Merus N.V. Unaudited Condensed Consolidated Statement of Financial Position (after appropriation of result for the period) Note

Condensed Consolidated Statement of Financial Position

(after appropriation of result for the period)

Unaudited Condensed Consolidated Statement of Profit or Loss and Comprehensive Loss

The results for the period and the comprehensive loss for the period are fully attributable to the owners of the Company.

Unaudited Condensed Consolidated Statement of Changes in Equity

Unaudited Condensed Consolidated Statement of Cash flows

Notes to the Unaudited Condensed Consolidated Financial Statements

Merus N.V. is a clinical-stage immuno-oncology company developing innovative

bispecific antibody therapeutics, headquartered in Utrecht, the Netherlands. Merus US, Inc. is a wholly-owned subsidiary of Merus N.V. located in Boston, Massachusetts, United States. These condensed consolidated interim financial statements as at

and for the three month period ended 31 March 2016 comprise Merus N.V. and Merus US, Inc. (together, the Company ).

the Company closed the initial public offering of 5,500,000 of its common shares and, on 26 May 2016, of an additional 639,926 of its common shares, at a price to the public of US$10 per share (the IPO ). Net proceeds to the Company

after deducting underwriting discounts and commissions and offering expenses were US$ 53.3 million. On 19 May 2016, the Company s common shares were listed on the NASDAQ Global Market ( NASDAQ ). In connection with the IPO

the Company s legal structure under Dutch law was changed from a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) to a public company with limited liability (naamloze vennootschap). In

addition, in connection with the IPO, all of the Company s preferred shares converted into common shares.

The Company was incorporated in the

Netherlands, with its statutory seat in Utrecht. In connection with becoming a public company, on 19 May 2016, the Company s name changed from Merus B.V. to Merus N.V. The address of the Company s registered

office is Padualaan 8, 3584CH Utrecht, the Netherlands.

These unaudited interim condensed consolidated financial statements

(the interim financial statements ) have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board. Certain information and

disclosures normally included in financial statements prepared in accordance with International Financial Reporting Standards ( IFRS ) have been condensed or omitted. Accordingly, these interim financial statements should be read in

conjunction with the Company s annual financial statements for the year ended 31 December 2015. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation have been

included in the interim financial statements.

The preparation of financial statements in conformity with IFRS requires the use of certain critical

accounting estimates. It also requires management to exercise its judgment on the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are

significant to these interim financial statements are disclosed in Note 4. The results of operations for the three month period ended 31 March 2016 are not necessarily indicative of operations to be expected for the full fiscal year ending

Items included in each of the group s entities are measured using the currency of the primary economic

environment in which the entity operates ( the functional currency ). The interim financial statements are presented in euros, which is Merus N.V. s functional and presentation currency. All amounts are rounded to the nearest

thousands of euros, except where otherwise indicated.

The Company s financial results have varied substantially, and are expected to continue to

vary, from period to period. The Company believes that its ordinary activities are not linked to any particular seasonal factors per IAS 34.16.

Company operates in one reportable segment, which comprises the discovery and development of innovative bispecific therapeutics.

Except as otherwise indicated,

the accounting policies adopted in the preparation of the interim financial statements are consistent with those applied in the preparation of the Company s annual financial statements for the year ended 31 December 2015. A number of new

standards, amendments to standards and interpretations will be effective for annual periods beginning on or after 1 January 2018 or 2019 and may be relevant to the Company. The Company does not plan to adopt new standards early.

In the application of the Company s accounting

policies, management is required to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses that are not readily apparent from other sources. The estimates and associated assumptions are

based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively. No changes were identified compared to previous financial statements.

The following are the critical judgments and assumptions that management has made in the process of applying the

Company s accounting policies and that have the most significant effect on the amounts recognized in the interim financial statements.

Share options granted to employees and consultants providing

similar services are measured at the grant date fair value of the equity instruments granted. The grant date fair value is determined through the use of an option-pricing model considering the following variables:

For the Company s share option plans,

management s judgment is that the Black-Scholes valuation formula and the binomial option pricing model are the most appropriate methods for determining the fair value of the Company s share options considering the terms and conditions

attached to the grants made and to reflect exercise behaviour. Since the Company was not listed on a national securities exchange during the three month period ended 31 March 2016, there is no published share price information available for the

period included in the interim financial statements. Consequently, the Company needs to estimate the fair value of its shares and the expected volatility of that share value.

The result of the share option valuations and the related compensation expense that is recognized for the respective vesting periods during which services are

received, is dependent on the model and input parameters used. Even though management considers the fair values reasonable and defensible based on the methodologies applied and the information available, others might apply a different fair value for

the Company s share options.

Deferred tax assets in respect of tax losses have not been recognized, because the Company

has no history of generating taxable profits and at the balance sheet date, there is no convincing evidence that sufficient taxable profit will be available against which the tax losses can be utilized.

Foreign currency transactions are translated using the exchange rates at

the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate at the reporting

date are generally recognized in profit or loss.

The results and financial position of foreign operations that have a functional currency different from the

presentation currency are translated into the presentation currency as follows:

The criteria for capitalization of development costs have been

considered by management and determined not to have been met in the first quarter of 2016. Therefore, all development expenditures relating to internally generated intangible assets in the first quarter of 2016 were expensed as incurred.

The Company entered into a research and license agreement with ONO

Pharmaceuticals Co., Ltd ( ONO ) in April 2014. In connection with this arrangement, the Company received an upfront fee, which relates to the integrated package of deliverables under the contract (one single performance obligation). The

applicable period over which to recognize the upfront payment is a significant judgment. Revenue related to this upfront fee is deferred and amortized on a straight-line basis over the contract period, as that is the period over which the Company

provides its integrated service activities to ONO.

The Company incurred costs, relating to the

preparation of the IPO. The costs of the IPO, which involved both issuing new common shares and listing on NASDAQ, have been accounted for as follows:

During the year ended 31 December 2015 and the three month period ended

31 March 2016, the Company suffered losses from its operations, which further weakened the shareholders equity.

The Company expects to incur

significant expenses and operating losses for the foreseeable future as its bispecific antibody candidates advance from discovery through preclinical development and into clinical trials, and it seeks regulatory approval and pursues

commercialization of any approved bispecific antibody candidate. In addition, the Company may incur expenses in connection with the licensing or acquisition of additional bispecific antibody candidates.

As a result, the Company will 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 or debt financings or other sources, which may include collaborations 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 the financial condition and ability to pursue its business strategy. The Company will need to generate significant revenue

to achieve profitability and may never do so.

The Company expects that its existing cash and cash equivalents, together with funds raised from the IPO

which closed in May 2016, will enable the Company to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date of these interim financial statements.

All trade and other receivables are short-term and due within one year.

All amounts are short-term and payable within one year.

The Company entered into a financing agreement with Rabobank Utrechtse Heuvelrug U.A.

( Rabobank ) on 29 December 2005, which provided for total borrowings of 1.5 million for the financing of its business activities. The duration of this agreement is 12 years.

Under the agreement, the loans are to be repaid in monthly instalments of 14 thousand, beginning on

31 January 2009. Repayments were deferred in January 2010 for a period of two years. Repayment recommenced in January 2012. The loans bear interest at an annual rate equal to 4.45% and were fixed until 1 April 2016. From that date the

interest rate has been fixed at 3.55% until 31 March 2017.

In connection with the financing agreement, the following securities have been issued:

The pledged amount decreases in relation to the outstanding balance. At 31 March 2016, an amount of 204 thousand (at 31 March 2015:

218 thousand) related to the abovementioned pledge, has been included as non-current assets on the balance sheet.

Company s borrowings with Rabobank were as follows:

On 8 April 2014, the Company entered into a research and license agreement with

ONO. As part of this agreement, the Company received a non-refundable upfront payment of 1.0 million. This upfront payment is being amortized on a straight-line basis, and presented as revenue, over a period from 8 April 2014 through

30 September 2018, the end of the agreement term. The Company is eligible to receive milestone payments upon achievement of specified research and clinical development milestones. For products commercialized under this agreement, if any, the

Company is also eligible to receive a mid-single digit royalty on net sales. ONO also provides funding for the Company s research and development activities under an agreed-upon plan. ONO has the right to terminate this agreement at any time

for any reason, with or without cause.

Deferred revenue under the agreement with ONO is as follows: