| Collaborations | 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 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. The fixed consideration was allocated equally between the Program #1 and Program #2 License and Research performance obligations. 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. As of September 30, 2024 , research activities have commenced, but no milestones have been achieved. The Company received the $ 56.0 million upfront payment from Gilead in April 2024. 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 has extended the research term to 2025. Lilly exercised the first six month extension in October 2023 for which there was no associated fee. The program timeline has 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, 2024 and December 31, 2023. As of September 30, 2024 , research activities were on-going, 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. During the three months ended March 31, 2024, the Company recognized a $ 1.0 million milestone from Incyte related to candidate nomination. There were no development or commercialization milestones achieved during the three months ended June 30, 2024 no r the three months ended September 30, 2024. 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. During the three months ended September 30, 2024 , under the 2018 Ono Agreement, the Company achieved a $ 2.0 million development milestone from Ono for the filing of an Investigational Drug Application, or equivalent, for an asset arising under this agreement. No other milestones were recognized during the nine months ended September 30, 2024. 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 Other Total
CONTRACT ASSETS
Accounts receivable
Balance at January 1, 2024 $ — $ — $ — $ — $ —
Billings 5,269 1,819 55,999 2,210 65,297
Cash receipts ( 5,269 ) ( 1,819 ) ( 55,999 ) ( 2,210 ) ( 65,297 )
Adjustments — — — — —
Foreign exchange — — — —
Balance at September 30, 2024 $ — $ — $ — $ — $ —
Unbilled receivables
Balance at January 1, 2024 $ 1,397 $ 839 $ — $ 193 $ 2,429
Accrued receivables 4,599 688 56,045 2,197 63,529
Billings ( 5,269 ) ( 1,322 ) ( 56,045 ) ( 2,197 ) ( 64,833 )
Adjustments — — — — —
Foreign exchange — — — 9 9
Balance at September 30, 2024 $ 727 $ 205 $ — $ 202 $ 1,134
CONTRACT LIABILITIES
Deferred revenue
Balance at January 1, 2024 $ 36,325 $ 5,934 $ — $ — $ 42,259
Additions to contract consideration — — 58,387 — 58,387
Revenue recognized in the period ( 12,968 ) ( 5,310 ) ( 1,207 ) — ( 19,485 )
Foreign exchange 92 ( 43 ) 1,819 — 1,868
Balance at September 30, 2024 23,449 581 58,999 — 83,029
Less: current portion ( 17,841 ) ( 581 ) ( 12,552 ) ( 30,974 )
Non-current balance at September 30, 2024 $ 5,608 $ — $ 46,447 $ — $ 52,055 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. Contract Revenues and Expenses
Three Months Ended September 30, 2024
(in thousands)
Third Party
Incyte Lilly Gilead 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
Operating expenses:
Research and development expense $ — $ — $ — $ — $ —
General and administrative expense — — — — —
Total operating expenses from collaborations $ — $ — $ — $ — $ —
Revenue recognized that was included in deferred revenue at the beginning of the period $ 4,400 $ 4,038 $ — $ — $ 8,438
Three Months Ended September 30, 2023
(in thousands)
Third Party
Incyte Lilly Gilead Other Total
Collaboration Revenue
Upfront payments $ 4,371 $ 789 $ — $ — $ 5,160
Reimbursement revenue 1,547 847 — — 2,394
Milestones 3,479 — — — 3,479
Other — — — — —
Total collaboration revenue $ 9,397 $ 1,636 $ — $ — $ 11,033
Operating expenses:
Research and development expense $ — $ — $ — $ — $ —
General and administrative expense — — — — —
Total operating expenses from collaborations $ — $ — $ — $ — $ —
Revenue recognized that was included in deferred revenue at the beginning of the period $ 4,371 $ 789 $ — $ — $ 5,160
Nine Months Ended September 30, 2024
(in thousands)
Third Party
Incyte Lilly Gilead 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
Operating expenses:
Research and development expense $ — $ — $ — $ — $ —
General and administrative expense — — — — —
Total operating expenses from collaborations $ — $ — $ — $ — $ —
Revenue recognized that was included in deferred revenue at the beginning of the period $ 12,968 $ 5,310 $ 1,207 $ — $ 19,485
Nine Months Ended September 30, 2023
(in thousands)
Third Party
Incyte Lilly Gilead Other Total
Collaboration Revenue
Upfront payments $ 12,912 $ 8,270 $ — $ — $ 21,182
Reimbursement revenue 4,248 3,543 — — 7,791
Milestones 5,980 — — — 5,980
Other — — — 55 55
Total collaboration revenue $ 23,140 $ 11,813 $ — $ 55 $ 35,008
Operating expenses:
Research and development expense $ 24 $ — $ — $ — $ 24
General and administrative expense — — — — —
Total operating expenses from collaborations $ 24 $ — $ — $ — $ 24
Revenue recognized that was included in deferred revenue at the beginning of the period $ 12,912 $ 8,270 $ — $ — $ 21,182 |
