PCT participating jurisdictions, as based on the PCT filing, national and regional patent applications may be filed in additional jurisdictions where we believe our antibody candidates may be marketed or manufactured or our platform technologies may be utilized. We have so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while granted by others. It is also quite common that depending on the country, the scope of patent protection may vary for the same antibody candidate and/or technology. Competitors may use our and our existing or future licensors’, collaborators’ or partners’ technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we and our existing or future licensors, collaborators or partners have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our antibody candidates or our platform technologies, and our and our existing
Page 88
77 or future licensors’, collaborators’ or partners’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the EU, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our existing or future licensors, collaborators or partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions. Some countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our existing or future licensors, collaborators or partners is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired and our business and results of operations may be adversely affected. Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative: • others may be able to make compounds that are the same as or similar to our antibody candidates but that are not covered by the claims of the patents that we own or have exclusively licensed; • the patents of third parties may have an adverse effect on our business; • we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; • we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; • others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • it is possible that our pending patent applications will not lead to issued patents; • issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; • our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • third parties performing manufacturing or testing for us using our antibody candidates or technologies could use the intellectual property of others without obtaining a proper license; and • we may not develop additional technologies that are patentable. Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our antibody candidates and technology platforms. As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In September 2011, the America Invents Act (AIA) was enacted in the United States, resulting in significant changes to the U.S. patent system. An important change introduced by the AIA was a transition to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention, which went into effect on March 16, 2013. Therefore, a third party that now files a patent application in the USPTO before we do could be awarded a
Page 89
78 patent covering an invention of ours even if we created the invention before it was created by the third party. While we are cognizant of the time from invention to filing of a patent application, circumstances could prevent us from promptly filing patent applications for our inventions. Among some of the other changes introduced by the AIA were changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower burden of proof in USPTO proceedings compared to the burden of proof in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its continued implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications, and the patent applications of our existing and future collaborators or licensors and the enforcement or defense of our issued patents. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, there is complexity and uncertainty related to European patent laws. For example, the European Patent Convention was amended in April 2010 to limit the time permitted for filing divisional applications. In addition, the EPO patent system is relatively stringent in the type of amendments that are allowed during prosecution. These limitations and requirements could adversely affect our ability to obtain new patents in the future that may be important for our business. Confidentiality agreements with employees, contractors, agents, consultants, collaborators and others may not adequately prevent disclosure of trade secrets and protect other proprietary information. We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed to be of limited value. However, trade secrets and/or confidential know-how are difficult to maintain as confidential. To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors, collaborators and advisors to enter into confidentiality agreements with us, our practice is to provide regular trainings on the importance of maintaining confidentiality, to promulgate a business code of conduct requiring confidentiality, and prohibit the use of non- sanctioned devices with company confidential information. However, current or former employees, consultants, contractors, collaborators and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements and other precautions taken may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or we may be unaware of such disclosure to enforce our confidentiality agreements and other remedies. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements and theft of trade secret claims may vary from jurisdiction to jurisdiction. Furthermore, if a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how. Under certain circumstances and to guarantee our freedom to operate, we may also decide to publish some know-how to prevent others from obtaining patent rights covering such know-how. We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property. Many of our employees, including our senior management, were previously employed at universities or at pharmaceutical or biotechnology companies, including our competitors or potential competitors. Some of these employees executed proprietary rights, non- disclosure and non-competition agreements in connection with such previous employment. Although we take measures including by policy, procedure and contract to try to ensure that our employees do not improperly use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed confidential information
Page 90
79 or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs and distract management. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non- compliance with these requirements. Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our existing or future licensors or collaborators fail to maintain the patents and patent applications covering our antibody candidates, our competitors might be able to enter the market, which would have an adverse effect on our business. Use of social media could give rise to liability, breaches of data security, or reputational harm. We and our employees use social media to communicate internally and externally, as do our contractors, consultants, CROs, and third parties, including clinical trial participants. While we have policies and procedures in place governing employee use of social media, there is risk that the use of social media by us or our employees or third parties to communicate about our antibody candidates, technologies or business may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us, our clinical trials, or our antibody candidates, our technologies, and company generally in social media could seriously damage our reputation, brand image, and goodwill. Any of these events could have a material adverse effect on our business, prospects, operating results, and financial condition and could adversely affect the price of our common shares. Our information technology systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches, which could adversely affect our business. Despite the implementation of security measures, our information technology systems and data and those of our current or future CROs or other contractors and consultants are vulnerable to compromise or damage from computer hacking, computer viruses, and malware (e.g., ransomware malicious software), fraudulent activity, misconfigurations, "bugs", employee misconduct, human error, telecommunication and electrical failures, natural disasters, or other cybersecurity attacks or accidents that threaten the confidentiality, integrity and availability of our information technology systems and confidential information.. Future acquisitions could expose us to additional cybersecurity risks and vulnerabilities from any newly acquired information technology infrastructure. Cybersecurity attacks are constantly increasing in frequency and sophistication and are made by groups and individuals with a wide range of motives (including industrial espionage) and expertise, including by organized criminal groups, “hacktivists,” nation states, and others. As a result of a continued hybrid working environment, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. Further, as a company with an increasingly global presence, our systems are subject to frequent attacks from divers threat actors, which are becoming more commonplace in the industry, including attempted hacking, social engineering, phishing attempts, such as cyber-related threats involving spoofed or manipulated electronic communications, which increasingly represent considerable risk. Due to the nature of some of the attacks described herein, there is a risk that an attack may remain undetected for a period of time. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. While we continue to make investments to improve the protection of data and information technology, including in the hiring of IT personnel, periodic cyber security awareness trainings, and improvements to IT infrastructure
Page 91
80 and controls, and conduct regular testing of our systems, there can be no assurance that our efforts will prevent service interruptions or security breaches. We and certain of our service providers are from time to time subject to cyberattack attempts or incidents and security incidents. Any cybersecurity incident could adversely affect our business, by leading to, for example, the loss of trade secrets or other intellectual property, demands for ransom or other forms of blackmail, or the unauthorized disclosure of personal or other sensitive information of our employees, clinical trial patients, customers, and others. To our knowledge, we, or any third party processing data on our behalf, have not experienced any significant cybersecurity incident with respect to such data since our last filing. If such an event were to occur, it could seriously harm our development programs and our business operations. We could be subject to breach notification requirements, regulatory actions taken by governmental authorities, litigation under laws that protect the privacy of personal information, or other forms of legal proceedings (such as class actions), which could result in significant liabilities or penalties, result in substantial costs and distract management. Further, a cybersecurity incident may disrupt our business or damage our reputation, which could have a material adverse effect on our business, prospects, operating results, share price and shareholder value, and financial condition. We cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms at all. We could also incur substantial remediation costs, including the costs of investigating the incident, repairing or replacing damaged systems, restoring normal business operations, implementing increased cybersecurity protections and paying increased insurance premiums. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. If a security breach or other incident were to result in the unauthorized access to or unauthorized use, disclosure, release or other processing of clinical trial data or personal data, it may be necessary to notify individuals, governmental authorities, supervisory bodies, the media, and other parties pursuant to privacy and security laws. Likewise, we rely on our third-party research institution collaborators for research and development of our product candidates and other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their information technology systems could also seriously harm our business. Any security compromise affecting us, our collaborators or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures, and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our product candidates could be delayed, result in substantial costs and distract management. Risks Related to Employee Matters and Managing Growth Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel. Our success depends upon the contributions of our senior leaders, including our board of directors, our senior management, and other key scientific and technical personnel, many of whom have been instrumental for us and have substantial experience with our antibody candidates and related technologies. The loss of key senior management, managers and senior scientists could delay our research and development and clinical trial activities or impair our ability operate the company effectively. In addition, the competition for qualified personnel in the biopharmaceutical and pharmaceutical field is increasingly intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful, it may be difficult for us to implement our business strategy, which could have a material adverse effect on our business. Our success also depends on our ability to manage transitions among our senior management and other key personnel. In July 2024, Hui Liu, Ph.D., stepped down as Chief Business Officer, Dr. Andrew Joe, M.D., resigned as Chief Medical Officer, Dr. Lex Bakker resigned as Chief Development Officer, Dr. Fabian Zohren, M.D., was appointed as Executive Vice President and Chief Medical Officer, effective July 1, 2024, and Ms. Audrey Bergan was appointed as Chief People Officer, effective November 4, 2024. If we are unable to continue to manage orderly transitions in these cases or for other key personnel in the future, or if we are unable to adequately integrate the new Chief Medical Officer, Chief People Officer, or retain our other existing senior management, managers and senior scientists, our business may be adversely affected. The Transactions may make it more difficult to attract and retain qualified employees due to the uncertainty about whether or when the Transactions will close and the impact of the Transactions on our employees. We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
Page 92
81 We expect to continue to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug and clinical development, regulatory affairs, medical affairs, commercialization, sales and marketing. To manage our growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. Risks Related to Our Common Shares Future sales, or the possibility of future sales, of a substantial number of our common shares could adversely affect the price of the shares. Sales of a substantial number of our common shares in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common shares. We have registered and intend to continue to register all common shares that we may issue under our equity compensation plans. Once registered, these common shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates who hold such shares. In addition, in connection with entering into the Lilly Collaboration Agreement, we entered into a Lilly Share Subscription Agreement with Eli Lilly, pursuant to which we issued and sold to Eli Lilly 706,834 of our common shares. Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent or frustrate any attempt to replace or remove the then board members. Provisions of our articles of association may make it more difficult for a third party to acquire control of us or effect a change in our board of directors. These provisions include: • the authorization of a class of preferred shares that may be issued to an independent special purpose foundation; • the possibility to appoint our board members for staggered terms; • provisions stemming from the Dutch large company regime pursuant to which (i) our executive directors will be appointed, and can be suspended or dismissed, by the group of non-executive directors, (ii) our non-executive directors will be appointed by our general meeting based on a nomination to be prepared by the group of non-executive directors, taking into account recommendation rights for our general meeting and our works council, (iii) our general meeting will be able to reject nominees for appointment as non-executive directors by simple majority of votes cast, with these votes representing at least one-third of our issued share capital and (iv) our general meeting will only be able to dismiss our non-executive directors as a collective, which will require a simple majority of votes cast, with these votes representing at least one-third of our issued share capital; • a requirement that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our board of directors. The board of directors can invoke a statutory cooling-off period of up to 250 days in situations described below. When such cooling-off period is invoked, our general meeting of shareholders cannot dismiss, suspend or appoint members of the board of directors (or amend the provisions in our articles of association dealing with those matters) unless those matters would be proposed by the board of directors. This cooling-off period could be invoked by the board of directors in case: a) shareholders, using either their shareholder proposal right or their right to request a general meeting of shareholders, propose an agenda item for the general meeting of shareholders to dismiss, suspend or appoint a member of the board of directors (or to amend any provision in the articles of association dealing with those matters); or b) a public offer for the company is made or announced without the company's support, provided, in each case, that the board of directors believes that such proposal or offer materially conflicts with the interests of the company and its business. Under the Dutch Corporate Governance Code (DCGC), the board of directors may also invoke a response period of up to 180 days in case shareholders, using either their shareholder proposal right or their right to request a general meeting of shareholders, propose an agenda item for the general meeting of shareholders which may result in a change in our strategy (including through the dismissal of
Page 93
82 one or more of our board members). If this response period is invoked, the shareholders concerned must give the board of directors the opportunity to respond to their intentions before their request is dealt with at a general meeting of shareholders. Our anti-takeover provision may prevent a beneficial change of control. We adopted an anti-takeover measure pursuant to which our board of directors may, without shareholder approval, issue (or grant the right to acquire) preferred shares. Pursuant to a call option agreement entered into with an independent special purpose foundation, we may issue an amount of preferred shares up to 100% of our issued capital held by third parties immediately prior to the issuance of such preferred shares. The preferred shares will be issued to the foundation for their nominal value, of which only 25% will be due upon issuance. The voting rights of our shares are based on nominal value and as we expect our shares to continue to trade substantially in excess of nominal value, preferred shares issued at nominal value can obtain significant voting power for a substantially reduced price and thus be used as a defensive measure. These preferred shares will have both a liquidation and dividend preference over our common shares and will accrue cash dividends at a fixed rate. Subject to the foundation exercising its call option under the call option agreement, the board may issue these preferred shares to protect us from influences that we believe do not serve our best interests and threaten to undermine our continuity, independence and identity. These influences may include a third-party acquiring a significant percentage of our common shares, the announcement of a public offer for our common shares, other concentration of control over our common shares or any other form of pressure on us to alter our strategic policies. The foundation’s articles of association provide that it will act to serve the best interests of us, our associated business and all parties connected to us, by opposing any influences that conflict with these interests and threaten to undermine our continuity, independence and identity. This foundation is structured to operate independently of us. Holders of our common shares outside the Netherlands may not be able to exercise preemptive rights. In the event of an increase in our share capital, holders of our common shares are generally entitled under Dutch law to full preemptive rights, unless these rights are excluded either by a resolution of the general meeting of shareholders, or by a resolution of the board (if the board has been designated by the general meeting of shareholders for this purpose). Certain holders of our common shares outside the Netherlands, in particular U.S. holders of our common shares, may not be able to exercise preemptive rights unless a registration statement under the Securities Act is declared effective with respect to our common shares issuable upon exercise of such rights or an exemption from the registration requirements is available. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions. We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our board may be different from the rights and obligations of shareholders and directors in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, the members of our board are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of our shareholders. We are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code. This may affect the rights of our shareholders. We are subject to the DCGC. The DCGC contains both principles and best practice provisions for board of directors, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including Nasdaq. The principles and best practice provisions apply to our board (in relation to role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti- takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as external auditor and internal audit requirements). We do not comply with all the best practice provisions of the DCGC. As a result, the rights of our shareholders may be affected and our shareholders may not have the same level of protection as a shareholder in another Dutch public company with limited liability (naamloze vennootschap) listed in the Netherlands that fully complies with the DCGC. Claims of U.S. civil liabilities may not be enforceable against us.
Page 94
83 We are incorporated under the laws of the Netherlands. Most of our assets are located outside the United States. Currently, (i) there is no treaty in force between the United States and the Netherlands for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters and (ii) both the Hague Convention on Choice of Court Agreements (2005) and the Hague Judgments Convention (2019) have entered into force for the Netherlands, but have not entered into force for the United States. Consequently, a judgment rendered by a court in the United States will not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to that United States judgment if (i) the jurisdiction of the United States court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the United States court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such United States judgment is not contrary to Dutch public order (openbare orde) and (iv) the judgment by the United States court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a United States judgment is given binding effect, a claim based thereon may, however, still be rejected if the United States judgment is not or no longer formally enforceable. Moreover, if the United States judgment is not final (for instance when appeal is possible or pending) a competent Dutch court may postpone recognition until the United States judgment will have become final, refuse recognition under the understanding that recognition can be asked again once the United States judgment will have become final, or impose as a condition for recognition that security is posted. A competent Dutch court may deny the recognition and enforcement of punitive damages or other awards. Moreover, a competent Dutch court may reduce the amount of damages granted by a United States court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Thus, certain investors may not be able, or experience difficulty, to enforce a judgment obtained in a United States court against us or our officers (functionarissen). Our articles of association include a U.S. federal forum selection clause designating federal courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. Our articles of association provide that, unless we consent in writing to an alternative forum, the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act, to the fullest extent permitted by applicable law, shall be the federal district courts of the United States of America (the “Federal Forum Provision”). The Federal Forum Provision in our articles of association may impose additional litigation costs on shareholders in pursuing any such claims. Additionally, the forum selection clause may limit our shareholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our shareholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court were “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on shareholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a shareholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our shareholders. We may be classified as a passive foreign investment company (PFIC) for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. investors in our common shares. Based on the value of our assets, including goodwill, and composition of our income, assets and operations for the taxable year 2024, we do not believe we were a PFIC for U.S. federal income tax purposes for that taxable year. A non-U.S. company generally will be considered a PFIC for any taxable year if (i) at least 75% of its gross income for such taxable year is passive income (including interest income), or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such taxable year) is attributable to assets that produce or are held for the production of passive income. The value of our assets generally is determined by reference to the market price of our common shares, which may fluctuate considerably. In addition, the composition of our income and assets is affected by how, and how quickly, we spend the cash we raise. It is possible the Internal Revenue Service could determine that we were a PFIC for the taxable year 2024. If we were to be treated as a PFIC for any taxable year during which a U.S. Holder (as defined below) holds our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. Once treated as a PFIC for any taxable year in which a U.S. Holder owns equity in such foreign corporation, a foreign corporation will generally continue to be treated as a PFIC for all subsequent taxable years with respect to such U.S. Holder.
Page 95
84 If we were to be a PFIC, “excess distributions” (as such term is defined in the United States Internal Revenue Code of 1986, as amended (the U.S. Tax Code)) to a U.S. Holder, and any gain recognized by a U.S. Holder on a disposition of our common shares would be taxed in potentially unfavorable ways. Among other consequences, our dividends would be taxed at the regular rates applicable to ordinary income, rather than the reduced rate applicable to certain dividends received by an individual from a qualified foreign corporation, and, to the extent that they constituted excess distributions, certain interest charges may apply, and gains on the sale of our shares would be treated in the same way as excess distributions. In addition, the U.S. Holder would be subject to detailed reporting obligations. The tests for determining PFIC status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to the determination of any future PFIC status. As such, we cannot provide any assurances regarding our PFIC status for any past, current or future taxable years. Further, we cannot provide any assurances that we will furnish to any U.S. Holder information that may be necessary to comply with the aforementioned reporting and tax payment obligations. U.S. Holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares, including the potential availability and advisability of an election to treat us as a qualified electing fund or a mark-to-market election. A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of our common shares and is: (1) a citizen or individual resident of the United States; (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; (3) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust that (a) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the U.S. Tax Code) or (b) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. If a U.S. Holder is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences. If a U.S. Holder is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our common shares, such U.S. Holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any) as such term is defined in the U.S. Tax Code. A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income, as ordinary income, its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by the controlled foreign corporation, regardless of whether the controlled foreign corporation makes any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may extend the statute of limitations with respect to such United States shareholder’s U.S. federal income tax return for the year for which reporting was due. We cannot provide any assurances that we will assist investors in determining whether we or any of our future non-U.S. subsidiaries is treated as a controlled foreign corporation or whether such investor is treated as a United States shareholder with respect to any such controlled foreign corporations. Further, we cannot provide any assurances that we will furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax payment obligations. U.S. Holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares. The risk of being subject to increased taxation may deter our current shareholders from increasing their investment in us and others from investing in us, which could impact the demand for, and value of, our common shares. General Risk Factors The price of our common shares may be volatile and may fluctuate due to factors beyond our control. The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including: • our ability to consummate the Transactions within the expected timeframe, if at all; • positive or negative results of testing and clinical trials by us, strategic partners or competitors;
Page 96
85 • delays in entering into strategic relationships with respect to development and/or commercialization of our antibody candidates or entry into strategic relationships on terms that are not deemed to be favorable to us; • technological innovations or commercial product introductions by us or competitors; • changes in government regulations; • developments concerning proprietary rights, including patents and litigation matters; • public concern relating to the commercial value or safety of any of our antibody candidates; • financing or other corporate transactions; • publication of research reports or comments by securities or industry analysts; • general market conditions in the pharmaceutical industry or in the economy as a whole; • political instability in the United States and Europe, including the failure of the United States Federal government to raise the debt ceiling; • changes in U.S. and non-U.S. regulations and customs, tariffs and trade barriers; • global geopolitical instability, including the ongoing conflicts in Europe and the Middle East; or • other events and factors, many of which are beyond our control. These and other market and industry factors may cause the market price and demand for our common shares to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their common shares and may otherwise negatively affect the liquidity of our common shares. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price. The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets continue to deteriorate or the Netherlands or the United States enters a recession, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. In addition, there is a risk that one or more of our CROs, suppliers or other third-party providers may not survive an economic downturn or recession. As a result, our business, results of operations and price of our common shares may be adversely affected. Business interruptions could adversely affect our operations. Our operations are vulnerable to interruption by fire, severe weather conditions, power loss, telecommunications failure, terrorist activity, public health crises and pandemic diseases, such as COVID-19, and other natural and man-made disasters or events beyond our control. Our facilities are located in regions that experience severe weather from time to time. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major tornado, flood, fire, earthquake, power loss, terrorist activity, public health crisis, pandemic diseases or other disasters and do not have a recovery plan for such disasters. In addition, we do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Because we do not expect to pay cash dividends for the foreseeable future, any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares, which is uncertain. We have not paid any cash dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that cash dividends will not be paid until we have an established revenue stream to support continuing cash dividends. Payment of any future dividends to shareholders will in addition
Page 97
86 effectively be at the discretion of the general meeting, upon proposal of the board of directors, after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. Additionally, the Transaction Agreement generally restricts our ability to pay any dividends on our common shares during the interim period between the execution of the Transaction Agreement and the Acceptance Time (or the date on which the Transaction Agreement is earlier terminated). In addition, payment of future cash dividends may be made only if our shareholders’ equity exceeds the sum of our paid-in and called-up share capital plus the reserves required to be maintained by Dutch law or by our articles of association. Accordingly, investors cannot rely on cash dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares. In addition, the low trading volume of our common shares may adversely affect the trading price of our common shares, and our shareholders may not be able to sell their common shares for a price higher than the price they paid for our common shares. If securities or industry analysts publish inaccurate or unfavorable research about our business, the price of our common shares and our trading volume could decline. The trading market for our common shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the price of our common shares and trading volume to decline.
Page 98
87 We will continue to incur increased costs as a result of operating as a public company with limited liability (naamloze vennootschap), and our management team is required to devote substantial time to new compliance initiatives and corporate governance practices. As a public company, and particularly now that we no longer qualify as an emerging growth company or a smaller reporting company, we will continue to incur significant legal, accounting and other expenses related to our operation as a public company. The Sarbanes-Oxley Act of 2002 (SOX), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Market, or Nasdaq, and other applicable securities rules and regulations impose various requirements on reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our board of directors and other personnel continues to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have and will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Pursuant to Section 404(a) of SOX (Section 404) we are required to furnish a report by our management on our internal control over financial reporting with our Annual Report on Form 10-K. Additionally, we are required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To maintain compliance with Section 404(a), we engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we continue to dedicate internal resources and have engaged outside consultants and adopted a detailed work plan to assess and document the adequacy of our internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to maintain effective internal control over financial reporting as required by Section 404. Material weaknesses or significant deficiencies in our internal control over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. The varied and differing positions on environmental sustainability and social initiatives by governments and other stakeholders could increase our costs, harm our reputation and adversely impact our financial results. There has been varied and differing focus by investors, patients, environmental activists, the media and governmental and nongovernmental organizations among other stakeholders on a variety of environmental, social and other sustainability matters. We may experience pressure to make commitments or conflicting obligations depending on the jurisdiction, relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. Expectations regarding the management of sustainability initiatives continues to evolve rapidly. While we may from time to time engage in various initiatives (including but not limited to voluntary disclosures, policies, or goals) to improve our sustainability profile or respond to stakeholder expectations, in compliance with applicable laws, regulations and other legal requirements, we cannot guarantee that these initiatives will have the desired effect. If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals or navigating potentially conflicting obligations, our reputation and financial results may suffer. In addition, even if we are effective at addressing such concerns, we may experience increased costs as a result of executing upon our sustainability goals that may not be offset by any benefit to our reputation, which could have an adverse impact on our business and financial condition. In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. We are currently assessing the potential impacts of the adopted or proposed laws, as well as other sustainability related disclosure obligations and evolving legal and regulatory requirements, to which we may be subject. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be adversely impacted. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Page 99
88 None. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable.
Page 100
89 Item 5. Other Information (a) None. (b) None. (c) Insider Trading Arrangements and Policies. On August 29, 2025, Peter B. Silverman, the Company’s Chief Operating Officer and General Counsel, terminated a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act and originally adopted on March 20, 2025 for the sale of up to 117,500 common shares of the Company until June 19, 2026. Other than as disclosed above, during the three months ended September 30, 2025, no director or "officer" (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 6. Exhibits The exhibits filed as part of this Quarterly Report on Form 10-Q are as follows: Incorporated by Reference toFilings Indicated ExhibitNumber Exhibit Description Form File No. ExhibitNo. FilingDate Filed/Furnished 2.1† Transaction Agreement, dated as of September 29, 2025, by and among Genmab A/S, Genmab Holding II B.V. and Merus N.V. 8-K 001-37773 2.1 9/29/2025 3.1 Articles of Association of Merus N.V., as amended on July 29, 2024 10-Q 001-37773 3.1 8/1/2024 31.1 Certification of Principal Executive Officer pursuant to rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 31.2 Certification of Principal Financial Officer pursuant to rules 13a-14(a) and 15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * 32.1 Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** 101.INS Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document * 101.SCH Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents * 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) *
Page 101
90 † Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Merus agrees to furnish supplementally a copy of any such schedule or exhibit to the U.S. Securities and Exchange Commission upon request. * Filed herewith. ** Furnished herewith
Page 102
91 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERUS N.V. Date: October 31, 2025 By: /s/ Sven A. Lundberg Sven (Bill) Ante Lundberg President and Chief Executive Officer (Principal Executive Officer) Date: October 31, 2025 By: /s/ Gregory D. Perry Gregory D. Perry Chief Financial Officer (Principal Financial Officer)
Page 103
Exhibit 31.1 CERTIFICATION I, Sven (Bill) Ante Lundberg, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Merus N.V.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Page 104
Date: October 31, 2025 By: /s/ Sven A. Lundberg Sven (Bill) Ante Lundberg President and Chief Executive Officer (Principal Executive Officer)
Page 105
Exhibit 31.2 CERTIFICATION I, Gregory D. Perry, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Merus N.V.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Page 106
Date: October 31, 2025 By: /s/ Gregory D. Perry Gregory D. Perry Chief Financial Officer (Principal Financial Officer)
Page 107
Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Merus N.V. (the “Company”) for the period ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: October 31, 2025 By: /s/ Sven A. Lundberg Sven (Bill) Ante Lundberg President and Chief Executive Officer (Principal Executive Officer) Date: October 31, 2025 By: /s/ Gregory D. Perry Gregory D. Perry Chief Financial Officer (Principal Financial Officer)