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

Condensed Consolidated Statement of Financial Position

(after appropriation of result for the period)

The footnotes are an integral part of these condensed consolidated interim financial statements

Unaudited Condensed Consolidated Statement of Profit or Loss and Comprehensive Loss

The footnotes are an integral part of these condensed consolidated interim financial statements

Unaudited Condensed Consolidated Statement of Changes in Equity

The footnotes are an integral part of these condensed consolidated interim financial statements

Unaudited Condensed Consolidated Statement of Cash flows

The footnotes are an integral part of these condensed consolidated interim financial statements

Notes to the Unaudited Condensed Consolidated Financial Statements

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

bispecific antibody therapeutics (Biclonics), headquartered in Utrecht, the Netherlands. Merus US, Inc. is a wholly-owned subsidiary of Merus N.V. located in Cambridge, Massachusetts, United States. These condensed consolidated interim financial

statements as at and for the three month period ended March 31, 2017 comprise Merus N.V. and Merus US, Inc. (together, the Company ).

May 24, 2016, the Company closed the initial public offering of 5,500,000 of its common shares and, on May 26, 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 May 19, 2016, the Company s common shares were listed on the NASDAQ Global Market ( NASDAQ ) and

all of the Company s preferred shares converted into common shares. Merus N.V. was incorporated in the Netherlands, with its statutory seat in Utrecht. In connection with becoming a public company, also on May 19, 2016, Merus N.V. 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) and the Company s

name changed from Merus B.V. to Merus N.V. The address of the Company s registered office is Yalelaan 62, 3584 CM Utrecht, The Netherlands.

There have been no significant changes to the Company s accounting

policies that were previously disclosed in its Annual Report on Form 20-F for its fiscal year ended December 31, 2016, or in the methodology used in formulating these significant judgments

and estimates that affect the application of these policies.

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 December 31, 2016. 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. All intercompany balances are eliminated in consolidation.

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 March 31, 2017 are not necessarily indicative of operations to be expected

for the full fiscal year ending December 31, 2017.

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.

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

For the purpose of presentation in the statement of cash flows as well as the statement of financial position, cash and cash equivalents includes deposits

held with financial institutions with original or remaining maturities of less than three months. Cash and cash equivalents include 187.0 million of short-term investments with a one month maturity, callable on demand. These short-term

investments are primarily the result of proceeds received from Incyte Corporation ( Incyte ). On December 20, 2016, the Company entered into a collaboration and license agreement (the collaboration and license

agreement ) and a share subscription agreement (the share subscription agreement ) with Incyte (together, the Incyte Agreements ). Under the collaboration and license agreement, Incyte agreed to pay the Company a

$120 million non-refundable upfront payment, and under the share subscription agreement, Incyte agreed to purchase 3.2 million common shares of the Company at price per share of $25, for an aggregate

purchase price of $80 million. In January 2017, the Company completed the sale of its common shares under the subscription agreement and received the $80 million aggregate purchase price. In February, 2017, the Company received the

$120 million non-refundable upfront payment.

During the year ended December 31, 2016 and the three month period ended March 31, 2017, 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 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 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 its

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.

Based on the Company s current operating plans, the Company expects that its existing cash and cash equivalents will enable it to fund its operating

expenses and capital expenditure requirements for at least twelve months following the date of this report. For this assessment, the Company takes into consideration its existing cash and cash equivalents, including funds raised from the IPO, which

closed in May 2016, as well as the funding received from the Incyte Agreements (see Note 9).

Certain amounts were reclassified in the prior period condensed consolidated interim financial statements to conform to the current period presentation

including management and administration costs on the condensed consolidated statement of profit or loss and comprehensive loss and related disclosures in Note 12.

Except as otherwise indicated,

the accounting policies adopted in the preparation of these interim financial statements are consistent with those applied in the preparation of the Company s annual financial statements for the year ended December 31, 2016. The Company

does not plan to adopt new standards early.

Recent Accounting Pronouncements

IFRS 9 Financial Instruments is effective for annual periods beginning on or after January 1, 2018, with early application permitted. IFRS 9

specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. IFRS 9 requires an entity to recognize a financial asset or a

financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or a financial liability at its fair value plus or minus,

in the case of a financial asset or a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability.

The Company is currently evaluating the impact that IFRS 9 will have on its financial statements, and has not yet determined what effect, if any, the impact

of adoption will be.

IFRS 15 Revenue from Contracts with Customers is effective for annual reporting periods beginning on or after

1 January 2018, with earlier application permitted. IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer.

Applying IFRS 15, an entity recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To

recognize revenue under IFRS 15, an entity applies the following five steps:

The Company is currently

evaluating the impact that IFRS 15 will have on its financial statements, and has not yet determined what effect, if any, the impact of adoption will be.

IFRS 16 Leases is effective for annual reporting periods beginning on or after 1 January 2019, with earlier application permitted (as long

as IFRS 15 is also applied).

The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and

(b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, a lessee should recognize assets and liabilities arising from a lease.

The Company is currently evaluating the impact that IFRS 16 will have on its financial statements, and has not yet determined what effect, if any, the impact

of adoption will be.

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 binomial option pricing model is the most appropriate method for determining the fair value of the Company s share options considering the terms and conditions attached to the grants made and to reflect

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